Class Notes For Operations Management: Processes and Supply Chains, 11th Edition

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A Note to InstructorsInstructors have distinctive, ever evolving approachesfor designing and teachingcourses inoperations management, and so we offer a wide variety of resources beyond what is provided bythe textbook. Pick, choose, and adapt them to your own needs. Only a modest portion of theresources is printed in this manual. Our book’s web site atwww.pearsonhighered.com/krajewskiprovides a full array of materials, either through theInstructors Resourcelink or theCompanionWebsitelink.Resources in This ManualWe provide heretwotypes of materials for convenience, with the electronic versions available fordownloading at our book’s Web site. Theseelements are grouped on a chapter-by-chapter basis.We are indebted toJack JensenoftheUniversityof South Carolinafor helping create thesematerials.1.InstructorNotes.These annotated chapter outlines cover the key aspects of each chapteror supplement, with boxed notes to the instructor on ideas that might be brought out in class,and supplementary materials such as the “Applications” that might apply. If you wish to usethe material as aclass handout (particularlyuseful for large lecture-based classes whencombined with PowerPoints), edit the portions that you wish to delete, revise, or add.Important art or figures (such as from selected PowerPoint slides) can be pasted in as needed.The lecture notes might also be made available as supplementary notes to the student, even ifthey are not covered in a lecture. They can be a useful resource for distance-learning courses.Applicationsare embedded within the Instructor Notes. Instructorsoften need some in-classexercises to illustrate how to handle certain quantitative techniques. PowerPoint presentations(obtained at the website) give the overall approach for both concepts and techniques.However, there is nothing like a hands-on opportunity in class for students to try out thetechnique on their own. “Applications,” handed out at the beginning of the class, allow astudent to interact with fellow students or with the instructor onaone-on-one basis to clearup any confusion. Applications are provided for most chapters and supplements, and can bedownloaded from the Website.Application Solutions:After the students have had a chanceto solve an application, or at least make major progress on it, the instructor can show thesolution to the whole class. Our experience is that overhead projectors work best here, so theApplication Solutionsare formatted so that they can be photocopied onto a transparencysheet.Oftentherearequestionstobeanswered,withtheresponseswrittenonthetransparency itself. The hard copies of these application solutionsappearin this manual,giving you transparency masters for the ones thatyouwish to use. They also can bedownloaded from the web site.2.Student Notes.These are chapter outlines that the Instructor can give to students as aHandout, which the students could use to follow along with the lecture and power pointsandtake notes. These could then be used while studying for exams.Lee J. Krajewski,Manoj K. Malhotra,Larry P. Ritzman

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Chapter1Using Operations ToCreate ValueCourse Introduction1.Today’s objectives:a.What are the course requirements?b.What is OM? OM deals with processes that produce services and goods that people useevery day.TEACHING TIPAsk the students to share their ideas on a business they would like to start. Discuss the majorOM, Accounting, Finance, Human Resources, Management Information Systems, and Marketingdecisions.c.Why study OM?2.Course objectives:a.Primary goal of this textbook is to gain an understanding of how to make operations acompetitive weaponb.Strategy andanalysis3.Syllabusa.Go over course outlineb.Performance measuresc.Office hours and other administrationd.Questionse.Nature of assignmentsTEACHING TIPIntroduce withDisney.The operational planning atDisneyprovides one example of designingprocesses for competitive operations.1.Operations management deals withthe systematic design, direction, and control ofprocesses.a.“Aprocessis an activity or group of activities that takes one or more inputs, transformsthem, and provides one or more outputs for its customers.”b.An“Operationis a group of resources performing all or part of one or more processes.”c.“Supply chain managementis the synchronization of a firm’s processes with those ofits suppliers and customers to match flow of materials, services, and information withcustomer demand.”

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1.Role of Operations in an Organization1.Operations serve as an excellent career path to upper managementpositions in manyorganizations because operations managers are responsible for key decisions that affect thesuccess of the organization.2.Operations is one of several functions within an organizationa.Cross-functional coordination is essential to effective managementb.Operations plays an important role in meeting global competition3.Historical Evolution and Perspectivesa.James Watt invented the steam engine in 1785.b.With the invention of the cotton gin in 1794, Eli Whitney introduced the concept of inter-changeable parts.c.The foundations of modern manufacturing and technological breakthroughs were alsoinspired by the creation of a mechanical computer by Charles Babbage in the early part ofthe nineteenth century.d.Scientific management of operations and supply chain management was further improvedupon by Frederick Taylor in 1911e.First is the invention of the assembly line for the Model T car by Henry Ford in 1909f.Alfred Sloan in the 1930s introduced the idea of strategic planning for achieving productproliferation and varietyg.Toyota Production System in 1978, Taiichi Ohno laid the groundwork for removingwasteful activitiesfrom an organization.h.The 1980s were characterized by wide availability of computer aided design (CAD),computer aided manufacturing (CAM), and automation.2.ProcessViewDepartments within an organization typically have their own set of objectives and a set ofresourceswith capabilitiesto meet those objectives.The concept of a process is much broader: aprocess can have its own set of objectives where the work flow may cross different departmentboundaries, and require resources from several departments.1.Anyprocesshas inputs and outputsa.Inputs can include a combination of human resources (workers and managers), capital(equipment and facilities), purchased materials and services, land, and energy.b.Processes provide outputs to customers. Outputs could be services (that can take the formof information) or a tangible product.c.Customer-supplier relationshipsEvery process and every person within an organization has customersExternal customersInternal customersEvery process and every person in an organization also relies on suppliers

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External suppliersInternal suppliersd.Inputs and outputs vary, depending on the service or product (examples)Jewelry storeInputs: merchandise, the store building, registers, the jeweler, and customersOutputs: to the external customers are services and sold merchandiseFactory manufacturing blue jeansInputs: denim, machines, the plant, workers, managers, and services by outsideconsultantsOutputs: clothing and supporting services2.Nested processesa.Process within a processb.Interconnectivity within a businessc.Nature of each process’s inputs and outputsd.Greater detail in Chapter 4 “Process Analysis”3.Service and Manufacturing Processesa.Ratio of services to manufacturing jobsb.DifferencesNature of outputDegree of customer contactc.SimilaritiesCustomers expect good service and good products3.ASupplyChainViewThe strategic view is that processes must add value for customers throughout the supply chain;reinforcing the link between processes and performance.This includes a firm’s internal processeswith those of external customers and suppliers.1.Core processesa.Supplierrelationship processb.New service/product development processc.Order fulfillment processd.Customerrelationship process2.Support processesa.providevitalresourcesand inputs to the core processesb.capabilitiesc.other inputs that allow core processes to function

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3.Supply Chain Processesa.Adding value with process innovation in supply chainsOutsourcingWarehousingSourcingCustomerServiceLogisticsCross-docking4.Operations Strategy1.Operations strategya.Specifies the means by which operations implements corporate strategy and helps tobuild a customer-driven firm.b.It links long-term and short-term operations decisions to corporate strategy and developsthe capabilities the firm needs to be competitive.2.Corporate strategya.Environmental scanningb.Developing core competenciesWorkforceFacilitiesMarket and financial know-howSystems and technologyc.Developing core processesd.Developing globalstrategiesStrategic allianceLocating abroad.3.Market analysisa.Market segmentationb.Needs assessmentService or Product Needs. Attributes of the service or product, such as price, quality,and degree of customization.Delivery System Needs. Attributes of the processes and the supporting systems, andresources needed to deliver the service or product, such as availability, convenience,courtesy, safety, accuracy, reliability, delivery speed, and delivery dependability.Volume Needs. Attributes of the demand for the service or product, such as high orlow volume, degree of variability in volume, and degree of predictability in volume.

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Other Needs. Other attributes, such as reputation and number of years in business,after-sale technical support, ability to invest in international financial markets, andcompetent legal services.5.Competitive Priorities and Capabilities1.Competitive prioritiesare the critical operational dimensions a process or supply chain mustpossess to satisfy internal or external customer, both now and in the future.2.Competitive capabilitiesare the cost, quality, time, and flexibility dimensions that a processor supply chain actually processes and is able to deliver.An abbreviated list with examples isprovided here.DimensionDefinitionExampleLow-costoperationsDelivering a service or product atthe lowest cost possible.Costcoachieves low costs by designing allprocesses for efficiency.TopqualityDelivering an outstanding serviceor product.Rolexis known globally for top-qualityprecision timepiecesConsistentqualityProducing services or productsthat meet design specifications ona consistent basis.McDonald’sstandardizes work methods, stafftraining processes, and procurement to achieveconsistency.DeliveryspeedQuickly filling customer ordersDellengineered processes to deliver reliableand inexpensive computers with short leadtimes.On-timedeliveryMeeting delivery-time promisesUnited Parcel Service (UPS)uses expertise inlogistics and warehousing processes to deliveron-time.DevelopmentspeedQuickly introducing new servicesor products.Zarais known by its ability to bring fashionsfrom the runway to market quicklyCustomizationSatisfying unique needs ofcustomersRitz Carltoncustomizes services to individualcustomers.VarietyA wide assortment of services orproducts.Amazon.comuses information technologyalong withorder fulfillment processes to delivera vast variety of items to customers.VolumeflexibilityAccelerating or decelerating therate of productionThe United States Post Office (USPS)canhave severe demand peak fluctuations.3.Order winners and qualifiersa.Order winner is a criterion that customers use to differentiate the services or products ofone firm from those of another, such as cost, quality, time, and flexibilityb.Order qualifier is the minimal requirement for doing business in a particular marketsegment.

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4.Using competitive priorities: an airline example (two market segments: first-class passengersand coach passengers)a.Customer relationshipsTop quality:High levels of customer contact and lounge service for the first-classpassengersConsistent quality:The information and service must be error freeDelivery speed:Customers want immediate information regarding flight schedulesand other ticketing informationVariety:The process must be capable of handling the service needs of all marketsegments and promotional programsb.New service developmentDeveloping speed:It is important to get to the market fast to preempt the competitionCustomization:The process must be able to create unique servicesTop quality:New services must be carefully designed because the future of theairline industry depends on themc.Order fulfillmentLow-cost operations:Airlines compete on price and must keep operating costs incheckTop quality:High quality meal and beverage service delivered by experienced cabinattendants ensures that the service provided to first-class passengers is kept top notch.Consistent quality:Once the quality level is set, it is important to achieve it everytimeOn-time delivery:The airline strives to arrive at destinations on schedule, otherwisepassengers might miss connections to other flightsVariety:Maintenance operations are required for a variety of aircraft modelsd.Supplier relationshipLow-cost operations:Costs of acquiring inputs must be kept to a minimum to allowfor competitive pricingConsistent quality:Quality of the inputs must adhere to the required specifications.In addition, information provided to suppliers must be accurateOn-time delivery:Inputs must be delivered to tight schedulesVariety:Many different inputs must be acquired, including maintenance items, mealsand beverages.Volume flexibility:The process must be able to handle variations in supply quantitiesefficiently5.Identifying Gaps Between Competitive Priorities and Capabilities

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a.Operations strategy translates service or product plans and competitive priorities for eachmarket segment into decisions affecting the supply chains that support those marketsegments.b.Once managers determine the competitive priorities for a process, it is necessary to assessthe competitive capabilities of the process.6. Addressing the Trends and Challenges inOperationsManagement1.Productivity improvementa.The value of outputs produced is divided by the value of input resources.Productivity = OutputInputb.In the United States, while there are signs of improvement, service sector productivitygains have been much lower than those in the manufacturing sector.c.UseExample 1.1: Productivity Calculationsto give students the chance to make theirown productivity calculations.d.Productivity measures–two approachesSingle factorIn example 1.1, the single (input) factor is employee hoursMultifactorIn example 1.1, the multiple (input) factors are labor cost, materials cost, andoverhead costs.e.Managers must examine productivity from the level of the value chain, i.e., the collectiveperformance of individual processes.f.Additional examples are provided as Solved Problemsg.Application1.1This Yr.Last Yr.Year Before LastFactory unit sales($)2,762,1032,475,7382,175,447Employment(hrs)112,000113,000115,000Sales of manufacturedproducts($)$49,363$40,831—Total manufacturing cost ofsales($)$39,000$33,000—Calculate the year-to-year labor productivity.This Yr.Last Yr.Year Before Lastemploymentsalesunitfactoryhr/66.24$000,112103,762,2hr/91.21$000,113738,475,2hr/91.18$000,115447,175,2

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Calculate the multifactor productivity.This Yr.Last Yr.tmfgtotalproductsmfgofsalescos27.1000,39$363,49$24.1000,33$831,40$2.Global competitiona.Firms can increase their market penetration by locating their production facilities inforeign countries because it gives them a local presence that reduces customer aversion tobuying importsb.Five developments have stimulated the need for sound global strategiesImproved transportation and communication technologyLoosened regulations on financial institutionsIncreased demand for imported services and goodsReduced import quotas and other international trade barriersEuropean Union (EU)North American Free Trade Agreement (NAFTA)Comparative cost advantagesc.Comparative cost advantageWhat role does China play in globalization today?What role does India play?d.Disadvantages of globalizationRelinquish proprietary technologyPolitical risksEmployee skills may be lower in foreign countriesTeaching TipManagerial Practice 1.1: “Japanese Earthquake and its Supply Chain Impact.”Japaneseearthquake disaster exposes supply chain weakness: reliance on small concentrated network ofsuppliers.Economic losses have been felt worldwide.3.Ethical, and workforce diversity and environmental issuesa.Decisionsaboutthedesignandoperationsofproductionsystemsconsidertheenvironment, ethics, and workplace diversity issuesTEACHING TIPDiscussexamples such as:toxic waste, poisoned drinking water, poor air quality, and climatechange.4.Designing and Operating Processes and Supply Chains

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a.The management of processes and supply chains goes beyond designing them; it requiresthe ability to ensure they achieve their goals.b.All effective operations decisions follow from a sound operations strategy.c.Thetext has three major parts:Part 1:“Managing Processes”Focus on analyzing processes and how they can be improved to meet the goals ofthe operations strategy.Part 2: “Managing Customer Demand”Focus of this part of the book is on effectively forecasting and managingcustomer demand.Part 3:“Managing Supply Chains”Focus of Part 3 is on supply chains involving processes both internal and externalto the firm and the tools that enhance their execution.5.Adding Value with Process Innovationa.Each part of an organization, not just the operations function, must design and operateprocesses that are part of a supply chain and deal with quality, technology, and staffingissues.b.Each function of an organization has its own identity and yet is connected with operationsthrough shared processes.

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Chapter2Process Strategyand AnalysisTEACHING TIPThis chapter focuses onprocess strategyand analysis, which specifies the pattern of decisionsmade in managing processes so that the processes will achieve their competitiveprioritiesassigned to it, such as quality, flexibility, time, and cost.Note that supply chains have processesalso, they just have external suppliers and customers.The chapter then provides some tools andperspectives of process analysisTEACHING TIPIntroduce witha business example, such asMcDonald’s Corporation.The openingillustratesthat careful design and execution of processes that appropriately reflect product designs andmarket trends ultimately drive business outcomes and financial success.1.Emphasize that processes are everywhere, in all functional areas of the enterprise.a.As explained in Chapter 1: processes are found in accounting, finance, human resources,management information systems, marketing,supply chain,and operations.b.They are the basic unit of work.2.Managers must see to it that processes in all departments are adding as much customer valueas possible.3.Two basic change strategies for analyzing and modifying processes: process reengineeringand process improvement4.Three particularly important principles concerning processstrategya.Successful processdecisionsrequire choices that fit the situation and make sense together(strategic fit).b.Individual processes are the building blocks that eventually create the firm’s wholesupply chain.c.Management must pay particular attention to the interfaces between processes whetherthey are performed internally orexternallyby outside suppliersor customers. Theseinterfacesunderscoretheneed for cross-functional coordination.5.Four common process decisionsa.Process structureb.Customer involvementc.Resource flexibilityd.Capitalintensity1.Process Structure in ServicesTEACHING TIP

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One of the first decisions a manager makes in designing a well-functioning process is to choose aprocess type that best achieves the relative importance of quality, time, flexibility, and cost forthat process.1.Nature of Service Processes: Customer Contacta.A good process strategy for a service process:Depends on the type and amount of customer contact.Customer contact: the extent to which the customer is present, is actively involved,and receives personal attention during the service process.b.Dimensions of customer contactPhysical presence (face-to-face interaction is sometimes called amoment of truth, orservice encounter)What is processedPeople-processing servicesPossession-processing servicesInformation-based servicesContact intensityActive contact: the customer is very much a part of the creation of the service,and affects the service process itself. Dental, psychiatric services for example.Passive contact: the customer is not involved in tailoring the process to meetspecial needs, or in how the process is performed. Public transportation, theaters,for example.Personal attentionWhen contact is more personal, the customer“experiences”the service ratherthan just receiving it.Method of delivery usedFace-to-faceor telephoneversusregular mail orstandardized e-mail message2.Customer-contact matrix (fitting theservice processes with customer contact)a.Customer contact andcustomizationA key competitive priority is how much customization is neededCompetitive priorities require more customization,the morethe customer ispresentand actively involved.b.Process divergence and flowProcessdivergence:extenttowhichtheprocessishighlycustomizedwithconsiderable latitude as to how it is performedHigh divergence involves much judgment and discretion. Consulting and law, forexampleLow divergence is more repetitive and standardized

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Process flow,closelyrelated to divergence, may range from highly diverse to linear.Flexible flow means movements in diverse ways.Line flow means movement in fixed sequence.3.Service process structuring (three process structures forming a continuum)a.Front office: a process with higher customer contact where the service provider interactsdirectly with the customerb.Hybrid office: a process with moderate levels of customer contact and standard serviceswith some options availablec.Back office: a process with low customer contact where the service provider interactslittle with the customerTEACHING TIPThe Ritz-CarltonHotel Company targets the top 1 to 3 percent of luxury traveler, and so gives ahuge emphasis on customization and top quality. The associates at the front desk characterize afront office, because the customers are present, take an active part in creating the service, receivepersonal attention, and have face-to-face contact.2.Process Structure in ManufacturingTEACHING TIPEmphasize that many processes in a manufacturing setting are actually services to internal (orexternal) customers, so the previous section applies also to manufacturing.Manufacturing processes convert materials into goods that have a physical form.1.Product-process matrixThree elementsVolumeProduct customizationProcesscharacteristicsA good strategy for a manufacturing structure depends first on volume.Customer contact is not normally a consideration for manufacturing processes, althoughit is a factor for the service processes in manufacturing organizations.Vertical dimensiondeals with the same two characteristics in the customer-contactmatrix: divergence and flow2.Manufacturing process structuringProcess choice: A way of structuring the process by organizing resources around theprocess or organizing them around the productsFour process choices, forming a continuumJob process, high variety of productsBatch process, higher volumes, batching of customer orders. Further differentiated assmall batch and large batch processes.

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Line process, high-volumes, standardized products, dedicated resources, repetitivemanufacturingContinuous flow process, the extreme end of high-volumes, rigid line flows. Primarymaterial moves without stopping.3.Production and inventory strategiesDesign-to-Order StrategyDesigning new products that do not currently existManufacturing to meet unique customer specificationsMake-to-order strategyMake products to customer specifications in low volumeswith job or small batchprocesses,Matches up with flexibility (customization) and top qualityAssemble-to-order strategyProducingawidevarietyofproductsfromrelativelyfewsubassembliesandcomponents after the customers orders are receivedAllows delivery speed andhigh process divergencePrinciple ofpostponementMake-to-stock strategyFeasiblefor standardized products with high volumesand reasonablyaccurateforecastswith line or continuous flow processesHolding items in stock for immediate deliveryCombined with line process, it is sometimes calledmass productionChoice for delivery speed and low cost4.LayoutAlayoutis the physical arrangement of operations (or departments) created from the variousprocesses and puts them in tangible formAnoperationis a group of human and capital resources performing all or part of one or moreprocesses.See Supplement K3.Process Strategy Decisions1.Customer InvolvementTEACHING TIPWhile eBay devised one way to accommodate the variability created by customer involvement,Starbucks faces a different kind of customer variability. Starbucks attempts to teach customers itsordering protocol. First, it provides a “guide-to-ordering pamphlet” for customers.Second, ittrains clerks to repeat the order in the correct sequence for the beverage makers, which may not

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be how the customer presented it. This process not only makes it easier for the beverage makers,but also indirectly “trains” the customer in how to place their orders.a.Possible advantagesImproved competitive capabilitiesCan increase value to customerCan improve quality for some services if the customer seeks to be more active and toreceive more attentionCan mean better quality and speed up delivery, or at least reduce the perceivedwaiting timeMight help when customization and high variety are highly valuedCosts can be reducedCustomers can perform final assembly: bicycles, toys for exampleCan also help coordinate across the supply chain.b.Emerging technologies: in a market where customers are technology-enabled, companiescan now engage in an active dialogue with customers and make them partners in creatingvalue.c.Possible disadvantagesCan be disruptive, making the process less efficientCan make the processtoodivergentQuality measurement becomes more difficultRequires more interpersonal skillsLayouts may have to be revisedCan require many smaller decentralized facilities closer to the customer or a mobileservice capability2.Resource Flexibilitya.WorkforceImplications of a flexible workforceRequires more education and trainingAlleviates capacity bottlenecks, volume flexibilityOften increased job satisfactionVolume flexibility and needed skills determine the type of workforce.Steady volume, high skills—permanent workforceVariable volume, low skills—part-time or temporary employees to supplementpermanent workforceVariable volume, highskills—trainedflexibleforcethat canbe moved toproduce whatever the market demands

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b.EquipmentManagers must account for process divergence and diverse process flows whenmaking resource flexibility decisions.Break-even analysis can be useful.Application 2.1Break-Even Analysis in Process Choice.BBC is deciding whether to weld bicycle frames manually or to purchase a weldingrobot. If welded manually, investment costs for equipment are only $10,000. The per-unitcost of manually welding a bicycle frame is $50.00 per frame. On the other hand, a robotcapable of performing the same work costs $400,000. Robot operating costs includingsupport labor are $20.00 per frame. At what volume would BBC be indifferent to thesealternative methods?If weldedmanually(Make)If welded byrobot(Buy)Fixed costs$10,000$400,000Variable costs$50$20mbbmccFFQ=frames000,135020000,300000,10Tutor2.2in myomlab demonstrates how to do a break-even analysis for equipmentselection.3.Capital Intensitya.Capital intensity is the mix of equipment and human skills in the process; the greater therelative cost of equipment, the greater is the capital intensity.b.Automating manufacturing processesAdvantageClassic way of improving productivity when volume is highDisadvantagesAutomated (capital intensive) operations must have high utilization.Automation may not fit with competitive priorities being emphasized.More capital intensity is not always best.TEACHING TIPGive business example, such as Gillette’s package customization.Fixed automation: a manufacturing process that produces one type of part or productin a fixed sequence of simple operationsHigh demand volumeStable product designLong life cycle

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TEACHING TIPMention chemicals and oil.Flexible(or programmable)automation: a manufacturing process that can be changedeasily to handle various products.Useful in bothlow-customization and high-customizationCan be quickly set up to make a variety of products in small batchesPerhaps show photos of the JustBorn robotsc.Automating service processesUsing capital inputs as a labor-saving device is also possible for service processes.Examples:Long-distance learning technologyATMsFinancial servicesNeed volume to justify expensive automation, just as in manufacturingMay be front or back officed.Economies of ScopeRequires a family of products having enough collective volume to utilize equipment fully

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4.Strategic FitThemanagerprocess strategist should understand how the four major process decisions tietogether.1.Decision patterns for service processesa.Process structureb.Customer involvementc.Resource flexibilityd.Capital intensity2.Decision patterns for manufacturing processesa.Process structureb.Customer involvementc.Resource flexibilityd.Capital intensity3.Gaining focusa.Focus by process segmentsPlants within plants (PWPs)b.Focused service operationsc.Focused factories5.Strategies for Change1.Process reengineeringTEACHING TIPMention Bell Atlantic reengineered its telephone business.After 5 years, it cut the time toconnect new customers from 16-days to just hours.a.Critical processesEmphasis is placed on core business processes.Processes are broadly defined in terms of costs and customer value.b.Strong leadershipSenior executives must provide a strong leadership for reengineering successc.Cross-functional teamsReengineering works best at high-involvement workplaces.d.Information technologyPrimary enabler of process engineering.e.Clean-slate philosophy

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Start with the way a customer wants to deal with the company.f.Process analysis.Understanding current processes can reveal areas where new thinking will providethe biggest payoff2.Process Improvementa.The systematic study of the activities and flows of each process to improve it.b.The purpose is to understand the process.3.Process Analysisa.The documentation and detailed understanding of how work is performed and how it canbe redesignedb.Six Sigma Process Improvement Model:employees must be trained in the “whys” andthe “how-tos” of process performance and what it means to customers, both internal andexternalDefine: the scope and boundaries of the process to be analyzed are first established.Measure: once the metrics are identified, it is time to collect information on how theprocess is currently performing on each one.Analyze:use the data on measures to perform process analysis to determine whereimprovements are necessary.Improve:design team generates a long list of ideas for improvements. These ideasare then sifted and analyzed.Control:monitortheprocesstomakesurethathighperformancelevelsaremaintained.6.Documenting and Evaluating the ProcessTEACHING TIPIntroducethis sectionwith business examples. It could be how processes were improved atMcDonald’s Corporation, whichincreased customer value with better processes, informed byinnovative data collection.1.Techniques give management insight on current processes and possible changes.a.flowchartsb.work measurementtechniquesc.process charts2.Flowchartsa.Diagrams that trace the flow of information, customers, equipment, or materials throughthe various steps of a process.b.Flowcharts show how organizations produce their outputs through a myriad of crossfunctional work processes, allowing the design team to see all the critical interfacesbetween functions and departments.

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c.Swim Lane FlowchartsA diagram that groups functional areas responsible for different sub-processes intolanes.It is most appropriate when business processes span several departmentalboundaries.d.Service blueprintsA special flowchart of a service process that shows which of its steps has highcustomer contact.Special feature: line of visibility that identifies which steps are visible to thecustomer.TEACHING TIPA more comprehensive treatment of work measurement techniques is provided in myomlabSupplement H, “Measuring Output Rates”Supplement I, “Learning Curve Analysis”3.Work Measurementtechniquesa.Time study methodSelecting the work elements within the process to be studiedTiming the elementsDetermining the sampling sizeSetting the final standardb.Elemental standard data approachDatabase of standards compiled internally for basic elementsWorks well when work elements within a certain jobs are similar to those in otherjobsSometimes the time required for a work element depends on variable characteristicsof the jobsc.Predetermined data approachPublished database that divides each work element even more, into micromotionsd.Work sampling methodEstimates proportion of time spent on different activitiesSupplement H, “Measuring Output Rates” in myomlabe.Learning curve analysisTakes into account learning that takes place on ongoing basisLearning curve and concept of doublingSupplement I, “Learning Curve Analysis” in myomlab4.Process Chartsa.Concentrates in more detail on a smaller number of steps than does a flowchart.

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b.It is an organized way of documenting all of the activities performed by a person or agroup of people at a workstation, with a customer, or working with certain materials.c.Five possible categoriesOperationTransportationInspectionDelayStoraged.Estimate the annual cost of the entire process.It becomes a benchmark against which other methods for performing the process canbe evaluated.Annual labor cost can be estimated by finding the product of(1) time in hours to perform the process each time(2) variable costs per hour(3) number of times the process is performed each yearTEACHING TIPMention Video Case:“Process Analysis at Starwood.” If possible, show the video thataccompanies it, using the questions at the end of the written case and the “pause point” in thevideo itself to encourage class discussion.5.Data analysis toolsa.Checklists: a form used to record the frequency of occurrence of certain process failures.b.Histograms and bar chartsHistogram: summarizes data measured on a continuous scale, showing the frequencydistribution of some process failures.Barchart:aseriesofbarsrepresentingthefrequencyofoccurrenceofdatacharacteristics measured on a yes-and-no basisUseFigure 2.11c.Pareto Charts: a bar chart on which the factors are plotted in decreasing order offrequency along the horizontal axis.UseExample2.2d.Scatter diagrams: a plot of two variables showing whether they are related.e.Cause-and-effect diagram: relates a key performance problem to its potential causes(sometimes called afishbone diagram).UseExample2.3f.Graphs: representations of data in a variety of pictorial forms, such as line and pie charts.Line charts (seethe“Quality and Performance”Chapter)

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Forecasting (see Chapter8, “Forecasting”)6.Data snoopinga.The power of the data analysis tools is greatest when they are used together.b.Data snooping is the use of the tools to sift data, clarify issues and deduce causes.c.UseExample2.47.Simulationa.The act of reproducing the behavior of a process using a model that describes each step ofthe process.b.Shows how the process performs dynamically over time.c.See SupplementE, “Simulation”7. Redesigningand ManagingProcessImprovements1.Generating ideas: questioning and brainstorminga.A questioning attitude: ask six questions about each step in the processWhatis being done?Whenis it being done?Whois doing it?Whereis it being done?Howis it being done?Howwell does it do on the various metrics of importance?TEACHING TIPFor each question, askwhy? As time permits, have the class “brainstorm” Solved Problem 2 onchanging auto engine oil.Have students shout out their ideas in rapid fire manner without timelost just yet for evaluation.2.Creativity can be stimulated by having a brainstorming session: a time when a group ofpeople, knowledgeable on the process propose ideas for change by saying whatever comes tomind3.Benchmarking:focuses on setting quantitative goals for improvementa.Competitive benchmarking is based on comparisons with a direct industry competitor.b.Functional benchmarking compares areas such as administration, customer service, andsales operations with those of outstanding firms in any industry.c.Internal benchmarking involves using an organizational unit with superior performanceas the benchmark for other units.4.Implementing:Seven mistakes to avoid in managing processes:a.Not connecting with strategic issuesb.Not involving the right people in the right way

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c.Not giving the design teams and process analysts a clear charter, and then holdingthem accountabled.Not being satisfied unless fundamental “reengineering” changes are madee.Not considering the impact on peoplef.Not giving attention to implementationg.Not creating an infrastructure for continuous improvement

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Chapter3Quality and PerformanceProcess performance and quality should be everyone’s concern.TEACHING TIPIntroduce withQVCas one example of a company that met the challenge by designing and managingprocesses that provide customers with total satisfaction.QVC’s relentless focus on quality andexceeding customer expectations by placing them at the center of its business processes has paid offhandsomely.TEACHING TIPThis chapter first addresses the costs of quality and then focusesonTotal Quality Management and SixSigma, twophilosophies and tools that many companies embrace toevaluate andimprovequality andperformance.If possible, show the videocase“Process Performance and Quality at Starwood Hotel &Resorts”.1.Costs of QualityAny instance whena process fails to satisfy a customer isconsidereda defect.Most experts estimate that the cost of quality range from 20 to 30 percent of gross sales.These costs can be broken down into four major categories.1.Preventioncostsa.Preventing defects before they happenb.Redesign the processes to remove causes of poor performancec.Redesign the service or product to make it simpler, easier to produced.Trainingemployeesin methods of continuous improvemente.Working withsuppliersto increase quality of purchased itemsor contracted services2.Appraisalcosts:a.Costs incurred to identify and assess performance problemsb.As prevention measures improve performance, appraisal costs decrease3.Internal failurecostsa.Rework—incurred if some aspect of a service or product must be performed again.b.Scrap—incurred if a defective itemis unfit for further processingTEACHING TIPMentionananalysis oftheviability of acquiring a companythat ismissing the company’s history ofenvironmental compliance,orpoor paint finish on a car,as examples.

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4.External failurecostsa.Costs when a defect is discovered after the customerreceivesthe service or product.b.Warranty service5.Ethical Failure Costsa.The societal and monetary costs associated with deceptively passing defective services orproducts to internal or external customers such that it jeopardizes the well being ofstockholders, customers, employees, partners, and creditorsb.Deceptive business practice involves three elements:the conduct of the provider is intentional and motivated by a desire to exploit the customerthe provider conceals the truth based upon what is actually known to the providerthe transaction is intended to generate a disproportionate economic benefit to the providerat the expense of the customer.c.Firms that engage in deception, however, undermine the ability and competence of theiremployees and demean their relationship with external customers.d.Ethical behavior falls on the shoulders of all employees of an organization2. Total Quality Managementand Six SigmaTotal quality management (TQM) is aphilosophy the stresses three principles for achieving highlevels of process quality and performance.(1)customer satisfaction(2) employee involvement(3) continuous improvement in performance.TEACHING TIPTQM also involves a number of important elements covered inthis text:tools and process analysis techniques useful for solving, redesign, and improvementinChapter2“ProcessStrategy andAnalysis”,Toyota Production System in Chapter6“Lean Systems”andProblem-solving tools in Supplement A “Decision Making”1.Customer satisfaction(internal or external): when customers’ expectations have been met orexceeded.a.Conformance to specificationsIt is the processes that produced the service or product that are really being judged.Specifications may relate to consistent quality, on-time delivery, or delivery speed.b.ValueHow well the service or product serves its intended purpose at a price customers arewilling to pay.c.Fitness for use: customer may consider the convenience of a service or the mechanicalfeatures of a product.d.Support: the serviceorproduct support may be as important to the customer as theservice or product itself.

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e.Psychologicalimpressions: atmosphere, image, or aestheticsTEACHING TIPMention Managerial Practice3.1 “Qualityat Verizon.”With its focus on quality in operations,products, services, and technology, it is not surprising that Verizon Wireless has built a greatreputation with its customer base and has also been recognized through several best wirelessservice awards.2.Employee involvementa.Cultural changeChallenge is to define customer for each employeeExternal customers buy the service or product.Internal customers are employees in the firm who rely on output of other employees.An assembly line is a chain of internal customer-supplier relationships, with anexternal customer purchasing the finished goods.Top management must motivate cultural change.Everyone is expected to contribute and share the view that quality control is an end toitselfQuality at the sourceb.TeamsEmployee involvement is a key tactic for improving processes and qualitySmall groups of peopleCommon purpose.Set their own performance goals and approachesHold themselves accountable for successThreeemployee-empowermentapproaches to teamworkProblem-solving teams (also calledquality circles)Special-purpose teamsSelf-managing teams, the highest level of worker participation3.Continuous Improvementa.Based on the Japanese concept,kaizenb.Thephilosophyof continually seeking ways to improveprocesses.c.Not unique to quality. Applies to process improvement as well.Getting startedSPC trainingMake SPC a normal aspect of daily operations.Build work teams and employee involvement.Utilize problem-solvingtoolswithin the work teams.

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Develop operator ownershipin the process.d.Problem-solving process: The Deming WheelPlan—select a process needing improvement, documentprocess, analyze data, setimprovement goals, discuss alternatives, assess benefits and costs, develop a plan andimprovement measures.Do—implement plan, monitor improvements.Study—analyze data to evaluate effectiveness of the plan.Act—document and disseminate improved process as a standard procedure.4.Six Sigmaa.Relies heavily on the principles of TQM and is a comprehensive and flexible system forachieving, sustaining, and maximizing business success by minimizing defects and variabilityin processes.b.It is driven by a close understanding of customer needs; the disciplined use of facts, data, andstatistical analysis; and diligent attention to managing, improving, and reinventing businessprocesses.TEACHING TIPDiscuss the roles of Motorola and GE.c.Six Sigma:A comprehensive and flexible system for achieving, sustaining, and maximizingbusiness success by minimizing defects and variability in processes.3.Acceptance Sampling1.The application of statistical techniques to determine if a quality of material should be accepted orrejected based on the inspection or test of a sample.2.Acceptable quality level (AQL) is a statement of the proportion of defective items that will beaccepted.3.In a supply chain, any company can be both a producer of goods purchased by another companyand a consumer of goods or raw materials supplied by another company.a.The buyer’s specifications for various dimensions of quality become the targets the suppliershoots for in a supply contract.b.The supplier’s internal processes must be up to the task; TQM or Six Sigma can help achievethe desired performance.c.The buyer’s sampling plan will provide a high probability of accepting AQL (or better).4.Supplement G, “Acceptance Sampling Plans,” in myomlab shows how to design an acceptancesampling plan that meets the level of risk desired.4. Statistical Process ControlTEACHING TIP

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Relateto tools discussed in Chapter2: checklists, histograms and bar charts, Pareto charts,scatter diagrams, cause-and-effect diagrams, and graphs.Statistical process control (SPC): The application of statistical techniques to determine whether aprocess is delivering what a customer wants. Control charts are primarily used to detect defects.1.Examples of process change that can be detected by SPCa.A decrease in the average number of complaints per day at a hotelb.A sudden increase in the proportion of defective gear boxesc.An increase in the time to process a mortgage applicationd.A decline in the number of scrapped units at a milling machinee.An increase in the number of scrapped units at a milling machine2.Variation of outputsa.Performance measurementsVariables—service or product characteristics measured on a continuous scaleAdvantage: if defective, we know by how much—the direction and magnitudeof corrections are indicated.Disadvantage:measurementstypicallyinvolve specialequipment,employeeskills, exacting procedures, and time and effort.Attributes—a characteristic counted in discrete units, (yes-no, integer number)thatcould be quickly counted.Used to determine conformance to complex specifications, or when measuringvariables is too costly.Advantages:Quickly reveals when quality has changed, provides an integer number ofhow manyare defective.Requires less effort, and fewer resources than measuring variables.Disadvantages:Doesn't show byhow muchthey were defective, the direction and magnitudeof corrections are not indicated.Requiresmoreobservations,sinceeachobservationprovideslittleinformation.b.SamplingComplete inspectionUsed whenCosts of failure are high relative to costs of inspection.Inspection is automatedSampling plansUsed when

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Inspection costs are highInspection destroys the productSampling plans includeSample size,nrandom observationsTime between successive samplesDecision rules that determine when action should be takenc.Sampling distributionsThe distribution of sample means can be approximated bythe normal distribution(reference the central limit theorem described in statistics texts).TEACHING TIPIt is important to distinguishthe relationshipbetween the distribution of sample means and theprocess distribution itselfsamplerangestandarddeviationd.Common causesRandom, or unavoidable sources of variation within a process.TEACHING TIPMention, asanexample, the time to process specimens at an intensive-care unit lab in a hospital.Characteristics of distributionsLocation—measured by the meanof the distributionSpread—measured by the range or standard deviationShape—whether the observations are symmetrical or skewede.Assignable causesAny cause of variation that can be identified and eliminated.Changein the mean, spread, or shape of a process distribution is a symptom that anassignable cause of variation has developed.Aftera process is in statistical control, SPC is used to detectsignificant change,indicating the need for corrective action.3.Control chartsa.A control chart has a nominal value, or center line, which can be the process’s historic averageor a targetthatmanagers would like the process to achieve.b.A sample characteristic measured above the upper control limit (UCL) or below the lowercontrol limit (LCL) indicates that an assignable cause probably exists.Steps for using a control chart:Take a random sample, measure the quality characteristic, and calculate a variable orattribute performance measure.

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Plot the statistic; if it falls outside the control limits, look for assignable causes.Eliminate the cause if it degrades performance. Incorporate the cause if it improvesperformance. Recalculate the control chart.Periodically repeat the procedure.c.Indicators of out of control conditionsA trend in the observations (the process is drifting).A sudden or step change in the observations.A run of five or more observations on the same side of the mean (If we flip a coin and get“heads” five times in a row, we become suspicious of the coin or of the coin flippingprocess.)Several observations near the control limits (Normally only 1 in 20 observations are morethan 2 standard deviations from the mean.)One or more observations outside of the control limitsd.Two types of error are possible with the use of control chartsType IType IITEACHING TIPIf possible use ExperientialLearning “Statistical Process Control with a Coin Catapult.” Exercise A:Control Charts for Variables.Exercise B: Control Charts for Attributes4.Control charts for variablesused to monitor the mean and the variability of the processdistribution.a.R-Charts (also known as range charts)Monitor process variabilityFirst remove assignable causes of variation.While process is instatisticalcontrol, collect data to estimate the average range ofoutput that occurs.To establish the upper and lower control limits for theR-chart, we use Table3.1,which provides two factors;D3andD4. These factors establish theUCLRandLCLRat three standard deviations above and belowR.RDLCLRDUCLRR34

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