Operations Management: Sustainability and Supply Chain Management, Second Canadian Edition Solution Manual
Operations Management: Sustainability and Supply Chain Management, Second Canadian Edition Solution Manual simplifies even the toughest textbook questions with step-by-step solutions and easy explanations.
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SOLUTIONS MANUAL
Paul Griffin
Humber Institute of Technology and Advanced Learning
Operations Management
Second Canadian Edition
Jay Heizer
Barry Render
Paul Griffin
Paul Griffin
Humber Institute of Technology and Advanced Learning
Operations Management
Second Canadian Edition
Jay Heizer
Barry Render
Paul Griffin
Contents
Chapter 1: Operations and Productivity 1
Chapter 2: Operations Strategy in a Global Environment 7
Chapter 3: Project Management 11
Chapter 4: Forecasting 26
Chapter 5: Sustainability in the Supply Chain and the Design of Goods and Services 47
Chapter 6: Managing Quality 59
Chapter 6 - Supplement: Statistical Process Control 72
Chapter 7: Process Strategy and Sustainability 85
Chapter 7 - Supplement: Capacity and Constraint Management 93
Chapter 8: Location Strategies 104
Chapter 9: Layout Strategies 115
Chapter 10: Human Resources, Job Design, and Work Measurement 133
Chapter 11: Supply-Chain Management 152
Chapter 11 - Supplement: Supply-Chain Management Analytics 160
Chapter 12: Inventory Management 166
Chapter 13: Aggregate Planning and sales and Operations Planning 181
Chapter 14: Material Requirements Planning (MRP) and ERP 204
Chapter 15: Short-Term Scheduling 230
Chapter 16: JIT and Lean Operations 243
Chapter 17: Maintenance and Reliability 247
Module A: Decision-Making Tools 252
Module B: Linear Programming 264
Module C: Transportation Models 282
Module D: Waiting-Line Models 304
Module E: Learning Curves 318
Module F: Simulation 323
Chapter 1: Operations and Productivity 1
Chapter 2: Operations Strategy in a Global Environment 7
Chapter 3: Project Management 11
Chapter 4: Forecasting 26
Chapter 5: Sustainability in the Supply Chain and the Design of Goods and Services 47
Chapter 6: Managing Quality 59
Chapter 6 - Supplement: Statistical Process Control 72
Chapter 7: Process Strategy and Sustainability 85
Chapter 7 - Supplement: Capacity and Constraint Management 93
Chapter 8: Location Strategies 104
Chapter 9: Layout Strategies 115
Chapter 10: Human Resources, Job Design, and Work Measurement 133
Chapter 11: Supply-Chain Management 152
Chapter 11 - Supplement: Supply-Chain Management Analytics 160
Chapter 12: Inventory Management 166
Chapter 13: Aggregate Planning and sales and Operations Planning 181
Chapter 14: Material Requirements Planning (MRP) and ERP 204
Chapter 15: Short-Term Scheduling 230
Chapter 16: JIT and Lean Operations 243
Chapter 17: Maintenance and Reliability 247
Module A: Decision-Making Tools 252
Module B: Linear Programming 264
Module C: Transportation Models 282
Module D: Waiting-Line Models 304
Module E: Learning Curves 318
Module F: Simulation 323
Contents
Chapter 1: Operations and Productivity 1
Chapter 2: Operations Strategy in a Global Environment 7
Chapter 3: Project Management 11
Chapter 4: Forecasting 26
Chapter 5: Sustainability in the Supply Chain and the Design of Goods and Services 47
Chapter 6: Managing Quality 59
Chapter 6 - Supplement: Statistical Process Control 72
Chapter 7: Process Strategy and Sustainability 85
Chapter 7 - Supplement: Capacity and Constraint Management 93
Chapter 8: Location Strategies 104
Chapter 9: Layout Strategies 115
Chapter 10: Human Resources, Job Design, and Work Measurement 133
Chapter 11: Supply-Chain Management 152
Chapter 11 - Supplement: Supply-Chain Management Analytics 160
Chapter 12: Inventory Management 166
Chapter 13: Aggregate Planning and sales and Operations Planning 181
Chapter 14: Material Requirements Planning (MRP) and ERP 204
Chapter 15: Short-Term Scheduling 230
Chapter 16: JIT and Lean Operations 243
Chapter 17: Maintenance and Reliability 247
Module A: Decision-Making Tools 252
Module B: Linear Programming 264
Module C: Transportation Models 282
Module D: Waiting-Line Models 304
Module E: Learning Curves 318
Module F: Simulation 323
Chapter 1: Operations and Productivity 1
Chapter 2: Operations Strategy in a Global Environment 7
Chapter 3: Project Management 11
Chapter 4: Forecasting 26
Chapter 5: Sustainability in the Supply Chain and the Design of Goods and Services 47
Chapter 6: Managing Quality 59
Chapter 6 - Supplement: Statistical Process Control 72
Chapter 7: Process Strategy and Sustainability 85
Chapter 7 - Supplement: Capacity and Constraint Management 93
Chapter 8: Location Strategies 104
Chapter 9: Layout Strategies 115
Chapter 10: Human Resources, Job Design, and Work Measurement 133
Chapter 11: Supply-Chain Management 152
Chapter 11 - Supplement: Supply-Chain Management Analytics 160
Chapter 12: Inventory Management 166
Chapter 13: Aggregate Planning and sales and Operations Planning 181
Chapter 14: Material Requirements Planning (MRP) and ERP 204
Chapter 15: Short-Term Scheduling 230
Chapter 16: JIT and Lean Operations 243
Chapter 17: Maintenance and Reliability 247
Module A: Decision-Making Tools 252
Module B: Linear Programming 264
Module C: Transportation Models 282
Module D: Waiting-Line Models 304
Module E: Learning Curves 318
Module F: Simulation 323
1
1C H A P T E R
Operations and Productivity
DISCUSSION Q UESTIONS
1. The text suggests four reasons to study OM. We want to under-
stand (1) how people organize themselves for productive enterprise,
(2) how goods and services are produced, (3) what operations
managers do, and (4) this costly part of our economy and most
enterprises.
2. Possible responses include: Adam Smith (work specialization/
division of labour), Charles Babbage (work specialization/division
of labour), Frederick W. Taylor (scientific management), Walter
Shewart (statistical sampling and quality control), Henry Ford
(moving assembly line), Charles Sorensen (moving assembly line),
Frank and Lillian Gilbreth (motion study), Eli Whitney (standardi-
zation).
3. See references in the answer to Question 2.
4. The actual charts will differ, depending on the specific organ-
ization the student chooses to describe. The important thing is
for students to recognize that all organizations require, to a great-
er or lesser extent, (a) the three primary functions of operations,
finance/accounting, and marketing; and (b) that the emphasis or
detailed breakdown of these functions is dependent on the spe-
cific competitive strategy employed by the firm.
5. The answer to this question may be similar to that for Question
4. Here, however, the student should be encouraged to utilize a
more detailed knowledge of a past employer and indicate on the
chart additional information such as the number of persons em-
ployed to perform the various functions and, perhaps, the position
of the functional areas within the overall organization hierarchy.
6. The basic functions of a firm are marketing, accounting/
finance, and operations. An interesting class discussion: “Do all
firms/organizations (private, government, not-for-profit) perform
these three functions?” The authors’ hypothesis is yes, they do.
7. The 10 decisions of operations management are product
design, quality, process, location, layout, human resources,
supply-chain management, inventory, scheduling (aggregate and
short term), and maintenance. We find this structure an excellent
way to help students organize and learn the material.
8. Four areas that are important to improving labour productivi-
ty are: (1) basic education (basic reading and math skills), (2) diet
of the labour force, (3) social overhead that makes labour avail-
able (water, sanitation, transportation, etc.), and (4) maintaining
and expanding the skills necessary for changing technology and
knowledge, as well as for teamwork and motivation.
9. Productivity is harder to measure when the task becomes
more intellectual. A knowledge society implies that work is more
intellectual and therefore harder to measure. Because Canada (and
many other countries) are increasingly “knowledge” societies,
productivity is harder to measure. Using labour hours as a meas-
ure of productivity for a postindustrial society vs. an industrial or
agricultural society is very different. For example, decades spent
developing a marvelous new drug or winning a very difficult legal
case on intellectual property rights may be significant for post-
industrial societies, but not show much in the way of productivity
improvement measured in labour hours.
10. Productivity is difficult to measure because precise units of
measure may be lacking, quality may not be consistent, and
exogenous variables may change.
11. Mass customization is the flexibility to produce in order to
meet specific customer demands, without sacrificing the low
cost of a product oriented process. Rapid product development is
a source of competitive advantage. Both rely on agility within
the organization.
12. Labour productivity in the service sector is hard to
improve because (1) many services are labour intensive and (2)
they are individually (personally) processed (the customer is
paying for that service—the haircut), (3) it may be an intellec-
tual task performed by professionals, (4) it is often difficult to
mechanize and automate, and (5) it is often difficult to evaluate
for quality.
13. Taco Bell designed meals that were easy to prepare; with
actual cooking and food preparation done elsewhere; automation
to save preparation time; reduced floor space; manager training to
increase span of control.
ETHICAL DILEMMA
With most of the ethical dilemmas in the text, the instructor
should generate plenty of discussion. The authors are hesitant to
endorse a particular correct answer, and students may well be on
both sides of this dilemma.
Many students will be inclined to accept the child labour
laws of their home country. For instance, Americans accept
teenagers working. But Germans (and others) are more likely to
expect teenagers to be home studying or in an apprentice program;
they frown upon teenagers working. Students raised in more
affluent environments may not understand children working.
However, those who had to scrape by in their youth or had parents
that did may be more sympathetic to 10-year-olds working.
From an economic and self-preservation perspective many
10-year-olds do work and need to work. There are still a lot of
poor people in the world. Such a decision may endorse the moral
philosophy perspective defined as a utilitarianism decision.
A utilitarianism decision defines acceptable actions as those that
1C H A P T E R
Operations and Productivity
DISCUSSION Q UESTIONS
1. The text suggests four reasons to study OM. We want to under-
stand (1) how people organize themselves for productive enterprise,
(2) how goods and services are produced, (3) what operations
managers do, and (4) this costly part of our economy and most
enterprises.
2. Possible responses include: Adam Smith (work specialization/
division of labour), Charles Babbage (work specialization/division
of labour), Frederick W. Taylor (scientific management), Walter
Shewart (statistical sampling and quality control), Henry Ford
(moving assembly line), Charles Sorensen (moving assembly line),
Frank and Lillian Gilbreth (motion study), Eli Whitney (standardi-
zation).
3. See references in the answer to Question 2.
4. The actual charts will differ, depending on the specific organ-
ization the student chooses to describe. The important thing is
for students to recognize that all organizations require, to a great-
er or lesser extent, (a) the three primary functions of operations,
finance/accounting, and marketing; and (b) that the emphasis or
detailed breakdown of these functions is dependent on the spe-
cific competitive strategy employed by the firm.
5. The answer to this question may be similar to that for Question
4. Here, however, the student should be encouraged to utilize a
more detailed knowledge of a past employer and indicate on the
chart additional information such as the number of persons em-
ployed to perform the various functions and, perhaps, the position
of the functional areas within the overall organization hierarchy.
6. The basic functions of a firm are marketing, accounting/
finance, and operations. An interesting class discussion: “Do all
firms/organizations (private, government, not-for-profit) perform
these three functions?” The authors’ hypothesis is yes, they do.
7. The 10 decisions of operations management are product
design, quality, process, location, layout, human resources,
supply-chain management, inventory, scheduling (aggregate and
short term), and maintenance. We find this structure an excellent
way to help students organize and learn the material.
8. Four areas that are important to improving labour productivi-
ty are: (1) basic education (basic reading and math skills), (2) diet
of the labour force, (3) social overhead that makes labour avail-
able (water, sanitation, transportation, etc.), and (4) maintaining
and expanding the skills necessary for changing technology and
knowledge, as well as for teamwork and motivation.
9. Productivity is harder to measure when the task becomes
more intellectual. A knowledge society implies that work is more
intellectual and therefore harder to measure. Because Canada (and
many other countries) are increasingly “knowledge” societies,
productivity is harder to measure. Using labour hours as a meas-
ure of productivity for a postindustrial society vs. an industrial or
agricultural society is very different. For example, decades spent
developing a marvelous new drug or winning a very difficult legal
case on intellectual property rights may be significant for post-
industrial societies, but not show much in the way of productivity
improvement measured in labour hours.
10. Productivity is difficult to measure because precise units of
measure may be lacking, quality may not be consistent, and
exogenous variables may change.
11. Mass customization is the flexibility to produce in order to
meet specific customer demands, without sacrificing the low
cost of a product oriented process. Rapid product development is
a source of competitive advantage. Both rely on agility within
the organization.
12. Labour productivity in the service sector is hard to
improve because (1) many services are labour intensive and (2)
they are individually (personally) processed (the customer is
paying for that service—the haircut), (3) it may be an intellec-
tual task performed by professionals, (4) it is often difficult to
mechanize and automate, and (5) it is often difficult to evaluate
for quality.
13. Taco Bell designed meals that were easy to prepare; with
actual cooking and food preparation done elsewhere; automation
to save preparation time; reduced floor space; manager training to
increase span of control.
ETHICAL DILEMMA
With most of the ethical dilemmas in the text, the instructor
should generate plenty of discussion. The authors are hesitant to
endorse a particular correct answer, and students may well be on
both sides of this dilemma.
Many students will be inclined to accept the child labour
laws of their home country. For instance, Americans accept
teenagers working. But Germans (and others) are more likely to
expect teenagers to be home studying or in an apprentice program;
they frown upon teenagers working. Students raised in more
affluent environments may not understand children working.
However, those who had to scrape by in their youth or had parents
that did may be more sympathetic to 10-year-olds working.
From an economic and self-preservation perspective many
10-year-olds do work and need to work. There are still a lot of
poor people in the world. Such a decision may endorse the moral
philosophy perspective defined as a utilitarianism decision.
A utilitarianism decision defines acceptable actions as those that
2 CHAPTER 1 O P E R A T I O N S A N D P R O D U C T I V I T Y
maximize total utility, i.e., the greatest good for the greatest
number of people.
From a Canadian corporate management perspective,
companies cannot tolerate the publicity that goes with hiring 10-
year-olds. These companies need to have standards that prohibit
such actions by their subcontractors. The moral philosophy per-
spective might call this the virtue ethics position—the decision
that a mature person with a good moral character would deem
correct.
END- OF-CHAPTER PROBLEMS
120 boxes
(a) = 3.0 boxes/hour
40 hours
1.1
125 boxes
(b) = 3.125 boxes/hour
40 hours
(c) Change in productivity = 0.125 boxes/hour
(d) 0.125 boxes
Percentage change = = 4.166%
3.0
1.2 (a) Labour productivity is 160 valves/80 hours = 2 valves
per hour.
(b) New labour productivity = 180 valves / 80 hours =
2.25 valves per hour
(c) Percentage change in productivity = .25 valves / 2
valves = 12.5%
1.3 57,600
0.15 = , where number of labourers
(160)(12)( ) employed at the plant
L
L =
So 57,600
= = 200
(160)(12)(0.15)
L labourers employed
1.4 The U.S. Bureau of Labor Statistics (stats.bls.gov) is prob-
ably as good a place to start as any. Results will vary for each
year, but overall data for the economy will range from .9% to
4.8% and mfg. could be as high as 5% and services between 1%
and 2%. The data will vary even more for months or quarters. The
data are frequently revised, often substantially.
Units produced 100 pkgs
(a) = = 20 pkgs/hour
Input 5
1.5
133 pkgs
(b) = 26.6 pkgs per hour
5
6.6
(c) Increase in productivity = = 33.0%
20
1.6 Resource Last Year This Year Change Percent Change
Labour 1, 000 = 3.33
300
1, 000 = 3.64
275
0.31 0.31 = 9.3%
3.33
Resin 1, 000 = 20
50
1, 000 = 22.22
45
2.22 2.22 = 11.1%
20
Capital 1, 000 = 0.1
10, 000
1, 000 = 0.09
11, 000 –0.01
–0.01 = –10.0%
0.1
Energy 1, 000 = 0.33
3, 000
1, 000 = 0.35
2, 850 0.02
0.02 = 6.1%
0.33
1.7 Last Year This Year
Production 1,000 1,000
Labour hr. @ $10 $3,000 $2,750
Resin @ $5 250 225
Capital cost/month 100 110
Energy 1,500 1,425
$4,850 $4,510
[(1,000/4,850) (1,000/4,510)]
(1,000/4,850)
0.206–0.222 –0.016
= = 0.078 fewer resources
0.206 0.206
7.8% improvement*
* with rounding to 3 decimal places.
Output
Productivity = Input
1.8
65 65
(a) Labour productivity = =
(520 × 13) $6,760
= 0.0096 rugs per labour $
65Multifactor(b) productivity (520 × $13) + (100 × $5) + (20 × $50)
65
= = 0.00787 rugs per $
$8, 260
1.9 (a) Labour productivity = 1,000 tires/400 hours = 2.5
tires/hour.
(b) Multifactor productivity is 1,000 tires/(400 ×
$12.50 + 20,000 × $1 + $5,000 + $10,000) =
1,000 tires/$40,000 = 0.025 tires/dollar.
(c) Multifactor productivity changes from 1,000/40,000 to
1,000/39,000, or from 0.025 to 0.02564; the ratio is
1.0256, so the change is a 2.56 percent increase.
maximize total utility, i.e., the greatest good for the greatest
number of people.
From a Canadian corporate management perspective,
companies cannot tolerate the publicity that goes with hiring 10-
year-olds. These companies need to have standards that prohibit
such actions by their subcontractors. The moral philosophy per-
spective might call this the virtue ethics position—the decision
that a mature person with a good moral character would deem
correct.
END- OF-CHAPTER PROBLEMS
120 boxes
(a) = 3.0 boxes/hour
40 hours
1.1
125 boxes
(b) = 3.125 boxes/hour
40 hours
(c) Change in productivity = 0.125 boxes/hour
(d) 0.125 boxes
Percentage change = = 4.166%
3.0
1.2 (a) Labour productivity is 160 valves/80 hours = 2 valves
per hour.
(b) New labour productivity = 180 valves / 80 hours =
2.25 valves per hour
(c) Percentage change in productivity = .25 valves / 2
valves = 12.5%
1.3 57,600
0.15 = , where number of labourers
(160)(12)( ) employed at the plant
L
L =
So 57,600
= = 200
(160)(12)(0.15)
L labourers employed
1.4 The U.S. Bureau of Labor Statistics (stats.bls.gov) is prob-
ably as good a place to start as any. Results will vary for each
year, but overall data for the economy will range from .9% to
4.8% and mfg. could be as high as 5% and services between 1%
and 2%. The data will vary even more for months or quarters. The
data are frequently revised, often substantially.
Units produced 100 pkgs
(a) = = 20 pkgs/hour
Input 5
1.5
133 pkgs
(b) = 26.6 pkgs per hour
5
6.6
(c) Increase in productivity = = 33.0%
20
1.6 Resource Last Year This Year Change Percent Change
Labour 1, 000 = 3.33
300
1, 000 = 3.64
275
0.31 0.31 = 9.3%
3.33
Resin 1, 000 = 20
50
1, 000 = 22.22
45
2.22 2.22 = 11.1%
20
Capital 1, 000 = 0.1
10, 000
1, 000 = 0.09
11, 000 –0.01
–0.01 = –10.0%
0.1
Energy 1, 000 = 0.33
3, 000
1, 000 = 0.35
2, 850 0.02
0.02 = 6.1%
0.33
1.7 Last Year This Year
Production 1,000 1,000
Labour hr. @ $10 $3,000 $2,750
Resin @ $5 250 225
Capital cost/month 100 110
Energy 1,500 1,425
$4,850 $4,510
[(1,000/4,850) (1,000/4,510)]
(1,000/4,850)
0.206–0.222 –0.016
= = 0.078 fewer resources
0.206 0.206
7.8% improvement*
* with rounding to 3 decimal places.
Output
Productivity = Input
1.8
65 65
(a) Labour productivity = =
(520 × 13) $6,760
= 0.0096 rugs per labour $
65Multifactor(b) productivity (520 × $13) + (100 × $5) + (20 × $50)
65
= = 0.00787 rugs per $
$8, 260
1.9 (a) Labour productivity = 1,000 tires/400 hours = 2.5
tires/hour.
(b) Multifactor productivity is 1,000 tires/(400 ×
$12.50 + 20,000 × $1 + $5,000 + $10,000) =
1,000 tires/$40,000 = 0.025 tires/dollar.
(c) Multifactor productivity changes from 1,000/40,000 to
1,000/39,000, or from 0.025 to 0.02564; the ratio is
1.0256, so the change is a 2.56 percent increase.
CHAPTER 1 O P E R A T I O N S A N D P R O D U C T I V I T Y 3
1.10 Last Year This Year Change Percent Change
Labour hrs. 1,500 = 4.29
350
1,500 = 4.62
325
0.33
4.29 = 7.7%
Capital invested 1,500 = 0.10
15, 000
1,500 = 0.08
18, 000
– 0.02
0.1 = –20%
Energy (BTU) 1,500 = 0.50
3, 000
1,500 = 0.55
2,750
0.05
0.50 = 10%
Productivity of capital did drop; labour productivity increased as did energy, but by less than the anticipated 15%.
1.11 Multifactor productivity is:
375 autos/[($20 × 10,000) + ($1,000 × 500) +
($3 × 100,000)] = 375/(200,000 + 500,000 +
300,000) = 375/1,000,000
= 0.000375 autos per dollar of inputs
1.12 (a) Before: 500/20 = 25 boxes per hour;
After, 650/24 = 27.08
(b) 27.08/25
= 1.083, or an increase of 8.3% in productivity
(c) New labour productivity = 700 / 24 = 29.167
boxes per hour
1.13 1,500 × 1.25 = 1,875 (new demand)
Outputs = Productivity
Inputs
1,875 = 2.344
labour hours
1,875
New process = 800 labour hours
2.344
800 = 5 workers
160
1,500
Current process = = 2.344
labour hours
1,500 = labour hours 640
2.344
640 = 4 worke
160 rs
Add one worker.
1.14 (a) Labour change:
1,500 1,500
= = 0.293 loaves/$
(640 × $8) 5,120
1,875 = 0.293 loaves/$
(800 × $8)
(b) Investment change:
1,500 1,500
= = 0.293 loaves/$
(640 × $8) 5,120
1,875 1,875
= = 0.359 loaves/$
(640 × 8) + (100) 5,220
.293 .293
(c) Percent change : = 0 (labour)
.293
.359 .293
Percent change : = 0 .225
.293
= 22.5% (investment)
1,500
Old process = (640 8) + 500 + (1,500 0.35)
1,500
= = 0.244
6,145
1,875
New process = (800 8) + 500 + (1,875 0.35)
1,875
= = 0.248
7,556.25
0.248-0.244
Percent change = = 1.6%
0.244
1.15
labour
labour
6,600 vans
(a) = 0.10
hours
= 66,000 hours
x
x
1.16
There are 300 labour ers. So,
66,000 labour hours = 220 labour hours/labourer on average, per month
300 labourers
6,600 vans
(b) Now = 0.11, so 60,000 labour hour
labour hours
60,000 labour hours
so, 200 labour hours/labourer
300 laborers on average, per month
x
x
Labour
labour
$ output 52($90) + 80($198)
=
hour 8(45)
20,520
= = $57.00 per hour
360
1.17
1.10 Last Year This Year Change Percent Change
Labour hrs. 1,500 = 4.29
350
1,500 = 4.62
325
0.33
4.29 = 7.7%
Capital invested 1,500 = 0.10
15, 000
1,500 = 0.08
18, 000
– 0.02
0.1 = –20%
Energy (BTU) 1,500 = 0.50
3, 000
1,500 = 0.55
2,750
0.05
0.50 = 10%
Productivity of capital did drop; labour productivity increased as did energy, but by less than the anticipated 15%.
1.11 Multifactor productivity is:
375 autos/[($20 × 10,000) + ($1,000 × 500) +
($3 × 100,000)] = 375/(200,000 + 500,000 +
300,000) = 375/1,000,000
= 0.000375 autos per dollar of inputs
1.12 (a) Before: 500/20 = 25 boxes per hour;
After, 650/24 = 27.08
(b) 27.08/25
= 1.083, or an increase of 8.3% in productivity
(c) New labour productivity = 700 / 24 = 29.167
boxes per hour
1.13 1,500 × 1.25 = 1,875 (new demand)
Outputs = Productivity
Inputs
1,875 = 2.344
labour hours
1,875
New process = 800 labour hours
2.344
800 = 5 workers
160
1,500
Current process = = 2.344
labour hours
1,500 = labour hours 640
2.344
640 = 4 worke
160 rs
Add one worker.
1.14 (a) Labour change:
1,500 1,500
= = 0.293 loaves/$
(640 × $8) 5,120
1,875 = 0.293 loaves/$
(800 × $8)
(b) Investment change:
1,500 1,500
= = 0.293 loaves/$
(640 × $8) 5,120
1,875 1,875
= = 0.359 loaves/$
(640 × 8) + (100) 5,220
.293 .293
(c) Percent change : = 0 (labour)
.293
.359 .293
Percent change : = 0 .225
.293
= 22.5% (investment)
1,500
Old process = (640 8) + 500 + (1,500 0.35)
1,500
= = 0.244
6,145
1,875
New process = (800 8) + 500 + (1,875 0.35)
1,875
= = 0.248
7,556.25
0.248-0.244
Percent change = = 1.6%
0.244
1.15
labour
labour
6,600 vans
(a) = 0.10
hours
= 66,000 hours
x
x
1.16
There are 300 labour ers. So,
66,000 labour hours = 220 labour hours/labourer on average, per month
300 labourers
6,600 vans
(b) Now = 0.11, so 60,000 labour hour
labour hours
60,000 labour hours
so, 200 labour hours/labourer
300 laborers on average, per month
x
x
Labour
labour
$ output 52($90) + 80($198)
=
hour 8(45)
20,520
= = $57.00 per hour
360
1.17
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4 CHAPTER 1 O P E R A T I O N S A N D P R O D U C T I V I T Y
21
ADDITIONAL HOMEWORK PROBLEMS
(found at www.myomlab.com.)
1500
Last Year = (350 10) + (15,000 0.0083) + (3,000 0.6)
1.18
= + +
1500
3,500 124.50 1800
= =
1500 0.277 dos / $
5424.50
1500
This Year = (325 10) + (18,000 0.0083) + (2750 0.6)
=0.297 doz / $
-
=
0.297 0.277
Percent Change = 0.277
0.072 or 7.2% increase
CASE STUDY
NATIONAL AIR EXPRESS
This case can be used to introduce the issue of productivity and
how to improve it, as well as the difficulty of good consistent
measures of productivity. This case can also be used to intro-
duce some of the techniques and concepts of OM.
1. The number of stops per driver is certainly a good place to
start. However, mileage and number of shipments will probably
be good additional variables. (Regression techniques, addressed in
Chapter 4, can be addressed here to generate interest.)
2. Customer service should be based on an analysis of customer
requirements. Document requirements in terms of services desired
(supply needs, preprinted waybills, package weights, pickup and
drop-off requirements) should all be considered. (The house of
quality technique discussed in Chapter 5 is one approach for such
an analysis.)
3. Other companies in the industry do an effective job of
establishing very good labour standards for their drivers,
sorters, and phone personnel. Difficult perhaps, but doable.
(The work measurement supplement to Chapter 10 addresses
labour standards.)
VIDEO CASE STUDIES
FRITO-LAY: OPERATIONS MANAGEMENT
IN MANUFACTURING
This case provides a great opportunity for an instructor to stimulate
a class discussion early in the course about the pervasiveness of the
10 decisions of OM with this case alone or in conjunction with the
Hard Rock Cafe case. A short video accompanies the case.
1. From your knowledge of production processes and from the
case and the video, identify how each of the 10 decisions of OM
is applied at Frito-Lay:
Product design: Each of Frito-Lay’s 40-plus products must
be conceived, formulated (designed), tested (market studies,
focus groups, etc.), and evaluated for profitability.
Quality: The standards for each ingredient, including its
purity and quality, must be determined.
Process: The process that is necessary to produce the product
and the tolerance that must be maintained for each ingredient
by each piece of equipment must be specified and procured.
Location: The fixed and variable costs of the facility, as well
as the transportation costs in and the delivery distance, given
the freshness, must be determined.
Layout: The Frito-Lay facility would be a process facility,
with great care given to reducing movement of material
within the facility.
Human resources: Machine operators may not have
inherently enriched jobs, so special consideration must be
given to developing empowerment and enriched jobs.
Supply chain: Frito-Lay, like all other producers of food
products, must focus on developing and auditing raw
material from the farm to delivery.
Inventory: Freshness and spoilage require constant effort to
drive down inventories.
Scheduling: The demand for high utilization of a capital-
intensive facility means effective scheduling will be
important.
Maintenance: High utilization requires good maintenance, from
machine operator to the maintenance department and depot
service.
2. How would you determine the productivity of the production
processes at Frito-Lay?
Determining output (in some standard measure, perhaps pounds)
and labour hours would be a good start for single-factor
productivity.
For multifactor productivity, we would need to develop and
understand capital investment and energy, as well as labour, and
then translate those into a standard, such as dollars.
3. How are the 10 decisions of OM different when applied by
the operations manager of a production process such as Frito-
Lay than when applied by a service organization such as Hard
Rock Cafe?
Hard Rock performs all 10 of the decisions as well, only with a
more service-sector orientation. Each of these is discussed in the
solution to the Hard Rock Cafe case.
HARD ROCK CAFE: OPERATIONS
MANAGEMENT IN SERVICES
There is a short video (7 minutes) available from Prentice Hall
and filmed specifically for this text that supplements this case.
1. Hard Rock’s 10 Decisions: This is early in the course to dis-
cuss these in depth, but still a good time to get the students engaged
in the 10 OM decisions around which the text is structured.
Product design: Hard Rock’s tangible product is food and like
any tangible product it must be designed, tested, and “costed
out.” The intangible product includes the music, memorabilia,
and service.
Quality: The case mentions the quality survey as an overt
quality measure, but quality can be discussed from a variety
of perspectives—hiring the right people, food ingredients,
good suppliers, speed of service, friendliness, etc.
21
ADDITIONAL HOMEWORK PROBLEMS
(found at www.myomlab.com.)
1500
Last Year = (350 10) + (15,000 0.0083) + (3,000 0.6)
1.18
= + +
1500
3,500 124.50 1800
= =
1500 0.277 dos / $
5424.50
1500
This Year = (325 10) + (18,000 0.0083) + (2750 0.6)
=0.297 doz / $
-
=
0.297 0.277
Percent Change = 0.277
0.072 or 7.2% increase
CASE STUDY
NATIONAL AIR EXPRESS
This case can be used to introduce the issue of productivity and
how to improve it, as well as the difficulty of good consistent
measures of productivity. This case can also be used to intro-
duce some of the techniques and concepts of OM.
1. The number of stops per driver is certainly a good place to
start. However, mileage and number of shipments will probably
be good additional variables. (Regression techniques, addressed in
Chapter 4, can be addressed here to generate interest.)
2. Customer service should be based on an analysis of customer
requirements. Document requirements in terms of services desired
(supply needs, preprinted waybills, package weights, pickup and
drop-off requirements) should all be considered. (The house of
quality technique discussed in Chapter 5 is one approach for such
an analysis.)
3. Other companies in the industry do an effective job of
establishing very good labour standards for their drivers,
sorters, and phone personnel. Difficult perhaps, but doable.
(The work measurement supplement to Chapter 10 addresses
labour standards.)
VIDEO CASE STUDIES
FRITO-LAY: OPERATIONS MANAGEMENT
IN MANUFACTURING
This case provides a great opportunity for an instructor to stimulate
a class discussion early in the course about the pervasiveness of the
10 decisions of OM with this case alone or in conjunction with the
Hard Rock Cafe case. A short video accompanies the case.
1. From your knowledge of production processes and from the
case and the video, identify how each of the 10 decisions of OM
is applied at Frito-Lay:
Product design: Each of Frito-Lay’s 40-plus products must
be conceived, formulated (designed), tested (market studies,
focus groups, etc.), and evaluated for profitability.
Quality: The standards for each ingredient, including its
purity and quality, must be determined.
Process: The process that is necessary to produce the product
and the tolerance that must be maintained for each ingredient
by each piece of equipment must be specified and procured.
Location: The fixed and variable costs of the facility, as well
as the transportation costs in and the delivery distance, given
the freshness, must be determined.
Layout: The Frito-Lay facility would be a process facility,
with great care given to reducing movement of material
within the facility.
Human resources: Machine operators may not have
inherently enriched jobs, so special consideration must be
given to developing empowerment and enriched jobs.
Supply chain: Frito-Lay, like all other producers of food
products, must focus on developing and auditing raw
material from the farm to delivery.
Inventory: Freshness and spoilage require constant effort to
drive down inventories.
Scheduling: The demand for high utilization of a capital-
intensive facility means effective scheduling will be
important.
Maintenance: High utilization requires good maintenance, from
machine operator to the maintenance department and depot
service.
2. How would you determine the productivity of the production
processes at Frito-Lay?
Determining output (in some standard measure, perhaps pounds)
and labour hours would be a good start for single-factor
productivity.
For multifactor productivity, we would need to develop and
understand capital investment and energy, as well as labour, and
then translate those into a standard, such as dollars.
3. How are the 10 decisions of OM different when applied by
the operations manager of a production process such as Frito-
Lay than when applied by a service organization such as Hard
Rock Cafe?
Hard Rock performs all 10 of the decisions as well, only with a
more service-sector orientation. Each of these is discussed in the
solution to the Hard Rock Cafe case.
HARD ROCK CAFE: OPERATIONS
MANAGEMENT IN SERVICES
There is a short video (7 minutes) available from Prentice Hall
and filmed specifically for this text that supplements this case.
1. Hard Rock’s 10 Decisions: This is early in the course to dis-
cuss these in depth, but still a good time to get the students engaged
in the 10 OM decisions around which the text is structured.
Product design: Hard Rock’s tangible product is food and like
any tangible product it must be designed, tested, and “costed
out.” The intangible product includes the music, memorabilia,
and service.
Quality: The case mentions the quality survey as an overt
quality measure, but quality can be discussed from a variety
of perspectives—hiring the right people, food ingredients,
good suppliers, speed of service, friendliness, etc.
Loading page 7...
CHAPTER 1 O P E R A T I O N S A N D P R O D U C T I V I T Y 5
Process: The process can be discussed from many
perspectives: (a) the process of processing a guest: to their
seat, taking the order, order processing, delivery of the meal,
payment, etc., (b) the process of how a meal is prepared (see,
for instance, the example box in Chapter 2 on Chef Pierre
Alexander), or (c) some subset of any of these.
Location: Hard Rock Cafes have traditionally been located in
tourist locations, but that is beginning to change.
Layout: Little discussion in the case, but students may be
very aware that a kitchen layout is critical to efficient food
preparation and that a bar is critical in many food
establishments for profitability. The retail shop in relation to
the restaurant and its layout is a critical ingredient for
profitability at Hard Rock.
Human resources: Jim Knight, VP for Human Resources at
Hard Rock, seeks people who are passionate about music, love
to serve, can tell a story. This OM decision is a critical
ingredient for success of a Hard Rock Cafe and an integral part
of the Hard Rock dining experience.
Supply-chain management: Although not discussed in the
case, students should appreciate the importance of the supply
chain in any food service operation. Some items like leather
jackets have a 9-month lead time. Contracts for meat and
poultry are signed 8 months in advance.
Inventory: Hard Rock, like any restaurant, has a critical
inven-tory issue that requires that food be turned over rapidly
and that food in inventory be maintained at the appropriate
and often critical temperatures. But the interesting thing
about Hard Rock’s inventory is that they maintain $40
million of memora-bilia with all sorts of special care,
tracking, and storage issues.
Scheduling: Because most Hard Rock Cafe’s sales are driven
by tourists, the fluctuations in seasonal, daily, and hourly
demands for food are huge. This creates a very interesting
and challenging task for the operations managers at Hard
Rock. (Not mentioned in the case, linear programming is
actually used in some cafes to schedule the wait staff.)
Maintenance/reliability: The Hard Rock Cafe doors must
open every day for business. Whatever it takes to provide a
reliable kitchen with hot food served hot and cold food
served cold must be done. Bar equipment and point-of-sale
equipment must also work.
2. Productivity of kitchen staff is simply the output (number of
meals) over the input (hours worked). The calculation is how many
meals prepared over how many hours spent preparing them. The
same kind of calculation can be done for the wait staff. In fact,
Hard Rock managers begin with productivity standards and staff
to achieve those levels. (You may want to revisit this issue when
you get to Chapter 10 and Supplement 10 on labour standards and
discuss how labour can be allocated on a per-item basis with more
precision.)
3. Each of the 10 decisions discussed in question 1 can be
addressed with a tangible product like an automobile.
Product design: The car must be designed, tested, and costed
out. The talents may be those of an engineer or operations
manager rather than a chef, but the task is the same.
Quality: At an auto plant, quality may take the form of
measuring tolerances or wear of bearings, but there is still a
quality issue.
Process: With an auto, the process is more likely to be an
assembly-line process.
Location: Hard Rock Cafe may want to locate at tourist
destinations, but an auto manufacturer may want to go to a
location that will yield low fixed or variable cost.
Layout: An automobile assembly plant is going to be
organized on an assembly line criterion.
Human resources: An auto assembly plant will be more
focused on hiring factory skills rather than a passion for
music or personality.
Supply chain: The ability of suppliers to contribute to design
and low cost may be a critical factor in the modern auto
plant.
Inventory: The inventory issues are entirely different—
tracking memorabilia at Hard Rock, but an auto plant requires
tracking a lot of expensive inventory that must move fast.
Scheduling: The auto plant is going to be most concerned
with scheduling material not people.
Maintenance: Maintenance may be even more critical in an
auto plant as there is often little alternate routing, and down
time is very expensive because of high fixed and variable cost.
Process: The process can be discussed from many
perspectives: (a) the process of processing a guest: to their
seat, taking the order, order processing, delivery of the meal,
payment, etc., (b) the process of how a meal is prepared (see,
for instance, the example box in Chapter 2 on Chef Pierre
Alexander), or (c) some subset of any of these.
Location: Hard Rock Cafes have traditionally been located in
tourist locations, but that is beginning to change.
Layout: Little discussion in the case, but students may be
very aware that a kitchen layout is critical to efficient food
preparation and that a bar is critical in many food
establishments for profitability. The retail shop in relation to
the restaurant and its layout is a critical ingredient for
profitability at Hard Rock.
Human resources: Jim Knight, VP for Human Resources at
Hard Rock, seeks people who are passionate about music, love
to serve, can tell a story. This OM decision is a critical
ingredient for success of a Hard Rock Cafe and an integral part
of the Hard Rock dining experience.
Supply-chain management: Although not discussed in the
case, students should appreciate the importance of the supply
chain in any food service operation. Some items like leather
jackets have a 9-month lead time. Contracts for meat and
poultry are signed 8 months in advance.
Inventory: Hard Rock, like any restaurant, has a critical
inven-tory issue that requires that food be turned over rapidly
and that food in inventory be maintained at the appropriate
and often critical temperatures. But the interesting thing
about Hard Rock’s inventory is that they maintain $40
million of memora-bilia with all sorts of special care,
tracking, and storage issues.
Scheduling: Because most Hard Rock Cafe’s sales are driven
by tourists, the fluctuations in seasonal, daily, and hourly
demands for food are huge. This creates a very interesting
and challenging task for the operations managers at Hard
Rock. (Not mentioned in the case, linear programming is
actually used in some cafes to schedule the wait staff.)
Maintenance/reliability: The Hard Rock Cafe doors must
open every day for business. Whatever it takes to provide a
reliable kitchen with hot food served hot and cold food
served cold must be done. Bar equipment and point-of-sale
equipment must also work.
2. Productivity of kitchen staff is simply the output (number of
meals) over the input (hours worked). The calculation is how many
meals prepared over how many hours spent preparing them. The
same kind of calculation can be done for the wait staff. In fact,
Hard Rock managers begin with productivity standards and staff
to achieve those levels. (You may want to revisit this issue when
you get to Chapter 10 and Supplement 10 on labour standards and
discuss how labour can be allocated on a per-item basis with more
precision.)
3. Each of the 10 decisions discussed in question 1 can be
addressed with a tangible product like an automobile.
Product design: The car must be designed, tested, and costed
out. The talents may be those of an engineer or operations
manager rather than a chef, but the task is the same.
Quality: At an auto plant, quality may take the form of
measuring tolerances or wear of bearings, but there is still a
quality issue.
Process: With an auto, the process is more likely to be an
assembly-line process.
Location: Hard Rock Cafe may want to locate at tourist
destinations, but an auto manufacturer may want to go to a
location that will yield low fixed or variable cost.
Layout: An automobile assembly plant is going to be
organized on an assembly line criterion.
Human resources: An auto assembly plant will be more
focused on hiring factory skills rather than a passion for
music or personality.
Supply chain: The ability of suppliers to contribute to design
and low cost may be a critical factor in the modern auto
plant.
Inventory: The inventory issues are entirely different—
tracking memorabilia at Hard Rock, but an auto plant requires
tracking a lot of expensive inventory that must move fast.
Scheduling: The auto plant is going to be most concerned
with scheduling material not people.
Maintenance: Maintenance may be even more critical in an
auto plant as there is often little alternate routing, and down
time is very expensive because of high fixed and variable cost.
Loading page 8...
6 CHAPTER 1 O P E R A T I O N S A N D P R O D U C T I V I T Y
ADDITIONAL CASE STUDY
ZYCHOL CHEMICALS CORPORATION*
1. The analysis of the productivity data is shown below:
Both labour and material productivity increased, but capital
equipment productivity did not. The net result is a large negative
change in productivity. If this is a one-time change in the accounting
procedures, this negative change should also be a one-time anomaly.
The effect of accounting procedures is often beyond the control of
managers. For example, perhaps the capital allocation is based on an
accelerated allocation of depreciation of newly installed technology.
This accounting practice will seriously impact near-term productivity
and then later years’ productivity figures will benefit from the
reduced depreciation flows. This highlights the difficulty in
accounting for costs in an effective managerial manner. Decisions
and evaluation of operating results should be based on sound
managerial accounting practices and not necessarily generally
accepted financial accounting principles.
2. An analysis of adjusted results reduces the negative impact on
the capital allocation but there is still a negative growth in
multifactor productivity. After adjustment for inflation, the material
costs are still higher in 2009. Yet, one must be aware of the extra
volatility of the cost of petroleum-based products. Did the manager
have control over his price increases? One should look at the changes
in a petroleum-based price index, including the cost of oil, over the
last two years in order to gain a better understanding of the degree to
which the manager had control over these costs. The increase in
wages was beyond the manager’s control and a constant rate should
be used for comparing both years’ results. Yet a negative result still
remains. Even when material costs in 2009 are converted to the
original cost of $320, a negative 5% growth in productivity remains.
The increase in the capital base is responsible yet should not persist
in future years if the increase was the result of an adoption of new
technology.
3. The manager did not reach the goal. An analysis of the changes in
capital costs is warranted. Even after adjusting for inflation,
multifactor productivity was not positive. However, labour and
materials productivity was favorable. The capital investment cost (as
figured by the accounting department) was so large as to make his
multifactor productivity negative. Multifactor productiv-ity has fallen
by 11.61% before adjustment and by 7.88% after the adjustment for
inflation.
* This case study is found on www.myomlab.com.
ADDITIONAL CASE STUDY
ZYCHOL CHEMICALS CORPORATION*
1. The analysis of the productivity data is shown below:
Both labour and material productivity increased, but capital
equipment productivity did not. The net result is a large negative
change in productivity. If this is a one-time change in the accounting
procedures, this negative change should also be a one-time anomaly.
The effect of accounting procedures is often beyond the control of
managers. For example, perhaps the capital allocation is based on an
accelerated allocation of depreciation of newly installed technology.
This accounting practice will seriously impact near-term productivity
and then later years’ productivity figures will benefit from the
reduced depreciation flows. This highlights the difficulty in
accounting for costs in an effective managerial manner. Decisions
and evaluation of operating results should be based on sound
managerial accounting practices and not necessarily generally
accepted financial accounting principles.
2. An analysis of adjusted results reduces the negative impact on
the capital allocation but there is still a negative growth in
multifactor productivity. After adjustment for inflation, the material
costs are still higher in 2009. Yet, one must be aware of the extra
volatility of the cost of petroleum-based products. Did the manager
have control over his price increases? One should look at the changes
in a petroleum-based price index, including the cost of oil, over the
last two years in order to gain a better understanding of the degree to
which the manager had control over these costs. The increase in
wages was beyond the manager’s control and a constant rate should
be used for comparing both years’ results. Yet a negative result still
remains. Even when material costs in 2009 are converted to the
original cost of $320, a negative 5% growth in productivity remains.
The increase in the capital base is responsible yet should not persist
in future years if the increase was the result of an adoption of new
technology.
3. The manager did not reach the goal. An analysis of the changes in
capital costs is warranted. Even after adjusting for inflation,
multifactor productivity was not positive. However, labour and
materials productivity was favorable. The capital investment cost (as
figured by the accounting department) was so large as to make his
multifactor productivity negative. Multifactor productiv-ity has fallen
by 11.61% before adjustment and by 7.88% after the adjustment for
inflation.
* This case study is found on www.myomlab.com.
Loading page 9...
7
2C H A P T E R
Operations Strategy in a Global Environment
DISCUSSION Q UESTIONS
1. Global seems the better label for Boeing since authority and
responsibility reside in the U.S.—the home country.
2. Six reasons to internationalize: Reduce costs, improve supply
chain, provide better goods and services, attract new markets, learn
to improve operations, attract and retain global talent.
3. No. Sweetness at Coca-Cola is adjusted for the tastes of
individual countries.
4. A mission is an organization’s purpose—what good or service
it will contribute to society.
5. Strategy is an organization’s action plan—how it is going to
achieve its purpose.
6. A mission specifies where the organization is going and a
Strategy specifies how it is going to get there.
7. The answer to this question will depend on the establishment
studied, but should probably include some of the following
considerations:
The mission: diagnose automobile problems and make the neces-
sary repair at a fair price for the local customer.
Points to consider, or options, within the 10 decision areas are:
Decision: Option:
Product Repair work of North American and/or for-
eign vehicles; specialized (tune-ups, lubrica-
tion, wheel alignment, etc.) versus general
repair; frame and body repair versus engine
and power train repair; repair and mainten-
ance only, versus repair, maintenance, and
sales of fuel; professional staffing versus
rental of tools and space for do-it-yourself
repair work
Quality Appropriate level of quality; warranty; method
of measuring and maintaining quality (cus-
tomer complaints, inspection by supervising
mechanic, etc.)
Process Use of general versus special purpose diag-
nostic and repair equipment (in particular,
the degree to which computer controlled
diagnostic equipment is employed)
Location In-town, shopping mall, highway
Layout Single bay/multibay; general-purpose bay
versus special-purpose bay (lubrication/tire re-
pairs and installation/wheel alignment/engine
and power train repair, etc.)
Human resources Employment of certified versus noncertified
repair persons; employment of specialists
versus general mechanics
Supply chain Choice of supplier(s) for both general and
original manufacturer parts and supplies
Scheduling Hours of operation (8:00 A.M.–5:00 P.M.;
24-hour towing; weekends/holidays), repairs
versus motor vehicle safety inspections, etc.;
service by appointment versus walk-in (or
drive-up) service
Inventory Quantity and variety of repair parts (fan belts,
filters, mufflers, headlights, etc.) to stock;
whether to stock generic or original manu-
facturer parts
Maintenance Bays with hydraulic lifts vs. easier-to-
maintain “basement” work areas. Preventive
maintenance of equipment vs. breakdown.
8. Library or internet assignment: Student is to identify a mission
and strategy for a firm. BusinessWeek, Fortune, The Wall Street
Journal, and Forbes all have appropriate articles.
9. OM strategy changes during a product’s life cycle: During
the introduction stage, issues such as product design and devel-
opment are critical, then during the growth stage the emphasis
changes to product and process reliability; from there we move to
concern for increasing the stability of the manufacturing process
and cost cut-ting; and finally, in the decline stage pruning the line to
eliminate items not returning good margin becomes important. Fig-
ure 2.5 provides a more expansive list.
10. The text focuses on three conceptual strategies—cost leader-
ship, differentiation and response. Cost leadership by Walmart—via
low overhead, vicious cost reduction in the supply chain; Differen-
tiation, certainly any premium product—all fine dining restau-
rants, up-scale autos—Lexus, etc.; Response, your local pizza
delivery service, FedEx, etc.
11. An operations strategy statement for Porter Airlines would
include a focus on efficient, low-cost service with high capital
utilization (high aircraft and gate utilization), flexible non-union
employees, low administrative overhead, etc.
12. The integration of OM with marketing and accounting is
pervasive. You might want to cite examples such as developing new
products. (Marketing must help with the design, the forecast and
target costs; accounting must ensure adequate cash for development
and the necessary capital equipment.) Similarly, new technology
or new processes emanating from operations must meet the
approval of marketing and the capital constraints imposed by the
accounting department.
2C H A P T E R
Operations Strategy in a Global Environment
DISCUSSION Q UESTIONS
1. Global seems the better label for Boeing since authority and
responsibility reside in the U.S.—the home country.
2. Six reasons to internationalize: Reduce costs, improve supply
chain, provide better goods and services, attract new markets, learn
to improve operations, attract and retain global talent.
3. No. Sweetness at Coca-Cola is adjusted for the tastes of
individual countries.
4. A mission is an organization’s purpose—what good or service
it will contribute to society.
5. Strategy is an organization’s action plan—how it is going to
achieve its purpose.
6. A mission specifies where the organization is going and a
Strategy specifies how it is going to get there.
7. The answer to this question will depend on the establishment
studied, but should probably include some of the following
considerations:
The mission: diagnose automobile problems and make the neces-
sary repair at a fair price for the local customer.
Points to consider, or options, within the 10 decision areas are:
Decision: Option:
Product Repair work of North American and/or for-
eign vehicles; specialized (tune-ups, lubrica-
tion, wheel alignment, etc.) versus general
repair; frame and body repair versus engine
and power train repair; repair and mainten-
ance only, versus repair, maintenance, and
sales of fuel; professional staffing versus
rental of tools and space for do-it-yourself
repair work
Quality Appropriate level of quality; warranty; method
of measuring and maintaining quality (cus-
tomer complaints, inspection by supervising
mechanic, etc.)
Process Use of general versus special purpose diag-
nostic and repair equipment (in particular,
the degree to which computer controlled
diagnostic equipment is employed)
Location In-town, shopping mall, highway
Layout Single bay/multibay; general-purpose bay
versus special-purpose bay (lubrication/tire re-
pairs and installation/wheel alignment/engine
and power train repair, etc.)
Human resources Employment of certified versus noncertified
repair persons; employment of specialists
versus general mechanics
Supply chain Choice of supplier(s) for both general and
original manufacturer parts and supplies
Scheduling Hours of operation (8:00 A.M.–5:00 P.M.;
24-hour towing; weekends/holidays), repairs
versus motor vehicle safety inspections, etc.;
service by appointment versus walk-in (or
drive-up) service
Inventory Quantity and variety of repair parts (fan belts,
filters, mufflers, headlights, etc.) to stock;
whether to stock generic or original manu-
facturer parts
Maintenance Bays with hydraulic lifts vs. easier-to-
maintain “basement” work areas. Preventive
maintenance of equipment vs. breakdown.
8. Library or internet assignment: Student is to identify a mission
and strategy for a firm. BusinessWeek, Fortune, The Wall Street
Journal, and Forbes all have appropriate articles.
9. OM strategy changes during a product’s life cycle: During
the introduction stage, issues such as product design and devel-
opment are critical, then during the growth stage the emphasis
changes to product and process reliability; from there we move to
concern for increasing the stability of the manufacturing process
and cost cut-ting; and finally, in the decline stage pruning the line to
eliminate items not returning good margin becomes important. Fig-
ure 2.5 provides a more expansive list.
10. The text focuses on three conceptual strategies—cost leader-
ship, differentiation and response. Cost leadership by Walmart—via
low overhead, vicious cost reduction in the supply chain; Differen-
tiation, certainly any premium product—all fine dining restau-
rants, up-scale autos—Lexus, etc.; Response, your local pizza
delivery service, FedEx, etc.
11. An operations strategy statement for Porter Airlines would
include a focus on efficient, low-cost service with high capital
utilization (high aircraft and gate utilization), flexible non-union
employees, low administrative overhead, etc.
12. The integration of OM with marketing and accounting is
pervasive. You might want to cite examples such as developing new
products. (Marketing must help with the design, the forecast and
target costs; accounting must ensure adequate cash for development
and the necessary capital equipment.) Similarly, new technology
or new processes emanating from operations must meet the
approval of marketing and the capital constraints imposed by the
accounting department.
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8 CHAPTER 2 O P E R A T I O N S S T R A T E G Y I N A G L O B A L E N V I R O N M E N T
ETHICAL DILEMMA
Here is an interesting scenario. A firm can save $10 million in pro-
duction costs per year. All it has to do is locate manufacturing in
China, which is not a democracy and where some employees are
exploited. Nike faced a similar dilemma in Vietnam, where it was
accused of paying less than a livable wage ($1.60 per day).
Students may be prepared to discuss this current and sensitive
subject.
END- OF-CHAPTER PROBLEMS
2.1 The three methods are cost leadership, differentiation, and
response. Cost leadership can be illustrated by Walmart, with low
overhead and huge buying power to pressure its suppliers into
concessions. Differentiation can be illustrated by almost any res-
taurant or restaurant chain, such as Red Lobster, which offers a
distinct menu and style of service than others. Response can be
illustrated by a courier service such as FedEx, that guarantees
specific delivery schedules; or by a custom tailor, who will hand
make a suit specifically for the customer.
2.2 Cost leadership: institutional food services, such as Sodexho,
provide meal service to college campuses and similar institutions.
Such firms often get their contracts by being low bidder to provide
service. Response: a catering firm (the customer picks the menu,
time, and date). Differentiation: virtually all restaurants seek diffe-
rentiation in menu, in taste, in service. This is particularly true of fine
dining restaurants, but also true of fast food restaurants. For instance,
Burger King likes to talk about meals “anyway you want them,” and
McDonald’s has a playground or seating area for children.
2.3 Students may find articles about German work rules or Latin
American siestas that interfere with work schedules. Also, some
Hindu workers will not touch metal objects, or touch objects
touched by “untouchables.” There are rules concerning kitchen
equipment and ingredient mixing in kosher food preparation.
Computer keyboards in English versus Chinese pose a serious
training issue. There are many other possibilities.
2.4 Arrow Shirts; Bidermann International, France
Braun Household Appliances; Procter & Gamble, United States
Lotus Autos; Proton, Malaysia
Firestone Tires; Bridgestone, Japan
BlackBerry; BlackBerry Ltd.; Canada
Godiva Chocolate; Campbell Soup, United States
Häagen-Dazs Ice Cream; great globalization discussion exam-
ple: Häagen-Dazs was established in New York City; now owned
by Pillsbury (U.S.A.) which is owned by General Mills (U.S.A.),
but Nestlé SA (Switzerland) is licensed to sell Häagen-Dazs in the
United States
Jaguar Autos; Tata, India
MGM Movies; Credit Lyonnais, France
Lamborghini Autos; Volkswagen, Germany
Goodrich Tires; Michelin, France
Alpo Pet Foods; Nestlé, Switzerland
2.5 (a) The maturing of a product may move the OM function
to focus on more standardization, make fewer product
changes, find optimum capacity, stabilize the manufac-
turing process, lower labour skills, use longer produc-
tion runs, and institute cost cutting and design compro-
mises.
(b) Technological innovation in the manufacturing process
may mean new human resources skills (either new per-
sonnel and/or training of existing personnel), and added
capital investment for new equipment or processes. Prod-
uct design, layout, maintenance procedures, purchasing,
inventory, quality standards, and procedures may all
need to be revised.
(c) A design change will, at least potentially, require the same
changes as noted in (b).
2.6 Specific answers to this question depend on the organization
considered. Some general thoughts follow:
(a) For a producer with high energy costs, major oil prices
change the cost structure, result in higher selling prices,
and, if the company is energy inefficient compared to
other producers, result in a change in competitive posi-
tion. Conversely, when oil prices drop it is a bonanza
for heavy fuel users such as airlines.
(b) More restrictive quality of water and air legislation in-
creases the cost of production and may, in some cases,
prohibit the use of specific technologies. The high cost
of process modification to meet more rigid standards has
resulted in the closing of numerous plants including
paper mills and steel mills.
(c) A decrease in the number of young prospective em-
ployees entering the U.S. labour market can contribute
to a tighter job market. High unemployment rates can
have the opposite effect.
(d) Inflation, especially at high or uncertain rates, makes it
more difficult to predict both the cost of production and
the market demand.
(e) Legislation moving health insurance from a before-tax
benefit to taxable income will reduce the take-home pay
of employees by the amount of the taxes. This could
have a significant effect on the income of employees in
the lower pay classifications, putting substantial pres-
sure on operations managers to increase wages in these
classifications. (This does not mean that it is not a good
idea for society—i.e., to make employees more sensitive
to the cost of health insurance.)
2.7 The corruption perception index maintained by Transparency
International (www.transparency.org) gives a 1-to-10 scale (10 being
least corrupt to 1 being most corrupt). Also see Chapter 8, Table 8.2.
A lively class discussion can also take place regarding who
pays bribes, as shown on the same website. Other perspectives of
culture are shown on the Asia Pacific Management Forum page
(www.apmforum.com).
2.8 The Economist does an analysis similar to this on occasion
but the “Global Competitiveness Index,” World Economic Forum,
Geneva (www.weforum.org) does one every year. (Also see Table
8.1 in the text.) For 2009–2010 U.S., 2; Japan, 8; U.K., 13; Israel, 27;
China, 29; Mexico, 60 are some rankings.
ETHICAL DILEMMA
Here is an interesting scenario. A firm can save $10 million in pro-
duction costs per year. All it has to do is locate manufacturing in
China, which is not a democracy and where some employees are
exploited. Nike faced a similar dilemma in Vietnam, where it was
accused of paying less than a livable wage ($1.60 per day).
Students may be prepared to discuss this current and sensitive
subject.
END- OF-CHAPTER PROBLEMS
2.1 The three methods are cost leadership, differentiation, and
response. Cost leadership can be illustrated by Walmart, with low
overhead and huge buying power to pressure its suppliers into
concessions. Differentiation can be illustrated by almost any res-
taurant or restaurant chain, such as Red Lobster, which offers a
distinct menu and style of service than others. Response can be
illustrated by a courier service such as FedEx, that guarantees
specific delivery schedules; or by a custom tailor, who will hand
make a suit specifically for the customer.
2.2 Cost leadership: institutional food services, such as Sodexho,
provide meal service to college campuses and similar institutions.
Such firms often get their contracts by being low bidder to provide
service. Response: a catering firm (the customer picks the menu,
time, and date). Differentiation: virtually all restaurants seek diffe-
rentiation in menu, in taste, in service. This is particularly true of fine
dining restaurants, but also true of fast food restaurants. For instance,
Burger King likes to talk about meals “anyway you want them,” and
McDonald’s has a playground or seating area for children.
2.3 Students may find articles about German work rules or Latin
American siestas that interfere with work schedules. Also, some
Hindu workers will not touch metal objects, or touch objects
touched by “untouchables.” There are rules concerning kitchen
equipment and ingredient mixing in kosher food preparation.
Computer keyboards in English versus Chinese pose a serious
training issue. There are many other possibilities.
2.4 Arrow Shirts; Bidermann International, France
Braun Household Appliances; Procter & Gamble, United States
Lotus Autos; Proton, Malaysia
Firestone Tires; Bridgestone, Japan
BlackBerry; BlackBerry Ltd.; Canada
Godiva Chocolate; Campbell Soup, United States
Häagen-Dazs Ice Cream; great globalization discussion exam-
ple: Häagen-Dazs was established in New York City; now owned
by Pillsbury (U.S.A.) which is owned by General Mills (U.S.A.),
but Nestlé SA (Switzerland) is licensed to sell Häagen-Dazs in the
United States
Jaguar Autos; Tata, India
MGM Movies; Credit Lyonnais, France
Lamborghini Autos; Volkswagen, Germany
Goodrich Tires; Michelin, France
Alpo Pet Foods; Nestlé, Switzerland
2.5 (a) The maturing of a product may move the OM function
to focus on more standardization, make fewer product
changes, find optimum capacity, stabilize the manufac-
turing process, lower labour skills, use longer produc-
tion runs, and institute cost cutting and design compro-
mises.
(b) Technological innovation in the manufacturing process
may mean new human resources skills (either new per-
sonnel and/or training of existing personnel), and added
capital investment for new equipment or processes. Prod-
uct design, layout, maintenance procedures, purchasing,
inventory, quality standards, and procedures may all
need to be revised.
(c) A design change will, at least potentially, require the same
changes as noted in (b).
2.6 Specific answers to this question depend on the organization
considered. Some general thoughts follow:
(a) For a producer with high energy costs, major oil prices
change the cost structure, result in higher selling prices,
and, if the company is energy inefficient compared to
other producers, result in a change in competitive posi-
tion. Conversely, when oil prices drop it is a bonanza
for heavy fuel users such as airlines.
(b) More restrictive quality of water and air legislation in-
creases the cost of production and may, in some cases,
prohibit the use of specific technologies. The high cost
of process modification to meet more rigid standards has
resulted in the closing of numerous plants including
paper mills and steel mills.
(c) A decrease in the number of young prospective em-
ployees entering the U.S. labour market can contribute
to a tighter job market. High unemployment rates can
have the opposite effect.
(d) Inflation, especially at high or uncertain rates, makes it
more difficult to predict both the cost of production and
the market demand.
(e) Legislation moving health insurance from a before-tax
benefit to taxable income will reduce the take-home pay
of employees by the amount of the taxes. This could
have a significant effect on the income of employees in
the lower pay classifications, putting substantial pres-
sure on operations managers to increase wages in these
classifications. (This does not mean that it is not a good
idea for society—i.e., to make employees more sensitive
to the cost of health insurance.)
2.7 The corruption perception index maintained by Transparency
International (www.transparency.org) gives a 1-to-10 scale (10 being
least corrupt to 1 being most corrupt). Also see Chapter 8, Table 8.2.
A lively class discussion can also take place regarding who
pays bribes, as shown on the same website. Other perspectives of
culture are shown on the Asia Pacific Management Forum page
(www.apmforum.com).
2.8 The Economist does an analysis similar to this on occasion
but the “Global Competitiveness Index,” World Economic Forum,
Geneva (www.weforum.org) does one every year. (Also see Table
8.1 in the text.) For 2009–2010 U.S., 2; Japan, 8; U.K., 13; Israel, 27;
China, 29; Mexico, 60 are some rankings.
Loading page 11...
CHAPTER 2 O P E R A T I O N S S T R A T E G Y I N A G L O B A L E N V I R O N M E N T 9
1
CASE STUDY
MR. LUBE
1. What constitutes the mission of Mr. Lube?
To provide economical preventative maintenance, primarily to
vehicles owned by indi-viduals (as opposed to businesses), in
Canada.
2. How does the Mr. Lube strategy provide competitive
advantage?
This case is a good way to get the student thinking about the 10
decisions around which the text is organized. Mr. Lube’s approach
to these 10 decisions includes:
Product design: A narrow product strategy could be defined as
“lubricating automobiles” (more in Chapter 5).
Quality strategy: Because of limited task variety, high repeti-
tion, good training, and good manuals, quality should be rela-
tively easy to maintain.
Process strategy: The process strategy allows employees and
capital investment to focus on doing this mission well, rather
than trying to be a “general purpose” garage or gas station.
Location strategy: Facilities are usually located near
residential areas.
Layout strategy: The bays are designed specifically for the lubri-
cation and vacuuming tasks to minimize wasted movement on
the part of the employees and to contribute to the speedier ser-
vice.
Supply chain strategy: Purchasing is facilitated by negotiation
of large purchases and custom packaging.
Human resources strategy: Human resources strategy focuses
on hiring a few employees with limited skills and training
them in a limited number of tasks during the performance of
which they can be closely supervised.
Inventory: Inventory investment should be relatively low, and
they should expect a high turnover.
Scheduling: Scheduling is quite straightforward with similar
times for most cars. Once volume and fluctuation in volume
are determined, scheduling should be very direct—assisting
both staffing and customer relations.
Maintenance: There is relatively little equipment to be
maintained, therefore little preventive maintenance required.
With multiple bays and multiple systems, there is backup
available in the case of failure.
3. Specialization of personnel and facilities should make Mr.
Lube more efficient. Jobs/tasks accomplished per man hour
would be a good place to start.
VIDEO CASE STUDIES
STRATEGY AT REGAL MARINE
There is a short video (7 minutes) available from Prentice Hall
and filmed specifically for this text that supplements this case.
1. Regal Marine’s mission is to provide luxury performance
boats to the world through constant innovation, unique features,
and high quality that will differentiate the boats in the marketplace.
2. A strength of Regal Marine is continued innovation that is
being recognized in the marketplace. One current weakness is
maintaining an effective, well-trained labour force in a tight Florida
labour market. The opportunities for Regal include an increase in
boat sales brought about through the reduction of the luxury tax
and Regal Marine’s increasing market presence in the world boat
market. The threats to Regal are a huge number of small competitors
going after various parts of the market. Brunswick goes after
the mass market, and hundreds of small boat manufacturers go
after various niche markets.
3. Regal Marine’s strategy is to focus on constant innovation, high
quality, and good value for the money with sales through effective
dealers.
4. Each of the 10 operations management decisions is important
to Regal’s success.
Product: Must be unique, full of features, and richly appointed,
which puts constant pressure on the design, styling, and ap-
pointments
Quality: Because the typical Regal Marine customer is interested
in exceptional quality for his/her substantial investment
Process selection and design: Because of the large number of
boats and custom features, building via repetitive pro-cesses in
a modular way has proven to be an effective and efficient
process.
Inventory: Regal tries to drive down finished goods inventory
but must maintain inventory of purchased parts to meet chang-
ing production schedules. Additionally, the tooling inventory,
that is the various molds, create an inventory problem all their
own. This is a good point for class discussion, as most students
may not be familiar with the process.
Scheduling: Regal tries to move the components from worksta-
tion to workstation on a one-day JIT basis. Good, reliable
schedules are necessary to get the job done.
Supply-chain management: Of course suppliers are important
because of many of the appointments—from galley features
through engines, and hardware make a huge difference in the
perceptions and performance of marine craft. Consequently,
the selection of these suppliers and their performance is critical
to Regal.
Maintenance: Much of Regal’s maintenance hinges on keeping
fiberglass guns and molds ready for use.
Location: Because Florida is one of the major markets for
boats in America, Regal is positioned to supply this large mar-
ket rapidly and economically.
Layout: Because of the bulkiness of the product, the layout
must be designed, as it is, to minimize loads times the dis-
tances times the difficulty factor. There is a clean logical flow
of material through the plant.
Human resources: Is important because boat hulls, decks, as-
sembly, and finishing out the boats have a high labour content.
Additionally, the current diverse labour market in Florida
creates special challenges for operations managers at Regal.
1
CASE STUDY
MR. LUBE
1. What constitutes the mission of Mr. Lube?
To provide economical preventative maintenance, primarily to
vehicles owned by indi-viduals (as opposed to businesses), in
Canada.
2. How does the Mr. Lube strategy provide competitive
advantage?
This case is a good way to get the student thinking about the 10
decisions around which the text is organized. Mr. Lube’s approach
to these 10 decisions includes:
Product design: A narrow product strategy could be defined as
“lubricating automobiles” (more in Chapter 5).
Quality strategy: Because of limited task variety, high repeti-
tion, good training, and good manuals, quality should be rela-
tively easy to maintain.
Process strategy: The process strategy allows employees and
capital investment to focus on doing this mission well, rather
than trying to be a “general purpose” garage or gas station.
Location strategy: Facilities are usually located near
residential areas.
Layout strategy: The bays are designed specifically for the lubri-
cation and vacuuming tasks to minimize wasted movement on
the part of the employees and to contribute to the speedier ser-
vice.
Supply chain strategy: Purchasing is facilitated by negotiation
of large purchases and custom packaging.
Human resources strategy: Human resources strategy focuses
on hiring a few employees with limited skills and training
them in a limited number of tasks during the performance of
which they can be closely supervised.
Inventory: Inventory investment should be relatively low, and
they should expect a high turnover.
Scheduling: Scheduling is quite straightforward with similar
times for most cars. Once volume and fluctuation in volume
are determined, scheduling should be very direct—assisting
both staffing and customer relations.
Maintenance: There is relatively little equipment to be
maintained, therefore little preventive maintenance required.
With multiple bays and multiple systems, there is backup
available in the case of failure.
3. Specialization of personnel and facilities should make Mr.
Lube more efficient. Jobs/tasks accomplished per man hour
would be a good place to start.
VIDEO CASE STUDIES
STRATEGY AT REGAL MARINE
There is a short video (7 minutes) available from Prentice Hall
and filmed specifically for this text that supplements this case.
1. Regal Marine’s mission is to provide luxury performance
boats to the world through constant innovation, unique features,
and high quality that will differentiate the boats in the marketplace.
2. A strength of Regal Marine is continued innovation that is
being recognized in the marketplace. One current weakness is
maintaining an effective, well-trained labour force in a tight Florida
labour market. The opportunities for Regal include an increase in
boat sales brought about through the reduction of the luxury tax
and Regal Marine’s increasing market presence in the world boat
market. The threats to Regal are a huge number of small competitors
going after various parts of the market. Brunswick goes after
the mass market, and hundreds of small boat manufacturers go
after various niche markets.
3. Regal Marine’s strategy is to focus on constant innovation, high
quality, and good value for the money with sales through effective
dealers.
4. Each of the 10 operations management decisions is important
to Regal’s success.
Product: Must be unique, full of features, and richly appointed,
which puts constant pressure on the design, styling, and ap-
pointments
Quality: Because the typical Regal Marine customer is interested
in exceptional quality for his/her substantial investment
Process selection and design: Because of the large number of
boats and custom features, building via repetitive pro-cesses in
a modular way has proven to be an effective and efficient
process.
Inventory: Regal tries to drive down finished goods inventory
but must maintain inventory of purchased parts to meet chang-
ing production schedules. Additionally, the tooling inventory,
that is the various molds, create an inventory problem all their
own. This is a good point for class discussion, as most students
may not be familiar with the process.
Scheduling: Regal tries to move the components from worksta-
tion to workstation on a one-day JIT basis. Good, reliable
schedules are necessary to get the job done.
Supply-chain management: Of course suppliers are important
because of many of the appointments—from galley features
through engines, and hardware make a huge difference in the
perceptions and performance of marine craft. Consequently,
the selection of these suppliers and their performance is critical
to Regal.
Maintenance: Much of Regal’s maintenance hinges on keeping
fiberglass guns and molds ready for use.
Location: Because Florida is one of the major markets for
boats in America, Regal is positioned to supply this large mar-
ket rapidly and economically.
Layout: Because of the bulkiness of the product, the layout
must be designed, as it is, to minimize loads times the dis-
tances times the difficulty factor. There is a clean logical flow
of material through the plant.
Human resources: Is important because boat hulls, decks, as-
sembly, and finishing out the boats have a high labour content.
Additionally, the current diverse labour market in Florida
creates special challenges for operations managers at Regal.
Loading page 12...
10 CHAPTER 2 O P E R A T I O N S S T R A T E G Y I N A G L O B A L E N V I R O N M E N T
2 HARD ROCK CAFE’S GLOBAL STRATEGY
There is a short video (9 minutes) available from Prentice Hall and
filmed specifically for this text that supplements this case.
1. Identify the strategic changes that have taken place at Hard
Rock Cafe. What we want to do here is help the student under-
stand that an optimum mix of internal strengths and opportunities
drives strategies in a changing environment.
– Initially, Hard Rock was a London cafe serving classic Ameri-
can food.
– Then it became a “theme” chain with memorabilia in tourist
destinations.
– Then it added stores.
– Then it added live music and a rock concert.
– Then it became an established name and began opening hotels
and casinos.
– Then it upgraded its menu.
– Then it moved into cities that are not the typical tourist destination.
2. As these strategic changes have taken place—the 10 decisions
of OM change:
– Location: From a London cafe, to tourist destinations, to non-
tourist locations.
– Product design: New menu items
– Quality: The entire evaluation of quality and quality control got
much more complex.
– Process: The kitchen process changed when Hard Rock went
from hamburgers to lobster and additional changes were made
as the firm moved to retail merchandising.
– Layout: Added retail stores, added live music facilities.
– Supply chain: Purchase memorabilia and lobsters—new expec-
tations of the supply chain.
– Inventory: From food to clothing to memorabilia, to expanded
food items in inventory—how do you keep lobsters alive and
how long?
– Human resources: The range of talents needed keeps expanding;
from cooks of classic American fare and wait staff and bartenders,
to merchandisers, to cooks for a wider more expensive menu, to
coordinators and performers for the live music facilities.
The case says little about scheduling and maintenance, but every
change in product (food or merchandise) and every change in
equipment and processes changes scheduling and maintenance.
3. Hard Rock fits in the multidomestic strategy, which uses the
existing domestic model globally.
ADDITIONAL CASE STUDY*
MOTOROLA’S GLOBAL STRATEGY
This case examines Motorola’s strategy in the cellular telephone
and pager market. Motorola’s strategy is based on Japanese-style
techniques and continuous improvement of quality.
Key Points
Motorola has been a leader in microchip and semiconductor
production for years. It also established itself as a leader in
mobile communication technology. However, Motorola has
not achieved this leadership position without a fight.
Motorola’s initial reaction to the invasion of Japanese produc-
ers in the cellular telephone and pager market in 1980s was
slow and uncertain. Eventually, Motorola decided to fight the
Japanese using a two-pronged strategy, first by learning from
them and then by competing with them.
Motorola was committed to lowering costs, improving quality,
and regaining market share. To that end, managers studied
Japanese operations and learned how to compete more effec-
tively. Motorola simultaneously increased its R&D and em-
ployee training budgets. In fact, a total reengineering of the
company took place.
The turnaround at Motorola was hugely successful. The company
won the prestigious Malcolm Baldrige National Quality Award
and is currently the number three producer of pagers and cellular
telephones for the Japanese market. On a worldwide scale, Mo-
torola controls some 15 percent of the market for these products
and is the number two producer of semiconductor chips. In addi-
tion, the company is rapidly introducing new products.
Motorola is working to avoid the complacent position it found
itself in during the early 1980s and has set enormously chal-
lenging goals of continuous improvement for itself. In addi-
tion, it has decided that more than three-quarters of its reve-
nues should accrue from foreign sources.
1. What are the components of Motorola’s international strategy?
The basic components of international strategy are scope of
operations, resource deployment, distinctive competence, and
synergy. Motorola’s scope of operations, or where it is going to
conduct business, can be defined geographically as a worldwide
operation. In terms of its resource deployment strategy, or how it
allocates resources, Motorola initially abandoned some areas and
then began to concentrate on cellular telephones, pagers, and semi-
conductors. It has also devoted considerable resources to R&D and
new product development. Motorola’s distinctive competence, or
what it does exceptionally well, clearly revolves around its commit-
ment to quality. Finally, Motorola is able to achieve synergy in its
operations as the different elements of its operation benefit others.
2. Describe how Motorola might have arrived at its current
strategy as a result of a SWOT analysis.
A SWOT analysis is an assessment of a firm’s strengths,
weaknesses, opportunities, and threats. A good SWOT analysis
should provide the basis for strategy development that allows a
firm to exploit strengths and opportunities, neutralize weaknesses,
and minimize threats. Clearly Motorola identified the Japanese as
a threat in the early 1980s, but also saw an opportunity in the
world marketplace. Motorola at the time was weak in the areas of
costs and quality, but exceptional leadership and R&D were able
to neutralize the weaknesses and turn the company around.
3. Discuss Motorola’s primary business strategy.
Motorola’s primary business strategy is one of differentiation.
The company has committed to distinguishing its products
from those of competitors on the basis of quality. In fact, the com-
pany currently has a perfection rate of 99.9997 percent but has set
an even loftier goal for the future.
Sources: Adapted from R.W. Griffin and M.W. Pustay, Inter-
national Business, Addison-Wesley Longman, Reading, MA, 1996,
pp. 373–374; updated with company data from www.motorola.com.
*This case appears on www.myomlab.com.
2 HARD ROCK CAFE’S GLOBAL STRATEGY
There is a short video (9 minutes) available from Prentice Hall and
filmed specifically for this text that supplements this case.
1. Identify the strategic changes that have taken place at Hard
Rock Cafe. What we want to do here is help the student under-
stand that an optimum mix of internal strengths and opportunities
drives strategies in a changing environment.
– Initially, Hard Rock was a London cafe serving classic Ameri-
can food.
– Then it became a “theme” chain with memorabilia in tourist
destinations.
– Then it added stores.
– Then it added live music and a rock concert.
– Then it became an established name and began opening hotels
and casinos.
– Then it upgraded its menu.
– Then it moved into cities that are not the typical tourist destination.
2. As these strategic changes have taken place—the 10 decisions
of OM change:
– Location: From a London cafe, to tourist destinations, to non-
tourist locations.
– Product design: New menu items
– Quality: The entire evaluation of quality and quality control got
much more complex.
– Process: The kitchen process changed when Hard Rock went
from hamburgers to lobster and additional changes were made
as the firm moved to retail merchandising.
– Layout: Added retail stores, added live music facilities.
– Supply chain: Purchase memorabilia and lobsters—new expec-
tations of the supply chain.
– Inventory: From food to clothing to memorabilia, to expanded
food items in inventory—how do you keep lobsters alive and
how long?
– Human resources: The range of talents needed keeps expanding;
from cooks of classic American fare and wait staff and bartenders,
to merchandisers, to cooks for a wider more expensive menu, to
coordinators and performers for the live music facilities.
The case says little about scheduling and maintenance, but every
change in product (food or merchandise) and every change in
equipment and processes changes scheduling and maintenance.
3. Hard Rock fits in the multidomestic strategy, which uses the
existing domestic model globally.
ADDITIONAL CASE STUDY*
MOTOROLA’S GLOBAL STRATEGY
This case examines Motorola’s strategy in the cellular telephone
and pager market. Motorola’s strategy is based on Japanese-style
techniques and continuous improvement of quality.
Key Points
Motorola has been a leader in microchip and semiconductor
production for years. It also established itself as a leader in
mobile communication technology. However, Motorola has
not achieved this leadership position without a fight.
Motorola’s initial reaction to the invasion of Japanese produc-
ers in the cellular telephone and pager market in 1980s was
slow and uncertain. Eventually, Motorola decided to fight the
Japanese using a two-pronged strategy, first by learning from
them and then by competing with them.
Motorola was committed to lowering costs, improving quality,
and regaining market share. To that end, managers studied
Japanese operations and learned how to compete more effec-
tively. Motorola simultaneously increased its R&D and em-
ployee training budgets. In fact, a total reengineering of the
company took place.
The turnaround at Motorola was hugely successful. The company
won the prestigious Malcolm Baldrige National Quality Award
and is currently the number three producer of pagers and cellular
telephones for the Japanese market. On a worldwide scale, Mo-
torola controls some 15 percent of the market for these products
and is the number two producer of semiconductor chips. In addi-
tion, the company is rapidly introducing new products.
Motorola is working to avoid the complacent position it found
itself in during the early 1980s and has set enormously chal-
lenging goals of continuous improvement for itself. In addi-
tion, it has decided that more than three-quarters of its reve-
nues should accrue from foreign sources.
1. What are the components of Motorola’s international strategy?
The basic components of international strategy are scope of
operations, resource deployment, distinctive competence, and
synergy. Motorola’s scope of operations, or where it is going to
conduct business, can be defined geographically as a worldwide
operation. In terms of its resource deployment strategy, or how it
allocates resources, Motorola initially abandoned some areas and
then began to concentrate on cellular telephones, pagers, and semi-
conductors. It has also devoted considerable resources to R&D and
new product development. Motorola’s distinctive competence, or
what it does exceptionally well, clearly revolves around its commit-
ment to quality. Finally, Motorola is able to achieve synergy in its
operations as the different elements of its operation benefit others.
2. Describe how Motorola might have arrived at its current
strategy as a result of a SWOT analysis.
A SWOT analysis is an assessment of a firm’s strengths,
weaknesses, opportunities, and threats. A good SWOT analysis
should provide the basis for strategy development that allows a
firm to exploit strengths and opportunities, neutralize weaknesses,
and minimize threats. Clearly Motorola identified the Japanese as
a threat in the early 1980s, but also saw an opportunity in the
world marketplace. Motorola at the time was weak in the areas of
costs and quality, but exceptional leadership and R&D were able
to neutralize the weaknesses and turn the company around.
3. Discuss Motorola’s primary business strategy.
Motorola’s primary business strategy is one of differentiation.
The company has committed to distinguishing its products
from those of competitors on the basis of quality. In fact, the com-
pany currently has a perfection rate of 99.9997 percent but has set
an even loftier goal for the future.
Sources: Adapted from R.W. Griffin and M.W. Pustay, Inter-
national Business, Addison-Wesley Longman, Reading, MA, 1996,
pp. 373–374; updated with company data from www.motorola.com.
*This case appears on www.myomlab.com.
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11
3C H A P T E R
Project Management
DISCUSSION Q UESTIONS
1. There are many possible answers. Project management is
needed in large construction jobs, in implementing new informa-
tion systems, in new product development/marketing, in creating a
new assembly line, and so on.
2. Project organizations make sure existing programs continue to
run smoothly while new projects are successfully completed.
3. The three phases involved in managing a large project are
planning, scheduling, and controlling.
4. PERT and CPM help answer questions relating to which task
elements are on (or likely to be on) the critical path and to proba-
ble completion times for the overall project. Some specific ques-
tions include:
When will the entire project be completed?
Which are the critical activities or tasks in the project; that is,
the activities that will delay the entire project if completed be-
hind schedule?
Which are the noncritical activities; that is, those that can run
behind schedule without delaying the whole project? How far
behind schedule can these activities run without disrupting the
completion time?
What is the probability that the project will be completed
by a specific date?
At any particular date, is the project on schedule, behind sche-
dule, or ahead of schedule?
On any given date, is the money spent equal to, less than, or
greater than the budgeted amount?
Are there enough resources available to finish the project
on time?
If the project is required to be finished in a shorter amount of
time, what is the least-cost way to accomplish this?
5. WBS is a hierarchical subdivision of effort required to
achieve an objective. It defines a project by breaking it down into
manage-able parts and even finer subdivisions.
6. A Gantt chart is a visual device that shows the duration of
tasks in a project. It is a low-cost means of ensuring that (1) all
activities are planned for, (2) their order of performance is
planned for, (3) the activity times are recorded, and (4) the overall
project time is developed.
7. The difference between AOA and AON is that activities are
shown on arrows in the former and on the node in the latter. We
primarily use AON in this chapter.
8. Any late start or extension of an activity on the critical path
will delay the completion of the project.
9. To crash an activity, the project manager would pay money
to add resources (overtime, extra help).
10. Activity times used in PERT are assumed to be described by
a Beta probability distribution. Given optimistic (a), pessimistic
(b), and most likely (m), completion times, average or expected
time is given by:
4
6
a m b
t
and the variance by:
2
( )
Variances 6
b a
11. Early start (ES) of an activity is the latest of the early finish
times of all its predecessors. Early finish (EF) is the early start of
an activity plus its duration. Late finish (LF) of an activity is the
earliest of the late start times of all successor activities. Late start
(LS) of an activity is its late finish less its duration.
12. The critical path is the shortest time possible for the comple-
tion of a series of activities, but that shortest time is the longest
path through the network. Only the longest path allows time for all
activities in the series; any smaller amount will leave activities
unfinished.
13. Dummy activities have no time duration. They are inserted
into an AOA network to maintain the logic of the network, such
as when two activities have exactly the same beginning and end-
ing events. A dummy activity is inserted with one of them so that
the computer software can handle the problem.
14. They are (1) optimistic time estimate (a), an estimate of the
minimum time an activity will require; (2) most likely time esti-
mate (m), an estimate of the normal time an activity will require;
and (3) pessimistic time estimate (b), an estimate of the maximum
time an activity will require.
15. No. In networks, there is no possibility that crashing a non-
critical task can reduce the project duration. Only critical tasks
offer the possibility of reducing path length. However, other crite-
ria for crashing may exist: for instance, skills required in one of
the activities may also be needed elsewhere.
16. Total PERT project variance is computed as the sum of the
variances of all activities on the critical path.
3C H A P T E R
Project Management
DISCUSSION Q UESTIONS
1. There are many possible answers. Project management is
needed in large construction jobs, in implementing new informa-
tion systems, in new product development/marketing, in creating a
new assembly line, and so on.
2. Project organizations make sure existing programs continue to
run smoothly while new projects are successfully completed.
3. The three phases involved in managing a large project are
planning, scheduling, and controlling.
4. PERT and CPM help answer questions relating to which task
elements are on (or likely to be on) the critical path and to proba-
ble completion times for the overall project. Some specific ques-
tions include:
When will the entire project be completed?
Which are the critical activities or tasks in the project; that is,
the activities that will delay the entire project if completed be-
hind schedule?
Which are the noncritical activities; that is, those that can run
behind schedule without delaying the whole project? How far
behind schedule can these activities run without disrupting the
completion time?
What is the probability that the project will be completed
by a specific date?
At any particular date, is the project on schedule, behind sche-
dule, or ahead of schedule?
On any given date, is the money spent equal to, less than, or
greater than the budgeted amount?
Are there enough resources available to finish the project
on time?
If the project is required to be finished in a shorter amount of
time, what is the least-cost way to accomplish this?
5. WBS is a hierarchical subdivision of effort required to
achieve an objective. It defines a project by breaking it down into
manage-able parts and even finer subdivisions.
6. A Gantt chart is a visual device that shows the duration of
tasks in a project. It is a low-cost means of ensuring that (1) all
activities are planned for, (2) their order of performance is
planned for, (3) the activity times are recorded, and (4) the overall
project time is developed.
7. The difference between AOA and AON is that activities are
shown on arrows in the former and on the node in the latter. We
primarily use AON in this chapter.
8. Any late start or extension of an activity on the critical path
will delay the completion of the project.
9. To crash an activity, the project manager would pay money
to add resources (overtime, extra help).
10. Activity times used in PERT are assumed to be described by
a Beta probability distribution. Given optimistic (a), pessimistic
(b), and most likely (m), completion times, average or expected
time is given by:
4
6
a m b
t
and the variance by:
2
( )
Variances 6
b a
11. Early start (ES) of an activity is the latest of the early finish
times of all its predecessors. Early finish (EF) is the early start of
an activity plus its duration. Late finish (LF) of an activity is the
earliest of the late start times of all successor activities. Late start
(LS) of an activity is its late finish less its duration.
12. The critical path is the shortest time possible for the comple-
tion of a series of activities, but that shortest time is the longest
path through the network. Only the longest path allows time for all
activities in the series; any smaller amount will leave activities
unfinished.
13. Dummy activities have no time duration. They are inserted
into an AOA network to maintain the logic of the network, such
as when two activities have exactly the same beginning and end-
ing events. A dummy activity is inserted with one of them so that
the computer software can handle the problem.
14. They are (1) optimistic time estimate (a), an estimate of the
minimum time an activity will require; (2) most likely time esti-
mate (m), an estimate of the normal time an activity will require;
and (3) pessimistic time estimate (b), an estimate of the maximum
time an activity will require.
15. No. In networks, there is no possibility that crashing a non-
critical task can reduce the project duration. Only critical tasks
offer the possibility of reducing path length. However, other crite-
ria for crashing may exist: for instance, skills required in one of
the activities may also be needed elsewhere.
16. Total PERT project variance is computed as the sum of the
variances of all activities on the critical path.
Loading page 14...
12 CHAPTER 3 P R O J E C T M A N A G E M E N T
17. Slack: the amount of time an activity can be delayed and not
affect the overall completion time of the whole project. Slack can
be determined by finding the difference between the earliest start
time and the latest start time, or the earliest finish time and the lat-
est finish time for a given activity.
18. If there are a sufficient number of tasks along the critical
path, we can assume that project completion time is described by a
normal probability distribution with mean equal to the sum of the
expected times of all activities on the critical path and variance
equal to the sum of the variances of all activities on the critical
path.
The fundamental assumption required is that the number of
activities on the critical path is large enough that the mean of the
sum of the Beta distributions is distributed approximately as the
normal distribution.
19. Widely used project management software include Time-
Line, MS Project, MacProject, Primavera, and PERTmaster.
ETHICAL DILEMMA
Large projects with time/cost overruns are not uncommon
situations in the world of project management. Why do MIS
projects commonly sport 200–300% cost overruns and completion
times twice that projected? Why do massive construction projects
run so late and so over budget?
Students are expected to read about such projects and come
up with explanations, especially related to ethics. In the case of
MIS projects, long software development tasks are almost
doomed to failure because of the changes in technology and staff
that take place. It’s a necessity to break large projects down into
smaller 3- to 6-month modules or pieces that are self-contained.
This protects the organization from a total loss should the massive
project never be completed.
In every case, quality project management means open
communication, realistic timetables, good staff, and use of
software like MSProject to build and maintain a schedule.
Bidding on a contract with a schedule that is not feasible may be
unethical as well as poor business.
ACTIVE M ODEL EXERCISE *
ACTIVE MODEL 3.1: Gantt Chart
1. Both A and H are critical activities. Describe the difference
between what happens on the graph when you increase A vs.
increasing H.
When you increase H, it is the only task to change on the
chart. However, when you increase A then all critical tasks
move to the right and the slack for the noncritical tasks
increases.
2. Activity F is not critical. By how many weeks can you in-
crease activity F until it becomes critical?
6 weeks
3. Activity B is not critical. By how many weeks can you in-
crease activity B until it becomes critical? What happens when B
becomes critical?
1 week. Activity D also becomes critical.
4. What happens when you increase B by 1 more week after it
becomes critical?
Activities A, C, and E become noncritical, and the project
takes 1 additional week.
5. Suppose that building codes may change and, as a result,
activity B would have to be completed before activity C could be
started. How would this affect the project?
Activity B becomes critical, and the project takes 1
additional week.
* Active Model 3.1 appears on www.myomlab.com.
17. Slack: the amount of time an activity can be delayed and not
affect the overall completion time of the whole project. Slack can
be determined by finding the difference between the earliest start
time and the latest start time, or the earliest finish time and the lat-
est finish time for a given activity.
18. If there are a sufficient number of tasks along the critical
path, we can assume that project completion time is described by a
normal probability distribution with mean equal to the sum of the
expected times of all activities on the critical path and variance
equal to the sum of the variances of all activities on the critical
path.
The fundamental assumption required is that the number of
activities on the critical path is large enough that the mean of the
sum of the Beta distributions is distributed approximately as the
normal distribution.
19. Widely used project management software include Time-
Line, MS Project, MacProject, Primavera, and PERTmaster.
ETHICAL DILEMMA
Large projects with time/cost overruns are not uncommon
situations in the world of project management. Why do MIS
projects commonly sport 200–300% cost overruns and completion
times twice that projected? Why do massive construction projects
run so late and so over budget?
Students are expected to read about such projects and come
up with explanations, especially related to ethics. In the case of
MIS projects, long software development tasks are almost
doomed to failure because of the changes in technology and staff
that take place. It’s a necessity to break large projects down into
smaller 3- to 6-month modules or pieces that are self-contained.
This protects the organization from a total loss should the massive
project never be completed.
In every case, quality project management means open
communication, realistic timetables, good staff, and use of
software like MSProject to build and maintain a schedule.
Bidding on a contract with a schedule that is not feasible may be
unethical as well as poor business.
ACTIVE M ODEL EXERCISE *
ACTIVE MODEL 3.1: Gantt Chart
1. Both A and H are critical activities. Describe the difference
between what happens on the graph when you increase A vs.
increasing H.
When you increase H, it is the only task to change on the
chart. However, when you increase A then all critical tasks
move to the right and the slack for the noncritical tasks
increases.
2. Activity F is not critical. By how many weeks can you in-
crease activity F until it becomes critical?
6 weeks
3. Activity B is not critical. By how many weeks can you in-
crease activity B until it becomes critical? What happens when B
becomes critical?
1 week. Activity D also becomes critical.
4. What happens when you increase B by 1 more week after it
becomes critical?
Activities A, C, and E become noncritical, and the project
takes 1 additional week.
5. Suppose that building codes may change and, as a result,
activity B would have to be completed before activity C could be
started. How would this affect the project?
Activity B becomes critical, and the project takes 1
additional week.
* Active Model 3.1 appears on www.myomlab.com.
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CHAPTER 3 P R O J E C T M A N A G E M E N T 13
END- OF-CHAPTER PROBLEMS
3.1 Some possible Level 3[(a)] and Level 4[(b)] activities for the house appear for each Level 2 activity below.
END- OF-CHAPTER PROBLEMS
3.1 Some possible Level 3[(a)] and Level 4[(b)] activities for the house appear for each Level 2 activity below.
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