Operations management astreamline 3d course for student and business people

title
author
publisher
isbn10 | asin
print isbn13
ebook isbn13
language
subject
publication date
lcc
ddc
subject

cover

next page >

cover

next page >

:
:
:
:
:
:
:
:
:
:

:


< previous page

page_i

next page >
Page i

Operations Management
Jae K. Shim, Ph.D.
College of Business Administration
California State University, Long Beach
Joel G. Siegel, Ph.D.
Queens College of the City University of New York

< previous page

page_i

next page >


< previous page

page_ii

next page >
Page ii

Copyright © 1999 by Barron's Educational Series, Inc.
All rights reserved.
No part of this book may be reproduced in any form, by photostat, microfilm, xerography or any other means, or
incorporated into any information retrieval system, electronic or mechanical, without the written permission of the
copyright owner.
All inquiries should be addressed to:
Barron's Educational Series, Inc.
250 Wireless Boulevard
Hauppauge, New York 11788

Library of Congress Catalog Card No. 98-27825
International Standard Book No. 0-7641-0510-8
Library of Congress Cataloging-in-Publication Data
Shim, Jae K.
Operations management / Jae K. Shim, Joel G. Siegel.
p. cm. (Business review series)
Includes index.
ISBN 0-7641-0510-8
1. Production management. I. Siegel, Joel G. II. Title.
III. Series.
TS155.S4535 1999
658.5dc21
98-27825
CIP
PRINTED IN THE UNITED STATES OF AMERICA
98765432

< previous page

page_ii

next page >


< previous page

page_iii

next page >
Page iii

Contents

Preface

viii

1
The Scope of Operations and Production Management

General Description of Production and Operations Systems

Manufacturing Operations versus Service Operations

Operations Strategy

Productivity

Total Quality Management and Quality Costs

Continuous Improvement

KNOW THE CONCEPTS

Do You Know the Basics?

Terms for Study

Practical Application

ANSWERS
2
Decision Making: Concepts and Tools

Decision Making under Uncertainty

Decision Matrix

1

3

5

6

8

9

17

20

20

21

21

22

26

27

28


Decision Trees

Modeling a Real-Life System

Linear Programming

KNOW THE CONCEPTS

Do You Know the Basics?

Terms for Study

Practical Application

ANSWERS
3
Forecasting

Who Uses Forecasts?

Forecasting Methods

Selection of Forecasting Method

The Qualitative Approach

Steps in the Forecasting Process

Moving Averages and Smoothing Methods

Regression Analysis

Regression Statistics

Use of Computer Software for Regression

Multiple Regression

31

35

38

50

50

51

51

56

65

66

67

67

68

69

70

78

81

84

85


85

Time Series Analysis and Classical Decomposition

94

Computer Software for Forecasting

95

Evaluation of Forecasts

< previous page

page_iii

next page >


< previous page

page_iv

next page >
Page iv

KNOW THE CONCEPTS

Do You Know the Basics?

Terms for Study

Practical Application

ANSWERS
4
Product Planning, Process Selection, and Capacity Planning

Product Design

Interaction between Product Design and Production Costs

Basic Product Design Alternatives

Quality Function Deployment

Processes and Process Planning

General- and Special-Purpose Equipment

Automation

Process Planning

Product Analysis

MakeBuy Analysis

Process Selection

Reliability and Maintenance

98

98

99

99

103

114

116

117

118

119

119

121

122

124

125

129

130

131


Capacity Planning

Evaluating Alternative Capacities

KNOW THE CONCEPTS

Do You Know the Basics?

Terms for Study

Practical Application

ANSWERS
5

Facility Location

Factors in Location

Site Selection

Multiplant Location

Special Considerations in Location Decisions

Location Decisions

KNOW THE CONCEPTS

Do You Know the Basics?

Terms for Study

Practical Application

ANSWERS
6
Design of the Work System and Work Measurement

139

142

145

145

145

146

149

155

156

156

157

157

158

169

169

169

170

172

179


180

Work and Job Design

185

Work Measurement and Production Standards

187

Work Measurement Systems

194

Learning Curve

< previous page

page_iv

next page >


< previous page

page_v

next page >
Page v

KNOW THE CONCEPTS

Do You Know the Basics?

Terms for Study

Practical Application

ANSWERS
7
Facilities Design and Layout

Layout of Facilities

Material-Handling Methods

Classical Layout Types

Minimization of Material-Handling Cost

Systematic Layout Planning

Computerized Plant Layouts

Product Layout and Line Balancing

Balancing Techniques

A Plant Layout Decision

KNOW THE CONCEPTS

Do You Know the Basics?

Terms for Study

197

197

198

198

200

205

206

207

207

211

211

213

214

218

221

223

223

224


Practical Application

ANSWERS
8
Aggregate Planning and Master Scheduling

The Production Planning Process

Aggregate Planning

Master Scheduling

Computerized Scheduling Systems

Operations Scheduling

KNOW THE CONCEPTS

Do You Know the Basics?

Terms for Study

Practical Application

ANSWERS
9
Inventory Management

Economic Order Quantity and Reorder Point

EOQ with Noninstantaneous Replenishment

EOQ with Quantity Discounts

Determination of Safety Stock

The Single Period Inventory ProblemMarginal Analysis

224

226

231

232

233

246

247

247

256

256

256

256

260

268

269

272

274

279

283


285

Computers and Inventory Planning

286

Simulation

289

Using the ABC System for Inventory Control

< previous page

page_v

next page >


< previous page

page_vi

next page >
Page vi

KNOW THE CONCEPTS

Do You Know the Basics?

Terms for Study

Practical Application

ANSWERS
10
Material Requirements Planning and Just-in-Time

Material Requirements Planning

Manufacturing Resource Planning

Just-in-Time Manufacturing

MRP versus JIT Systems

Value Analysis (or Value Engineering)

KNOW THE CONCEPTS

Do You Know the Basics?

Terms for Study

Practical Application

ANSWERS

11
Facilities Investment Decisions

What Are the Features of Investment Projects?

292

292

293

293

297

305

306

316

316

329

330

331

331

331

332

335

342

343


Understanding the Concept of Time Value of Money

How Do You Evaluate Facilities Investment Projects?

How Do Income Taxes Affect Investment Decisions?

KNOW THE CONCEPTS

Do You Know the Basics?

Terms for Study

Practical Application

ANSWERS
12
Project Management

Project Scheduling Models

Gantt Charts

Program Evaluation and Review Technique

The Critical Path Method Model: PERT/Cost

Computer Software for Project Management

KNOW THE CONCEPTS

Do You Know the Basics?

Terms for Study

Practical Application

ANSWERS

343

346

350

352

352

353

353

355

361

362

362

363

373

378

378

378

379

379

383


< previous page

page_vi

next page >


< previous page

page_vii

next page >
Page vii

13
Waiting Lines and Queuing

Queuing or Waiting Lines

Using Queuing Analysis to Analyze Operations

Structure of Queuing (Waiting Line) Problems

Analytical Models for Waiting Lines

Queuing Notations

Computer Simulation for Waiting Lines

KNOW THE CONCEPTS

Do You Know the Basics?

Terms for Study

Practical Application

ANSWERS
14
Quality Assurance

Pareto Analysis

Statistical Quality Control

Acceptance Sampling for Attributes

Types of Sampling Plans

Control Charts for Attributes

390

391

392

394

395

397

411

411

411

412

412

415

422

423

424

430

438

440


443

Computer Software for Quality Control

443

KNOW THE CONCEPTS

443

Do You Know the Basics?

444

Terms for Study

444

Practical Application

447

ANSWERS
Glossary

454

Appendix I. American Production and Inventory Control Society

462

Appendix II. Tables

465

Index

477

< previous page

page_vii

next page >


< previous page

page_viii

next page >
Page viii

Preface
This book provides a clear and concise introduction to operations management, which involves the planning,
coordinating, and executing of all activities that create goods or services. The course operations management is
offered in a variety of titles including production and operations management, analysis for production systems, and
design and engineering of production systems, at both the undergraduate and graduate levels.
This book is an excellent supplement to those courses. It focuses on the fundamentals and essentials needed to
understand how operations strategies are carried out and how they are tackled using new concepts and tools. It
illustrates decisions with many solved problems to test and help students reinforce their understanding of the subject.
It covers many application-oriented problems that help readers to relate, to integrate, to discover, and, in general, to
gain useful insights. Further, many business professionals can benefit from this up-to-date book containing the latest

techniques and methods.
The book presents, in an integrated fashion, much of the material covered in the exams leading to professional status
as a Certified Production and Inventory Manager (CPIM) or Certification in Integrated Resource Management
(CIRM). The CPIM exams and certification are administered by the American Production and Inventory Control
Society (APICS). In 1991, APICS also initiated the CIRM program with the intention of establishing the
internationally recognized standard for excellence in the field of integrated resource management.
Throughout the text, you are advised to follow the following ground rules to enhance benefits:
1. Understand the Definitions and Key Points. Each chapter begins with Key Terms, which are discussed throughout
the chapter. It is followed, wherever applicable, by You Should Remember boxes, which summarize key points.
2. Study Each Example Over and Over Again. Be sure to work out each example. This is the key process of learning
and understanding the chapter material. Of course, you will be tested with similar problems at the end of the chapter.
You will be provided with suggested solutions so that you can check your answers.
3. Do All Problems. Do You Know the Basics tests your understanding of the main concepts of the chapter. Practical
Applications test your ability to handle analyticalmostly numericalproblems. Do not fail to do both!

< previous page

page_viii

next page >


< previous page

page_ix

next page >
Page ix

If you stick to this game plan and work at it, you will be assured of enhancing your understanding of operations

management and be successful in the course. By the same token, business professionals will gain a better
understanding of the subject and be able to apply the tools to make informed decisions.
The authors are grateful to Allison Shim for her enormous word processing and editorial assistance.
JAE K. SHIM
JOEL G. SIEGEL

< previous page

page_ix

next page >


< previous page

page_1

next page >
Page 1

1
The Scope of Operations and Production Management
KEY TERMS
business process reengineering (BPR)
management practice seeking to make revolutionary changes in business processes.
continuous improvement (CI)
endless pursuit of improvement of machinery, materials, labor utilization, and production methods through
application of suggestions and ideas of team members.
fishbone diagrams
often called cause-and-effect diagrams; way of determining likely root causes of a problem.

operations
set of all activities associated with the production of goods and services.
production and operations management
management of all activities directly related to the production of goods and services.
production system
collection of inputs, conversion, transformation processes, outputs, control mechanisms, and managers involved in
production and operations.
productivity
ratio of outputs to inputs.
quality
measure of conformance of a product or service to certain specifications or standards.
supply chain management
management of the integration of the functions, information, and materials that flow across multiple firms in a supply
chain (i.e., buying materials, transforming materials, and shipping to customers).

< previous page

page_1

next page >


< previous page

page_2

next page >
Page 2

Taguchi method of quality control

method of controlling quality that stresses robust product design and the quality loss function.
total quality management (TQM)
concept of using quality methods and techniques to strategic advantage within firms.

To many people, the term production means factories, machinery, and equipment. The field of what has been known as
production management has expanded in scope to cover management of nonmanufacturing or service activities such as
banking, hotel management, transportation, and education. Because of this broad scope, the field has taken a new name,
production and operations management or simply operations management (OM).
Production and operations is the process by which goods and services are created. We find productive processes in all
kinds of organized activities such as factories, offices, supermarkets, and hospitals. Production and operations
management deals with decision making related to productive processes to ensure that the resulting goods or services
are produced according to specifications, in the amounts and by the schedule required, and at minimum cost. Inputs of
materials, labor, and resources are used to obtain goods or services using one or more conversion/transformation
processes, thereby adding value. Figure 1.1 depicts this process.

Figure 1.1.
Conversion of Inputs to Outputs
Operations management begins with high-level business plans and strategies, over both the long and short run. These
plans and strategies are based on careful and sound projection of demand for the product or service. Operating plans are
derived from the long-term or short-term strategy and are translated into master schedules, which, in turn, form
production and purchasing plans. Production planning and material control interact continuously with manufacturing in
the execution of the plan. Finished goods are distributed geographically as required by the markets served by the
business.

< previous page

page_2

next page >

< previous page

page_3

next page >
Page 3

OM is divided into the following five broad sections (the chapter numbers refer to chapters in this book):
1. Decision Making Tools and Methods (Chapter 2)
2. Demand Forecasting (Chapter 3)
3. Planning Systems
Capacity Planning (Chapters 4 and 11)
Locational Planning (Chapter 5)
Aggregate Production Planning and Master Scheduling (Chapter 8)
4. Designing Systems
Product/Service Design and Process Selection (Chapter 4)
Facilities Layout (Chapter 7)
Design of Work Systems (Chapter 6)
5. Operating and Controlling the System
Inventory Management, Material Requirement Planning, and Just-inTime (Chapters 9 and 10)
Project Management and Control (Chapter 12)
Operational Scheduling (Chapter 8)
Queuing (Chapter 13)
Quality Assurance (Chapter 14)
General Description of Production and Operations Systems
Production and operations systems have inputs, which include the material, parts, paperwork forms, customers, and
patients, as the case may be. These inputs are processed in some way by a series of operations whose sequence and
number are specified for each input. The number of operations required may vary from one to any number and may
take on any desired characteristics; that is, they may be mechanical, chemical, assembly, inspection and control,

dispatching, receiving, shipping, personal contact (e.g., an interview), and paperwork operations.

< previous page

page_3

next page >


< previous page

page_4

next page >
Page 4

The outputs of a production system include completed parts, products, chemicals, service to customers or patients,
and completed paperwork. There is normally a provision for storage after the receipt of the input and between each
operation in the system. The storage time may vary from zero to any finite value. Inputs are transported between all
operations in the system, and any means of transportation may be used, including self-transportation in the case of
clients and customers. An information system and decision maker interconnect the physical activities providing a
basis for management decisions. These functions provide the equivalent of a ''nervous system." Such production
systems may occur in series or in parallel.
Continuous versus Intermittent Systems
Continuous flow production systems are those systems in which the facilities are standardized with respect to
routings and flow because the inputs are standardized. Therefore, a standard set of processes and sequences of
processes can be adopted. Continuous systems are represented in practice by production and assembly lines, largescale office operations processing forms by some standard procedure, and continuous flow chemical operations.
Intermittent production systems are those systems in which the facilities must be flexible enough to handle a wide
variety of products and sizes or the basic nature of the activity imposes change of important characteristics of the
input (change in product design). In such instances, no single sequence pattern of operations is appropriate, so the

relative location of the process centers or departments must be a compromise that is satisfactory for all inputs.
Transportation facilities between operations must also be flexible to accommodate a wide variety of input
characteristics as well as a wide variety of routes through the system. Intermittent systems are called such because
the flow is intermittent.
Production Systems
The problems that occur in production systems require two major types of decisions: those that relate to the design of
the systems and those that relate to the operation and control of the systems (long-run and short-run decisions).
1. Long-run decisions related to system design
Selection and design of inputs (products)
Selection of equipment and processes

< previous page

page_4

next page >


< previous page

page_5

next page >
Page 5

Production design of items processed (Production cost interacts strongly with the design of the item being
processed.)
Job design
System location
Facility layout

2. Short-run decisions related to operation and control
Inventory and production control
Maintenance and reliability of the system
Quality control
Labor control
Cost control and improvement
The relative importance of these problems of production management varies considerably, depending on the nature
of individual production systems. Nonetheless, each system has these problems to some degree. Part of the art of
production management involves sensing the relative importance of the various problems in a given situation.
Manufacturing Operations versus Service Operations
Distinction between manufacturing and service operations is based on the following features:
The nature and consumption of output
Nature of work (jobs)
Degree of consumer contact
Uniformity of output
Quality assurance
Measurement of performance
Table 1.1 provides an overview of the different manufacturing and service operations.

< previous page

page_5

next page >


< previous page

next page >

page_6

Page 6
Table 1.1 Differences Between Manufacturing and Service Operations
Characteristic

Manufacturing

Service

Output

Tangible

Intangible

Consumer contact

Low

High

Nature of work

Capital intensive

Labor intensive

Uniformity of output

High

Low

Difficulty of quality assurance

Low

High

Measurement of performance

Easy

Difficult

Operations Strategy
Operations strategy is concerned with setting broad policies and plans for using the production resources of the firm
to best support the firm's long-term competitive strategy. Typical operations strategy issues include
Capacity requirements: amount, timing, and type
Facilities: size, location, and specialization
Technology: equipment, automation, and linkages
Vertical integration: extent of use of outside suppliers and distributors
Work force: skill level, wage policies, employment security
Quality: defect prevention, monitoring, and intervention
Production planning/materials control: sourcing policies, centralization, decision rules
Organization: structure, control/reward systems, role of staff groups
Each of these issues is discussed in detail in later chapters.
Four basic operations strategies were identified: cost, quality, speed of delivery, and flexibility. These four strategies
translate directly into characteristics used to direct and measure manufacturing performance.

Cost
Within every industry, there is usually a segment of the market that buys strictly on the basis of low cost. To compete
in this niche successfully, a firm must be the low-cost producer. But even doing this does not always guarantee
profitability and success. Products sold strictly on the basis of

< previous page

page_6

next page >