Operations Management: Sustainability and Supply Chain Management, Second Canadian Edition Solution Manual

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SOLUTIONSMANUALPaul GriffinHumber Institute of Technology and Advanced LearningOperations ManagementSecond Canadian EditionJay HeizerBarry RenderPaul Griffin

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ContentsChapter 1: Operations and Productivity1Chapter 2: Operations Strategy in a Global Environment7Chapter 3: Project Management11Chapter 4: Forecasting26Chapter 5: Sustainability in the Supply Chain and the Design of Goods and Services47Chapter 6: Managing Quality59Chapter 6 - Supplement: Statistical Process Control72Chapter 7: Process Strategy and Sustainability85Chapter 7 - Supplement: Capacity and Constraint Management93Chapter 8: Location Strategies104Chapter 9: Layout Strategies115Chapter 10: Human Resources, Job Design, and Work Measurement133Chapter 11: Supply-Chain Management152Chapter 11 - Supplement: Supply-Chain Management Analytics160Chapter 12: Inventory Management166Chapter 13: Aggregate Planning and sales and Operations Planning181Chapter 14: Material Requirements Planning (MRP) and ERP204Chapter 15: Short-Term Scheduling230Chapter 16: JIT and Lean Operations243Chapter 17: Maintenance and Reliability247Module A: Decision-Making Tools252Module B: Linear Programming264Module C: Transportation Models282Module D: Waiting-Line Models304Module E: Learning Curves318Module F: Simulation323

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11CHAPTEROperations and ProductivityDISCUSSIONQUESTIONS1.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 operationsmanagers do, and (4) this costly part of our economy and mostenterprises.2.Possible responses include: Adam Smith (work specialization/division of labour), Charles Babbage (work specialization/divisionof labour), Frederick W. Taylor (scientific management), WalterShewart (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 isfor 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 ordetailed 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 Question4. Here, however, the student should be encouraged to utilize amore detailed knowledge of a past employer and indicate on thechart additional information such as the number of persons em-ployed to perform the various functions and, perhaps, the positionof 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 allfirms/organizations (private, government, not-for-profit) performthese three functions?” The authors’ hypothesis is yes, they do.7.The 10 decisions of operations management are productdesign,quality,process,location,layout,humanresources,supply-chain management, inventory, scheduling (aggregate andshort term), and maintenance. We find this structure an excellentway 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) dietof the labour force, (3) social overhead that makes labour avail-able (water, sanitation, transportation, etc.), and (4) maintainingand expanding the skills necessary for changing technology andknowledge, as well as for teamwork and motivation.9.Productivity is harder to measure when the task becomesmore intellectual. A knowledge society implies that work is moreintellectual and therefore harder to measure. Because Canada (andmany 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 oragricultural society is very different. For example, decades spentdeveloping a marvelous new drug or winning a very difficult legalcase on intellectual property rights may be significant for post-industrial societies, but not show much in the way of productivityimprovement measured in labour hours.10.Productivity is difficult to measure because precise units ofmeasure may be lacking, quality may not be consistent, andexogenous variables may change.11.Mass customization is the flexibility to produce in order tomeet specific customer demands, without sacrificing the lowcost of a product oriented process. Rapid product development isa source of competitive advantage. Both rely on agility withinthe organization.12.Labourproductivityintheservicesectorishardtoimprove because (1) many services are labour intensive and (2)they are individually (personally) processed (the customer ispaying for that service—the haircut), (3) it may be an intellec-tual task performed by professionals, (4) it is often difficult tomechanize and automate, and (5) it is often difficult to evaluatefor quality.13.Taco Bell designed meals that were easy to prepare; withactual cooking and food preparation done elsewhere; automationto save preparation time; reduced floor space; manager training toincrease span of control.ETHICALDILEMMAWith most of the ethical dilemmas in the text, the instructorshould generate plenty of discussion. The authors are hesitant toendorse a particular correct answer, and students may well be onboth sides of this dilemma.Many students will be inclined to accept the child labourlaws of their home country. For instance, Americans acceptteenagers working. But Germans (and others) are more likely toexpect teenagers to be home studying or in an apprentice program;they frown upon teenagers working. Students raised in moreaffluentenvironmentsmaynotunderstandchildrenworking.However, those who had to scrape by in their youth or had parentsthat did may be more sympathetic to 10-year-olds working.From an economic and self-preservation perspective many10-year-olds do work and need to work. There are still a lot ofpoor people in the world. Such a decision may endorse the moralphilosophyperspectivedefinedasautilitarianismdecision.A utilitarianism decision defines acceptable actions as those that

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2CHAPTER 1OP E R A T I O N S A N DPR O D U C T I V I T Ymaximize total utility, i.e., the greatest good for the greatestnumber of people.FromaCanadiancorporatemanagementperspective,companies cannot tolerate the publicity that goes with hiring 10-year-olds. These companies need to have standards that prohibitsuch actions by their subcontractors. The moral philosophy per-spective might call this thevirtue ethicsposition—the decisionthat a mature person with a good moral character would deemcorrect.END-OF-CHAPTERPROBLEMS120 boxes(a)= 3.0 boxes/hour40 hours1.1125 boxes(b)= 3.125 boxes/hour40 hours(c) Change in productivity = 0.125 boxes/hour(d)0.125 boxesPercentage change == 4.166%3.01.2(a)Labour productivity is 160 valves/80 hours = 2 valvesper hour.(b)New labour productivity = 180 valves / 80 hours =2.25 valves per hour(c)Percentage change in productivity = .25 valves / 2valves = 12.5%1.357,6000.15 =, wherenumber of labourers(160)(12)()employed at the plantLL=So57,600== 200(160)(12)(0.15)Llabourers employed1.4The U.S. Bureau of Labor Statistics (stats.bls.gov) is prob-ably as good a place to start as any. Results will vary for eachyear, but overall data for the economy will range from .9% to4.8% and mfg. could be as high as 5% and services between 1%and 2%. The data will vary even more for months or quarters. Thedata are frequently revised, often substantially.Units produced100 pkgs(a)== 20 pkgs/hourInput51.5133 pkgs(b)= 26.6 pkgs per hour56.6(c) Increase in productivity == 33.0%201.6ResourceLast YearThis YearChangePercent ChangeLabour1, 000 = 3.333001, 000 = 3.642750.310.31 = 9.3%3.33Resin1, 000 = 20501, 000 = 22.22452.222.22 = 11.1%20Capital1, 000= 0.110, 0001, 000= 0.0911, 000–0.01–0.01 = –10.0%0.1Energy1, 000 = 0.333, 0001, 000 = 0.352, 8500.020.02 = 6.1%0.331.7Last YearThis YearProduction1,0001,000Labour hr. @ $10$3,000$2,750Resin @ $5250225Capital cost/month100110Energy1,5001,425$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 resources0.2060.2067.8% improvement** with rounding to 3 decimal places.OutputProductivity =Input1.86565(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, 2601.9(a) Labour productivity = 1,000 tires/400 hours = 2.5tires/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 to1,000/39,000, or from 0.025 to 0.02564; the ratio is1.0256, so the change is a 2.56 percent increase.

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CHAPTER 1OP E R A T I O N S A N DPR O D U C T I V I T Y31.10Last YearThis YearChangePercent ChangeLabour hrs.1,500 = 4.293501,500 = 4.623250.334.29= 7.7%Capital invested1,500= 0.1015, 0001,500= 0.0818, 000– 0.020.1= –20%Energy (BTU)1,500 = 0.503, 0001,500 = 0.552,7500.050.50= 10%Productivity of capital did drop; labour productivity increased as did energy, but by less than the anticipated 15%.1.11Multifactor productivity is:375 autos/[($20 × 10,000) + ($1,000 × 500) +($3 × 100,000)] = 375/(200,000 + 500,000 +300,000) = 375/1,000,000= 0.000375 autos per dollar of inputs1.12(a) Before: 500/20 = 25 boxes per hour;After, 650/24 = 27.08(b) 27.08/25= 1.083, or an increase of 8.3% in productivity(c) New labour productivity = 700 / 24 = 29.167boxes per hour1.131,500 × 1.25 = 1,875 (new demand)Outputs = ProductivityInputs1,875= 2.344labour hours1,875New process =800 labour hours2.344800 = 5 workers1601,500Current process == 2.344labour hours1,500 = labour hours6402.344640 = 4 worke160rsAdd one worker.1.14(a) Labour change:1,5001,500== 0.293 loaves/$(640 × $8)5,1201,875= 0.293 loaves/$(800 × $8)(b) Investment change:1,5001,500== 0.293 loaves/$(640 × $8)5,1201,8751,875== 0.359 loaves/$(640 × 8) + (100)5,220.293.293(c) Percent change := 0 (labour).293.359.293Percent change :=0 .225.293= 22.5% (investment)1,500Old process = (6408) + 500 + (1,5000.35)1,500== 0.2446,1451,875New process = (8008) + 500 + (1,8750.35)1,875== 0.2487,556.250.248-0.244Percent change == 1.6%0.2441.15labourlabour6,600 vans(a)= 0.10hours= 66,000hoursxx1.16There are 300labourers. So,66,000 labour hours = 220 labour hours/labourer on average, per month300 labourers6,600 vans(b) Now= 0.11, so60,000 labour hourlabour hours60,000 labour hoursso,200 labour hours/labourer300 laborerson average, per monthxxLabourlabour$ output52($90) + 80($198)=hour8(45)20,520== $57.00 perhour3601.17

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4CHAPTER 1OP E R A T I O N S A N DPR O D U C T I V I T Y21ADDITIONALHOMEWORKPROBLEMS(found at www.myomlab.com.)1500Last Year = (35010) + (15,0000.0083) + (3,0000.6)1.18=++15003,500 124.50 1800==15000.277 dos / $5424.501500This Year = (32510) + (18,0000.0083) + (27500.6)=0.297 doz / $-=0.297 0.277Percent Change =0.2770.072 or 7.2% increaseCASESTUDYNATIONAL AIR EXPRESSThis case can be used to introduce the issue of productivity andhow to improve it, as well as the difficulty of good consistentmeasures 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 tostart. However, mileage and number of shipments will probablybe good additional variables. (Regression techniques, addressed inChapter 4, can be addressed here to generate interest.)2.Customer service should be based on an analysis of customerrequirements. Document requirements in terms of services desired(supply needs, preprinted waybills, package weights, pickup anddrop-off requirements) should all be considered. (The house ofquality technique discussed in Chapter 5 is one approach for suchan analysis.)3.Other companies in the industry do an effective job ofestablishingverygoodlabourstandardsfortheirdrivers,sorters, and phone personnel. Difficult perhaps, but doable.(The work measurement supplement to Chapter 10 addresseslabour standards.)VIDEOCASESTUDIESFRITO-LAY: OPERATIONS MANAGEMENTIN MANUFACTURINGThis case provides a great opportunity for an instructor to stimulatea class discussion early in the course about the pervasiveness of the10 decisions of OM with this case alone or in conjunction with theHard Rock Cafe case. A short video accompanies the case.1.From your knowledge of production processes and from thecase and the video, identify how each of the 10 decisions of OMis applied at Frito-Lay:Product design:Each of Frito-Lay’s 40-plus products mustbe conceived, formulated (designed), tested (market studies,focus groups, etc.), and evaluated for profitability.Quality:The standards for each ingredient, including itspurity and quality, must be determined.Process:The process that is necessary to produce the productand the tolerance that must be maintained for each ingredientby each piece of equipment must be specified and procured.Location:The fixed and variable costs of the facility, as wellas the transportation costs in and the delivery distance, giventhe freshness, must be determined.Layout:The Frito-Lay facility would be a process facility,with great care given to reducing movement of materialwithin the facility.Humanresources:Machineoperatorsmaynothaveinherently enriched jobs, so special consideration must begiven to developing empowerment and enriched jobs.Supply chain:Frito-Lay, like all other producers of foodproducts,mustfocusondevelopingandauditingrawmaterial from the farm to delivery.Inventory:Freshness and spoilage require constant effort todrive down inventories.Scheduling:The demand for high utilization of a capital-intensivefacilitymeanseffectiveschedulingwillbeimportant.Maintenance:High utilization requires good maintenance, frommachine operator to the maintenance department and depotservice.2.How would you determine the productivity of the productionprocesses at Frito-Lay?Determining output (in some standard measure, perhaps pounds)andlabourhourswouldbeagoodstartforsingle-factorproductivity.For multifactor productivity, we would need to develop andunderstand capital investment and energy, as well as labour, andthen translate those into a standard, such as dollars.3.How are the 10 decisions of OM different when applied bythe operations manager of a production process such as Frito-Lay than when applied by a service organization such as HardRock Cafe?Hard Rock performs all 10 of the decisions as well, only with amore service-sector orientation. Each of these is discussed in thesolution to the Hard Rock Cafe case.HARD ROCK CAFE: OPERATIONSMANAGEMENT IN SERVICESThere is a short video (7 minutes) available from Prentice Halland 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 engagedin the 10 OM decisions around which the text is structured.Product design: Hard Rock’s tangible product is food and likeany tangible product it must be designed, tested, and “costedout.” The intangible product includes the music, memorabilia,and service.Quality: The case mentions the quality survey as an overtquality measure, but quality can be discussed from a varietyof perspectives—hiring the right people, food ingredients,good suppliers, speed of service, friendliness, etc.

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CHAPTER 1OP E R A T I O N S A N DPR O D U C T I V I T Y5Process:Theprocesscanbediscussedfrommanyperspectives: (a) the process of processing a guest: to theirseat, 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 PierreAlexander), or (c) some subset of any of these.Location: Hard Rock Cafes have traditionally been located intourist locations, but that is beginning to change.Layout: Little discussion in the case, but students may bevery aware that a kitchen layout is critical to efficient foodpreparationandthatabariscriticalinmanyfoodestablishments for profitability. The retail shop in relation totherestaurantanditslayoutisacriticalingredientforprofitability at Hard Rock.Human resources: Jim Knight, VP for Human Resources atHard Rock, seeks people who are passionate about music, loveto serve, can tell a story. This OM decision is a criticalingredient for success of a Hard Rock Cafe and an integral partof the Hard Rock dining experience.Supply-chain management: Although not discussed in thecase, students should appreciate the importance of the supplychain in any food service operation. Some items like leatherjackets have a 9-month lead time. Contracts for meat andpoultry are signed 8 months in advance.Inventory: Hard Rock, like any restaurant, has a criticalinven-tory issue that requires that food be turned over rapidlyand that food in inventory be maintained at the appropriateand often critical temperatures. But the interesting thingaboutHardRock’sinventoryisthattheymaintain$40millionofmemora-biliawithallsortsofspecialcare,tracking, and storage issues.Scheduling: Because most Hard Rock Cafe’s sales are drivenby tourists, the fluctuations in seasonal, daily, and hourlydemands for food are huge. This creates a very interestingand challenging task for the operations managers at HardRock. (Not mentioned in the case, linear programming isactually used in some cafes to schedule the wait staff.)Maintenance/reliability: The Hard Rock Cafe doors mustopen every day for business. Whatever it takes to provide areliable kitchen with hot food served hot and cold foodserved cold must be done. Bar equipment and point-of-saleequipment must also work.2.Productivity of kitchen staff is simply the output (number ofmeals) over the input (hours worked). The calculation is how manymeals prepared over how many hours spent preparing them. Thesame kind of calculation can be done for the wait staff. In fact,Hard Rock managers begin with productivity standards and staffto achieve those levels. (You may want to revisit this issue whenyou get to Chapter 10 and Supplement 10 on labour standards anddiscuss how labour can be allocated on a per-item basis with moreprecision.)3.Each of the 10 decisions discussed in question 1 can beaddressed with a tangible product like an automobile.Product design: The car must be designed, tested, and costedout. The talents may be those of an engineer or operationsmanager rather than a chef, but the task is the same.Quality:Atanautoplant,qualitymaytaketheformofmeasuring tolerances or wear of bearings, but there is still aquality issue.Process: With an auto, the process is more likely to be anassembly-line process.Location: Hard Rock Cafe may want to locate at touristdestinations, but an auto manufacturer may want to go to alocation that will yield low fixed or variable cost.Layout:Anautomobileassemblyplantisgoingtobeorganized on an assembly line criterion.Human resources: An auto assembly plant will be morefocused on hiring factory skills rather than a passion formusic or personality.Supply chain: The ability of suppliers to contribute to designand low cost may be a critical factor in the modern autoplant.Inventory:Theinventoryissuesareentirelydifferent—tracking memorabilia at Hard Rock, but an auto plant requirestracking a lot of expensive inventory that must move fast.Scheduling: The auto plant is going to be most concernedwith scheduling material not people.Maintenance: Maintenance may be even more critical in anauto plant as there is often little alternate routing, and downtime is very expensive because of high fixed and variable cost.

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6CHAPTER 1OP E R A T I O N S A N DPR O D U C T I V I T YADDITIONALCASESTUDYZYCHOL CHEMICALS CORPORATION*1.The analysis of the productivity data is shown below:Bothlabourandmaterialproductivityincreased,butcapitalequipment productivity did not. The net result is a large negativechange in productivity. If this is a one-time change in the accountingprocedures, this negative change should also be a one-time anomaly.The effect of accounting procedures is often beyond the control ofmanagers. For example, perhaps the capital allocation is based on anaccelerated allocation of depreciation of newly installed technology.This accounting practice will seriously impact near-term productivityand then later years’ productivity figures will benefit from thereduceddepreciationflows.Thishighlightsthedifficultyinaccounting for costs in an effective managerial manner. Decisionsandevaluationofoperatingresultsshouldbebasedonsoundmanagerialaccountingpracticesandnotnecessarilygenerallyaccepted financial accounting principles.2.An analysis of adjusted results reduces the negative impact onthecapitalallocationbutthereisstillanegativegrowthinmultifactor productivity. After adjustment for inflation, the materialcosts are still higher in 2009. Yet, one must be aware of the extravolatility of the cost of petroleum-based products. Did the managerhave control over his price increases? One should look at the changesin a petroleum-based price index, including the cost of oil, over thelast two years in order to gain a better understanding of the degree towhich the manager had control over these costs. The increase inwages was beyond the manager’s control and a constant rate shouldbe used for comparing both years’ results. Yet a negative result stillremains. Even when material costs in 2009 are converted to theoriginal cost of $320, a negative 5% growth in productivity remains.The increase in the capital base is responsible yet should not persistin future years if the increase was the result of an adoption of newtechnology.3.The manager did not reach the goal. An analysis of the changes incapitalcostsiswarranted.Evenafteradjustingforinflation,multifactorproductivitywasnotpositive.However,labourandmaterials productivity was favorable. The capital investment cost (asfigured by the accounting department) was so large as to make hismultifactor productivity negative. Multifactor productiv-ity has fallenby 11.61% before adjustment and by 7.88% after the adjustment forinflation.* This case study is found on www.myomlab.com.

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72CHAPTEROperations Strategy in a Global EnvironmentDISCUSSIONQUESTIONS1.Global seems the better label for Boeing since authority andresponsibility reside in the U.S.—the home country.2.Six reasons to internationalize: Reduce costs, improve supplychain, provide better goods and services, attract new markets, learnto improve operations, attract and retain global talent.3.No. Sweetness at Coca-Cola is adjusted for the tastes ofindividual countries.4.Amissionis an organization’s purpose—what good or serviceit will contribute to society.5.Strategyis an organization’s action plan—how it is going toachieve its purpose.6.Amissionspecifies where the organization is going and aStrategyspecifies how it is going to get there.7.The answer to this question will depend on the establishmentstudied,butshouldprobablyincludesomeofthefollowingconsiderations: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:ProductRepair work of North American and/or for-eign vehicles; specialized (tune-ups, lubrica-tion, wheel alignment, etc.) versus generalrepair; frame and body repair versus engineand power train repair; repair and mainten-ance only, versus repair, maintenance, andsales offuel;professionalstaffingversusrental of tools and space for do-it-yourselfrepair workQualityAppropriate level of quality; warranty; methodof measuring and maintaining quality (cus-tomer complaints, inspection by supervisingmechanic, etc.)ProcessUse of general versus special purpose diag-nosticandrepairequipment(inparticular,thedegreetowhichcomputercontrolleddiagnostic equipment is employed)LocationIn-town, shopping mall, highwayLayoutSinglebay/multibay;general-purposebayversus special-purpose bay (lubrication/tire re-pairs and installation/wheel alignment/engineand power train repair, etc.)Human resourcesEmployment of certified versus noncertifiedrepairpersons;employmentofspecialistsversus general mechanicsSupply chainChoice of supplier(s) for both general andoriginal manufacturer parts and suppliesSchedulingHoursofoperation(8:00A.M.–5:00P.M.;24-hour towing; weekends/holidays), repairsversus motor vehicle safety inspections, etc.;service by appointment versus walk-in (ordrive-up) serviceInventoryQuantity and variety of repair parts (fan belts,filters, mufflers, headlights, etc.) to stock;whether to stock generic or original manu-facturer partsMaintenanceBayswithhydraulicliftsvs.easier-to-maintain “basement” work areas. Preventivemaintenance of equipment vs. breakdown.8.Library or internet assignment: Student is to identify a missionand strategy for a firm.BusinessWeek, Fortune, The Wall StreetJournal, andForbesall have appropriate articles.9.OM strategy changes during a product’s life cycle: Duringthe introduction stage, issues such as product design and devel-opment are critical, then during the growth stage the emphasischanges to product and process reliability; from there we move toconcern for increasing the stability of the manufacturing processand cost cut-ting; and finally, in the decline stage pruning the line toeliminate 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—vialow overhead, vicious cost reduction in the supply chain; Differen-tiation, certainly any premium product—all fine dining restau-rants,up-scaleautos—Lexus,etc.;Response,yourlocalpizzadelivery service, FedEx, etc.11.An operations strategy statement for Porter Airlines wouldinclude a focus on efficient, low-cost service with high capitalutilization (high aircraft and gate utilization), flexible non-unionemployees, low administrative overhead, etc.12.The integration of OM with marketing and accounting ispervasive. You might want to cite examples such as developing newproducts. (Marketing must help with the design, the forecast andtarget costs; accounting must ensure adequate cash for developmentand the necessary capital equipment.) Similarly, new technologyornewprocessesemanatingfromoperationsmustmeettheapproval of marketing and the capital constraints imposed by theaccounting department.

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8CHAPTER 2OP E R A T I O N SST R A T E G Y I N AGL O B A LEN V I R O N M E N TETHICALDILEMMAHere is an interesting scenario. A firm can save $10 million in pro-duction costs per year. All it has to do is locate manufacturing inChina, which is not a democracy and where some employees areexploited. Nike faced a similar dilemma in Vietnam, where it wasaccused of paying less than a livable wage ($1.60 per day).Students may be prepared to discuss this current and sensitivesubject.END-OF-CHAPTERPROBLEMS2.1The three methods are cost leadership, differentiation, andresponse. Cost leadership can be illustrated by Walmart, with lowoverhead and huge buying power to pressure its suppliers intoconcessions. Differentiation can be illustrated by almost any res-taurant or restaurant chain, such as Red Lobster, which offers adistinct menu and style of service than others. Response can beillustrated by a courier service such as FedEx, that guaranteesspecific delivery schedules; or by a custom tailor, who will handmake a suit specifically for the customer.2.2Cost 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 provideservice. 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 finedining restaurants, but also true of fast food restaurants. For instance,Burger King likes to talk about meals “anyway you want them,” andMcDonald’s has a playground or seating area for children.2.3Students may find articles about German work rules or LatinAmerican siestas that interfere with work schedules. Also, someHindu workers will not touch metal objects, or touch objectstouched by “untouchables.” There are rules concerning kitchenequipment and ingredient mixing in kosher food preparation.Computer keyboards in English versus Chinese pose a serioustraining issue. There are many other possibilities.2.4Arrow Shirts; Bidermann International, FranceBraun Household Appliances; Procter & Gamble, United StatesLotus Autos; Proton, MalaysiaFirestone Tires; Bridgestone, JapanBlackBerry; BlackBerry Ltd.; CanadaGodiva Chocolate; Campbell Soup, United StatesHäagen-Dazs Ice Cream; great globalization discussion exam-ple: Häagen-Dazs was established in New York City; now ownedby Pillsbury (U.S.A.) which is owned by General Mills (U.S.A.),but Nestlé SA (Switzerland) is licensed to sell Häagen-Dazs in theUnited StatesJaguar Autos; Tata, IndiaMGM Movies; Credit Lyonnais, FranceLamborghini Autos; Volkswagen, GermanyGoodrich Tires; Michelin, FranceAlpo Pet Foods; Nestlé, Switzerland2.5(a)The maturing of a product may move the OM functionto focus on more standardization, make fewer productchanges, 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 processmay mean new human resources skills (either new per-sonnel and/or training of existing personnel), and addedcapital investment for new equipment or processes. Prod-uct design, layout, maintenance procedures, purchasing,inventory, quality standards, and procedures may allneed to be revised.(c)A design change will, at least potentially, require the samechanges as noted in (b).2.6Specific answers to this question depend on the organizationconsidered. Some general thoughts follow:(a)For a producer with high energy costs, major oil priceschange the cost structure, result in higher selling prices,and, if the company is energy inefficient compared toother producers, result in a change in competitive posi-tion. Conversely, when oil prices drop it is a bonanzafor 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 costof process modification to meet more rigid standards hasresulted in the closing of numerous plants includingpaper mills and steel mills.(c)A decrease in the number of young prospective em-ployees entering the U.S. labour market can contributeto a tighter job market. High unemployment rates canhave the opposite effect.(d)Inflation, especially at high or uncertain rates, makes itmore difficult to predict both the cost of production andthe market demand.(e)Legislation moving health insurance from a before-taxbenefit to taxable income will reduce the take-home payof employees by the amount of the taxes. This couldhave a significant effect on the income of employees inthe lower pay classifications, putting substantial pres-sure on operations managers to increase wages in theseclassifications. (This does not mean that it is not a goodidea for society—i.e., to make employees more sensitiveto the cost of health insurance.)2.7The corruption perception index maintained by TransparencyInternational (www.transparency.org) gives a 1-to-10 scale (10 beingleast corrupt to 1 being most corrupt). Also see Chapter 8, Table 8.2.A lively class discussion can also take place regarding whopays bribes, as shown on the same website. Other perspectives ofculture are shown on the Asia Pacific Management Forum page(www.apmforum.com).2.8The Economistdoes an analysis similar to this on occasionbut the “Global Competitiveness Index,”World Economic Forum,Geneva (www.weforum.org) does one every year. (Also see Table8.1 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 2OP E R A T I O N SST R A T E G Y I N AGL O B A LEN V I R O N M E N T91CASESTUDYMR. LUBE1.What constitutes the mission of Mr. Lube?To provide economical preventative maintenance, primarily tovehicles owned by indi-viduals (as opposed to businesses), inCanada.2.HowdoestheMr.Lubestrategyprovidecompetitiveadvantage?This case is a good way to get the student thinking about the 10decisions around which the text is organized. Mr. Lube’s approachto these 10 decisions includes:Product design: A narrow product strategy could be defined as“lubricating automobiles” (more in Chapter 5).Quality strategy:Becauseof 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 andcapital investment to focus on doing this mission well, ratherthan trying to be a “general purpose” garage or gas station.Locationstrategy:Facilitiesareusuallylocatednearresidential areas.Layout strategy: Thebaysare designed specifically for the lubri-cation and vacuuming tasks to minimize wasted movement onthe part of the employees and to contribute to the speedier ser-vice.Supply chain strategy:Purchasingis facilitated by negotiationof large purchases and custom packaging.Human resources strategy:Humanresources strategy focuseson hiring a few employees with limited skills and trainingthem in a limited number of tasks during the performance ofwhich they can be closely supervised.Inventory: Inventoryinvestmentshould be relatively low, andthey should expect a high turnover.Scheduling:Schedulingis quite straightforward with similartimes for most cars. Once volume and fluctuation in volumeare determined, scheduling should be very direct—assistingboth staffing and customer relations.Maintenance:Thereisrelativelylittleequipmenttobemaintained, therefore little preventive maintenance required.With multiple bays and multiple systems, there is backupavailable in the case of failure.3.Specialization of personnel and facilities should make Mr.Lube more efficient. Jobs/tasks accomplished per man hourwould be a good place to start.VIDEOCASESTUDIESSTRATEGY AT REGAL MARINEThere is a short video (7 minutes) available from Prentice Halland filmed specifically for this text that supplements this case.1.Regal Marine’s mission is to provide luxury performanceboats 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 isbeing recognized in the marketplace. One current weakness ismaintaining an effective, well-trained labour force in a tight Floridalabour market. Theopportunitiesfor Regal include an increase inboat sales brought about through the reduction of the luxury taxand Regal Marine’s increasing market presence in the world boatmarket. Thethreatsto Regal are a huge number of small competitorsgoing after various parts of the market. Brunswick goes afterthe mass market, and hundreds of small boat manufacturers goafter various niche markets.3.Regal Marine’s strategy is to focus on constant innovation, highquality, and good value for the money with sales through effectivedealers.4.Each of the 10 operations management decisions is importantto 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 interestedin exceptional quality for his/her substantial investmentProcess selection and design: Because of the large number ofboats and custom features, building via repetitive pro-cesses ina modular way has proven to be an effective and efficientprocess.Inventory: Regal tries to drive down finished goods inventorybut 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 theirown. This is a good point for class discussion, as most studentsmay 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, reliableschedules are necessary to get the job done.Supply-chain management: Of course suppliers are importantbecause of many of the appointments—from galley featuresthrough engines, and hardware make a huge difference in theperceptions and performance of marine craft. Consequently,the selection of these suppliers and their performance is criticalto Regal.Maintenance: Much of Regal’s maintenance hinges on keepingfiberglass guns and molds ready for use.Location: Because Florida is one of the major markets forboats in America, Regal is positioned to supply this large mar-ket rapidly and economically.Layout: Because of the bulkiness of the product, the layoutmust be designed, as it is, to minimize loads times the dis-tances times the difficulty factor. There is a clean logical flowof 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,thecurrentdiverselabourmarketinFloridacreates special challenges for operations managers at Regal.

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10CHAPTER 2OP E R A T I O N SST R A T E G Y I N AGL O B A LEN V I R O N M E N T2HARD ROCK CAFE’S GLOBAL STRATEGYThere is a short video (9 minutes) available from Prentice Hall andfilmed specifically for this text that supplements this case.1.Identify the strategic changes that have taken place at HardRock Cafe. What we want to do here is help the student under-stand that an optimum mix of internal strengths and opportunitiesdrives 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 touristdestinations.– Then it added stores.– Then it added live music and a rock concert.– Then it became an established name and began opening hotelsand 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 decisionsof 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 gotmuch more complex.–Process: The kitchen process changed when Hard Rock wentfrom hamburgers to lobster and additional changes were madeas 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 expandedfood items in inventory—how do you keep lobsters alive andhow 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, tocoordinators and performers for the live music facilities.The case says little about scheduling and maintenance, but everychange in product (food or merchandise) and every change inequipment and processes changes scheduling and maintenance.3.Hard Rock fits in the multidomestic strategy, which uses theexisting domestic model globally.ADDITIONALCASESTUDY*MOTOROLA’S GLOBAL STRATEGYThis case examines Motorola’s strategy in the cellular telephoneand pager market. Motorola’s strategy is based on Japanese-styletechniques and continuous improvement of quality.Key PointsMotorola has been a leader in microchip and semiconductorproduction for years. It also established itself as a leader inmobile communication technology. However, Motorola hasnot 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 wasslow and uncertain. Eventually, Motorola decided to fight theJapanese using a two-pronged strategy, first by learning fromthem and then by competing with them.Motorola was committed to lowering costs, improving quality,and regaining market share. To that end, managers studiedJapanese 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 thecompany took place.The turnaround at Motorola was hugely successful. The companywon the prestigious Malcolm Baldrige National Quality Awardand is currently the number three producer of pagers and cellulartelephones for the Japanese market. On a worldwide scale, Mo-torola controls some 15 percent of the market for these productsand 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 founditself 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 ofoperations,resourcedeployment,distinctivecompetence,andsynergy. Motorola’s scope of operations, or where it is going toconduct business, can be defined geographically as a worldwideoperation. In terms of its resource deployment strategy, or how itallocates resources, Motorola initially abandoned some areas andthen began to concentrate on cellular telephones, pagers, and semi-conductors. It has also devoted considerable resources to R&D andnew product development. Motorola’s distinctive competence, orwhat it does exceptionally well, clearly revolves around its commit-ment to quality. Finally, Motorola is able to achieve synergy in itsoperations as the different elements of its operation benefit others.2.Describe how Motorola might have arrived at its currentstrategy 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 analysisshould provide the basis for strategy development that allows afirm to exploit strengths and opportunities, neutralize weaknesses,and minimize threats. Clearly Motorola identified the Japanese asa threat in the early 1980s, but also saw an opportunity in theworld marketplace. Motorola at the time was weak in the areas ofcosts and quality, but exceptional leadership and R&D were ableto neutralize the weaknesses and turn the company around.3.Discuss Motorola’s primary business strategy.Motorola’s primary business strategy is one of differentiation.Thecompanyhascommittedtodistinguishingitsproductsfrom those of competitors on the basis of quality. In fact, the com-pany currently has a perfection rate of 99.9997 percent but has setan 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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113CHAPTERProject ManagementDISCUSSIONQUESTIONS1.There are many possible answers. Project management isneeded in large construction jobs, in implementing new informa-tion systems, in new product development/marketing, in creating anew assembly line, and so on.2.Project organizations make sure existing programs continue torun smoothly while new projects are successfully completed.3.The three phases involved in managing a large project areplanning, scheduling, andcontrolling.4.PERT and CPM help answer questions relating to which taskelements 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 runbehind schedule without delaying the whole project? How farbehind schedule can these activities run without disrupting thecompletion time?What is the probability that the project will be completedby 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, orgreater than the budgeted amount?Are there enough resources available to finish the projecton time?If the project is required to be finished in a shorter amount oftime, what is the least-cost way to accomplish this?5.WBSisahierarchicalsubdivisionofeffortrequiredtoachieve an objective. It defines a project by breaking it down intomanage-able parts and even finer subdivisions.6.A Gantt chart is a visual device that shows the duration oftasks in a project. It is a low-cost means of ensuring that (1) allactivitiesareplannedfor,(2)theirorderofperformanceisplanned for, (3) the activity times are recorded, and (4) the overallproject time is developed.7.The difference between AOA and AON is that activities areshown on arrows in the former and on the node in the latter. Weprimarily use AON in this chapter.8.Any late start or extension of an activity on the critical pathwill delay the completion of the project.9.To crash an activity, the project manager would pay moneyto add resources (overtime, extra help).10.Activity times used in PERT are assumed to be described bya Beta probability distribution. Given optimistic (a), pessimistic(b), and most likely (m), completion times, average or expectedtime is given by:46ambtand the variance by:2()Variances6ba11.Early start (ES) of an activity is the latest of the early finishtimes of all its predecessors. Early finish (EF) is the early start ofan activity plus its duration. Late finish (LF) of an activity is theearliest 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 theshortest time possible for the comple-tion of a series of activities, but that shortest time is the longestpath through the network. Only the longest path allows time for allactivities in the series; any smaller amount will leave activitiesunfinished.13.Dummy activities have no time duration. They are insertedinto an AOA network to maintain the logic of the network, suchas when two activities have exactly the same beginning and end-ing events. A dummy activity is inserted with one of them so thatthe computer software can handle the problem.14.They are (1) optimistic time estimate (a), an estimate of theminimum 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 maximumtime 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 tasksoffer the possibility of reducing path length. However, other crite-ria for crashing may exist: for instance, skills required in one ofthe activities may also be needed elsewhere.16.Total PERT projectvarianceis computed as the sum of thevariances of all activities on the critical path.

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12CHAPTER 3PR O J E C TMA N A G E M E N T17.Slack: the amount of time an activity can be delayed and notaffect the overall completion time of the whole project. Slack canbe determined by finding the difference between the earliest starttime 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 criticalpath, we can assume that project completion time is described by anormal probability distribution with mean equal to the sum of theexpected times of all activities on the critical path and varianceequal to the sum of the variances of all activities on the criticalpath.The fundamental assumption required is that the number ofactivities on the critical path is large enough that the mean of thesum of the Beta distributions is distributed approximately as thenormal distribution.19.Widely usedproject management softwareinclude Time-Line, MS Project, MacProject, Primavera, and PERTmaster.ETHICALDILEMMALarge projects with time/cost overruns are not uncommonsituations in the world of project management. Why do MISprojects commonly sport 200–300% cost overruns and completiontimes twice that projected? Why do massive construction projectsrun so late and so over budget?Students are expected to read about such projects and comeup with explanations, especially related to ethics. In the case ofMISprojects,longsoftwaredevelopmenttasksarealmostdoomed to failure because of the changes in technology and staffthat take place. It’s a necessity to break large projects down intosmaller 3- to 6-month modules or pieces that are self-contained.This protects the organization from atotalloss should the massiveproject never be completed.Ineverycase,qualityprojectmanagementmeansopencommunication,realistictimetables,goodstaff,anduseofsoftwarelikeMSProjecttobuildandmaintainaschedule.Bidding on a contract with a schedule that is not feasible may beunethical as well as poor business.ACTIVEMODELEXERCISE*ACTIVE MODEL 3.1: Gantt Chart1.Both A and H are critical activities. Describe the differencebetween what happens on the graph when you increase A vs.increasing H.When you increase H, it is the only task to change on thechart. However, when you increase A then all critical tasksmove to the right and the slack for the noncritical tasksincreases.2.Activity F is not critical. By how many weeks can you in-crease activity F until it becomes critical?6 weeks3.Activity B is not critical. By how many weeks can you in-crease activity B until it becomes critical? What happens when Bbecomes critical?1 week. Activity D also becomes critical.4.What happens when you increase B by 1 more week after itbecomes critical?Activities A, C, and E become noncritical, and the projecttakes 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 bestarted. How would this affect the project?ActivityBbecomescritical,andtheprojecttakes1additional week.* Active Model 3.1 appears on www.myomlab.com.

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CHAPTER 3PR O J E C TMA N A G E M E N T13END-OF-CHAPTERPROBLEMS3.1Some possible Level 3[(a)] and Level 4[(b)] activities for the house appear for each Level 2 activity below.

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