Fluent Essays

PLEASE CHECK QUESTION AND ARTICLE Sw W12079 STRATEGIC SOURCING AT WHIRLPOOL CHINA: FINDING THE IDEAL SUPPLIER Dr. Martin Lockstrom, Thomas E. Callarman and Shengrong Zhang wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. Richard Ivey School of Business Foundation prohibits any form of reproduction, storage or transmission without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Richard Ivey School of Business Foundation, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail [email protected] Copyright © 2012, CEIBS Version: 2012-06-19 It was April 10, 2011, when Gianluca Castelletti, head of Whirlpool’s Asia International Procurement Office in Shanghai, was informed by his colleagues that the company was about to launch a new refrigerator model in just six months. With the current worldwide focus on energy saving, and as one of the biggest home appliances producers, Whirlpool China planned to introduce a new energy-efficient refrigerator. Castelletti immediately spotted a challenge in Whirlpool China’s plan to launch a new energy-efficient model within such a short period of time. Under the current global trend of energy-saving, consumers were demanding new energy-efficient products, which obviously would involve new kinds of technology. For the new refrigerator model, the basic difference was in the motor, since the current style of AC motor, which offered a low cost, would need to be replaced with DC motors, which offered much higher energy efficiency. Castelletti would have to find a suitable supplier of DC motors, and he had less than six months to do so. Delayed components would cause delays in the production of a new refrigerator, and thus, a later launch of new products. Within the home-appliance industry, the fierce level of competition meant that any delays in launching new products would result in a severe loss of sales for the stragglers. Castelletti now faced a tough challenge: How should he go about the process of finding a suitable supplier for the required DC motor parts? Should he explore the possibility of developing the company’s current supplier, or should he quickly engage an existing supplier of DC motors? Sourcing the right components was the first step in launching the new product. The pressure increased even further when Castelletti received call from his supervisor, inquiring about his planned strategy for sourcing the new motor for the energy-efficient refrigerator. Castelletti had to quickly decide where he could find the suitable suppliers in order to avoid delays in launching the new product. The question was “how”? Castelletti called together his team to develop a plan. For the exclusive use of p. toprak, 2021. This document is authorized for use only by pinar toprak in OPMT - 620 - Case study - Summer taught by Farnoosh Bagheri, University Canada West from Aug 2021 to Sep 2021. Page 2 9B12D012 COMPANY BACKGROUND Whirlpool’s History Whirlpool Corporation was the world’s leading manufacturer of major home appliances. In 2010, the company had more than $18 billion revenues and net earnings of $619 million (see Exhibit 1). On a worldwide basis, Whirlpool had 68,000 employees working in 67 manufacturing and technology research centres. It produced all major categories of home appliances, including stoves, washers and dryers, dishwashers, refrigerators, garage organizers, and countertop appliances. Whirlpool produced and marketed Whirlpool, Maytag, KitchenAid, Jenn-Air, Amana, Gladiator Garage Works, Inglis, Estate, Brastemp, Bauknecht, Consul, and other major brand names to consumers in almost every country around the world . Whirlpool’s global headquarters were located in Benton Harbor, Michigan, with manufacturing facilities and sales outlets across North America, Latin America, Europe and Asia. In total, the company’s products were sold in more than 130 countries. Ironically, Whirlpool was founded on a business failure. In 1908, Lou Upton’s invested his savings in a venture that manufactured household equipment, but the business did not succeed. Upton retained one asset from the business that he hoped would be valuable: the patents on a hand-operated wringer washing machine that he thought could be converted to an electric model. In 1911, Upton joined forces with his uncle and his brother to launch the Upton Machine Company in St. Joseph, Michigan, which produced motor-driven wringer washers. After a quick business expansion, 1929 saw the company merge with the Nineteen Hundred Washer Company of New York. Twenty years later, the company’s name was changed to Whirlpool Corporation, and it soon earned the title of industry leader. After a series of other acquisitions, Whirlpool participated in an acquisition with the Maytag Corporation on March 31, 2006. This was a significant step for Whirlpool to become “the largest home appliance maker in the world,” a title that had previously been reserved for Electrolux. Whirlpool’s philosophy focused on customer loyalty. Its products were built to be reliable with long lifecycles, which meant substantial emphasis had to be paid to product quality. The company’s focus on quality was rooted at the conceptual stages and continued throughout the manufacturing process. The results of these quality efforts, combined with Whirlpool’s commitment to innovation and cost productivity, brought about a strong competitive advantage. Stiff competition from competitors such as Electrolux, General Electric, LG, etc. also created a competitive pricing environment, and hence, it was essential that Whirlpool concentrated on cost reduction, productivity initiatives, and innovation in order to offset high material costs and maintain its position in the market. Furthermore, lean manufacturing and operational excellence were the principles on which Whirlpool relied to ensure a continuous improvement of process and to meet its high standards of quality. China’s Household Electrical Appliance Market Aided by the rapid development of the Chinese economy and a rising GDP per capita, China’s household electrical appliances industry grew quickly in response to the government’s policy of stimulus in domestic For the exclusive use of p. toprak, 2021. This document is authorized for use only by pinar toprak in OPMT - 620 - Case study - Summer taught by Farnoosh Bagheri, University Canada West from Aug 2021 to Sep 2021. Page 3 9B12D012 demand. According to China’s Household Electrical Appliances Industry Report, China had become the largest household electrical market in Asia Pacific area in recent years. According to the data from China Household Electrical Appliances Association, more than one-third of the household electrical appliances in the world were produced in China in 2007. Approximately 50 per cent of the world’s televisions were manufactured in China, along with 70 per cent of air conditioners and almost 100 per cent of the world’s microwave ovens. China stood out as one of the largest household appliance makers in the world, also boasting a large market share. Establishing a foothold in China had been a long and tedious process for Whirlpool since its entry into the market in 1995. At that time, Chinese regulations required foreign companies to work with local partners. The company’s chief executive officer (CEO) at that time announced a joint venture agreement after its investments of more than $100 million with local house appliances producers. The joint venture agreements gave Whirlpool a chance to produce the top four household appliance categories: washing machines, microwave ovens, refrigerators and air conditioners. Three short years, later Whirlpool was forced to pull out of two of the five joint ventures due to its unfamiliarity with and unclear positioning in the Chinese market. In 2001, China joined the World Trade Organization, and the resulting freer access to China’s market greatly improved conditions for Whirlpool. Furthermore, relocation of the company’s Asian headquarters to _Shanghai changes in the Chinese consumer mindset (i.e., Whirlpool’s offerings began to be accepted as a high-quality products) and incorporating learning from other multinationals all helped Whirlpool to compete more successfully in the Chinese market. By 2011, China accounted for approximately 3 per cent of the company’s global sales, including sales to other manufacturers. Whirlpool employed more than 2,500 people in China, and its microwave factory in Shunde produced more than two million units per year, most of which were shipped to North America and Europe. Washers and refrigerators were produced in factories that had been newly established in a joint venture with Hisense, one of the largest appliance producers in China. THE INTERNATIONAL PROCUREMENT OFFICE IN SHANGHAI Various factors could turn global sourcing into a tricky process: transportation delays, lack of technology and capacity of foreign resources, cultural and language differences, quality assurance, political and economic stability, and proper inventory management systems, to name just a few. For these reasons, Whirlpool set up an international procurement office in Shanghai to support its own manufacturing operations in Asia and to provide support for any other operation in the world that sourced components from Asia. In 2010, the Asian international procurement office sourced more than US$1 billion in China out of $8 billion global direct spend. Companies chose to source in China for many reasons, including reducing capital investment, gaining more market share, focusing on core competencies, and increasing the company’s flexibility in production. Although China may have shown a cost advantage when it came to raw materials, inconsistencies existed in the areas of quality and reliability. Other hindrances that companies often faced when operating in China stemmed from the fact that the country lacked capable service providers and suffered from shortcomings in the areas of transportation and IT infrastructure. At times, high rates of damage/loss in transit also caused a problem. For a supplier to be considered as a Whirlpool supplier, it had to match the following criteria: For the exclusive use of p. toprak, 2021. This document is authorized for use only by pinar toprak in OPMT - 620 - Case study - Summer taught by Farnoosh Bagheri, University Canada West from Aug 2021 to Sep 2021. Page 4 9B12D012  Whirlpool code of conduct and other requirements;  Minimum quality audit score;  Best total cost of ownership and manufacturing efficiency;  Continuous innovation in design and manufacturing for best-in-class quality and technology;  Structured project tracking, design reviews with management tollgates, utilizing design and process FMEA, fault tree analysis, reverse engineering and other tools where applicable; and  Access to UL, CSA, VDE and other agency approval. The following requirements were dependent on the commodity analyzed:  Laboratory capability for engineering conformance and reliability testing.  Prototype capabilities. Whirlpool required a very restricted supply quality system, namely the Whirlpool Supplier Quality System. The Whirlpool Supplier Quality System was developed based on the ISO 9001. The household appliance industry was broader than the ISO 9001 requirements, including process capabilities assessments (see Exhibit 2). Based on Castelletti’s experience, most suppliers in China, even those who supplied Whirlpool’s competitors, could not reach the minimum required score when audited as potential suppliers during the first round of Whirlpool’s selection of potential suppliers. With the minimum score required being 60/100, the first-round score among good, local suppliers was approximately 50. Elements were weighted separately to bring about the total score of 100. Since 1996, Whirlpool had followed a restricted Six Sigma program, and within the company, more than 1,500 Whirlpool employees possessed Six Sigma training. The training program included teaching the employees to use Lean and Six Sigma techniques. This system was intended to improve the quality and efficiency of Whirlpool’s manufacturing, technology, and business processes and products. When a supplier showed a distinct advantage on cost structure and could provide clear value, the SQE (Supplier Quality Engineer) and SDE (Supplier Development Engineer) team at Whirlpool’s international procurement office would provide resources to facilitate closing the gap within a certain time frame. The commodity team was also in charge of facilitating the supplier qualification process. The international procurement office had a special budget for the SQE team for supplier development, covering the travel costs of supplier visits and continuous training. The SQE members often travelled, moving from one supplier to another to conduct gap-closure development by providing training or by coaching the execution of given projects. The suppliers were not charged for the training they received from Whirlpool; however, they were expected to take some initiatives to acquire outside resources for self-improvement if their current situations were judged to be insufficient. For example, those local suppliers that did not have capable people in place would be pushed to hire the right people to enhance their quality process. FINDING THE RIGHT SUPPLIER To find a suitable supplier of DC motors for the new energy-efficient refrigerator model, Whirlpool used the Sourcing Strategy Development (SSD) process, which included four steps for sourcing the right suppliers: Step 1 - internal analysis; Step - 2 external analysis; Step 3 - Strategy development; and Step 4 - implementation. Even before Step 1, it was necessary to define the commodity and allocate For the exclusive use of p. toprak, 2021. This document is authorized for use only by pinar toprak in OPMT - 620 - Case study - Summer taught by Farnoosh Bagheri, University Canada West from Aug 2021 to Sep 2021. Page 5 9B12D012 responsibilities and resources through co-ordination of global and regional activities. An internal analysis identified and prioritized the process-partner requirements, then evaluated the performance of the existing supply base, and reviewed the existing supply base. The SSD process should also identify the switching costs in Step 1. When the internal need was clear, then the process moved forward to Step 2, the external analysis, which included analyzing the supplier industry and competitors and evaluating competitor performance and strategies. The evaluation process made use of SWOT (Strength, Weakness, Opportunities, Threat) analysis and Best-in-Class performance analysis. From the results of the internal and external analysis, Step 3 was then used to develop the sourcing strategy. In this stage, Porter’s Five Forces Model was also adopted to analyze the competitiveness. After understanding the existing strategies, strategic options were formulated and their financial impact was analyzed. In developing a sourcing strategy, preliminary negotiations could be carried out, a suitable strategy and suppliers should be selected, and the critical path for implementation should be defined. Step 4 addressed the implementation stage, wherein the planned strategy was put into play, feedback was given to the chosen process partners and suppliers, and final negotiations were nailed down. In the implementation phase, if the goals had not been met, the strategy needed to be revised. With the complete SSD analysis, the sourcing strategy had put Whirlpool in a position to find suitable suppliers. THE CHALLENGES Acting as a supplier for one of the largest home-appliance makers in the world was not an easy job for suppliers. First, the suppliers had to agree to some aggressive payment terms. Whirlpool’s U.S. procurement team privileged the consignment stock process, which meant that any agreed-upon payment terms started when parts were withdrawn from Whirlpool’s components warehouse, located in every Whirlpool factory. The warehousing time and the transportation lead time, including sea and land transportation times, were consequently added to the agreed-upon payment terms but were not predetermined — or even pre-determinable. Many suppliers found it difficult to accept these challenging payment terms. Second, the suppliers had to endure a long sample-testing process When suppliers were deemed qualified (i.e., after passing the quality system audit) to move ahead for a particular project, Whirlpool still required them to provide samples that passed the sample tests and application tests (see Exhibit 3). Third, suppliers faced a continuous challenge in terms of cost and quality improvement, year on year, especially since Whirlpool placed a great deal of emphasis on both quality and cost. For the sourcing team, continuous improvement was expected in terms of each year’s sourcing performance. Whirlpool used a technology road map for its own corporate technology evolution; therefore, its suppliers were expected to meet that same requirement each year to ensure continuous progress. Whirlpool’s strict selection criteria made it difficult to find suppliers in China. To launch new products, Castelletti had to make full use of Whirlpool’s Asia International Procurement Office in Shanghai. Finding the right supplier for DC motors in less than six months was the key challenge in front of Castelletti. With the help of its Global Sourcing Strategy and its selection criteria, Castelletti had to decide how to find the optimal supplier. For the exclusive use of p. toprak, 2021. This document is authorized for use only by pinar toprak in OPMT - 620 - Case study - Summer taught by Farnoosh Bagheri, University Canada West from Aug 2021 to Sep 2021. Page 6 9B12D012 Exhibit 1 KEY FINANCIAL FIGURES Consolidated Statements of income ( Millions of dollars, except per share data) Year Ended December 31 2010 2009 2008 Net Sales $18,366 $17,099 $18,907 Expenses Cost of products sold 15,652 14,713 16,383 Gross margin 2,714 2,386 2,524 Selling, general and administrative 1604 1544 1798 Intangible amortization 28 28 28 Restructuring costs 74 126 149 Operating Profit 1,008 688 549 Other income (expense) Interest and sundry income ( expense) 197 175 100 Interest expense 225 219 203 Earnings before income and taxes and other items 586 294 246 Income tax benefit 64 61 201 Earnings before equity earnings 650 355 447 Equity loss of affiliated companies N/A 1 N/A Net Earnings 650 354 447 Less : Net earnings available to non-controlling interests 31 26 29 Net earnings available to Whirlpool $619 $328 $418 Per share of common stock Basic net earnings available to Whirlpool $8.12 $4.39 $5.57 Diluted net earnings available to Whirlpool $7.97 $4.34 $5.50 Dividends $1.72 $1.72 $1.72 Weighted-average shares outstanding ( in millions) Basic net earnings available to Whirlpool 76.2 74.6 75.1 Diluted 77.6 75.6 76.0 Source: Internal resource provided by the company. For the exclusive use of p. toprak, 2021. This document is authorized for use only by pinar toprak in OPMT - 620 - Case study - Summer taught by Farnoosh Bagheri, University Canada West from Aug 2021 to Sep 2021. Page 7 9B12D012 Exhibit 2 SUPPLIER EVALUATION MATRIX Source: Internal resource provided by the company. For the exclusive use of p. toprak, 2021. This document is authorized for use only by pinar toprak in OPMT - 620 - Case study - Summer taught by Farnoosh Bagheri, University Canada West from Aug 2021 to Sep 2021. Page 8 9B12D012 Exhibit 3 SUPPLY CHAIN FLOW DIAGRAM Source: Internal resource provided by company. Shortlist suppliers based on stringent criteria On site quality assessment: Minimum criteria of 60 required Comparative benchmarking Sampling process in China or in any other Engineering center in the world Agreement of commercial conditions, including Payment terms International Procurement Office works with suppliers to ensure min quality is met For the exclusive use of p. toprak, 2021. This document is authorized for use only by pinar toprak in OPMT - 620 - Case study - Summer taught by Farnoosh Bagheri, University Canada West from Aug 2021 to Sep 2021. 1. What are the pros and cons of using single sourcing and/or multiple supplier? How does a company make the decision to choose one or the other? 500 words 2. What are the main benefit and risk of Whirlpool’s global sourcing? 500 words ste67472_fm_i-1.indd i 01/17/17 09:00 PM Operations Management Final PDF to printer ste67472_fm_i-1.indd ii 01/17/17 09:00 PM Final PDF to printer ste67472_fm_i-1.indd iii 01/17/17 09:00 PM Operations Management T H I R T E E N T H E D I T I O N William J. Stevenson Saunders College of Business Rochester Institute of Technology Final PDF to printer ste67472_fm_i-1.indd iv 01/17/17 09:00 PM This book is dedicated to you. OPERATIONS MANAGEMENT, THIRTEENTH EDITION Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2018 by McGraw-Hill Education. All rights reserved. Printed in the United States of America. Previous editions © 2015, 2012, and 2009. 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 McGraw-Hill Education 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. This book is printed on acid-free paper. 1 2 3 4 5 6 7 8 9 0 LWI 21 20 19 18 17 ISBN 978-1-259-66747-3 MHID 1-259-66747-2 Chief Product Officer, SVP Products & Markets: G. Scott Virkler Vice President, General Manager, Products & Markets: Marty Lange Vice President, Content Design & Deliver: Betsy Whalen Managing Director: Tim Vertovec Senior Brand Manager: Charles Synovec Director, Product Development: Rose Koos Lead Product Developer: Michele Janicek Product Developer: Christina Holt / Ryan McAndrews Marketing Manager: Trina Maurer Senior Director of Digital Content: Douglas Ruby Digital Product Analyst: Kevin Shanahan Director, Content Design & Delivery: Linda Avenarius Program Manager: Mark Christianson Content Project Managers: Harvey Yep (Core) / Kristin Bradley (Assessment) Buyer: Sandy Ludovissy Design: Matt Diamond Content Licensing Specialists: Shawntel Schmitt (Image) / Beth Thole (Text) Typeface: 10/12 STIX Mathjax Main Compositor: SPi Global Printer: LSC Communications – Willard Cover images: © Andrew Bret Wallis/Getty Images; © Peopleimages.com/Getty Images; © Echo/Getty Images; © Jorg Greuel/Getty Images; © Monty Rakusen/Getty Images Library of Congress Cataloging-in-Publication Data Names: Stevenson, William J., author. Title: Operations management / William J. Stevenson, Saunders College of Business, Rochester Institute of Technology. Description: Thirteenth edition. | New York, NY : McGraw-Hill Education, [2018] | Series: The McGraw-Hill series in operations and decision sciences Identifiers: LCCN 2016052871| ISBN 9781259667473 (alk. paper) | ISBN 1259667472 (alk. paper) Subjects: LCSH: Production management. Classification: LCC TS155 .S7824 2018 | DDC 658.5--dc23 LC record available at https://lccn.loc.gov/2016052871 All credits appearing on page or at the end of the book are considered to be an extension of the copyright page. The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites. mheducation.com/highered Final PDF to printer v ste67472_fm_i-1.indd v 01/17/17 09:00 PM The McGraw-Hill Series in 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, Cooper, and Bowersox, Supply Chain Logistics Management, Fourth Edition Brown and Hyer, Managing Projects: A Team-Based Approach, First Edition Burt, Petcavage, and Pinkerton, Supply Management, Eighth Edition Cachon and Terwiesch, Operations Management, First Edition Cachon and Terwiesch, Matching Supply with Demand: An Introduction to Operations Management, Third Edition Cooper and Schindler, Business Research Methods, Twelfth Edition Finch, Interactive Models for Operations and Supply Chain Management, First Edition Fitzsimmons, Fitzsimmons, and Bordoloi, Service Management: Operations, Strategy, Information Technology, Eighth Edition Gehrlein, Operations Management Cases, First Edition Harrison and Samson, Technology Management, First Edition Hayen, SAP R/3 Enterprise Software: An Introduction, First Edition Hill, Manufacturing Strategy: Text & Cases, Third Edition Hopp, Supply Chain Science, First Edition Jacobs, Berry, Whybark, and Vollmann, Manufacturing Planning & Control for Supply Chain Management, Sixth Edition Jacobs and Chase, Operations and Supply Management: The Core, Fourth Edition Jacobs and Chase, Operations and Supply Management, Fifteenth Edition Jacobs and Whybark, Why ERP? First Edition Larson and Gray, Project Management: The Managerial Process, Seventh Edition Leenders, Johnson, and Flynn, Purchasing and Supply Management, Fifteenth Edition Olson, Introduction to Information Systems Project Management, Second Edition Schroeder, Goldstein, Rungtusanatham, Operations Management: Contemporary Concepts and Cases, Seventh Edition Seppanen, Kumar, and Chandra, Process Analysis and Improvement, First Edition Simchi-Levi, Kaminsky, and Simchi-Levi, Designing and Managing the Supply Chain: Concepts, Strategies, Case Studies, Third Edition Sterman, Business Dynamics: Systems Thinking and Modeling for Complex World, First Edition Stevenson, Operations Management, Thirteenth Edition Swink, Melnyk, Cooper, and Hartley, Managing Operations Across the Supply Chain, Third Edition Thomke, Managing Product and Service Development: Text and Cases, First 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, Fifth Edition Stevenson and Ozgur, Introduction to Management Science with Spreadsheets, First Edition Final PDF to printer ste67472_fm_i-1.indd vi 01/17/17 09:00 PM Final PDF to printer vii ste67472_fm_i-1.indd vii 01/17/17 09:00 PM 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, inven- tory 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 integrat- ing new material to be both rewarding and challenging, particu- larly due to the plethora of new developments in the field, while facing the practical limits on the length of the book. This text offers a comprehensive and flexible amount of content that can be selected as appropriate for different courses and formats, including undergraduate, graduate, and executive education. This allows instructors to select the chapters, or portions of chapters, that are most relevant for their purposes. That flex- ibility also extends to the choice of relative weighting of the qualitative or quantitative aspects of the material and the order in which chapters are covered because chapters do not depend on sequence. For example, some instructors cover project management early, others cover quality or lean early, etc. As in previous editions, there are major pedagogical fea- tures designed to help students learn and understand the mate- rial. This section describes the key features of the book, the chapter elements, the supplements that are available for teach- ing the course, highlights of the eleventh edition, and sug- gested 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 Class preparation exercises are now available for all chapters and chapter supplements. The purpose of these exercises is to introduce students to the subject matter before class in order to enhance classroom learning. These exercises are available in the Instructor’s Resource Manual. Special thanks to Linda Brooks for her help in developing the exercises. Some content has been rewritten or added to improve clar- ity, shorten wording, or update information. New material has been added on supply chains (including a different, more realistic, way to conceptualize supply chains), as well as on product life-cycle management, 3-D printing, drones, loca- tions, and other topics. New critical thinking exercises have been added. The explanation of learning curve time reduction has been simplified with a new diagram. Some older readings have been deleted, and new readings added on such topics as fracking, mass customization of fast foods, and self-driving vehicles. Acknowledgments I want to thank the many contributors to this edition. Review- ers and adopters of the text have provided a “continuously improving” wealth of ideas and suggestions. It is encourag- ing to me as an author. I hope all reviewers and readers will know their suggestions were valuable, were carefully consid- ered, and are sincerely appreciated. The list includes post- publication reviewers. Robert Aboolian, California State University—San Marcos Pamela Barnes, Kansas State University Greg Bier, University of Missouri Gary Black, University of Southern Indiana Jeff Brand, Marquette University Cenk Caliskan, Utah Valley University Cem Canel, University of North Carolina—Wilmington Jen-Yi Chen, Cleveland State University Robert Clark, Stony Brook University Dinesh Dave, Appalachian State University Abdelghani Elimam, San Francisco State Kurt Engemann, Iona College Michael Fathi, Georgia Southwestern State Warren Fisher, Stephen F. Austin State University Gene Fliedner, Oakland University Theodore Glickman, George Washington University Haresh Gurnani, University of Miami Johnny Ho, Columbus State University Ron Hoffman, Greenville Technical College Lisa Houts, California State University—Fresno Stella Hua, Western Washington University Neil Hunt, Suffolk University Faizul Huq, Ohio University Richard Jerz, St. Ambrose University George Kenyon, Lamar University Casey Kleindienst, California State University—Fullerton John Kros, East Carolina University Preface Final PDF to printer ste67472_fm_i-1.indd viii 01/17/17 09:00 PM viii Preface Anita Lee-Post, University of Kentucky Nancy Levenburg, Grand Valley State University F. Edward Ziegler, Kent State University Other contributors include accuracy checkers: Gary Black, University of Southern Indiana, Michael Godfrey, Univer- sity of Wisconsin at Oshkosh, and Richard White, Univer- sity of North Texas; Test Bank: Alan Cannon, University of Texas at Arlington; PowerPoints: David Cook, Old Dominion University; Data Sets: Mehdi Kaighobadi, Florida Atlantic University; Excel Templates and ScreenCam tutorials: Lee Tangedahl, University of Montana; Instructors Manual: Michael Godfrey. Special thanks goes out to Larry White, Eastern Illinois University, who helped revise, design, and develop interactive content in Connect ® Operations Management for this edition. 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 peo- ple. Special thanks go to Dolly Womack, Senior Brand Man- ager; Michele Janicek, Lead Product Developer; Christina Holt and Ryan McAndrews, Product Developers; Harvey Yep and Kristin Bradley, Content Project Managers; Sandy Ludo- vissy, Buyer; Matt Diamond, Designer; Shawntel Schmitt and Beth Thole, Content Licensing Specialists; and many others who worked behind the scenes. I would also like to thank the many reviewers of previous editions for their contributions. Vikas Agrawal, Fayetteville State University; Bahram Alidaee, University of Mississippi; Ardavan Asef-Faziri, California State University at North- ridge; 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 Univer- sity; Alan Chow, University of Southern Alabama at Mobile; Chrwan-Jyh, Oklahoma State University; Chen Chung, Uni- versity of Kentucky; Robert Clark, Stony Brook University; Loretta Cochran, Arkansas Tech University; Lewis Cooper- smith, Rider University; Richard Crandall, Appalachian State University; Dinesh Dave, Appalachian State University; Scott Dellana, East Carolina University; Kathy Dhanda, DePaul University; Xin Ding, University of Utah; Ellen Dumond, California State University at Fullerton; Richard Ehrhardt, University of North Carolina at Greensboro; Kurt Engemann, Iona College; Diane Ervin, DeVry University; Farzaneh Fazel, Illinois State University; Wanda Fennell, University of Mississippi at Hattiesburg; Joy Field, Boston College; Warren Fisher, Stephen F. Austin State University; Lillian Fok, Uni- versity 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 Uni- versity at East Bay; Craig Hill, Georgia State University; Jim Ho, University of Illinois at Chicago; Seong Hyun Nam, University of North Dakota; Jonatan Jelen, Mercy College; Prafulla Joglekar, LaSalle University; Vijay Kannan, Utah State University; Sunder Kekre, Carnegie-Mellon Univer- sity; Jim Keyes, University of Wisconsin at Stout; Seung-Lae Kim, Drexel University; Beate Klingenberg, Marist College; John Kros, East Carolina University; Vinod Lall, Minnesota State University at Moorhead; Kenneth Lawrence, New Jersey Institute of Technology; Jooh Lee, Rowan University; Anita Lee-Post, University of Kentucky; Karen Lewis, Uni- versity of Mississippi; Bingguang Li, Albany State Univer- sity; 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; Gita Mathur, San Jose State University; Mark McComb, Mississippi Col- lege; 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; Roy Nersesian, Monmouth University; Jeffrey Ohlmann, University of Iowa at Iowa City; John Olson, University of St. Thomas; Ozgur Ozluk, San Francisco State University; Kenneth Paetsch, Cleveland State University; Taeho Park, San Jose State Uni- versity; Allison Pearson, Mississippi State University; Pat- rick 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 Univer- sity at Hayward; Stephen A. Raper, University of Missouri at Rolla; Pedro Reyes, Baylor University; Buddhadev Roy- choudhury, 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; Kaushic Sengupta, Hofstra University; Kenneth Shaw, Oregon State University; Dooyoung Shin, Minnesota State University at Mankato; Michael Shurden, Lander Uni- versity; Raymond E. Simko, Myers University; John Simon, Governors State University; Jake Simons, Georgia Southern University; Charles Smith, Virginia Commonwealth Uni- versity; Kenneth Solheim, DeVry University; Young Son, Final PDF to printer ste67472_fm_i-1.indd ix 01/17/17 09:00 PM Preface ix Bernard M. Baruch College; 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 Uni- versity at San Bernardino; Timothy Vaughan, University of Wisconsin at Eau Claire; 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; Tekle Wanorie, Northwest Missouri State University; Jerry Wei, University of Notre Dame; Michael Whittenberg, University of Texas; Geoff Willis, University of Central Oklahoma; Pamela Zelbst, Sam Houston State University; Jiawei Zhang, NYU; Zhenying Zhao, University of Maryland; Yong-Pin Zhou, University of Washington. William J. Stevenson Final PDF to printer x ste67472_fm_i-1.indd x 01/17/17 09:00 PM 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. Rev.Confirming Pages Chapter Three Forecasting 105 ste67472_ch03_074-135.indd 105 01/16/17 12:04 PM Determining a Regression Equation Sales of new houses and three-month lagged unemployment are shown in the following table. Determine if unemployment levels can be used to predict demand for new houses and, if so, derive a predictive equation. Period . . . . . . . . . . . 1 2 3 4 5 6 7 8 9 10 11 Units sold . . . . . . . . 20 41 17 35 25 31 38 50 15 19 14 Unemployment % (three-month lag) 7.2 4.0 7.3 5.5 6.8 6.0 5.4 3.6 8.4 7.0 9.0 1. Plot the data to see if a linear model seems reasonable. In this case, a linear model seems appropriate for the range of the data. 50 40 30 20 10 0 2 4 6 8 10 Level of unemployment (%), x U n its s o ld , y 2. Check the correlation coefficient to confirm that it is not close to zero using the web- site template, and then obtain the regression equation: r = −.966 This is a fairly high negative correlation. The regression equation is y = 71.85 − 6.91x Note that the equation pertains only to unemployment levels in the range 3.6 to 9.0, because sample observations covered only that range. mhhe.com/stevenson13e E X A M P L E 1 0 S O L U T I O N © Andrew McLachlan/All Canada Photos/Getty Examples with Solutions Throughout the text, wherever a quantitative or analytic technique is introduced, an example is included to illustrate the application of that tech- nique. These are designed to be easy to follow. Final PDF to printer xi ste67472_fm_i-1.indd xi 01/17/17 09:00 PM Solved Problems At the end of chapters and chapter supplements, “Solved Problems” are pro- vided to illustrate problem solving and the core con- cepts in the chapter. These have been carefully prepared to help students understand the steps involved in solving different types of problems. The Excel logo indicates that a spreadsheet is available on the text’s website, to help solve the problem. Confirming Pages Chapter Two Competitiveness, Strategy, and Productivity 63 ste67472_ch02_040-073.indd 63 01/06/17 09:11 PM Computing Productivity A company that processes fruits and vegetables is able to produce 400 cases of canned peaches in one-half hour with four workers. What is labor productivity? Problem 1 SOLVED PROBLEMS KEY POINTS 1. Competitive pressure often means that business organizations must frequently assess their com- petitors’ strengths and weaknesses, as well as their own, to remain competitive. 2. Strategy formulation is critical because strategies provide direction for the organization, so they can play a role in the success or failure of a business organization. 3. Functional strategies and supply chain strategies need to be aligned with the goals and strategies of the overall organization. 4. The three primary business strategies are low cost, responsiveness, and differentiation. 5. Productivity is a key factor in the cost of goods and services. Increases in productivity can become a competitive advantage. 6. High productivity is particularly important for organizations that have a strategy of low costs. competitiveness, 42 core competencies, 46 environmental scanning, 48 goals, 44 mission, 44 KEY TERMS mission statement, 44 operations strategy, 51 order qualifiers, 48 order winners, 48 productivity, 56 quality-based strategies, 53 strategies, 44 SWOT, 47 tactics, 45 time-based strategies, 53 Labor productivity = Quantity produced ________________ Labor hours = 400 cases ________________________ 4 workers × 1 / 2 hour / worker = 200 cases per labor hour Solution Computing Multifactor Productivity A wrapping-paper company produced 2,000 rolls of paper one day. Labor cost was $160, material cost was $50, and overhead was $320. Determine the multifactor productivity. Problem 2 mhhe.com/stevenson13e Multifactor productivity = Quantity produced ______________________________ Labor cost + Material cost + Overhead = 2,000 rolls _______________ $160 + $50 + $320 = 3.77 rolls per dollar input A variation of the multifactor productivity calculation incorporates the standard price in the numerator by multiplying the units by the standard price. Solution Computing Multifactor Productivity Compute the multifactor productivity measure for an eight-hour day in which the usable output was 300 units, produced by three workers who used 600 pounds of materials. Workers have an hourly wage of $20, and material cost is $1 per pound. Overhead is 1.5 times labor cost. Problem 3 Multifactor productivity = Usable output __________________________________ Labor cost + Material cost + Overhead cost = 300 units _____________________________________________________ ( 3  workers × 8 hours × $20 / hour ) + ( 600 pounds × $1 / pound ) + ( 3 workers × 8 hours × $20 / hour × 1.50 ) = 300 units ________________ $480 + $600 + $720 = .167units of output per dollar of input Solution mhhe.com/stevenson13e mhhe.com/stevenson13e First Pages Chapter Sixteen Scheduling 705 ste67472_ch16_690-729.indd 705 01/10/17 04:30 PM c. Using earliest due date as the selection criterion, the job sequence is C-A-E-B-D-F. The measures of effectiveness are as follows (see table): (1) Average flow time: 110/6 = 18.33 days. (2) Average tardiness: 38/6 = 6.33 days. (3) Average number of jobs at the work center: 110/41 = 2.68. Job Sequence (1) Processing Time (2) Flow Time (3) Due Date (2) – (3) Days Tardy [0 if negative] C  4    4  4  0 A  2    6  7  0 E  5   11 15  0 B  8   19 16  3 D 10   29 17 12 F 12   41 18 23 41 110 38 TABLE 16.5 Excel solution for Example 2a Excel Spreadsheet Solutions Where applicable, the exam- ples 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 website. Templates are programmed to be fully functional in Excel 2013 and earlier. Final PDF to printer xii ste67472_fm_i-1.indd xii 01/17/17 09:00 PM 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 many editions and have proven to be successful. Confirming Pages ste67472_ch04_136-173.indd 136 01/06/17 08:07 PM 4 Product and Service Design 4.1 Introduction, 138 What Does Product and Service Design Do?, 138 Key Questions, 138 Reasons for Product or Service Design or Redesign, 139 4.2 Idea Generation, 140 4.3 Legal and Ethical Considerations, 143 4.4 Human Factors, 144 4.5 Cultural Factors, 145 4.6 Global Product and Service Design, 145 4.7 Environmental Factors: Sustainability, 146 Cradle-to-Grave Assessment, 146 End-of-Life Programs, 146 The Three Rs: Reduce, Reuse, and Recycle, 146 Reduce: Value Analysis, 146 Reuse: Remanufacturing, 148 Recycle, 149 4.8 Other Design Considerations, 151 Strategies for Product or Service Life Stages, 151 Product Life Cycle Management, 152 Degree of Standardization, 153 Designing for Mass Customization, 154 Reliability, 155 Robust Design, 156 Degree of Newness, 157 Quality Function Deployment, 157 The Kano Model, 160 4.9 Phases in Product Design and Development, 161 4.10 Designing for Production, 162 Concurrent Engineering, 162 Computer-Aided Design, 163 Production Requirements, 164 Component Commonality, 164 C H A P T E R O U T L I N E L E A R N I N G O B J E C T I V E S After completing this chapter, you should be able to: LO4.1 Explain the strategic importance of product and service design. LO4.2 Describe what product and service design does. LO4.3 Name the key questions of product and service design. LO4.4 Identify some reasons for design or redesign. LO4.5 List some of the main sources of design ideas. LO4.6 Discuss the importance of legal, ethical, and sustainability considerations in product and service design. LO4.7 Explain the purpose and goal of life cycle assessment. LO4.8 Explain the phrase “the 3 Rs.” LO4.9 Briefly describe the phases in product design and development. LO4.10 Discuss several key issues in product or service design. LO4.11 Discuss the two key issues in service design. LO4.12 List the characteristics of well-designed service systems. LO4.13 List some guidelines for successful service design. Rev.Confirming Pages 137 ste67472_ch04_136-173.indd 137 01/16/17 04:35 PM The essence of a business organization is the products and services it offers, and every aspect of the organization and its supply chain are structured around those products and services. Organizations that have well-designed products or services are more likely to realize their goals than those with poorly designed products or services. Hence, orga- nizations have a strategic interest in product and service design. Product or service design should be closely tied to an organization’s strategy. It is a major factor in cost, quality, time-to-market, customer satisfaction, and competitive advan- tage. Consequently, marketing, finance, operations, accounting, IT, and HR need to be involved. Demand forecasts and projected costs are important, as is the expected impact on the supply chain. It is significant to note that an important cause of operations failures can be traced to faulty design. Designs that have not been well thought out, or incorrectly implemented, or instructions for assembly or usage that are wrong or unclear, can be the cause of product and service failures, leading to lawsuits, injuries and deaths, product recalls, and damaged reputations. The introduction of new products or services, or changes to product or service designs, can have impacts throughout the organization and the entire supply chain. Some processes may change very little, while others may have to change considerably in terms of what they do or how and when they do it. New processes may have to be added, and some cur- rent ones may be eliminated. New suppliers and distributors may need to be found and integrated into the system, and some current suppliers and distributors may no longer be an appropriate fit. Moreover, it is necessary to take into account projected impact on demand as well as financial, marketing, and distribution implications. Because of the potential for widespread effects, taking a “big picture” systems approach early and throughout the design or redesign process is imperative to reduce the chance of missing some implications and costs, and to understand the time it will take. Likewise, input from engineering, operations, marketing, finance, …