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Module 07: Introduction

Description

In this module, you will learn about processes, facilities planning, and work systems. Regarding processes, you will focus on process selection, process strategies, and process layouts. Regarding facilities, you will focus on facilities layouts and product layouts. Finally, regarding work systems, the focus will be on quality of work life, job design, motion studies, work measurement, and operations strategy.

Discussion Topic

Process Optimization

According to Stevenson (2021), processes converting inputs into outputs are at the core of operations management and have strategic significance. Among the benefits of creating and using processes we can mention cost reduction, meeting customers’ expectations, and streamlining business operations.

For this discussion, do the following:

Identify what a business process is and discuss its benefits and disadvantages.
Consider yourself a business owner. Discuss a process for one aspect of your businesses’ workflow. How many steps are in the process? How many people are in the process?

Directions:

Discuss the concepts, principles, and theories from your textbook. Cite your textbooks and cite any other sources if appropriate.
Your initial post should address all components of the question with a 500 word limit.

Learning Outcomes

Evaluate the strategic importance of process selection.
Examine the importance of process strategy.
Weigh the value of effective work design to the organization.

Readings

Required:

Chapters 6 & 7 in Operations Management
Chapter 6 & 7 PowerPoint Presentations
Tarver W, Savoy A, Patel H, Weiner M, Holden R. (2024).Inefficient Processes and Associated Factors in Primary Care Nursing: System Configuration Analysis JMIR Hum Factors. DOI: 10.2196/49691

Recommended:

Zare, R., Kazemi, R., Choobineh, A., Cousins, R.,et al. (2024). Development of a work systems stress questionnaire to predict job burnout: A mixed methods study based on a macroergonomics approach. Heliyon, 10(23).

Module 07: Introduction
In this module, you will learn about processes, facilities planning, and work systems. Regarding
processes, you will focus on process selection, process strategies, and process layouts. Regarding
facilities, you will focus on facilities layouts and product layouts. Finally, regarding work systems, the
focus will be on quality of work life, job design, motion studies, work measurement, and operations
strategy.

Discussion Topic
Process Optimization
According to Stevenson (2021), processes converting inputs into outputs are at the core of
operations management and have strategic significance. Among the benefits of creating and
using processes we can mention cost reduction, meeting customers’ expectations, and
streamlining business operations.
For this discussion, do the following:
1. Identify what a business process is and discuss its benefits and disadvantages.
2. Consider yourself a business owner. Discuss a process for one aspect of your
businesses’ workflow. How many steps are in the process? How many people are in the
process?
Directions:
•
•

Discuss the concepts, principles, and theories from your textbook. Cite your textbooks
and cite any other sources if appropriate.
Your initial post should address all components of the question with a 500 word limit.

Learning Outcomes
1. Evaluate the strategic importance of process selection.
2. Examine the importance of process strategy.
3. Weigh the value of effective work design to the organization.
Readings
Required:
• Chapters 6 & 7 in Operations Management
• Chapter 6 & 7 PowerPoint Presentations
• Tarver W, Savoy A, Patel H, Weiner M, Holden R. (2024).Inefficient Processes and Associated
Factors in Primary Care Nursing: System Configuration Analysis JMIR Hum Factors. DOI:
10.2196/49691
Recommended:
• Zare, R., Kazemi, R., Choobineh, A., Cousins, R.,et al. (2024). Development of a work systems
stress questionnaire to predict job burnout: A mixed methods study based on a
macroergonomics approach. Heliyon, 10(23).

Process Selection
and Facility Layout

Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

6-1

You should be able to:
LO 6.1
LO 6.2
LO 6.3
LO 6.4
LO 6.5
LO 6.6
LO 6.7
LO 6.8
LO 6.9

Explain the strategic importance of process selection and the
influence it has on the organization and its supply chain
Name the two main factors that influence process selection
Compare the four basic processing types
Explain the need for management of technology
List some reasons for redesign of layouts
Describe product layouts and their main advantages and
disadvantages
Describe process layouts and their main advantages and
disadvantages
Solve simple line-balancing problems
Develop simple process layouts
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McGraw-Hill Education.

 Process selection
 Refers to deciding on the way production of goods or

services will be organized
 It has major implications for
 Capacity planning

 Layout of facilities
 Equipment
 Design of work systems

LO 6.1

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McGraw-Hill Education.

Forecasting

Capacity
Planning

Product and
Service Design

Technological
Change

LO 6.1

Facilities and
Equipment

Layout
Process
Selection

Work
Design

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McGraw-Hill Education.

 Key aspects of process strategy:
 Capital intensity
 The mix of equipment and labor that will be used by the
organization
 Process flexibility
 The degree to which the system can be adjusted to changes in
processing requirements due to such factors as
 Product and service design changes
 Volume changes
 Changes in technology

LO 6.1

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McGraw-Hill Education.

Two key questions in process selection:
1. How much variety will the process need to be able to
handle?
2. How much volume will the process need to be able to
handle?

Job Shop

Batch

Repetitive

LO 6.2

Continuous

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McGraw-Hill Education.

Repetitive/
Assembly

Job Shop

Batch

Description

Customized
goods or
services

Semistandardized
goods or
services

Standardized
goods or
services

Highly standardized
Goods or services

Advantages

Able to handle a
wide variety
of work

Flexibility; easy
to add or change
products or
services

Low unit
cost, high volume,
efficient

Very efficient, very
high volume

Disadvantages

Slow, high cost
per unit,
complex
planning and
scheduling

Moderate cost
per unit,
moderate
scheduling
complexity

Low flexibility,
high cost of
downtime

Very rigid, lack of
variety, costly to
change, very high
cost of downtime

LO 6.3

Continuous

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McGraw-Hill Education.

 There is increasing pressure for organizations to

operate sustainable production processes
 According to the Lowell Center for Sustainable
Production:
 “Sustainable Production is the creation of goods and

services using processes and systems that are: nonpolluting; conserving of energy and natural resources;
economically efficient; safe and healthful for workers,
communities, and consumers; and, socially and
creatively rewarding for all working people.”

LO 6.3

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McGraw-Hill Education.

 Reduce/recycle waste and ecologically

incompatible parts and byproducts
 Eliminate hazardous chemicals/physical agents
 Conserve energy and materials
 Redesign workspace to minimize hazards to the
workers and the environment

LO 6.3

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McGraw-Hill Education.

 Process and information technology can have a major

impact on costs, productivity and competitiveness:
 Process technology
 Methods, procedures, and equipment used to produce goods and

provide services
 Information technology
 The science and use of computers and other electronic equipment to

store, process, and send information

LO 6.3

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McGraw-Hill Education.

 Process technology and information technology

can have a profound impact on:
 Costs
 Productivity
 Competitiveness

LO 6.4

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McGraw-Hill Education.

 Automation
 Machinery that has sensing and control devices that

enable it to operate automatically
 Fixed automation
 Programmable automation

 Flexible automation

LO 6.4

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McGraw-Hill Education.

 Programmable automation
 Involves the use of high-cost, general-purpose equipment

controlled by a computer program that provides both the
sequence of operations and specific details about each
operation
 Computer-Aided Manufacturing (CAM)
 The use of computers in process control, ranging from robots to automated quality

control

 Numerically Controlled (N/C) Machines
 Machines that perform operations by following mathematical processing

instructions

 Robot
 A machine consisting of a mechanical arm, a power supply, and a controller

LO 6.4

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McGraw-Hill Education.

 Robots that follow a fixed set of instructions
 Programmable robots
 Repeat a set of movements after being led through a

sequence
 Follow instructions from a computer
 Collaborative robots, also known as cobots

LO 6.4

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McGraw-Hill Education.

 Flexible automation
 Evolved from programmable automation. It uses equipment

that is more customized than that of programmable
automation. A key difference between the two is that flexible
automation requires significantly less changeover time.
 FMS (Flexible Manufacturing System)
 A group of machines designed to handle intermittent processing requirements and

produce a variety of similar products

 CIM (Computer Integrated Manufacturing)
 A system for linking a broad range of manufacturing activities through an

integrated computer system

LO 6.4

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McGraw-Hill Education.

 FMS
 A group of machines designed to handle intermittent

processing requirements and produce a variety of similar
products
 Have some of the benefits of automation and some of the

flexibility of individual, or stand-alone, machines
 Includes supervisory computer control, automatic material
handling, and robots or other automated processing
equipment

LO 6.4

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McGraw-Hill Education.

 A system for linking a broad range of manufacturing

activities through an integrated computer system
 Activities include
 Engineering design
 FMS
 Purchasing
 Order processing
 Production planning and control

 The overall goal of CIM is to link various parts of an

organization to achieve rapid response to customer orders
and/or product changes, to allow rapid production, and to
reduce indirect labor costs
 Internet of Things (IoT) further enhances connectivity of
devices through internet
LO 6.4

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McGraw-Hill Education.

 Layout
 The configuration of departments, work centers, and

equipment, with particular emphasis on movement of
work (customers or materials) through the system
 Facilities layout decisions arise when:
 Designing new facilities
 Re-designing existing facilities

LO 6.4

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McGraw-Hill Education.

 Inefficient operations
 High cost
 Bottlenecks

 Accidents or safety hazards
 Changes in product or service design
 Introduction of new products or services
 Changes in output volume or product mix
 Changes in methods or equipment

 Changes in environmental or other legal requirements
 Morale problems

LO 6.5

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McGraw-Hill Education.

 Basic objective
 Facilitate a smooth flow of work, material, and information through the

system
 Supporting objectives
 Facilitate product or service quality
 Use workers and space efficiently

 Avoid bottlenecks
 Minimize material handling costs
 Eliminate unnecessary movement of workers or material
 Minimize production time or customer service time
 Design for safety

LO 6.5

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McGraw-Hill Education.

 Product layouts
 Process layouts
 Fixed-position layout

 Combination layouts

LO 6.5

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McGraw-Hill Education.

 Product layout
 Layout that uses standardized processing operations to

achieve smooth, rapid, high-volume flow
Raw materials
or customer

Material
and/or
labor

Station
1
Material
and/or
labor

Station
2
Material
and/or
labor

Station
3

Station
4

Finished
item

Material
and/or
labor

Used for Repetitive Processing
Repetitive or Continuous
LO 6.6

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McGraw-Hill Education.

A job shop

A batch process

A repetitive process

A continuous process

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McGraw-Hill Education.

Advantages
 High rate of output
 Low unit cost
 Labor specialization
 Low material handling cost per unit
 High utilization of labor and
equipment
 Established routing and scheduling
 Routine accounting, purchasing,
and inventory control

LO 6.6

Disadvantages
 Creates dull, repetitive jobs
 Poorly skilled workers may not

maintain equipment or quality of
output
 Fairly inflexible to changes in
volume or product or process
design
 Highly susceptible to shutdowns
 Preventive maintenance, capacity
for quick repair, and spare-parts
inventories are necessary expenses
 Individual incentive plans are
impractical

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McGraw-Hill Education.

 Process layouts
 Layouts that can handle varied processing requirements

Dept. A

Dept. C

Dept. E

Dept. B

Dept. D

Dept. F

Used for Intermittent processing
Job Shop or Batch
LO 6.7

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McGraw-Hill Education.

Advantages

Disadvantages

 Can handle a variety of processing

 In-process inventories can be high

requirements
 Not particularly vulnerable to

equipment failures
 General-purpose equipment is

 Routing and scheduling pose

continual challenges
 Equipment utilization rates are

low

often less costly and easier to
maintain

 Material handling is slow and

 It is possible to use individual

 Reduced spans of supervision

incentive systems

inefficient
 Special attention necessary for

each product or customer
 Accounting, inventory control,

and purchasing are more involved
LO 6.7

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McGraw-Hill Education.

 Fixed position layout
 Layout in which the product or project remains

stationary, and workers, materials, and equipment are
moved as needed
 Large construction projects
 Shipbuilding/aircraft manufacturing

 Space mission

LO 6.7

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McGraw-Hill Education.

 Some operational environments use a combination of the

three basic layout types:
 Hospitals
 Supermarket
 Shipyards

 Some organizations are moving away from process layouts

in an effort to capture the benefits of product layouts
 Cellular manufacturing
 Flexible manufacturing systems

LO 6.7

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McGraw-Hill Education.

 Cellular production
 Layout in which workstations are grouped into a cell

that can process items that have similar processing
requirements
 Groupings are determined by the operations needed to

perform the work for a set of similar items, part families, that
require similar processing
 The cells become, in effect, miniature versions of product
layouts
 Enables companies to produce a variety of products with very
little waste

LO 6.7

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McGraw-Hill Education.

 Group technology
 The grouping into part families of items with similar

design or manufacturing characteristics
 Design characteristics:
 Size

 Shape
 Function

 Manufacturing or processing characteristics
 Type of operations required
 Sequence of operations required

 Requires a systematic analysis of parts to identify the

part families
LO 6.7

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McGraw-Hill Education.

 Service layouts can be categorized as: product,

process, or fixed position
 Service layout requirements are somewhat different
due to such factors as:
 Degree of customer contact

 Degree of customization

 Common service layouts:
 Warehouse and storage layouts – minimize item movement
 Retail layouts – influence customers into buying more
 Office layouts – increase employee interactions

LO 6.7

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McGraw-Hill Education.

 The goal of a product layout is to arrange workers or machines in the

sequence that operations need to be performed

LO 6.8

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McGraw-Hill Education.

 Line balancing
 The process of assigning tasks to workstations in such a

way that the workstations have approximately equal
time requirements
 Goal:
 Obtain task grouping that represents approximately equal

time requirements, since this minimizes idle time along the
line and results in a high utilization of equipment and labor
 Why is line balancing important?
1.
It allows us to use labor and equipment more efficiently
2. To avoid fairness issues that arise when one workstation must
work harder than another
LO 6.8

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McGraw-Hill Education.

 Cycle time
 The maximum time allowed at each workstation to

complete its set of tasks on a unit
 Cycle time also establishes the output rate of a line

Operating time per day
Cycle time =
Desired output rate

Operating time per day
Output rate =
Cycle time
LO 6.8

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McGraw-Hill Education.

 The required number of workstations is a

function of
 Desired output rate
 Our ability to combine tasks into a workstation

 Theoretical minimum number of stations
N min =

t
Cycle time

where
N min = theoretical minimum number of stations

 t = Sum of task times

LO 6.8

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McGraw-Hill Education.

 Precedence diagram
 A diagram that shows elemental tasks and their precedence
requirements

LO 6.8

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McGraw-Hill Education.

 Some heuristic (intuitive) rules:
 Assign tasks in order of most following tasks
 Count the number of tasks that follow
 Assign tasks in order of greatest positional weight
 Positional weight is the sum of each task’s time and the times of

all following tasks

LO 6.8

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McGraw-Hill Education.

 Balance delay (percentage of idle time)
 Percentage of idle time of a line

Balance Delay =

Idle time per cycle
100
N actual  Cycle time

where
N actual = Actual number of stations
 Efficiency
 Percentage of busy time of a line

Efficiency = 100% – Balance Delay

LO 6.8

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McGraw-Hill Education.

 The main issue in designing process layouts concerns

the relative placement of the departments
 Measuring effectiveness
 A major objective in designing process layouts is to

minimize transportation cost, distance, or time

LO 6.9

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McGraw-Hill Education.

 In designing process layouts, the following

information is required:
1.
2.
3.
4.
5.
6.

LO 6.9

A list of departments to be arranged and their dimensions
A projection of future work flows between the pairs of work
centers
The distance between locations and the cost per unit of distance
to move loads between them
The amount of money to be invested in the layout
A list of any special considerations
The location of key utilities, access and exit points, etc.

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McGraw-Hill Education.

Distance between locations in meters
To

From

A
A

Interdepartmental work flows (loads
per day)
To

From

1
1
2

170
100

3
LO 6.9

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McGraw-Hill Education.

170

100

2
B

Dept.

Loads

Location

Distance
(meters)

Load Distance
Score

1 to 2

170

A to B

170 × 20 = 3,400

1 to 3

A to C

30 × 40 = 1,200

2 to 3

100

B to C

100 × 30 = 3,000

Total

LO 6.9

7,600

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McGraw-Hill Education.

Work Design and
Measurement

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written consent of McGraw-Hill Education.

You should be able to:
LO 7.1
LO 7.2
LO 7.3
LO 7.4
LO 7.5
LO 7.6

Explain the importance of work design
Compare and contrast the two basic approaches to job design
Discuss the advantages and disadvantages of specialization
Describe behavioral approaches to job design
Discuss the impact of working conditions on job design
Compare the advantages and disadvantages of time-based and outputbased pay systems
LO 7.7 Explain the purpose of methods analysis and describe how methods
studies are performed
LO 7.8 Describe four commonly used techniques for motion study
LO 7.9 Define a standard time
LO 7.10 Describe and compare time study methods and perform calculations
LO 7.11 Describe work sampling and perform calculations
LO 7.12 Compare stopwatch time study and work sampling

7-2

 Job design
 The act of specifying the contents and methods of jobs
 What will be done in a job
 Who will do the job
 How the job will be done
 Where the job will be done

 Importance
 Organizations are dependent on human efforts to accomplish their

goals
 Many job design topics are relevant to continuous and productivity
improvement
 Objectives
 Productivity
 Safety
 Quality of work life

LO 7.1

7-3

 Efficiency School
 Emphasizes a systematic, logical approach to job design
 A refinement of Frederick Winslow Taylor’s scientific

management concepts
 Behavioral School
 Emphasizes satisfaction of needs and wants of

employees

Specialization is a primary issue of disagreement
between the efficiency and behavioral approaches

LO 7.2

7-4

 Specialization
 Work that concentrates on some aspect of a product or

service
Advantages
For management:
1. Simplifies training
2. High productivity
3. Low wage costs

For employees:
1. Low education and skill requirements
2. Minimum responsibility
3. Little mental effort needed

Disadvantages
For management:
1. Difficult to motivate quality
2. Worker dissatisfaction, possibly
resulting in absenteeism, high
turnover, disruptive tactics, poor
attention to quality

LO 7.3

For employees:
1. Monotonous work
2. Limited opportunities for
advancement
3. Little control over work
4. Little opportunity for self-fulfillment

7-5

 Job Enlargement
 Giving a worker a larger portion of the total task by

horizontal loading
 Job Rotation
 Workers periodically exchange jobs

 Job Enrichment
 Increasing responsibility for planning and coordination

tasks, by vertical loading

LO 7.4

7-6

 Motivation is a key factor in many aspects of work life
 Influences quality and productivity
 Contributes to the work environment

 Trust is an important factor that affects motivation

LO 7.4

7-7

 Teams take a variety of forms:
 Short-term team
 Formed to collaborate on a topic or solve a problem
 Long-term teams
 Self-directed teams
 Groups empowered to make certain changes in their work

processes

LO 7.4

7-8

 Benefits of teams
 Higher quality
 Higher productivity
 Greater worker satisfaction

 Team problems
 Some managers feel threatened
 Conflicts between team members

LO 7.4

7-9

Expert Robert Bacal has a list of requirements for
successful team building:
1. Clearly stated and commonly held vision and goals.
2. Talent and skills required to meet goals.
3. Clear understanding of team members’ roles and functions.
4. Efficient and shared understanding of procedures & norms.
5. Effective and skilled interpersonal relations.
6. A system of reinforcement and celebration.
7. Clear understanding of the team’s relationship to the
greater organization.

LO 7.4

7-10
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Scientific discipline concerned with the understanding of
human interaction with the elements of a system. An
ergonomically designed system or part
• Increases productivity
• Reduces worker’s discomfort and fatigue
• Reduces to injuries to the back, neck, arms, etc.

LO 7.4

7-11
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 Quality of work life affects not only workers’ overall

sense of well-being and contentment, but also their
productivity
 Important aspects of quality of work life:
 How a worker gets along with co-workers
 Quality of management
 Working conditions
 Compensation

LO 7.5

7-12

 It is important for organizations to develop suitable

compensation plans for their employees
 Compensation approaches
 Time-based systems

 Output-based systems
 Incentive systems
 Knowledge-based systems
 Management compensation

7-13

 Time-based system
 Compensation based on time an employee has worked

during the pay period
 Output-based (incentive) system
 Compensation based on amount of output an employee

produced during the pay period

7-14

TIME-BASED
Advantages

Disadvantages
OUTPUT-BASED
Advantages
Disadvantages

Management

Worker

•
•
•
•

Stable labor costs
Easy to administer
Simple to compute pay
Stable output

•
•

Stable pay
Less pressure to produce
than under output system

•

No incentive for workers to
increase output

•

Extra efforts not rewarded

•
•

Lower cost per unit
Greater output

•
•

Pay related to efforts
Opportunity to earn more

•

Wage computation more
difficult
Need to measure output
Quality may suffer
Difficult to incorporate wage
increases
Increased problems with
scheduling

•
•

Pay fluctuates
Workers may be penalized
because of factors beyond
their control (e.g., machine
breakdown)

•
•
•
•

LO 7.6

7-15

 Individual incentive plans
 Straight piecework
 Worker’s pay is a direct linear function of his or her output
 Minimum wage legislation has reduced their popularity
 Base rate + bonus
 Worker is guaranteed a base rate, tied to an output standard,
that serves as a minimum
 A bonus is paid for output above the standard
 Group incentive plans
 Tend to stress sharing of productivity gains with employees

7-16

 Knowledge-based pay
 A pay system used by organizations to reward workers who undergo
training that increases their skills
 Three dimensions:
 Horizontal skills
 Reflect the variety of tasks the worker is capable of performing

 Vertical skills
 Reflect the managerial skills the worker is capable of

 Depth skills
 Reflect quality and productivity results

7-17

 Many organizations used to reward managers based on

output
 New emphasis is being placed on other factors of
performance
 Customer service

 Quality

 Executive pay is increasingly being tied to the success of

the company or division for which the executive is
responsible

7-18

 Methods Analysis
 Analyzing how a job gets done
 It begins with an analysis of the overall operation
 It then moves from general to specific details of the job
concentrating on
 Workplace arrangement
 Movement of workers and/or materials

LO 7.7

7-19

 The need for methods analysis can arise from a variety

of sources
1.
2.
3.
4.
5.

LO 7.7

Changes in tools and equipment
Changes in product design or introduction of new
products
Changes in materials and procedures
Government regulations or contractual agreements
Accidents or quality problems

7-20

Identify the operation to be studied, and gather relevant data
2. Discuss the job with the operator and supervisor to get their
input
3. Study and document the present methods
4. Analyze the job
5. Propose new methods
6. Install the new methods
7. Follow up implementation to assure improvements have been
achieved
1.

LO 7.7

7-21

 Consider jobs that:

Have a high labor content
2. Are done frequently
3. Are unsafe, tiring, unpleasant, and/or noisy
4. Are designated as problems
1.

 Quality problems
 Processing bottlenecks
 etc.

LO 7.7

7-22

 Flow process chart
 Chart used to examine the overall sequence of an operation by
focusing on movements of the operator or flow of materials

LO 7.7

Copyright ©2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGrawHill Education.
7-23

 Worker machine chart
 Chart used to determine portions of a work cycle during which an
operator and equipment are busy or idle

LO 7.7

7-24

 Motion study
 Systematic study of the human motions used to perform an
operation
 Motion Study Techniques
 Motion study principles – guidelines for designing motion-

efficient work procedures
 Analysis of therbligs – basic elemental motions into which a job

can be broken down
 Micromotion study – use of motion pictures and slow motion to

study motions that otherwise would be too rapid to analyze
 Charts – activity or process charts, simo charts (simultaneous

motions)
LO 7.8

7-25

 In developing work methods that are motion efficient,

the analyst attempts to
 Eliminate unnecessary motions
 Combine activities
 Reduce fatigue
 Improve the arrangement of the workplace
 Improve the design of tools and equipment

LO 7.8

7-26

 Work measurement is concerned with how long it

should take to complete a job.
 It is not concerned with either job content or how the
job is to be completed since these are considered a
given when considering work measurement.

LO 7.9

7-27

 Standard time
 The amount of time it should take a qualified worker to complete a
specified task, working at a sustainable rate, using given methods,
tools and equipment, raw material inputs, and workplace
arrangement.

 Commonly used work measurement techniques
 Stopwatch time study
 Historical times
 Predetermined data
 Work sampling

LO 7.9

7-28

 Stopwatch Time Study
 Used to develop a time standard based on observations of one
worker taken over a number of cycles.
 Standard Elemental Times
 Derived from a firm’s own historical time study data.

 Predetermined time standards
 Involve the use of published data on standard elemental times.
 Work sampling
 A technique for estimating the proportion of time that a worker or
machine spends on various activities and idle time.

LO 7.10

7-29

 Used to develop a time standard based on observations of

one worker taken over a number of cycles.
 Basic steps in a time study:
1.

2.
3.
4.

LO 7.10

Define the task to be studied and inform the worker who will be
studied
Determine the number of cycles to observe
Time the job, and rate the worker’s performance
Compute the standard time

7-30

 The number of observations to collect is a function of
 Variability of the observed times
 The desired level of accuracy
 Desired level of confidence for the estimated job time

æ zs ö
æ zs ö
n =ç ÷
or n = ç ÷
è ax ø
èeø
where
z = # of normal stddev. needed for desired confidence
s = Sample standard deviation
a = Desired accuracy percentage
e = Maximum acceptable error
2

LO 7.10

x = Sample mean

7-31

x

OT =

where
OT = Observed time

 x = Sum of recorded times
i

n = Number of observations
LO 7.10

7-32

NT = OT  PR
where
NT = Normal time
PR = Performance rating
Assumes that a single performance rating has been made
for the entire job

LO 7.10

7-33

(

NT =  x j  PR j

)

where
NT = Normal time
x j = Average time for element j
PR j = Performance rating for element j
Assumes that performance ratings are made on an elementby-element basis

LO 7.10

7-34

ST = NT  AF
where
ST = Standard time
AF = Allowance factor
and
AFjob = 1 + A

A = Allowance percentage based on job time

1
AFday =
1− A

A = Allowance percentage based on workday

LO 7.10

7-35

 Standard Elemental Times are derived from a

firm’s own historical time study data.
 Over time, a file of accumulated elemental times that

are common to many jobs will be collected.
 In time, these standard elemental times can be retrieved

from the file, eliminating the need to go through a new
time study to acquire them.

LO 7.10

7-36

 Predetermined time standards involve the use of

published data on standard elemental times.
 Developed in the 1940s by the Methods Engineering Council.
 The MTM (methods-time-measurement) tables are based on

extensive research of basic elemental motions and times.
 To use this approach, the analyst must divide the job into its basic

elements (reach, move, turn, etc.) measure the distances involved,
and rate the difficulty of the element, and then refer to the
appropriate table of data to obtain the time for that element

LO 7.10

7-37

 Work sampling is a technique for estimating the

proportion of time that a worker or machine spends
on various activities and the idle time.
 Work sampling does not require timing an activity or involve

continuous observation of the activity
 Uses:
1. Ratio-delay studies which concern the percentage of a worker’s

time that involves unavoidable delays or the proportion of time
a machine is idle.
2. Analysis of non-repetitive jobs.

LO 7.11

7-38

pˆ (1 − pˆ )
n
z = Number of standard deviations needed to achieve desired confidence
pˆ = Sample proportion (the number of occurrences divided by the sample size

e=z

n = Sample size
2

z
n =   pˆ (1 − pˆ )
e
e = maximum error percent

LO 7.11

7-39

Advantages of Work Sampling
1.
2.
3.
4.
5.
6.
7.

Observations are spread out over a period of time, making results less susceptible to short-term
fluctuations
There is little or no disruption of work
Workers are less resentful
Studies are less costly and less time-consuming, and the skill requirements of the analyst are
much less
Studies can be interrupted without affecting the results
No timing device is required
It is well suited for nonrepetitive tasks

Disadvantages of Work Sampling
1.
2.

3.
4.
5.
6.

There is much less detail on the elements of a job
Workers may alter their work patterns when they spot the observer, thereby invalidating the
results
In many cases, there is no record of the method used by the worker
Observers may fail to adhere to a random schedule of observations
It is not well suited for short, repetitive tasks
Much time may be required to move from one workplace to another and back to satisfy the
randomness requirement

LO 7.12

7-40

 Success factors:
 Carried out by personnel with appropriate training and

background
 Consistent with the goals of the organization
 In written form
 Understood and agreed to by both management and

employees

7-41

 It is important to make design of work systems a key

element of strategy:
 People are still at the heart of the business
 Workers can be valuable sources of insight and creativity
 It can be beneficial to focus on quality of work life and

instilling pride and respect among workers
 Companies are reaping gains through worker
empowerment

7-42

Operations Management

Operations Management
FOURTEENTH EDITION

William J. Stevenson
Saunders College of Business

Rochester Institute of Technology

OPERATIONS MANAGEMENT, FOURTEENTH EDITION
Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2021 by McGraw-Hill
Education. All rights reserved. Printed in the United States of America. Previous editions © 2018, 2015, and
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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 24 23 22 21 20
ISBN 978-1-260-23889-1 (bound edition)
MHID 1-260-23889-X (bound edition)
ISBN 978-1-260-71842-3 (loose-leaf edition)
MHID 1-260-71842-5 (loose-leaf edition)
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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
Library of Congress Cataloging-in-Publication Data
Names: Stevenson, William J., author.
Title: Operations management / William J. Stevenson, Saunders College of
Business, Rochester Institute of Technology.
Description: Fourteenth edition. | New York, NY : McGraw-Hill Education,
[2021] | Includes bibliographical references and index.
Identifiers: LCCN 2019044799 | ISBN 9781260238891 (bound edition ;
acid-free paper) | ISBN 126023889X (bound edition ; acid-free paper) |
ISBN 9781260718423 (loose-leaf edition ; acid-free paper) | ISBN
1260718425 (loose-leaf edition ; acid-free paper)
Subjects: LCSH: Production management.
Classification: LCC TS155 .S7824 2021 | DDC 658.5–dc23
LC record available at

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Preface
The material in this book is intended as an introduction to the
field of operations management. The topics covered include
both strategic issues and practical applications. Among the
topics are forecasting, product and service design, capacity
planning, management of quality and quality control, inventory management, scheduling, supply chain management, and
project management.
My purpose in revising this book continues to be to provide
a clear presentation of the concepts, tools, and applications of
the field of operations management. Operations management
is evolving and growing, and I have found updating and
integrating new material to be both rewarding and challenging, particularly due to the plethora of new developments in
the field, while facing the practical limits on the length of
the book.
This text offers a comprehensive and flexible amount
of content that can be selected as appropriate for different
courses and formats, including undergraduate, graduate, and
executive education.
This allows instructors to select the chapters, or portions
of chapters, that are most relevant for their purposes. That
flexibility also extends to the choice of relative weighting
of the qualitative or quantitative aspects of the material, and
the order in which chapters are covered, because chapters do
not depend on sequence. For example, some instructors cover
project management early, others cover quality or lean early,
and so on.
As in previous editions, there are major pedagogical f eatures
designed to help students learn and understand the material.
This section describes the key features of the book, the chapter
elements, the supplements that are available for teaching the
course, highlights of the fourteenth edition, and suggested
applications for classroom instruction. By providing this support, it is our hope that instructors and students will have the
tools to make this learning experience a rewarding one.

What’s New in This Edition
In many places, content has been rewritten or added to
improve clarity, shorten wording, or update information. New
material has been added on supply chains, and other topics.
Some problems are new, and others have been revised. Many
new readings and new photos have been added.
Some of the class preparation exercises have been revised.
The purpose of these exercises is to introduce students to the
subject matter before class in order to enhance classroom

learning. They have proved to be very popular with students, both as an introduction to new material and for study
purposes. These exercises are available in the Instructor’s
Resource Manual. Special thanks to Linda Brooks for her
help in developing the exercises.

Acknowledgments
I want to thank the many contributors to this edition. Reviewers and adopters of the text have provided a “continuously
improving” wealth of ideas and suggestions. It is encouraging to me as an author. I hope all reviewers and readers will
know their suggestions were valuable, were carefully considered, and are sincerely appreciated. The list includes post-
publication reviewers.
Jenyi Chen
Eric Cosnoski
Mark Gershon
Narges Kasiri
Nancy Lambe
Anita Lee-Post
Behnam Nakhai
Rosa Oppenheim
Marilyn Preston
Avanti Sethi
John T. Simon
Lisa Spencer
Nabil Tamimi
Oya Tukel
Theresa Wells
Heath Wilken

Cleveland State University
Lehigh University
Temple University
Ithaca College
University of South Alabama
University of Kentucky
Millersville University of Pennsylvania
Rutgers Business School
Indiana University Southeast
University of Texas at Dallas
Governors State University
California State University, Fresno
University of Scranton
Cleveland State University
University of Wisconsin-Eau Claire
University of Northern Iowa

Additional thanks to the instructors who have contributed extra
material for this edition, including accuracy checkers: Ronny
Richardson, Kennesaw State University and Gary Black,
University of Southern Indiana; Solutions and SmartBook:
Tracie Lee, Idaho State University; PowerPoint Presentations:
Avanti Sethi, University of Texas-Dallas; Test Bank: Leslie
Sukup, Ferris State University.
Special thanks goes out to Lisa Spencer, California State
University-Fresno, for her help with additional readings and
examples.

vii

viii

Preface

Finally, I would like to thank all the people at McGraw-Hill
for their efforts and support. It is always a pleasure to work
with such a professional and competent group of people.
Special thanks go to Noelle Bathurst, Portfolio Manager;
Michele Janicek, Lead Product Developer; Fran Simon and
Katie Ward, Product Developers; Jamie Koch, Assessment
Content Project Manager; Sandy Ludovissy, Buyer; Matt Diamond, Designer; Jacob Sullivan, Content Licensing Specialist; Harper Christopher, Executive Marketing Manager; and
many others who worked behind the scenes.
I would also like to thank the many reviewers of previous
editions for their contributions: Vikas Agrawal, Fayetteville
State University; Bahram Alidaee, University of Mississippi;
Ardavan Asef-Faziri, California State University at Northridge; Prabir Bagchi, George Washington State University;
Gordon F. Bagot, California State University at Los Angeles;
Ravi Behara, Florida Atlantic University; Michael Bendixen,
Nova Southeastern; Ednilson Bernardes, Georgia Southern
University; Prashanth N. Bharadwaj, Indiana University of
Pennsylvania; Greg Bier, University of Missouri at Columbia;
Joseph Biggs, Cal Poly State University; Kimball Bullington,
Middle Tennessee State University; Alan Cannon, University
of Texas at Arlington; Injazz Chen, Cleveland State University; Alan Chow, University of Southern Alabama at Mobile;
Chrwan-Jyh, Oklahoma State University; Chen Chung, University of Kentucky; Robert Clark, Stony Brook University;
Loretta Cochran, Arkansas Tech University; Lewis Coopersmith, Rider University; Richard Crandall, Appalachian State
University; Dinesh Dave, Appalachian State University; Scott
Dellana, East Carolina University; Kathy Dhanda, DePaul
University; Xin Ding, University of Utah; Ellen Dumond,
California State University at Fullerton; Richard Ehrhardt,
University of North Carolina at Greensboro; Kurt Engemann,
Iona College; Diane Ervin, DeVry University; Farzaneh
Fazel, Illinois State University; Wanda Fennell, University of
Mississippi at Hattiesburg; Joy Field, Boston College; Warren Fisher, Stephen F. Austin State University; Lillian Fok,
University of New Orleans; Charles Foley, Columbus State
Community College; Matthew W. Ford, Northern Kentucky
University; Phillip C. Fry, Boise State University; Charles
A. Gates Jr., Aurora University; Tom Gattiker, Boise State
University; Damodar Golhar, Western Michigan University;
Robert Graham, Jacksonville State University; Angappa
Gunasekaran, University of Massachusetts at Dartmouth;
Haresh Gurnani, University of Miami; Terry Harrison, Penn
State University; Vishwanath Hegde, California State University at East Bay; Craig Hill, Georgia State University;
Jim Ho, University of Illinois at Chicago; Seong Hyun Nam,
University of North Dakota; Jonatan Jelen, Mercy College;

Prafulla Joglekar, LaSalle University; Vijay Kannan, Utah
State University; Sunder Kekre, Carnegie-Mellon University;
Jim Keyes, University of Wisconsin at Stout; Seung-Lae Kim,
Drexel University; Beate Klingenberg, Marist College; John
Kros, East Carolina University; Vinod Lall, Minnesota State
University at Moorhead; Kenneth Lawrence, New Jersey
Institute of Technology; Jooh Lee, Rowan University; Anita
Lee-Post, University of Kentucky; Karen Lewis, University of
Mississippi; Bingguang Li, Albany State University; Cheng
Li, California State University at Los Angeles; Maureen P.
Lojo, California State University at Sacramento; F. Victor
Lu, St. John’s University; Janet Lyons, Utah State University; James Maddox, Friends University; Gita Mathur, San
Jose State University; Mark McComb, Mississippi College;
George Mechling, Western Carolina University; Scott Metlen,
University of Idaho; Douglas Micklich, Illinois State University; Ajay Mishra, SUNY at Binghamton; Scott S. Morris,
Southern Nazarene University; Philip F. Musa, University of
Alabama at Birmingham; Roy Nersesian, Monmouth University; Jeffrey Ohlmann, University of Iowa at Iowa City; John
Olson, University of St. Thomas; Ozgur Ozluk, San Francisco
State University; Kenneth Paetsch, Cleveland State University; Taeho Park, San Jose State University; Allison Pearson,
Mississippi State University; Patrick Penfield, Syracuse University; Steve Peng, California State University at Hayward;
Richard Peschke, Minnesota State University at Moorhead;
Andru Peters, San Jose State University; Charles Phillips,
Mississippi State University; Frank Pianki, Anderson University; Sharma Pillutla, Towson University; Zinovy Radovilsky, California State University at Hayward; Stephen A.
Raper, University of Missouri at Rolla; Pedro Reyes, Baylor
University; Buddhadev Roychoudhury, Minnesota State University at Mankato; Narendra Rustagi, Howard University;
Herb Schiller, Stony Brook University; Dean T. Scott, DeVry
University; Scott J. Seipel, Middle Tennessee State University; Raj Selladurai, Indiana University; Kaushic Sengupta,
Hofstra University; Kenneth Shaw, Oregon State University;
Dooyoung Shin, Minnesota State University at Mankato;
Michael Shurden, Lander University; Raymond E. Simko,
Myers University; John Simon, Governors State University;
Jake Simons, Georgia Southern University; Charles Smith,
Virginia Commonwealth University; Kenneth Solheim,
DeVry University; Young Son, Bernard M. Baruch College;
Victor Sower, Sam Houston State University; Jeremy Stafford, University of North Alabama; Donna Stewart, University of Wisconsin at Stout; Dothang Truong, Fayetteville State
University; Mike Umble, Baylor University; Javad Varzandeh, California State University at San Bernardino; Timothy
Vaughan, University of Wisconsin at Eau Claire; Emre Veral,

Preface

Baruch College; Mark Vroblefski, University of Arizona;
Gustavo Vulcano, New York University; Walter Wallace,
Georgia State University; James Walters, Ball State University; John Wang, Montclair State University; Tekle Wanorie,
Northwest Missouri State University; Jerry Wei, University
of Notre Dame; Michael Whittenberg, University of Texas;

Geoff Willis, University of Central Oklahoma; Pamela Zelbst,
Sam Houston State University; Jiawei Zhang, NYU; Zhenying Zhao, University of Maryland; Yong-Pin Zhou, University of Washington.
William J. Stevenson

Walkthrough
MAJOR STUDY AND LEARNING FEATURES
A number of key features in this text have been specifically
designed to help introductory students learn, understand, and
apply operations concepts and problem-solving techniques.
Examples with Solutions
Rev.Confirming Pages

Throughout the text, wherever a quantitative or
analytic technique is introduced, an example is
included to illustrate the application of that technique. These are designed to be easy to follow.
Chapter Three Forecasting

EXAMPLE

Determining a Regression Equation
Sales of new houses and three-month lagged unemployment are shown in the following
table. Determine if unemployment levels can be used to predict demand for new houses
and, if so, derive a predictive equation.
Period . . . . . . . . . . . . . 1
Units sold . . . . . . . . . . 20
Unemployment %
(three-month lag)
7.2

2
41

3
17

4
35

5
25

6
31

7
38

8
50

9
15

10
19

11
14

4.0

7.3

5.5

6.8

6.0

5.4

3.6

8.4

7.0

9.0

Plot the data to see if a linear model seems reasonable. In this case, a linear model
seems appropriate for the range of the data.
50

Units sold, y

40
30
20
10
0

Level of unemployment (%), x

Check the correlation coefficient to confirm that it is not close to zero using the website template, and then obtain the regression equation:
r = −.966
This is a fairly high negative correlation. The regression equation is
y = 71.85 − 6.91x
Note that the equation pertains only to unemployment levels in the range 3.6 to 9.0, because
sample observations covered only that range.

103

mhhe.com/stevenson14e

S O L U T I O N

Solved Problems
At the end of chapters
and chapter supplements,
“Solved Problems” are
provided to illustrate
problem solving and the
core concepts in the chapter.
These have been carefully
prepared to help students
understand the steps
involved in solving different
types of problems. The Excel
logo indicates that a spreadsheet is available on the
text’s website.

Strategy formulation is critical because strategies provide direction for the organization, so they
can play a role in the success or failure of a business organization.

Functional strategies and supply chain strategies need to be aligned with the goals and strategies
of the overall organization.

The three primary business strategies are low cost, responsiveness, and differentiation.

Productivity is a key factor in the cost of goods and services. Increases in productivity can
become a competitive advantage.

High productivity is particularly important for organizations that have a strategy of low costs.

competitiveness, 42
core competencies, 46
environmental scanning, 48
goals, 44
mission, 44

mission statement, 44
operations strategy, 51
order qualifiers, 48
order winners, 48
productivity, 56

quality-based strategies, 52
strategies, 44
SWOT, 48
tactics, 45
time-based strategies, 53

SOLVED PROBLEMS

Computing Productivity

A company that processes fruits and vegetables is able to produce 400 cases of canned peaches in
one-half hour with four workers. What is labor productivity?
400 cases
Quantity produced
Labor productivity = ________________ = ________________________
Labor hours
4 workers × 1 / 2 hour / worker

Problem 1
mhhe.com/stevenson14e

Solution

= 200 cases per labor hour

Computing Multifactor Productivity

A wrapping-paper company produced 2,000 rolls of paper in one day. Labor cost was $160, material
cost was $50, and overhead was $320. Determine the multifactor productivity.
Quantity produced
Multifactor productivity = ______________________________
Labor cost + Material cost + Overhead

Problem 2
mhhe.com/stevenson14e

Solution

2,000 rolls
= _______________ = 3.77 rolls per dollar input
$160 + $50 + $320
A variation of the multifactor productivity calculation incorporates the standard price in the
numerator by multiplying the units by the standard price.Rev.Confirming Pages

Computing Multifactor Productivity

Compute the multifactor productivity measure for an eight-hour day in which the usable output was
300 units, produced by three workers who used 600 pounds of materials. Workers have an hourly
wage of $20, and material cost is $1 per pound. Overhead is 1.5 times labor cost.

TABLE 16.5 Excel solution for Example 2a

KEY TERMS

Chapter Sixteen Scheduling Usable output
707
Multifactor productivity = __________________________________
Labor cost + Material cost + Overhead cost
300 units
= _____________________________________________________
(3 workers × 8 hours × $20 / hour) + (600 pounds × $1 / pound) +
(3 workers × 8 hours × $20 / hour × 1.50)
300 units
= ________________
$480 + $600 + $720
= .167 units of output per dollar of input

Problem 3
mhhe.com/stevenson14e

Solution

Excel Spreadsheet
Solutions

ste3889X_ch02_040-073.indd

Where applicable, the
examples and solved
problems include screen
shots of a spreadsheet
solution.

09/04/19 09:59 AM

Source: Microsoft

Using earliest due date as the selection criterion, the job sequence is C-A-E-B-D-F.
The measures of effectiveness are as follows (see table):
(1) Average flow time: 110/6 = 18.33 days
(2) Average tardiness: 38/6 = 6.33 days
(3) Average number of jobs at the work center: 110/41 = 2.68

CHAPTER ELEMENTS
Within each chapter, you will find the following elements
that are designed to facilitate study and learning. All of
these have been carefully developed over many editions and
have proven to be successful.
Learning Objectives
Every chapter and supplement lists the learning
objectives to achieve when studying the chapter
material. The learning objectives are also
included next to the specific material in the
margins of the text.

Rev.Confirming Pages

Product and Service
Design

C H A P T E R

LEARNING OBJECTIVES
After completing this chapter, you should be able to:
LO4.1

Explain the strategic importance of product and service design.

LO4.2

Describe what product and service design does.

LO4.3

Name the key questions of product and service design.

LO4.4

Identify some reasons for design or redesign.

LO4.5

List some of the main sources of design ideas.

LO4.6

Discuss the importance of legal, ethical, and sustainability considerations in product and service design.

LO4.7

Explain the purpose and goal of life-cycle assessment.

LO4.8

Explain the phrase “the 3 Rs.”

LO4.9

Briefly describe the phases in product design and development.

LO4.10

Discuss several key issues in product or service design.

LO4.11

Discuss the two key issues in service design.

LO4.12

List the characteristics of well-designed service systems.

LO4.13

List some guidelines for successful service design.

C H A P T E R
4.1

Mark Lennihan/AP Images

4.11 Service Design 165
Overview of Service Design 166
Differences between
Service Design and
Product Design 166
Phases in the Service Design
Process 167

Service Blueprinting 168
Characteristics of WellDesigned Service Systems 168
Challenges of Service
Design 169
Guidelines for Successful
Service Design 169

4.12 Operations Strategy 170
Operations Tour: High Acres
Landfill 174
Chapter Supplement:
Reliability 176

O U T L I N E

Introduction 140

4.7

What Does Product and Service
Design Do? 140
Objectives of Product and
Service Design 141
Key Questions 141
Reasons for Product or Service
Design or Redesign 141

4.2

Idea Generation 142

4.3

Legal and Ethical
Considerations 144

4.4

Human Factors 145

4.5

Cultural Factors 145

4.6

Global Product and Service
Design 146

4.8

Environmental Factors:
Sustainability 146

Designing for Mass
Customization 154
Reliability 156
Robust Design 157
Degree of Newness 158
Quality Function Deployment 158
The Kano Model 160

Cradle-to-Grave Assessment 146
End-of-Life Programs 147
The Three Rs: Reduce, Reuse,
and Recycle 147
Reduce: Value Analysis 147
Reuse: Remanufacturing 148
Recycle 149

4.9

Other Design
Considerations 151

4.10 Designing for Production 163

Strategies for Product or
Service Life Stages 151
Product Life Cycle
Management 153
Degree of Standardization 153

Phases in Product Design
and Development 162
Concurrent Engineering 163
Computer-Aided Design
(CAD) 164
Production Requirements 165
Component Commonality 165

The essence of a business organization is the products and services it offers, and every
LO4.1 Explain the strateaspect of the organization and its supply chain are structured around those products
gic importance of product
and services. Organizations that have well-designed products or services are more
and service design.
likely to realize their goals than those with poorly designed products or services. Hence,
organizations have a strategic interest in product and service design. Product or service design should be closely tied
to an organization’s strategy. It is a major factor in cost, quality, time-to-market, customer satisfaction, and competitive
advantage. Consequently, marketing, finance, operations, accounting, IT, and HR need to be involved. Demand forecasts and projected costs are important, as is the expected impact on the supply chain. It is significant to note that an
important cause of operations failures can be traced to faulty design. Designs that have not been well thought out, or
are incorrectly implemented, or instructions for assembly or usage that are wrong or unclear, can be the cause of product and service failures, leading to lawsuits, injuries and deaths, product recalls, and damaged reputations.
continued

138

ste3889X_ch04_138-175.indd 138

139

08/01/19 07:17 AM

ste3889X_ch04_138-175.indd

139

Chapter Outlines

Opening Vignettes

Every chapter and supplement includes an
outline of the topics covered.

Each chapter opens with an introduction to the
important operations topics covered in the chapter.
This enables students to see the relevance of
operations management in order to actively engage
in learning the material.

xii

08/01/19 07:17 AM

Figures and Photos
The text includes photographs and
graphic illustrations to support
student learning and provide interest
and motivation. Approximately 100
carefully selected photos highlight
the 14th edition. The photos illustrate
applications of operations and supply
chain concepts in many successful
companies. More than 400 graphic
illustrations, more than any other
text in the field, are included and all
are color coded with pedagogical
consistency to assist students in
understanding concepts.
56

Chapter Two

A major key to Apple’s continued
success is its ability to keep pushing
the boundaries of innovation. Apple
has demonstrated how to create
growth by dreaming up products so
new and ingenious that they have
upended one industry after another.

Rev.Confirming Pages

246

Chapter Six

Process Selection and Facility Layout

FIGURE 6.1

Process selection and
capacity planning influence
system design

Inputs

Outputs

Forecasting

Facilities and
equipment
Capacity
Planning

Product and
service design

Layout

Rev.Confirming Pages
Process
Selection
Technological
change

Work
design

Competitiveness, Strategy, and Productivity

LO6.1 Explain the
strategic importance of
process selection and the
influence it has on the
organization and its supply
chain.

6.1 INTRODUCTION
Process selection refers to deciding on the way production of goods or services will be organized. It has major implications for capacity planning, layout of facilities, equipment, and
design of work systems. Process selection occurs as a matter of course when new products or
services are being planned. However, it also occurs periodically due to technological changes
in products or equipment, as well as competitive pressures. Figure 6.1 provides an overview
of where process selection and capacity planning fit into system design. Forecasts, product
and service design, and technological considerations all influence capacity planning and process selection. Moreover, capacity and process selection are interrelated, and are often done in
concert. They, in turn, affect facility and equipment choices, layout, and work design.
How an organization approaches process selection is determined by the organization’s process strategy. Key aspects include:
• Capital intensity: The mix of equipment and labor that will be used by the organization.
• Process flexibility: The degree to which the system can be adjusted to changes in
processing requirements due to such factors as changes in product or service design,
changes in volume processed, and changes in technology.

Pieter Beens/Shutterstock

Moreover, this approach pays little attention to suppliers and government regulations, and
community, environmental, and sustainability issues are missing. These are closely linked,
theoftwo
and business organizations LO6.2
need to Name
be aware
the impact they are having in these areas and
Process
choice
demand-driven.
main factors
that influence
respond accordingly. Otherwise,
organizations
may be subject
to attack
by is
pressure
groups The two key questions in process selection are:
process selection.
and risk damage to their reputation.

6.2 PROCESS SELECTION
1.
2.

LO2.6 Define the term
productivity and explain
why it is important to companies and to countries.
Productivity A measure of
the effective use of resources,
usually expressed as the ratio
of output to input.

How much variety will the process need to be able to handle?
How much volume will the process need to be able to handle?

Answers to these questions will serve as a guide to selecting an appropriate process. Usually, volume and variety are inversely related; a higher level of one means a lower level of the
other. However, the need for flexibility of personnel and equipment is directly related to the
One of the primary responsibilities of a manager is to achieve productive use of an organizalevel
of variety the
will need to handle: The lower the variety, the less the need for
tion’s resources. The term productivity is used to describe this.
Productivity
is anprocess
index that
flexibility,
while
the higher
the variety, the greater the need for flexibility. For example, if a
measures output (goods and services) relative to the input (labor,
materials,
energy,
and other
worker’s
job to
in input:
a bakery is to make cakes, both the equipment and the worker will do the same
resources) used to produce it. It is usually expressed as the ratio
of output
thing day after day, with little need for flexibility. But if the worker has to make cakes, pies,
Output
cookies, brownies, and croissants,
both the worker and the equipment must have the flexibilProductivity = ______
(2–1)
Input
ity to be able to handle the different requirements of each type of product.
Thereitisisanother
aspect
of variety that is important. Variety means either having dedicated
Although productivity is important for all business organizations,
particularly
impordifferentthe
product or service, or if not, having to get equipment ready every
tant for organizations that use a strategy of low cost, becauseoperations
the higherfor
theeach
productivity,
time there is the need to change the product being produced or the service being provided.
lower the cost of the output.

2.7 PRODUCTIVITY

A productivity ratio can be computed for a single operation, a department, an organization, or an entire country. In business organizations, productivity ratios are used for planning
workforce requirements, scheduling equipment, financial analysis, and other important tasks.
Productivity has important implications for business organizations and for entire nations.
For nonprofit organizations, higher productivity means lower costs; for profit-based organizations, productivity is an important factor in determining how competitive a company is. For
a nation, the rate of productivity
growth is of great importance. Productivity growth is the
ste3889X_ch06_244-299.indd 246
increase in productivity from one period to the next relative to the productivity in the preceding period. Thus,
Current productivity − Previous productivity
Productivity growth = _____________________________________ × 100
Previous productivity

(2–2)

08/01/19 07:28 AM

xiii

Rev.Confirming Pages

Chapter Five

Strategic Capacity Planning for Products and Services

213

Operations Strategies

5.12 OPERATIONS STRATEGY

An Operations Strategy section
The strategic implications of capacity decisions can be enormous, impacting all areas of the
organization. From an operations management standpoint, capacity decisions establish a set
is included at the end of most
of conditions within which operations will be required to function. Hence, it is extremely
chapters. These sections discuss
important to include input from operations management people in making capacity decisions.
how the chapters’ concepts can
Flexibility can be a key issue in capacity decisions, although flexibility is not always an
option, particularly in capital-intensive industries. However, where possible, flexibility allows
be applied and how they impact
an organization to be agile—that is, responsive to changes in the marketplace. Also, it reduces
the operations of a company.
to a certain extent the dependence on long-range forecasts to accurately predict demand. And
flexibility makes it easier for organizations to take advantage of technological and other innovations. Maintaining excess capacity (a capacity cushion) may provide a degree of flexibility,
albeit at added cost.
Some organizations use a strategy of maintaining a capacity cushion for the purpose of
blocking entry into the market by new competitors. The excess capacity enables them to produce at costs lower than what new competitors can. However, such a strategy means higherthan-necessary unit costs, and it makes it more difficult to cut back if demand slows, or to
shift to new product or service offerings.
Efficiency improvements and utilization improvements can provide capacity increases.
Such improvements can be achieved by streamlining operations and reducing waste. The
chapter on lean operations describes ways for achieving those improvements.
Bottleneck management can be a way to increase effective capacity, by scheduling nonbottleneck operations to achieve maximum utilization of bottleneck operations.
In cases where capacity expansion will be undertaken, there are two strategies for determining the timing and degree of capacity expansion. One is the expand-early strategy (i.e.,
before demand materializes). The intent might be to achieve economies of scale, to expand
Rev.Confirming Pages
market share, or to preempt competitors from expanding. The risks of this strategy include
an oversupply that would drive prices down, and underutilized equipment that would result in
higher unit costs.
The other approach is the wait-and-see strategy (i.e., to expand capacity only after demand
materializes, perhaps incrementally). Its advantages include a lower chance of oversupply due
to more accurate matching of supply and demand,
and higher capacity utilization. The key
READING
DUTCH BOY BRUSHES UP ITS PAINTS
risks are loss of market share and the inability to meet demand if expansion requires a long
lead time.
Sherwin-Williams’ Dutch Boy Group put a revolutionary spin on
In cases where capacity contraction will paint
be undertaken,
capacity
disposal Twist
strategies
cans with its innovative
square-shaped
& PourTM
become important. This can be the result of thepaint-delivery
need to replace
equipment
with
container aging
for the Dirt
Fighter interior
latexnewer
paint line.
The four-piece
square containeroperations.
could be the first
major
change
equipment. It can also be the result of outsourcing
and downsizing
The
cost
or in
how house paint is packaged in decades. Lightweight but sturdy,
benefit of asset disposal should be taken into account
when
contemplating
these
actions.
the Twist & Pour “bucket” is packed with so many conveniences, it

Readings

is next to impossible to mess up a painting project.
Winning Best of Show in an AmeriStar packaging competition sponsored by the Institute of Packaging Professionals, the
exclusive,
paint services
container stands
7½ in. time
tall and
Capacity refers to a system’s potential for producing goods orall-plastic
delivering
over aalmost
specified
holds 126isoz.,
a bit lesson
than
1 gal. Rust-resistant
moistureinterval. Capacity decisions are important because capacity
a ceiling
output
and a majorand
determiresistant, the plastic bucket gives users a new way to mix, brush,
nant of operating costs.
and store paint.
Three key inputs to capacity planning are the kind ofA capacity
thatonwill
muchtowill
hollow handle
one be
sideneeded,
makes it how
comfortable
pourbe
and
needed, and when it will be needed. Accurate forecasts
areA critical
to the
planning
process.
carry.
convenient,
snap-in
pour spout
neatly pours paint into
a trayimportant
with no dripping
but canthat
be removed
if desired,
allow
The capacity planning decision is one of the most
decisions
managers
make.toThe
a wide
brushinvolving
to be dipped
into the 5¾-in.-diameter
mouth. Capcapacity decision is strategic and long term in nature,
often
a significant
initial investment
ping
the
container
is
a
large,
twist-off
lid
that
requires
no
tools
of capital. Capacity planning is particularly difficult cases where returns will accrue over a lengthyto
open or close. Molded with two lugs for a snug-finger-tight closperiod, and risk is a major consideration.
ing, the threaded cap provides a tight seal to extend the shelf life
A variety of factors can interfere with effective capacity,
so effective capacity is usually somewhat
of unused paint.
less than design capacity. These factors include facilities
and layout,
product/
Whiledesign
the lid requires
no tools human
to access,factors,
the snap-off
carry bail
is assembled
on theconsiderations.
container in a “locked-down position” and
service design, equipment failures, scheduling problems,
and quality
can
be
pulled
up
after
purchase
for
toting
or
hanging
on
a ladder.
Capacity planning involves long-term and short-term considerations. Long-term considerations relate
Large, nearly 4½-inch-tall label panels allow glossy front and back
to the overall level of capacity; short-term considerations relate to variations in capacity requirements
labels printed and UV-coated to wrap around the can’s rounded
due to seasonal, random, and irregular fluctuations corners,
in demand.
Ideally, display.
capacity will match demand.
for an impressive
Jim MacDonald, co-designer of the Twist & Pour and a packaging engineer at Cleveland-based Sherwin-Williams, tells Packaging
Digest that the space-efficient, square shape is easier to ship and
easier to stack in stores. It can also be nested, courtesy of a recess

Readings highlight important
real-world applications, provide
examples of production/
operations issues, and offer
further elaboration of the text
material. They also provide a
basis for classroom discussion
and generate interest in the
subject matter. Many of the
end-of-chapter readings include
assignment questions.

ste3889X_ch05_190-221.indd 213

xiv

LO4.5 List some of the
main sources of design
ideas.

SUMMARY

Jerry Simon

in the bottom that mates with the lid’s top ring. “The new design
allows for one additional shelf facing on an eight-foot rack or
shelf area.”
The labels are applied automatically, quite a feat, considering
their complexity, size, and the hollow handle they likely encounter
during application. MacDonald admits, “Label application was a
challenge. We had to modify the bottle several times to accommodate the labeling machinery available.”
Source: “Dutch Boy Brushes Up Its Paints,” Packaging Digest, October 2002.
Copyright ©2002 Reed Business Information. Used with permission.

4.2 IDEA GENERATION

08/01/19 07:22 AM

Ideas for new or redesigned products or services can come from a variety of sources, including customers, the supply chain, competitors, employees, and research. Customer input can
come from surveys, focus groups, complaints, and unsolicited suggestions for improvement.
Input from suppliers, distributors, and employees can be obtained from interviews, direct or
indirect suggestions, and complaints.
One of the strongest motivators for new and improved products or services is competitors’ products and services. By studying a competitor’s products or services and how the
competitor operates (pricing policies, return policies, warranties, location strategies, etc.), an
organization can glean many ideas. Beyond that, some companies purchase a competitor’s

∑ y − b∑ t
a = ______ or ¯y − b¯t
n
Trend-adjusted
forecast

Linear regression
forecast

TAF t+1 = S t + T t
where
S t = TAF t + α( A t − TAF t)
T t = T t−1 + β( TAF t − TAF t−1 − T t−1)

t = Current period
TAF t+1 = Trend-adjusted forecast for
next period
S = Previous forecast plus
smoothed error
T = Trend component

Y c = a + bx
where
n (∑ xy ) − (∑ x) (∑ y)
b = _____________________
n(∑ x 2) − (∑ x 2)

y c = Computed value of dependent
variable
x = Predictor (independent) variable
b = Slope of the line
a = Value of y c when x = 0

∑ y − b∑ x
a = ______ or ¯y − b¯x
n

END-OF-CHAPTER RESOURCES
Standard error of
estimate

√

________

Se =

(y − y c) 2
∑
_______
n−2

S e = Standard error of estimate
y = y value of each data point
n = Number of data points

For student study and review, the following items are
√
√
√
provided at the end
of each chapter or chapter supplement.
t

Tracking signal

∑e
TS t = _____
MAD t

Control limits

UCL = 0 + z MSE
_____
LCL = 0 − z MSE

_____

MSE = standard deviation
z = Number of standard deviations;
2 and 3 are typical values

Microsoft

1.
2.
3.
4.

Demand forecasts are essential inputs for many business decisions. They help managers decide
how much supply or capacity will be needed to match expected demand, both within the organization and in the supply chain.
Because of random variations in demand, it is likely that the forecast will not be perfect, so managers need to be prepared to deal with forecast errors.
Other, nonrandom factors might also be present, so it is necessary to monitor forecast errors to
check for nonrandom patterns in forecast errors.
It is important to choose a forecasting technique that is cost-effective and one that minimizes forecast error.

associative model, 80
judgmental forecasts, 80
regression, 98
bias, 109
least squares line, 99
seasonality, 82
centered moving average, 96
linear trend equation, 89
seasonal relative, 94
Chapter
One deviation
Introduction to Operations
Management
control chart, 107
mean absolute
seasonal variations,
93
correlation, 102
(MAD), 106
standard error of estimate, 100
cycle, 82
mean absolute percent error
time series, 82
7. What
are models
Delphi
method,and
81why are they important?
(MAPE), 106
time-series forecasts, 80
8. Why
is the
degree of customization an mean
important
consideration
in process
error,
105
squared
error (MSE),
106 planning?
tracking signal, 109
smoothing,
87consider for
moving
trend, 82
9. Listexponential
the trade-offs
you would
each average,
of these 84
decisions:
focus forecasting, 88
naive forecast, 82
trend-adjusted exponential
a. Driving your own car versus public transportation.
forecast, 76
predictor variables, 98
smoothing, 92
b. irregular
Buying a variation,
computer 82
now versus waiting
for an
improved82model.
random
variations,
weighted average, 86
c. Buying a new car versus buying a used car.
d. Speaking up in class versus waiting to get called on by the instructor.
e. A small business owner having a website versus newspaper advertising.

Taking Stock and Critical
Thinking Exercises

10. Describe each of these systems: craft production, mass production, and lean production.
11. Why might some workers prefer not to work in a lean production environment?
12. Discuss the importance of each of the following:
a. ste3889X_ch03_074-137.indd
Matching supply and demand
117

b. Managing a supply chain
These
activities encourage analytical thinking
13. List and briefly explain the four basic sources of variation, and explain why it is important for
managers to be able to effectively deal with variation.
and14.help
broaden
conceptual
understanding.
Why do people
do things that
are unethical?
15. Explain the term value-added.
A q16.uestion
related to ethics is included in the
Discuss the various impacts of utsourcing.
17. Discuss the term sustainability, and its relevance for business organizations.
Critical
Thinking Exercises.

This item appears at the end of each chapter. It is intended to focus your attention on three key
issues for business organizations in general, and operations management in particular. Those issues
are trade-off decisions, collaboration among various functional areas of the organization, and the
impact of technology. You will see three or more questions relating to these issues. Here is the first
set of questions:
1. What are trade-offs? Why is careful consideration of trade-offs important in decision making?
2. Why is it important for the various functional areas of a business organization to collaborate?
3. In what general ways does technology have an impact on operations management decision
making?

This item also will appear in every chapter. It allows you to critically apply information you learned in
the chapter to a practical situation. Here is the first set of exercises:
1. Many organizations offer a combination of goods and services to their customers. As you learned
in this chapter, there are some key differences between the production of goods and the delivery of
services. What are the implications of these differences relative to managing operations?
2. Why is it important to match supply and demand? If a manager believes that supply and demand
will not be equal, what actions could the manager take to increase the probability of achieving a
match?
3. One way that organizations compete is through technological innovation. However, there can be
downsides for both the organization and the consumer. Explain.
4. What ethical considerations are important in development of technology in general, as well as AI
(artificial intelligence)?
5. a. What would cause a businessperson to make an unethical decision?

Problem Sets

b. What are the risks of doing so?

Each chapter includes a set of problems
for assignment. The problems have been
refined over many editions and are intended
to be challenging but doable for students.
Short answers to most of the problems
are included in Appendix A so students
can check their understanding and see
immediately how they are progressing.
ste3889X_ch01_002-039.indd 37

Summaries and Key Points

KEY POINTS

Chapters contain summaries that provide an
overview of the material covered, and the
key points of the chapter are emphasized in a
s eparate section.

Rev.Confirming Pages

KEY TERMS
37

Confirming Pages

Key Terms
Key
terms are highlighted in the text and then217
Strategic Capacity Planning for Products and Services
repeated
in the margin with brief definitions for
5. Give some examples of building flexibility into system design.
6. Why is it important to adopt a big-picture
approach to capacity
planning?
emphasis.
They
are listed at the end of each
7. What is meant by “capacity in chunks,” and why is that a factor in capacity planning?
8. What kinds of capacity problems do chapter
many elementary(along
and secondarywith
schools periodically
page experireferences) to aid in
ence? What are some alternatives to deal with those problems?
9. How can a systems approach to capacity
planning be useful?
reviewing.
Chapter Five

09/25/19 10:58 AM

10. How do capacity decisions influence productivity?

11. Why is it important to match process capabilities with product requirements?
12. Briefly discuss how uncertainty affects capacity decisions.
13. Discuss the importance of capacity planning in deciding on the number of police officers or fire
trucks to have on duty at a given time.

Discussion and Review Questions

14. Why is capacity planning one of the most critical decisions a manager has to make?

15. Why is capacity planning for services more challenging than it is for goods production?
16. What are some capacity measures for each of the following?

Each chapter and each supplement have a
list of discussion and review questions. These
Computer repair shop
TAKING c.STOCK
d. Farm
precede
sets and are intended
17. What is the benefit to a business organization
of havingthe
capacityproblem
measures?
to serve as a student self-review or as class
1. What are the major trade-offs in capacity planning?
TAKING STOCK
iscussion starters.
2. Who needs to be involved in capacityd
planning?
a. University

b. Hospital

3. In what ways does technology have an impact on capacity planning?

1. A computer repair service has a design capacity of 80 repairs per day. Its effective capacity, however, is 64 repairs per day, and its actual output is 62 repairs per day. The manager would like to

increase
the number of repairs per day because demand is higher than 70 repairs per day, creating a
CRITICAL
THINKING
backlog of orders. Which factors would you recommend that the manager investigate? Explain your
EXERCISES

CRITICAL THINKING
EXERCISES

reasoning.

2. Compared to manufacturing, service requirements tend to be more time dependent, location dependent, and volatile. In addition, service quality is often directly observable by customers. Find a
recent article in a business magazine that describes how a service organization is struggling with
one or more of these issues and make recommendations on what an organization needs to do to
overcome these difficulties.
3. Identify four potential unethical actions or inactions related to capacity planning, and the ethical
principle each violates (see Chapter 1).
4. Any increase in efficiency also increases utilization. Although the upper limit on efficiency is
100 percent, what can be done to achieve still higher levels of utilization?

1. Determine the utilization and efficiency for each of the following situations.
a. A loan processing operation that processes an average of 7 loans per day. The operation has a
design capacity of 10 loans per day and an effective capacity of 8 loans per day.

PROBLEMS

b. A furnace repair team that services an average of four furnaces a day if the design capacity is
six furnaces a day and the effective capacity is five furnaces a day.
c. Would you say that systems that have higher efficiency ratios than other systems will always
have higher utilization ratios than those other systems? Explain.
2. In a job shop, effective capacity is only 50 percent of design capacity, and actual output is 80 percent
of effective output. What design capacity would be needed to achieve an actual output of eight jobs
per week?
08/01/19 06:47 AM

ste38891_ch05_190-221.indd

217

07/12/19 04:29 PM

Marty designed: the Arrow and the Dart. The company hasn’t
turned a profit yet, but Marty feels that once he resolves some of
the problems he’s having with inventory and scheduling, he can
increase productivity and reduce costs.
At first, he ordered enough bike parts and subassemblies for
four months’ worth of production. Parts were stacked all over the
place, seriously reducing work space and hampering movement
of workers and materials. And no one knew exactly where anything was. In Marty’s words, “It was a solid mess!”
He and his two partners eventually managed to work off
most of the inventory. They hope to avoid similar problems in the
future by using a more orderly approach. Marty’s first priority is to
develop a materials requirement plan for upcoming periods. He
wants to assemble 15 Arrows and 10 Darts each week, to have
them ready at the start of weeks 4 through 8. The product structure trees for the two bikes follow.

Operations Tours

Arrow
Dart
These provide a simple “walkthrough” of an operation
Chapter Thirteen MRP and ERP
for students, describing the company, its product
M
X
K(2)
F
17. The MRP Department has a problem. Its computer
“died”
just as it spit W
out the following
inforor service, and
its Planned
process
of managing
operations.
mation:
order release
for item J27 = 640
units in week 2. The firm has been able to
F the master schedule for end item 565. The firm is
reconstruct all the information they lost except
Companies featured
include
Wegmans
Food
Markets,
fortunate because
J27 is used
only in 565s. Given
the following
productW(2)
structure tree and assoQ
ciated inventory status record information, determine what master schedule entry for 565 was
Morton Salt, Stickley
and Boeing.
exploded intoFurniture,
the material requirements
plan that killed the computer.

Part Number
565
X43
N78
Y36
J27

On Hand
0
60
0
200
0

Lot Size
Lead Time
565
Lot-for-lot
1 week
Multiples of 120
1 week
X43
Y36 (2)
N78
Lot-for-lot
2 weeks
Lot-for-lot
1 week
OPERATIONS TOUR
J27 (4)
X43
Lot-for-lot
2 weeks

D(2)

E(2)

H(3)

Lot-for-lot

Dart

Lot-for-lot

Multiples of 25

Multiples of 12

Multiples of 30

Lot-for-lot

Multiples of 30

Lot-for-lot

*LT = 3 weeks for orders of 36 or more units on this item

Confirming Pages
Scheduled receipts are:

Period 1:
Period 2:

20 Arrows and 18 Ws
20 Darts and 15 Fs

As the third partner, it is your job to develop the material requirements plan.
605

STICKLEY FURNITURE

18. Develop a material requirements plan for component H. Lead times for the end item and each component except B are one week. The lead time forIntroduction
B is three weeks. Sixty units of A are needed at the start
of week 8. There are currently 15 units of B on hand and 130 of E on hand, and 50 units of H are in
production and will be completed by the start www.stickley.com
of week 2. Lot-for-lot ordering will be used for all items.

B(2)

Arrow

in New York State, two in Connecticut, one in North Carolina, and
its furniture is sold nationally by some 120 dealers.

AL. & J.G. Stickley was founded in 1900 by brothers Leopold and

Production

George Stickley. Located just outside of Syracuse, New York, the
company is a producer of fine cherry, white oak, and mahogany
furniture. In the 1980s, the company reintroduced the company’s
original line of Cmission oak furniture, which now accounts for
nearly 50 percent of the company’s sales.
Over the years, the company experienced both good and bad
times, and at one point it employed over 200 people. However,
by the
was in disarray; there were only
D(2)early 1970s, the business
E(4)
about 20 full-time employees, and the company was on the brink
of bankruptcy. The present owners bought the ailing firm in 1974,
and under their leadership, the company has prospered and grown,
and
has five retail showrooms
K now has 1,350
H(3)employees. Stickley
K

The production facility is a large, rectangular building with a
30-foot ceiling. Furniture making is labor intensive, although saws,
sanders, and other equipment are very much a part of the process. In fact, electric costs average about $60,000 a month. The
company has its own tool room where cutting tools are sharpened, and replacement parts are produced as needed.
Worker skills range from low-skilled material handlers to highly
skilled craftsmen. For example, seven master cabinet makers handle customized orders.
The process (see figure below) begins with various sawing
operations where large boards received from the lumber mills
are cut into smaller sizes. The company recently purchased a

606

CASE

PROMOTIONAL NOVELTIES
ste3889X_ch13_560-609.indd

Promotional Novelties provides a wide range of novelty items for
its corporate customers. It has just received an order for 20,000
toy tractor-trailers that will be sold by a regional filling station company as part of a holiday promotion. The order is to be shipped
at the beginning of week 8. The tree diagram shows the various
components of the trucks.
Tractor-trailer

Tractor

Wheel
assembly

Trailer

Body

Wheel
assembly

Body

606

08/08/19 09:27 AM

The company can complete final assembly of the tractortrailers at the rate of 10,000 a week. The tractor and trailer bodies
are purchased; lead time is three weeks. The wheels are the
manager’s main concern.
The company has a sufficient sup…
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