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Operations Management
eleventh edition

William J. Stevenson
Rochester Institute of Technology

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This book is dedicated to you.

OPERATIONS MANAGEMENT
Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the
Americas, New York, NY, 10020. Copyright © 2012, 2009, 2007, 2005, 2002, 1999, 1996, 1993, 1990, 1986,
1982 by The McGraw-Hill Companies, Inc. All rights reserved. No part of this publication may be reproduced
or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written
consent of The McGraw-Hill Companies, Inc., including, but not limited to, in any network or other electronic

storage or transmission, or broadcast for distance learning.
Some ancillaries, including electronic and print components, may not be available to customers outside the
United States. Proudly sourced and uploaded by [StormRG]
Kickass Torrents | TPB | ET | h33t

This book is printed on acid-free paper.
1 2 3 4 5 6 7 8 9 0 DOW/DOW 1 0 9 8 7 6 5 4 3 2 1
ISBN 978-0-07-352525-9
MHID 0-07-352525-1
Vice president and editor-in-chief: Brent Gordon
Editorial director: Stewart Mattson
Publisher: Tim Vertovec
Executive editor: Richard T. Hercher, Jr.
Executive director of development: Ann Torbert
Managing development editor: Gail Korosa
Vice president and director of marketing: Robin J. Zwettler
Marketing director: Brad Parkins
Marketing manager: Katie White
Vice president of editing, design, and production: Sesha Bolisetty
Senior project manager: Bruce Gin
Buyer II: Debra R. Sylvester
Interior designer: Laurie J. Entringer
Senior photo research coordinator: Keri Johnson
Photo researcher: Bill Van Werden
Lead media project manager: Kerry Bowler
Media project manager: Ron Nelms
Cover design: © Design Pics/Bilderbuch
Typeface: 10/12 Times New Roman
Compositor: Laserwords Private Limited
Printer: R. R. Donnelley

Library of Congress Cataloging-in-Publication Data
Stevenson, William J.
Operations management / William J. Stevenson.—11th ed.
p. cm.
Includes bibliographical references and index.
ISBN-13: 978-0-07-352525-9 (alk. paper)
ISBN-10: 0-07-352525-1 (alk. paper)
1. Production management. I. Title.
TS155.S7824 2012
658.5—dc22

2010051901

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The McGraw-Hill/Irwin Series
Operations and Decision Sciences
Operations Management
Beckman and Rosenfield, Operations
Strategy: Competing in the 21st Century,
First Edition

Benton, Purchasing and Supply Chain
Management, Second Edition
Bowersox, Closs, and Cooper, Supply
Chain Logistics Management, Third
Edition
Brown and Hyer, Managing Projects:
A Team-Based Approach, First Edition
Burt, Petcavage, and Pinkerton, Supply
Management, Eighth Edition
Cachon and Terwiesch, Matching Supply
with Demand: An Introduction to
Operations Management, Second Edition
Finch, Interactive Models for Operations
and Supply Chain Management, First
Edition
Fitzsimmons and Fitzsimmons, Service
Management: Operations, Strategy,
Information Technology, Seventh Edition
Gehrlein, Operations Management Cases,
First Edition
Harrison and Samson, Technology
Management, First Edition
Hayen, SAP R/3 Enterprise Software:
An Introduction, First Edition

Hopp, Supply Chain Science, First Edition

Sterman, Business Dynamics: Systems
Thinking and Modeling for a Complex
World, First Edition


Hopp and Spearman, Factory Physics,
Third Edition

Stevenson, Operations Management,
Eleventh Edition

Jacobs, Berry, Whybark, and Vollmann,
Manufacturing Planning & Control for
Supply Chain Management, Sixth Edition

Swink, Melnyk, Cooper, and Hartley,
Managing Operations Across the Supply
Chain, First Edition

Jacobs and Chase, Operations and Supply
Management: The Core, Second Edition

Thomke, Managing Product and Service
Development: Text and Cases, First
Edition

Hill, Manufacturing Strategy: Text &
Cases, Third Edition

Jacobs and Chase, Operations and Supply
Chain Management, Thirteenth Edition
Jacobs and Whybark, Why ERP? First
Edition
Johnson, Leenders, and Flynn, Purchasing

and Supply Management, Fourteenth
Edition
Larson and Gray, Project Management:
The Managerial Process, Fifth Edition
Olson, Introduction to Information Systems Project Management, Second Edition
Schroeder, Goldstein, and Rungtusanatham,
Operations Management: Contemporary
Concepts and Cases, Fifth Edition
Simchi-Levi, Kaminsky, and Simchi-Levi,
Designing and Managing the Supply
Chain: Concepts, Strategies, Case
Studies, Third Edition

Ulrich and Eppinger, Product Design and
Development, Fourth Edition
Zipkin, Foundations of Inventory
Management, First Edition

Quantitative Methods and Management
Science
Hillier and Hillier, Introduction to
Management Science: A Modeling and
Case Studies Approach with Spreadsheets, Fourth Edition
Stevenson and Ozgur, Introduction to
Management Science with Spreadsheets,
First Edition

iii

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Preface
The material in this book is intended as an introduction to the
field of operations management. The topics covered include
both strategic issues and practical applications. Among the
topics are forecasting, product and service design, capacity
planning, management of quality and quality control, inventory management, scheduling, supply chain management, and
project management.
My purpose in revising this book continues to be to provide
a clear presentation of the concepts, tools, and applications
of the field of operations management. Operations management is evolving and growing, and I have found updating and
integrating new material to be both rewarding and challenging, particularly due to the plethora of new developments in
the field, while facing the practical limits on the length of the

book.

•

Service
Supply chain management
Ethical conduct
Sustainability
Step-by-step problem solving
•

•
•

•

This Eleventh Edition Contains a
Considerable Amount of Material . . .
much more than one could hope to cover in a single semester. However, there is also considerable flexibility in terms of
what material to cover. This allows instructors to select the
chapters, or portions of chapters, that are most relevant for
their purposes. That flexibility also extends to the choice of
relative weighting of the qualitative or quantitative aspects of
the material.
As in previous editions, there are major pedagogical features
designed to help students learn and understand the material.
This section describes the key features of the book, the chapter
elements, the supplements that are available for teaching the
course, highlights of the eleventh edition, and suggested applications for classroom instruction. By providing this support, it
is our hope that instructors and students will have the tools to

make this learning experience a rewarding one.

What’s New in This Edition
This edition has been revised to incorporate and integrate
changes in the field of Operations Management, and the
many suggestions for improvement received from instructors
around the world who are using the text. The following are
key among the revisions:
•
•
•

The sequence of chapters has been changed to improve
the flow.
A tutorial has been added on working with the normal
distribution.
A list of key points has been added to every chapter.

New material and more emphasis have been devoted to
these topics:

Linear programming is now a chapter rather than a chapter supplement, to allow more flexibility on when and
where it is used.
There is added emphasis on ethics in every chapter.
Throughout the text, there are new, updated readings and
photos to provide students with a motivating view of the
critical importance of operations management today.
Available for instructors, OM Video/DVD series Volumes
1–16 document the latest innovations in operations at
companies such as Zappos.com, Xerox, Burton Snowboards, FedEx, Honda, and more.


Acknowledgments
I want to thank the many contributors to this edition. Over the
recent editions, reviewers and adopters of the text have provided
a “continuously improving” wealth of ideas and suggestions. It
is encouraging to me as an author. I hope all reviewers and
readers will know their suggestions were valuable, were carefully considered, and are sincerely appreciated. The list includes
post-publication reviewers, focus group participants, and manuscript reviewers: Vikas Agrawal, Fayetteville State University; Bahram Alidaee, University of Mississippi; Chen Chung,
University of Kentucky; Robert Clark, Stony Brook University;
Kathy Dhanda, DePaul University; Richard Ehrhardt, University of North Carolina at Greensboro; Warren Fisher, Stephen
F. Austin State University; Seung-Lae Kim, Drexel University;
Jooh Lee, Rowan University; Gita Mathur, San Jose State University; Kaushic Sengupta, Hofstra University; Kenneth Shaw,
Oregon State University; Michael Shurden, Lander University;
John Simon, Governors State University; Young Son, Bernard
M. Baruch College; Timothy Vaughan, University of Wisconsin at Eau Claire; Pamela Zelbst, Sam Houston State University; Tekle Wanorie, Northwest Missouri State University.
Other contributors included accuracy checkers: Michael
Godfrey, University of Wisconsin at Oshkosh and Pamela
Zelbst, Sam Houston State University; Test Bank: Alan
Cannon, University of Texas at Arlington; Power Points:
David Cook, Old Dominion University; Data Sets: Mehdi
Kaighobadi, Florida Atlantic University; Excel Templates and

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vi

Preface

ScreenCam tutorials: Lee Tangedahl, University of Montana;
Instructors Manual: Michael Godfrey and Pamela Zelbst.
Special thanks goes out to those subject matter experts who
helped design and develop content in Connect™ Operations
Management for this edition: Ronny Richardson of Southern
Polytechnic State University who created Guided Examples
and Shyam Jha, University of Arizona, Nancy Lambe, University of South Alabama, and Andrew Manikas, University
of Wisconsin at Oshkosh, who designed the new assignable
interactive applications.
Finally I would like to thank all the people at McGraw-Hill/
Irwin for their efforts and support. It is always a pleasure to
work with such a professional and competent group of people.
Special thanks go to Dick Hercher, Executive Editor; Gail
Korosa, Managing Developmental Editor; Bruce Gin, Project
Manager; Debra Sylvester, Buyer II; Katie White, Marketing Manager; Laurie Entringer, Designer; Kerry Bowler and
Ron Nelms, Media Project Managers; Keri Johnson, Photo
Research and many others who worked “behind the scenes.”
I would also like to thank the many reviewers of previous editions for their contributions. Ardavan Asef-Faziri,
California State University at Northridge; Prabir Bagchi,
George Washington State University; Gordon F. Bagot,
California State University at Los Angeles; Ravi Behara, Florida
Atlantic University; Michael Bendixen, Nova Southeastern;
Ednilson Bernardes, Georgia Southern University; Prashanth
N. Bharadwaj, Indiana University of Pennsylvania; Greg Bier,

University of Missouri at Columbia; Joseph Biggs, Cal Poly
State University; Kimball Bullington, Middle Tennessee State
University; Alan Cannon, University of Texas at Arlington;
Injazz Chen, Cleveland State University; Alan Chow, University of Southern Alabama at Mobile; Chrwan-Jyh, Oklahoma
State University; Loretta Cochran, Arkansas Tech University; Lewis Coopersmith, Rider University; Richard Crandall,
Appalachian State University; Dinesh Dave, Appalachian
State University; Scott Dellana, East Carolina University; Xin
Ding, University of Utah; Ellen Dumond, California State University at Fullerton; Kurt Engemann, Iona College; Diane Ervin,
DeVry University; Farzaneh Fazel, Illinois State University;
Wanda Fennell, University of Mississippi at Hattiesburg; Joy
Field, Boston College; Lillian Fok, University of New Orleans;
Charles Foley, Columbus State Community College; Matthew
W. Ford, Northern Kentucky University; Phillip C. Fry, Boise
State University; Charles A. Gates Jr., Aurora University; Tom
Gattiker, Boise State University; Damodar Golhar, Western
Michigan University; Robert Graham, Jacksonville State University; Angappa Gunasekaran, University of Massachusetts
at Dartmouth; Haresh Gurnani, University of Miami; Terry
Harrison, Penn State University; Vishwanath Hegde, California
State University at East Bay; Craig Hill, Georgia State University; Jim Ho, University of Illinois at Chicago; Jonatan Jelen,
Mercy College; Prafulla Joglekar, LaSalle University; Vijay
Kannan, Utah State University; Sunder Kekre, Carnegie-Mellon

ste25251_fm_i-xxxv.indd vi

University; Jim Keyes, University of Wisconsin at Stout; Beate
Klingenberg, Marist College; John Kros, East Carolina University; Vinod Lall, Minnesota State University at Moorhead;
Kenneth Lawrence, New Jersey Institute of Technology; Anita
Lee-Post, University of Kentucky; Karen Lewis, University of
Mississippi; Bingguang Li, Albany State University; Cheng Li,
California State University at Los Angeles; Maureen P. Lojo,

California State University at Sacramento; F. Victor Lu, St.
John’s University; Janet Lyons, Utah State University; James
Maddox, Friends University; Mark McComb, Mississippi
College; George Mechling, Western Carolina University;
Scott Metlen, University of Idaho; Douglas Micklich, Illinois
State University; Ajay Mishra, SUNY at Binghamton;
Scott S. Morris, Southern Nazarene University; Philip F.
Musa, University of Alabama at Birmingham; Seong Hyun
Nam, University of North Dakota; Roy Nersesian, Monmouth
University; John Olson, University of St. Thomas; Jeffrey
Ohlmann, University of Iowa at Iowa City; Ozgur Ozluk, San
Francisco State University; Kenneth Paetsch, Cleveland State
University; Taeho Park, San Jose State University; Allison
Pearson, Mississippi State University; Patrick Penfield,
Syracuse University; Steve Peng, California State University
at Hayward; Richard Peschke, Minnesota State University at
Moorhead; Andru Peters, San Jose State University; Charles
Phillips, Mississippi State University; Frank Pianki, Anderson
University; Sharma Pillutla, Towson University; Zinovy
Radovilsky, California State University at Hayward; Stephen
A. Raper, University of Missouri at Rolla; Pedro Reyes,
Baylor University; Buddhadev Roychoudhury, Minnesota
State University at Mankato; Narendra Rustagi, Howard University; Herb Schiller, Stony Brook University; Dean T. Scott,
DeVry University; Scott J. Seipel, Middle Tennessee State
University; Raj Selladurai, Indiana University; Dooyoung
Shin, Minnesota State University at Mankato; Raymond E.
Simko, Myers University; Jake Simons, Georgia Southern
University; Charles Smith, Virginia Commonwealth University; Kenneth Solheim, DeVry University; Victor Sower,
Sam Houston State University; Jeremy Stafford, University of
North Alabama; Donna Stewart, University of Wisconsin at

Stout; Dothang Truong, Fayetteville State University; Mike
Umble, Baylor University; Javad Varzandeh, California State
University at San Bernardino; Emre Veral, Baruch College;
Mark Vroblefski, University of Arizona; Gustavo Vulcano,
New York University; Walter Wallace, Georgia State University; James Walters, Ball State University; John Wang,
Montclair State University; Jerry Wei, University of Notre
Dame; Michael Whittenberg, University of Texas; Geoff
Willis, University of Central Oklahoma; Jiawei Zhang, NYU;
Zhenying Zhao, University of Maryland; Yong-Pin Zhou,
University of Washington.

William J. Stevenson

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Walkthrough
MAJOR STUDY AND LEARNING FEATURES
A number of key features in this text have been specifically
designed to help introductory students learn, understand, and
apply Operations concepts and problem-solving techniques.

Examples with Solutions
Throughout the text, wherever a quantitative or analytic technique is introduced,
an example is included to illustrate the
application of that technique. These are

designed to be easy to follow.

A furniture manufacturer wants to predict quarterly demand for a certain loveseat for periods
15 and 16, which happen to be the second and third quarters of a particular year. The series
consists of both trend and seasonality. The trend portion of demand is projected using the
equation Ft ϭ 124 ϩ 7.5t. Quarter relatives are SR1 ϭ 1.20, SR2 ϭ 1.10, SR3 ϭ 0.75, and
SR4 ϭ 0.95.
a.

Use this information to deseasonalize sales for quarters 1 through 8.

b.

Use this information to predict demand for periods 15 and 16.

a.
Period
1
2
3
4
5
6
7
8

b.

Quarter
1

2
3
4
1
2
3
4

Sales
132
140
146
153
160
168
176
185

Ϭ
Ϭ
Ϭ
Ϭ
Ϭ
Ϭ
Ϭ
Ϭ
Ϭ

Quarter
Relative

1.20
1.10
0.75
0.95
1.20
1.10
0.75
0.95

ϭ
ϭ
ϭ
ϭ
ϭ
ϭ
ϭ
ϭ
ϭ

Deseasonalized
Sales
110.00
127.27
194.67
161.05
133.33
152.73
234.67
194.74


EXAMPLE 7

x

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SOLUTION

The trend values at t ϭ 15 and t ϭ 16 are:
F15 ϭ 124 ϩ 7.5(15) ϭ 236.5
F16 ϭ 124 ϩ 7.5(16) ϭ 244.0
Multiplying the trend value by the appropriate quarter relative yields a forecast that
includes both trend and seasonality. Given that t ϭ 15 is a third quarter and t ϭ 16 is a
fourth quarter, the forecasts are
Period 15: 236.5(0.75) ϭ 177.38
Period 16: 244.0(0.95) ϭ 231.80

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Solved Problems

At the end of chapters and
chapter supplements, “solved
problems” are provided to
illustrate problem solving and
the core concepts in the
chapter. These have been
carefully prepared to enhance
student understanding as
well as to provide additional
examples of problem solving.
The Excel logo indicates that
a spreadsheet is available
on the text’s Web site, to help
solve the problem.

Excel solution:

SOLVED PROBLEMS

Problem 1
e cel

x

A firm’s manager must decide whether to make or buy a certain item used in the production of
vending machines. Making the item would involve annual lease costs of $150,000. Cost and volume
estimates are as follows:

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Annual fixed cost
Variable cost/unit
Annual volume (units)

Make

Buy

$150,000
$60
12,000

None
$80
12,000

a. Given these numbers, should the firm buy or make this item?
b. There is a possibility that volume could change in the future. At what volume would the manager
be indifferent between making and buying?

Solution

a. Determine the annual cost of each alternative:
Total cost ϭ Fixed cost ϩ Volume ϫ Variable cost
Make:
Buy:

$150, 000 ϩ 12, 000($60) ϭ $870, 000
0 ϩ 12, 000($80) ϭ $960, 000


Because the annual cost of making the item is less than the annual cost of buying it, the manager
would reasonably choose to make the item. Note: If the unit cost to buy had been less than the
variable cost to make, there would be no need to even consider fixed costs; it would simply have
been better to buy.
b. To determine the volume at which the two choices would be equivalent, set the two total costs
equal to each other and solve for volume: TC make ϭ TC buy. Thus, $150,000 ϩ Q($60) ϭ 0 ϩ
Q($80). Solving, Q ϭ 7,500 units. Therefore, at a volume of 7,500 units a year, the manager
would be indifferent between making and buying. For lower volumes, the choice would be to buy,
and for higher volumes, the choice would be to make.

Excel Spreadsheet
Solutions

Placing the problem data in the cell positions shown, the expected monetary value (EMV) for each
alternative is shown in column J.
Then, the overall EMV is obtained in column J as the maximum of the values in J5, J6, and J7.
The EVPI is obtained using the Opportunity Loss Table by summing the product of the maximum
ste25251_ch05_182-233.indd 206
in column C2 and the probability in C4, and the product of the maximum in column D and the probability in D4.

Where applicable, the examples
and solved problems include
screen shots of a spreadsheet
solution. Many of these were
taken from the Excel templates,
which are on the text’s Web site.
Templates are programmed to be
fully functional in Excel 2007 and
Excel 2003.


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CHAPTER ELEMENTS
Within each chapter, you will find the following elements that are
designed to facilitate study and learning. All of these have been
carefully developed over eleven editions and have proven to be
successful.
Chapter Outlines
Every chapter and supplement includes
an outline of the topics covered.

1

CHAPTER
1 Introduction
to Operations
Management
2 Competitiveness, Strategy and
Productivity

3 Forecasting
4 Product and Service Design
5 Strategic Capacity Planning for
Products and Services
6 Process Selection and Facility
Layout
7 Work Design and Measurement
8 Location Planning and Analysis
9 Management of Quality
10 Quality Control
11 Aggregate Planning and Master
Scheduling
12 MRP and ERP
13 Inventory Management
14 JIT and Lean Operations
15
16
17
18

Supply Chain Management
Scheduling
Project Management
Management of Waiting Lines

19 Linear Programming

Introduction to
Operations
Management

CHAPTER OUTLINE

The Historical Evolution of Operations
Management, 000

Introduction, 000
Production of Goods versus Delivery of
Services, 000

The Industrial Revolution, 000
Scientific Management, 000
The Human Relations Movement, 000

Process Management, 000
Managing a Process to Meet Demand, 000
Process Variation, 000

The Scope of Operations Management, 000
Why Learn about Operations
Management?, 000
Career Opportunities and Professional
Societies, 000

Operations Management and Decision
Making, 000
Models, 000

Decision Models and Management
Science, 000
The Influence of Japanese

Manufacturers, 000

Operations Today, 000
Key Issues for Today’s Business
Operations 000
Environmental Concerns 000
Ethical Conduct 000
The Need to Manage the Supply Chain, 000
Elements of Supply Chain Management, 000

Quantitative Approaches, 000

Operations Tour: Wegmans Food
Markets, 000
Case: Hazel, 000

Performance Metrics, 000
Analysis of Trade-Offs, 000
Degree of Customization, 000

Recalls of automobiles, eggs, produce, toys, and other
products; major oil spills; and even dysfunctional state
legislatures are all examples of operations failures.

This book is about operations management. The subject matter is
They underscore the need for effective operations
fascinating and timely: Productivity, quality, e-business, global
management.
competition, and customer service are very much in the news,
and all are part of operations management. This first chapter

presents an introduction and overview of operations management. Among the issues it addresses are: What is operations
management? Why is it important? What do operations management professionals do?
The chapter also provides a brief description of the historical evolution of operations management and a discussion of the
trends and issues that impact operations management.
More specifically, you will learn about (1) the economic balance that every business organization seeks to achieve;
(2) the condition that generally exists that makes achieving the economic balance challenging; (3) the line function that is the
core of every business organization; (4) key steps in the history and evolution of operations management; (5) the differences
and similarities between producing products and delivering services; (6) what a supply chain is, and why it is important to
manage it; and (7) the key issues for today’s business operations.

A Systems Approach, 000
Establishing Priorities, 000

LEARNING OBJECTIVES
After completing this chapter, you
should be able to:

5 Summarize the two major
aspects of process management.

1 Define the term operations management.
2 Identify the three major functional areas
of organizations and describe how they
interrelate.
3 Identify similarities and differences
between production and service
operations.

6 Explain the key aspects of operations
management

decision making.
7 Briefly describe the historical
evolution of operations management.
8 Characterize current trends in business
that impact operations management.

4 Describe the operations function
and the nature of the operations
manager’s job.

Opening Vignettes
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Each chapter opens with an introduction to the
important operations topics covered in the
chapter. Students need to see the relevance
of operations management in order to actively
engage in learning the material.
ste25251_ch01_002-039.indd 3

Learning Objectives
Every chapter and supplement lists the
learning objectives as a short guide to
studying the chapter.

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Figures and Photos

FIGURE 2.2

Financial
"To succeed
financially, how
should we
appear to our
shareholders?"

Internal Business
Processes

Customer
"To achieve our
vision, how
should we
appear to our

customers?"

Objectives
Measures
Targets
Initiatives

Source: Reprinted with permission of
Harvard Business School Press from Robert Kaplan and David Norton, Balanced
Scorecard: Translating Strategy into Action.
Copyright © 1996 by the Harvard Business
School Publishing Corporation. All rights
reserved.

Vision
and
strategy

"To satisfy our
shareholders
and customers,
what business
processes must
we excel at?"

Objectives
Measures
Targets
Initiatives


The Balanced Scorecard

Objectives
Measures
Targets
Initiatives

The text includes photographs and
graphic illustrations to support student learning and provide interest
and motivation. Approximately 100
carefully selected photos highlight
the eleventh edition. Many of the
photos provide additional examples
of companies that use operations
and supply chain concepts. More
than 400 graphic illustrations,
more than any other text in the
field, are included and all are
color coded with pedagogical
consistency to assist students
in understanding concepts.

"To achieve our
vision, how will
we sustain our
ability to
change and
improve?"

Puma’s “Clever Little Bag”

changes the idea of the shoebox
by wrapping footwear in a
cardboard structure with 65
percent less cardboard. It uses
a bag made of recycled plastic
as the outer layer that holds
the inner cardboard structure
together. Puma expects to
cut carbon dioxide emissions
by 10,000 tons per year and
water, energy, and diesel use
by 60 percent by using fewer
materials—8,500 fewer tons of
paper to be specific—and the
new packaging’s lighter weight.

Objectives
Measures
Targets
Initiatives

Learning and
Growth

Icons
ste25251_ch01_002-039.indd 28

Icons are included throughout the text, to point out relevant applications in a discussion or concept. These include: Service icons S to alert students to examples that
are service oriented; Supply chain icons to indicate that the text refers to the
supply chain; Excel icons x to point out Excel applications; and ScreenCam

Tutorial icons to link to the tutorials on the text’s Web site.
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serviceservice

e cel

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S

x

serviceservice

SERVICE

e cel
SUPPLY CHAIN

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SCREENCAM TUTORIAL

x

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Operations Strategies

OPERATIONS STRATEGY

Throughout the text, whenever
the concepts being presented
have significant strategic
implications for firms, a
distinctive heading is placed
to signify that text will relate
to strategic issues.

Forecasts are the basis for many decisions and an essential input for matching supply and
demand. Clearly, the more accurate an organization’s forecasts, the better prepared it will be
to take advantage of future opportunities and reduce potential risks. A worthwhile strategy can
be to work to improve short-term forecasts. Better short-term forecasts will not only enhance
profits through lower inventory levels, fewer shortages, and improved customer service, they
also will enhance forecasting credibility throughout the organization: If short-term forecasts
are inaccurate, why should other areas of the organization put faith in long-term forecasts?
Also, the sense of confidence accurate short-term forecasts would generate would allow
allocating more resources to strategic and medium- to longer-term planning and less on shortterm, tactical activities.

Maintaining accurate, up-to-date information on prices, demand, and other variables can
have a significant impact on forecast accuracy. An organization also can do other things to
improve forecasts. These do not involve searching for improved techniques but relate to the
inverse relation of accuracy to the forecast horizon: Forecasts that cover shorter time frames
tend to be more accurate than longer-term forecasts. Recognizing this, management might
choose to devote efforts to shortening the time horizon that forecasts must cover. Essentially,
this means shortening the lead time needed to respond to a forecast. This might involve building flexibility into operations to permit rapid response to changing demands for products and
services, or to changing volumes in quantities demanded; shortening the lead time required to
obtain supplies, equipment, and raw materials or the time needed to train or retrain employees; or shortening the time needed to develop new products
and services.
Kraft Foods’
Recipe for Sustainability
Lean systems are demand driven; goods are produced
to
fulfill
orders rather than to hold in
The threat of global warming and the desire to protect the enviinventory until demand arises. Consequently, they areronment
far less
dependent
onembracing
short-term
fore- initiatives.
has many
companies
sustainability
casts than more traditional systems.
And they are finding that in many instances, there are cost savings

Readings
Throughout the text, and in

the assignment sections of
ste25251_ch03_072-131.indd 109
some chapters, are readings.
These highlight important
real-world applications,
provide examples of
production/operations
issues, and offer further
elaboration of the text
material. They also provide
a basis for classroom
discussion and generate
interest in the subject matter.
Many of the end-of-chapter
readings include assignment
questions.

READING

in doing so. Among them is the Kraft Foods company, whose wellknown brands include Cool Whip, Philadelphia Cream Cheese,
DiGiorno pizza, Oscar Mayer, Oreo cookies, and Kraft cheeses and
salad dressings. Kraft is the world’s second largest food company
with 100,000 employees and annual revenues of $42 billion. The
company is a member of the Dow Jones Sustainability Index and
the Ethibel Sustainability Index.
The company has set some ambitious goals that it wants to
achieve:
•
•


Reduce plant energy usage by 25 percent.
Reduce plant energy-related carbon dioxide emissions by
25 percent.
• Reduce plant water consumption by 15 percent.
• Reduce plant waste by 15 percent.
• Eliminate 150 million pounds of packaging material from the
supply chain.
Some of Kraft’s successes have come from redesigned packaging. The goal is ambitious. It will require more efficient packaging and a reduction in the amount of packaging material used.
Kraft believes that the greatest opportunity to reduce the environmental impact of a package is early in the design phase. Their
packaging designers worldwide critically consider the amount of
packaging used, how much postconsumer material can be used,
how much energy is used to create the packing materials, how
much CO2 is generated as the materials are created and formed,
and how well the package fits the product physically. According to
Kraft’s press releases, examples and benefits of recent packaging
redesigns include:
•

•

DiGiorno and California Pizza Kitchen pizzas: Using slimmer
cartons that allow shipment of two extra pizza boxes per case
and 14 percent more pizzas per pallet. This leads to a savings
of approximately 1.4 million pounds of packaging per year, and
the ability to load more pizzas on each truck means there are
fewer trucks on the road and less fuel consumed.
Oscar Mayer Deli Creations: Using 30 percent less paperboard
than the previous design results in 1.2 million fewer pounds of
packaging going to landfills.


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Kraft Natural Cheese new packaging zipper eliminates more
than one million pounds of packaging per year.
•

Kraft salad dressing: Using 19 percent less plastic per bottle
translates to 3 million pounds fewer annually. Additionally the
new design allows more bottles to be shipped per truckload,
leading to an increase in transportation efficiency of 18 percent.

The company is also working to help the environment, reduce
water pollution/soil erosion, and support biodiversity. Considering
these successes, Kraft’s recipe for sustainability is one that other
companies should emulate.

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END-OF-CHAPTER RESOURCES
For student study and review, the following items are provided at
the end of each chapter or chapter supplement.

Summaries
1. A range of factors can cause an organization to design or redesign a product or service, including
economic, legal, political, social, technological, and competitive pressures. Furthermore, an important cause of operations failures can be traced to faulty design.

KEY POINTS

2. Every area of a business organization, and its supply chain, is connected to, and influenced by, its
products and/or services, so the potential impact on each area must be taken into account when products or services are redesigned or new products or services are to be designed.

Chapters contain summaries that provide an
overview of the material covered.

Key Points

3. Central issues relate to the actual or expected demand for a product or service, the organization’s
capabilities, the cost to produce or provide, the desired quality level, and the cost and availability of
necessary resources.

The key points of the chapter are
emphasized.

4. Among considerations that are generally important are legal, ethical, and environmental.
5. Although there are some basic differences between product design and service design, there are
many similarities between the two.

Key Terms
Taking Stock and Critical
Thinking Exercises
These activities encourage analytical thinking
and help broaden conceptual understanding.

A question related to ethics is included in the
Critical Thinking Exercises.

ste25251_ch04_132-181.indd 165

1. Explain the trade-off between responsiveness and stability in a forecasting system that uses time
series data.

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Discussion and Review Questions
TAKING STOCK

2. Who needs to be involved in preparing forecasts?
3. How has technology had an impact on forecasting?

1. It has been said that forecasting using exponential smoothing is like driving a car by looking in the
rear-view mirror. What are the conditions that would have to exist for driving a car that are analogous to the assumptions made when using exponential smoothing?
2. What capability would an organization have to have to not need forecasts?

Key terms are highlighted in the text and
then repeated in the margin with brief definitions for emphasis. They are listed at the
end of each chapter (along with page references) to aid in reviewing.

CRITICAL
THINKING
EXERCISES

Each chapter and each supplement have
a list of discussion and review questions.

These precede the problem sets and are
intended to serve as a student self-review
or as class discussion starters.

3. When a new business is started, or a patent idea needs funding, venture capitalists or investment
bankers will want to see a business plan that includes forecast information related to a profit and
loss statement. What type of forecasting information do you suppose would be required?
4. Discuss how you would manage a poor forecast.
5. Omar has heard from some of his customers that they will probably cut back on order sizes in the
next quarter. The company he works for has been reducing its sales force due to falling demand and
he worries that he could be next if his sales begin to fall off. Believing that he may be able to convince his customers not to cut back on orders, he turns in an optimistic forecast of his next quarter
sales to his manager. Is that ethical?

Problem Sets
Each chapter includes a set of problems
for assignment. The problems have been
refined over many editions and are intended
to be challenging but doable for students.
Check-answers to most of the problems are
included in Appendix A so that students can
see immediately how they are progressing.
ste25251_ch03_072-131.indd 121

1. Examine and compare one of the following product sets. Base your comparison on such factors as
features, costs, convenience, ease of use, ease and/or cost of repair, and safety.
a. VCR players versus DVD players.
b. Cell phones versus landlines.
c. Wide-screen versus traditional television sets.
d. Standard gasoline automobile engines versus hybrids.
e. Standard wooden mousetraps versus new plastic mousetraps.

f. Satellite television versus cable.

PROBLEMS

2. Use the Internet to obtain recent crash-safety ratings for passenger vehicles. Then answer these questions:
a. Which vehicles received the highest ratings? The lowest ratings?
b. How important are crash-safety ratings to new car buyers? Does the degree of importance depend
on the circumstances of the buyer?
c. Which types of buyers would you expect to be the most concerned with crash-safety ratings?
d. Are there other features of a new car that might sway a buyer from focusing solely on crash
safety? If so, what might they be?
3. Prepare a service blueprint for each of these banking transactions:
a. Make a savings deposit using a teller.
b. Apply for a home equity loan.

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Operations Tours
These provide a simple

“walkthrough” of an operation
for students, describing the
company, its product or
service, and its process
of managing operations.
Companies featured include
Wegmans Food Markets,
Morton Salt, Stickley
Furniture, and Boeing.

The U.S. Postal Service

OPERATIONS TOUR

“Neither rain, nor snow . . .”

Productivity

The U.S. Postal Service (USPS) is the largest postal service in the
world, handling about 41 percent (630 million pieces a day) of the
world’s mail volume. The second largest is Japan’s, which handles
only about 6 percent of the world’s mail. The USPS is huge by any
standard. It employs over 760,000 workers, making it the largest
civilian employer in the United States. It has over 300,000 mail
collection boxes, 38,000 post offices, 130 million mail delivery
points, more than 300 processing plants to sort and ship mail, and
more than 75,000 pieces of mail processing equipment. It handles
over 100 billion pieces of first-class mail a year, and ships about
3 billion pounds of mail on commercial airline flights, making it the
airlines’ largest shipper.


Over the years, the USPS has experienced an ever-increasing
volume of mail. Productivity has been an important factor for the
USPS in keeping postal rates low and maintaining rapid delivery
service. Two key factors in improved productivity have been the
increased use of automation and the introduction of zip codes.
Mail processing underwent a major shift to mechanization during the 1950s and 1960s, which led to more rapid processing and
higher productivity. In 1978, an expanded zip code was introduced.
That was followed in 1983 by a four-digit expansion in zip codes.
These changes required new, automated processing equipment,
and the use of bar codes and optical readers. All of these changes
added greatly to productivity. But even with these improvements,
the USPS faced increasing competitive pressures.

Processing First-Class Mail

The essence of processing the mail is sorting, which means orga- Competition
nizing the mail into smaller and smaller subgroups to facilitate In the late 1980s, the USPS experienced a slowdown in the volume
its timely delivery. Sorting involves a combination of manual and of mail. Some of this was due to a slowing of the economy, but most
automatic operations. Much of the mail that is processed is first- of it was the result of increasing competition. Delivery giants FedEx
and UPS, as well as other companies that offer speedy delivery and
class mail.
Most first-class mail is handled using automated equipment. A package tracking, gave businesses and the general public convesmall portion that cannot be handled by automated equipment must nient alternatives for some mail services. At the same time, there
was a growing use of fax machines and electronic communications
be sorted by hand, just the way it was done in colonial times.
Outsourcing of Hospital Services
CASE facer and increased use of alternate forms of advertising such as cable
The majority of first-class mail begins at the advanced
canceling system. This system positions each letter so that it is TV, all of which cut into the volume of mail. Early in this century,
Due to financial pressures that many hospitals face, the DeaconQuestions

face up, with
the stamp in the upper corner, checks to see if the e-mail and automated bill paying also cut into mail volume.
ess Clinic in Billings, Montana, decided to outsource a number of
1.
In some instances the outsourced service occurs in a differservices, although in somewhat different ways.
ent location, while in others it takes place inside the organizaFirst, the hospital outsourced its cafeteria food service.
tion doing the outsourcing, as the food service did in this case.
Although the food service employees were hired by the outside
What advantages were there in having the outsourced work
firm, they still felt a sense of ownership of their jobs, and still felt
performed within the hospital? Suppose a different hospital
connected to the hospital because of the family atmosphere in the
outsourced its food service but decided not to have the work
kitchen and the cafeteria.
performed in-house. What might its rationale be?
When the hospital tried the same thing with housekeeping,
employee turnover became a problem. An investigation revealed 2. In the housekeeping situation, why not just forget about outsourcing, especially since the hospital ended up rehiring its
that because the housekeeping employees were more isolated in
employees anyway?
their work, they lost what little feeling of being connected to the
hospital they had. The problem was solved by hiring the employees 3. For laundry service, what might have been the rationale for
asking another hospital to join it?
back but using the outsource company to manage housekeeping.

The hospital also decided to outsource its laundry service. This
time the hospital approached a rival hospital about joining it in outsourcing laundry service.

Source: Based on Norm Friedman, “Is Outsourcing the Solution?”
www.hpnonline.com/inside/June04/outsourcing.htm.


Cases
The text includes short cases. The cases were
selected to provide a broader, more integrated
thinking opportunity for students without taking
a full case approach.

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ASSURANCE OF LEARNING READY
Many educational institutions today are focused on the notion of assurance of learning, an
important element of some accreditation standards. Operations Management is designed
specifically to support your assurance of learning initiatives with a simple, yet powerful,

solution.
Each test bank question for Operations Management maps to a specific chapter learning
outcome/objective listed in the text. You can use our test bank software, EZ Test and EZ Test
Online, or Connect Operations Management to easily query for learning outcomes/objectives
that directly relate to the learning objectives for your course. You can then use the reporting
features of EZ Test to aggregate student results in similar fashion, making the collection and
presentation of assurance of learning data simple and easy.

AACSB STATEMENT
The McGraw-Hill Companies is a proud corporate member of AACSB International. Understanding the importance and value of AACSB accreditation, Operations Management recognizes the curricula guidelines detailed in the AACSB standards for business accreditation by
connecting selected questions in the test bank to the six general knowledge and skill areas in
the AACSB’s Assessment of Learning Standards.
The statements contained in Operations Management are provided only as a guide for
the users of this textbook. The AACSB leaves content coverage and assessment within the
purview of individual schools, the mission of the school, and the faculty. While Operations
Management and the teaching package make no claim of any specific AACSB qualification
or evaluation, we have within the test bank labeled questions according to the six general
knowledge and skill areas.

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FOR INSTRUCTORS
Instructor Resource CD-ROM (ISBN 0077327446)
This all-in-one resource incorporates the Instructor’s Manual, Test Bank, EZ Test,
PowerPoint slides, Instructor PowerPoint slides, Excel Lecture Scripts, Data Sets,
Textbook Art Files, and Chapter Study Outlines.

Instructor’s Manual
Prepared by William J. Stevenson, Michael Godfrey, and Pamela Zelbst, this manual
includes “teaching notes” for each chapter and complete solutions to all text problems. Also included are several enrichment modules that cover such topics as Simplex,
Vogel’s Approximation, Distance Measurement, and Emergency Facility Location.

Test Bank and EZ Test
Prepared by Alan Cannon, the Test Bank includes over 2,000 questions and problems
for exams. All of these have been class tested by the author or contributors. EZ Test
is a flexible electronic testing program.

PowerPoint Lecture Slides
Prepared by David Cook, Old Dominion University, the PowerPoint slides draw on the
highlights of each chapter and provide an opportunity for the instructor to emphasize
the more relevant visuals in class discussions.

Excel Lecture Scripts
Prepared by Lee Tangedahl, University of Montana, the scripts provide suggestions
on using Excel and the templates in classroom lectures.

Online Learning Center (OLC)—Text’s Web Site
www.mhhe.com/stevenson11e
The Online Learning Center includes faculty teaching supplements such as
•


Instructor’s Manual

• PowerPoint Lecture Slides for instructors
•

Test Bank

• Lecture Scripts – How to demonstrate OM concepts using Excel
•

Updates and Errata

• Supplementary Problems and Solutions
•

Excel Solution Templates

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FOR STUDENTS
Online Learning Center (OLC)—Text’s Web Site

www.mhhe.com/stevenson11e

The Online Learning Center provides a wealth of materials for study and review, as
well as enrichment.
• Excel Template/Data Files
•

Multiple Choice Quizzes

•

PowerPoint Slides for students

•

Advanced Topics

•

Interactive Operations Management (IOM) Java applets

•

ScreenCam Tutorials

•

Updates and Errata

•


Chapter Study Outlines

•

Memo-writing Exercises

•

Experiential Exercises

(All of these are also included in the Instructor’s Edition of the Online Learning Center.)

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ScreenCam Tutorials
These screen “movies” and voiceover tutorials explain key chapter content, using
Excel and other software platforms.

SCREENCAM TUTORIAL


Trend-Adjusted Exponential Smoothing
Trend-adjusted exponential
smoothing Variation of exponential smoothing used when
a time series exhibits a linear
trend.

A variation of simple exponential smoothing can be used when a time series exhibits a linear
trend. It is called trend-adjusted exponential smoothing or, sometimes, double smoothing,
to differentiate it from simple exponential smoothing, which is appropriate only when data
vary around an average or have step or gradual changes. If a series exhibits trend, and simple
smoothing is used on it, the forecasts will all lag the trend: If the data are increasing, each
forecast will be too low; if decreasing, each forecast will be too high.
The trend-adjusted forecast (TAF) is composed of two elements: a smoothed error and a
trend factor.
TAFt ϩ1 ϭ St ϩ Tt

(3–11)

SCREENCAM TUTORIAL

where
St ϭ Previous forecast plus smoothed error
Tt ϭ Current trend estimate

Excel Templates
Templates created by Lee Tangedahl, University of Montana, are included on the
OLC. The templates, over 70 total, include dynamically linked graphics and variable
controls. They allow you to solve a number of problems in the text or additional
problems. All templates have been revised to allow formatting of all cells, hiding rows
or columns, and entering data or calculations in blank cells. Many of the templates

have been expanded to accommodate solving larger problems and cases.

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TABLE 3.1

Excel Solution for Example 5

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operations management

McGraw-Hill Connect Operations Management is an online assignment and assessment solution that connects your
students with the tools and resources needed to achieve success through faster learning, more efficient studying,
and higher retention of knowledge.

Online Assignments: Connect Operations
Management helps students learn more efficiently
by providing feedback and practice material when

they need it, where they need it. Connect grades
homework automatically and gives immediate feedback on any questions students may have missed.

Interactive Presentations: The interactive presentations provide engaging narratives of all chapter learning
objectives in an interactive online format. The presentations are tied specifically to Operations Management, 11e.
They follow the structure of the text and are organized to
match the learning objectives within each chapter. While
the interactive presentations are not meant to replace the
textbook in this course, they provide additional explanation
and enhancement of material from the text chapter, allowing students to learn, study, and practice with instant feedback at their own pace.
Student Resource Library: The Connect
Operations Management Student Study Center
gives access to additional resources such as
recorded lectures, PowerPoint slides, Excel templates and data sets, video library, online practice
materials, an eBook, and more.

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Connect Operations Management offers a number of powerful tools and features to make managing assignments
easier, so faculty can spend more time teaching. With Connect Operations Management, students can engage with
their coursework anytime and anywhere, making the learning process more accessible and efficient.

Simple Assignment Management and Smart Grading
With Connect Operations Management, creating assignments is easier than ever, so you can spend more time
teaching and less time managing. Connect Operations Management enables you to:
•

Create and deliver assignments easily with select end-of-chapter problems and test bank items.

•

Go paperless with the eBook and online submission and grading of student assignments.

•

Have assignments scored automatically, giving students immediate feedback on their work and side-by-side
comparisons with correct answers.

•

Reinforce and preview classroom concepts with practice tests and instant quizzes.

Student Reporting
Connect Operations Management keeps instructors informed
about how each student, section, and class is performing,
allowing for more productive use of lecture and office hours.
The reporting function enables you to:
•

View scored work immediately and track individual or
group performance with assignment and grade reports.


•

Access an instant view of student or class performance
relative to learning objectives.

•

Collect data and generate reports required by many accreditation organizations, such as the AACSB.

Instructor Library
The Connect Operations Management Instructor
Library is your repository for additional resources to
improve student engagement in and out of class. You
can select and use any asset that enhances your
course approach. The Connect Operations Management Instructor Library includes: access to the eBook
version of the text, PowerPoint files, Instructor’s Manual, and Test Bank.

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McGraw-Hill Connect Plus Operations Management

•

An integrated eBook, allowing for anytime, anywhere access to
the textbook.

•

Dynamic links between the problems or questions you assign to
your students and the location in the eBook where that problem
or question is covered.

•

A powerful search function to pinpoint and connect key concepts
in a snap.

operations management

For more information about Connect, go to www.mcgrawhillconnect.com,
or contact your local McGraw-Hill sales representative.

TEGRITY CAMPUS: LECTURES 24/7
Tegrity Campus is a service that makes class time available 24/7 by automatically
capturing every lecture in a searchable format for students to review when they
study and complete assignments. With a simple one-click start-and-stop process,
you capture all computer screens and corresponding audio. Students can replay any
part of any class with easy-to-use browser-based viewing on a PC or Mac. Educators know that the more students can see, hear, and experience class resources,
the better they learn. In fact, studies prove it. With Tegrity Campus, students quickly
recall key moments by using Tegrity Campus’s unique search feature.


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Operations Management Center (OMC)
The OM Center, edited and maintained by Byron Finch, provides additional operations management resources for both students and instructors. Please consider this
as your site for pedagogical support or reference and for getting current OM information. To explore, visit />
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VIDEO LIBRARY
The OM Video Series includes professionally developed videos showing students
real applications of key manufacturing and service topics. For a full description of all
volumes, visit />
Volume 14 (ISBN 0073278785), DVD

Service at Zappos.com (13:14) Zappos.com currently stocks more than
3 million shoes, handbags, and accessories from over 1,100 brands. Their slogan,
“Powered by Service” highlights their emphasis on a service culture. Featured in
this video is the company’s random access inventory system and distinctive
spider-merge conveyor system which speeds shipping time.
Green Manufacturing at Xerox (9:42) This video focuses on Xerox’s goal to
use energy and raw materials as efficiently as possible while reducing the amount
of waste through sustainable product design.
Burton Snowboards—Manufacturing Design (19:34) This segment takes
the viewer on a plant tour of the Burton Snowboards factory in Vermont, showcasing their unique manufacturing and design process. Focusing on their “Just enough
system” and built-to-order process, the step-by-step, hand-customized board build
process is presented in depth.

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Volume 15 (ISBN 007336486X), DVD
Noodles & Company—Service Process Design (8:17) Noodles & Company
uses business processes to provide quality food in a speedy manner. Everything
from location to layout is designed to improve the order process. Line flow for customers and line flow for the food are examined. Division of tasks and failsafing each
station allows team members to succeed. FIFO and JIT are also discussed.
Honda-Green Product Design and PHILL (8:25) The Honda Civic GX is

similar to the Civic, but is powered by natural gas for environmental and cost
efficiencies. They share most of the same components and can use the same
assembly line for efficient operations and to meet demand.
FedEx—Logistics and Customer Service (7:20) FedEx has long been
known for its small package delivery service. This video focuses on the logistics
in freight shipments involving FedEx’s vast plane and ground network and
technology. Customer service is a high priority, developed in its Customer
Critical Service Center.

Volume 16 (ISBN 0077248341), DVD “Profitable
Sustainability” featuring Subaru of Indiana
Segment 1 Reduce (8:02) At Subaru the first and most cost-effective
sustainability initiative is reduction—bringing less onsite. This segment provides
examples such as reducing sealant, based on associate (employee) suggestions.
Another example is using new technology to analyze the internal structure of
welds, thus reducing the normal destruction method of testing and examining
the welds. As a result of these and other initiatives, Subaru sends no waste
to landfills.

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Segment 2 Reuse (7:47) Subaru’s goal is to reuse all materials that are not
leaving the plant within a finished automobile. Examples include reusing containers
and packaging. In some cases, packaging for engine blocks has been shipped back
and forth from suppliers as many as seven or eight times before being recycled.
All plastic, paper, wood, and even fluorescent lightbulbs are recycled. Over
95 percent of wood pallets are returned multiple times to vendors—an annual
cost saving of $1.3 million.
Segment 3 Recycle (7:58) Recycling includes setting up sorting systems that
match recycler input. For example, different plastics are sorted on the spot to
specifically match different recycler needs and to be a better “supplier” to them.
Hazardous waste contained in fluorescent lightbulbs is prepped for recycling by
way of a “bulb eater” that compresses glass and metal and separates them from
hazardous waste such as mercury. Even floor sweepings at welding stations are
packaged for metal recyclers.

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