Manufacturing and Industrial Engineering G S u t The evolving field of production and operations management (P/OM) ap r t is reflected in this P/OM text. Proper management of the supply chain ra beginning with acquisition and ending with distribution involves Production and Operations coordination with finance and marketing. We must, therefore, emphasize the systems approach and apply it to the full-scope of services as well as manufacturing. With this goal, the book, Production and Operations Management Systems Management Systems covers the major spectrum of decision-making P functions from product development to the final delivery of the product to r the customer. The book, based on analytical models, makes extensive use o M of Excel software. International aspects of P/OM are integrated throughout d the text. a u n Key Features c • Provides a concise format for a complete P/OM undergraduate at gi course o e • Can be used for graduate programs by using included advanced n topical coverage m a • Highlights the P/OM interface with marketing and finance e n • Appendix delves into the systems aspects of breakeven analysis n d and the transportation method t • Reader’s Choice presents a concise and relevant list of easily O S available supplemental articles yp s PowerPoint slides, test bank with solutions, and review questions and e t problems fully worked out with appropriate Excel worksheets as well as r e specially developed macro-based Excel worksheets are available upon a m qualifying course adoption. t i so n Sushil Gupta and Martin Starr s K14666 6000 Broken Sound Parkway, NW ISBN: 978-1-4665-0733-3 Suite 300, Boca Raton, FL 33487 711 Third Avenue 90000 an informa business New York, NY 10017 2 Park Square, Milton Park www.crcpress.com Abingdon, Oxon OX14 4RN, UK 9 781466 507333 w w w. c r c p r e s s . c o m K14666 cvr mech.indd 1 12/18/13 9:06 AM Production and Operations Management Systems Production and Operations Management Systems Sushil Gupta and Martin Starr CRC Press Taylor & Francis Group 6000 Broken Sound Parkway NW, Suite 300 Boca Raton, FL 33487-2742 © 2014 by Taylor & Francis Group, LLC CRC Press is an imprint of Taylor & Francis Group, an Informa business No claim to original U.S. Government works Version Date: 20131206 International Standard Book Number-13: 978-1-4665-0734-0 (eBook - PDF) This book contains information obtained from authentic and highly regarded sources. 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Visit the Taylor & Francis Web site at http://www.taylorandfrancis.com and the CRC Press Web site at http://www.crcpress.com DEDICATION We would be remiss if we did not thank our spouses, Lalita Gupta and Polly Starr, for putting up with intense working days and nights of writing and communicating by email and phone—all dedicated to bringing the book field of production and operations management (P/OM) into the twenty-first century. Contents Preface ..........................................................................................................xix Epilogue ....................................................................................................xxvii Acknowledgments ......................................................................................xxix Authors .......................................................................................................xxxi 1 Introduction to Production and Operations Management ....................1 1.1 The Systems Viewpoint ......................................................................3 1.2 Strategic Thinking .............................................................................4 1.3 Explaining P/OM ..............................................................................4 1.4 Use of Models by P/OM ....................................................................5 1.5 The Systems Approach .......................................................................5 1.5.1 Using the Systematic–Constructive Approach ......................7 1.5.2 Why Is the Systems Approach Required? ..............................8 1.5.3 Defining the System .............................................................8 1.5.4 Structure of the Systems Approach .....................................10 1.5.5 Examples of the Systems Approach .....................................10 1.5.6 Designing the Product Line Using the Systems Approach ..........................................................11 1.6 Information Systems for Manufacturing and Services .....................12 1.7 Defining Operations ........................................................................13 1.7.1 Manufacturing Operations .................................................13 1.7.2 Service Operations ..............................................................14 1.7.3 Similarities and Differences between Services and Manufacturing.............................................................16 1.8 Working Definitions of Production and Operations ........................18 1.9 Contrasting Production Management and Operations Management....................................................................................19 1.10 P/OM—The Hub of the Business Model .........................................20 1.11 Transformation Process ...................................................................20 1.12 Costs and Revenues Associated with Input–Output (I/O) Models .....22 1.12.1 Inputs Associated with Variable (or Direct) Costs ...............23 vii viii  ◾  Contents 1.12.2 Transformations Associated with Fixed (or Indirect) Costs ..................................................23 1.12.3 Outputs Associated with Revenues and Profits ...................24 1.13 P/OM Input–Output Profit Model ..................................................25 1.14 Productivity—A Major P/OM Issue ................................................26 1.15 The Stages of P/OM Development ...................................................27 1.16 Organizational Positions and Career Opportunities in P/OM .........30 1.16.1 Career Success and Types of Processes ................................30 1.16.2 Operations Management Career Paths ...............................33 1.16.3 Global Aspects of Career Paths ..........................................34 1.16.4 Manager of Production or Operations: Manufacturing or Services ..................................................35 1.16.5 Inventory Manager, Materials Manager, or Purchasing Agent (and Supply Chain Manager) ...................................36 1.16.6 Director of Quality .............................................................36 1.16.7 Project Manager/Consultant (Internal or External) ............37 Summary ...................................................................................................37 Review Questions .......................................................................................38 Problems ....................................................................................................39 P/OM History Archive .............................................................................40 Archival Articles ..............................................................................40 Readings and References ............................................................................41 Source of Video Clips on Manufacturing ..................................................42 Alliance for Innovative Manufacturing (AIM): How Everyday Things Are Made. ..............................................................42 2 Strategy, Productivity, and History ......................................................43 2.1 The Systems Viewpoint ...................................................................46 2.2 Strategic Thinking ...........................................................................47 2.3 Measurement of Productivity ..........................................................48 2.3.1 Labor Productivity ..............................................................50 2.3.2 Capital Productivity ...........................................................51 2.3.3 Multifactor Productivity .....................................................52 2.3.3.1 Trends in Multifactor (MFP) Productivity .........52 2.3.4 Operational Measures of the Organization’s Productivity ........................................................................54 2.4 System-Wide Issues Impacting Productivity ....................................55 2.4.1 Global Issues .......................................................................56 2.4.2 Bureaucracy, Flexibility, and Productivity ...........................58 2.4.3 Size of Firms and Flexibility ...............................................59 2.4.4 Price–Demand Elasticity and Productivity .........................59 2.4.5 Elasticity of Quality and Productivity ................................61 2.4.6 Economies of Scale and the Division of Labor ....................62 Contents  ◾  ix 2.5 History of Improvements of P/OM Transformations .......................63 2.5.1 Artisans, Apprentices, and Trainees—The Beginning .........63 2.5.2 Interchangeable Parts (IP)—P/OM’s First Step ..................65 2.5.3 Scientific Management (SM)—P/OM’s Second Step .......................................................................66 2.5.4 Sequenced Assembly (SA)—P/OM’s Third Step .................67 2.5.5 Statistical Quality Control—P/OM’s Fourth Step ..............68 2.5.6 Lean Production Systems—P/OM’s Fifth Step ...................68 2.5.7 Mass Customization with CAD, CAM, and Flexible Production System—P/OM’s Sixth Step .............................69 2.5.8 Global Competition: Year 2010 Plus—P/OM’s Seventh Step .......................................................................72 Summary ...................................................................................................73 Review Questions .......................................................................................74 Problems ....................................................................................................75 Readings and References ............................................................................76 3 Workload Assessment (Forecasting) .....................................................79 3.1 Introduction ....................................................................................81 3.2 Time Series and Extrapolation .........................................................82 3.3 Forecasting Methods for Time-Series Analysis ................................85 3.3.1 Moving Average ..................................................................86 3.3.2 Weighted Moving Average ..................................................88 3.3.3 Exponential Smoothing ......................................................89 3.3.4 Forecasting with a Seasonal Cycle.......................................92 3.3.5 Trend Analysis ....................................................................96 3.4 Regression Analysis .........................................................................98 3.5 Coefficients of Correlation and Determination ................................99 3.6 Forecasting Errors ..........................................................................101 3.7 The Delphi Method .......................................................................102 3.8 Pooling Information and Multiple Forecasts ..................................103 3.9 Product Life-Cycle Stages and Forecasting ....................................103 3.9.1 Introduction and Growth of the New Product (Goods and Services) ........................................................104 3.9.2 Maturation and Decline of the New Product (Goods and Services) ........................................................104 3.9.3 Demand Prediction in Life-Cycle Stages ..........................105 3.9.4 Protection of Established (Mature) Products (Goods and Services) ........................................................106 Summary .................................................................................................107 Review Questions .....................................................................................108 Problems ..................................................................................................108 Readings and References ..........................................................................114