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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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    S OLUTIONS M ANUAL Paul Griffin Humber Institute of Technology and Advanced Learning Operations Management Second Canadian Edition Jay Heizer Barry Render Paul Griffin

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    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

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    1 1 C H A P T E R Operations and Productivity D ISCUSSION 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. E THICAL D ILEMMA 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

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    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. E ND - OF -C HAPTER P ROBLEMS 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 $ 65 Multifactor (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.

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    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

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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 2 1 A DDITIONAL H OMEWORK P ROBLEMS (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 C ASE S TUDY 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.) V IDEO C ASE S TUDIES 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.

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    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.

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    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 A DDITIONAL C ASE S TUDY 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.

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    7 2 C H A P T E R Operations Strategy in a Global Environment D ISCUSSION 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 E THICAL D ILEMMA 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. E ND - OF -C HAPTER P ROBLEMS 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.

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    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 C ASE S TUDY 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. V IDEO C ASE S TUDIES 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.

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    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. A DDITIONAL C ASE S TUDY * 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 3 C H A P T E R Project Management D ISCUSSION 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.

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    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. E THICAL D ILEMMA 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. A CTIVE M ODEL E XERCISE * 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 E ND - OF -C HAPTER P ROBLEMS 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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