2 points each) – Please select the best answer for each question. Excel answer sheet

Description

1. Which of the following is not an assumption of the EOQ model?
a) demand is known and constant
b) no shortages allowed.
c) lead time is determined by quantity ordered.
d) order quantity is received all at once.
2. A service level of 95% means there is a 0.95 probability.
a) Of meeting all demand
b) Of a stock-out
c) That supply will exceed demand
d) That demand will be met during the lead time
3. A company produces a product which is designed to weigh 10 oz., with a tolerance of + 0.5 oz. The
process produces products with an average weight of 9.95 oz. and a standard deviation of 0.10 oz. The
process capability ratio for this process is with z = 3.
a) 1.67
b) 0
c) 0.8333
d) -1.67
Given the following weekly demand figures below, answer the next 2 questions below:
4. Using a three-week moving average, what is your forecast for week six?
a) 30
b) 35
c) 32.5
d) 25
5. What is the exponentially smoothed forecast for week 2? (Use F1 = 25 and alpha = .2)
a) 21.0
b) 24.0
c) 32.0
d) 53.0
6. Companies often outsource to
a) Focus on core competencies.
b) Achieve greater flexibility.
c) Reduce costs.
d) All of the aboveWeek Demand
1 20
2 60
3 30
4 20
5 40
Metropolitan State University DSCI 6681 Final Exam Spring 2023 2
7. What is the exponentially smoothed forecast for week 6? (Use F5 = 33 and alpha = 0.0)
a) 33
b) 31.7
c) 30
d) 20
e) Given the following MRP matrix for Item E:
8. The overriding of the S&OP’s production and sales plans with uncoordinated informal plans typically
result in all except:
a) Improved overall company performance
b) Confusion and over reaction
c) Increased stress levels within the company’s staff
d) Decreased ERP performance
e) All of the above
9. A ___________ is an up-and-down movement in demand that repeats itself over a lengthy time period
of more than a year.
a) Trend
b) seasonal pattern
c) random variation
d) cycle
10. The demand for an electronic component is normally distributed with an average daily demand of 500
units and a standard deviation of 50. The lead time for the component is 9 days. If a service level of
95% is desired, then the company’s safety stock for this component is approximately
a) 150 units.
b) 247 units.
c) 336 units.
d) 740 units
11. In a production environment, examples of TOC Exploitation Tactics include all except:
a) Make sure all material is of good quality
b) Assure constraint resource runs as much as possible
c) Schedule the constraining resource the best way possible to maximize throughput
d) Create a buffer between the material release point and the constraining resource
e) None of the above
12. Traditionally, inventory turnover is computed by
a) Dividing the annual cost of goods sold by the average aggregate inventory value.
b) Dividing the average aggregate inventory value by costs of goods sold.
c) Multiplying the average aggregate inventory value by cost of goods sold.
d) Subtracting cost of goods sold from the average aggregate inventory value
13. In general, we know that forecasting has all but the following characteristics.
a) The more elaborate and complex the formula used, the more accurate the forecast will be.
b) Forecasts tend be wrong.
c) Forecasts are more accurate for larger groups of items.
d) Forecasts are more accurate for shorter periods of time.
Metropolitan State University DSCI 6681 Final Exam Spring 2023 3
14. A quick oil change company employs 3 people to change the automobile oil for its customers. Before
the customer can get their oil changed, they first meet with the manager to get all needed information,
averaging 1 minute for this process. Once the customer completes order entry, it takes an average of
25 minutes to the complete the oil change. After this, the customer meets with the manager again and
it takes 3 minutes to complete the payment process. On average, 5 customers arrive at the company
per hour. Based on this, what is the average number of customers physically inside the company?
a) 2.42
b) 5.00
c) 10.30
d) 2.08
15. All of the following about S&OP is true except:
a) Performed at the product/service family level
b) Senior management involvement is not needed
c) Operations commits to make/service the operations plan
d) Used as input into the MPS
e) Typically conducted monthly
16. The MRP process of determining requirements for lower-level items based on the master production
schedule is referred to as
a) Lot sizing.
b) Netting.
c) Backward scheduling.
d) Exploding
17. The lessons of Kingsman formula include all except:
a) Management must decide the tradeoffs in the business environment between these factors
b) Large utilization in organizations can result in people burnout
c) If utilization is high, common variation will have small negative impact
d) If used as the primary operations performance measure of resources, it may lead to sub-optimal
system performance (lower profit)
18. In TOC all are true except:
a) The level of utilization of a non-bottleneck is determined by the system constraint
b) In non-bottlenecks, any extra production made there will be used by the market quickly
c) In a true internal bottleneck, all production can be immediately sold and turned into Throughput
d) Most resources are non-bottlenecks
19. In MRP time phasing is
a) The process of scheduling forward from today’s date to determine the earliest time a job can be
completed
b) The process of subtracting an item’s lead time from its due date to determine when an order
should be released
c) The process of scheduling backward from a due date to determine when to begin a job
d) The process of determining requirements for lower-level items by multiplying the planned orders
of parent items by the quantity per assembly of component items
20. Independent demand inventory consists of:
a) Inventory whose demand comes from independent suppliers
b) Inventory that is independent of any known rules of demand and supply
c) Demand that is related to the demand for another item
d) Inventory whose demand is determined by the marketplace
e) None of the above
Metropolitan State University DSCI 6681 Final Exam Spring 2023 4
21. Techniques to help reduce the uncertainty of forecasting include all expect:
a) Try to minimize the need to forecast parts of the operation, rather use actual demand instead (Pull)
where possible
b) Utilize a complex computerized forecasting system
c) Assure someone is responsible for the forecast process
d) Use processes that are less reliant on forecasting
e) Try to reduce lead times so the forecasting efforts are minimized i.e.
22. The primary cost associated with the level production strategy is the cost of
a) holding inventory.
b) hiring and firing workers.
c) overtime.
d) outsourcing (subcontracting)
23. When management accepts more orders that can be produced, which law of operations has been
violated?
a) Variation/Uncertainty reduces global output
b) Input into the system must be carefully managed or WIP, Lead Times, Service Levels and Excess
Expediting will reduce throughput
c) The basic rule describing the overall relationship between output, inventory and cycle time is
Little’s Law
d) At any given time, every operational system will have a constraint that limits the global output.
24. The planned order release for period 3 would be
a) 100
b) 200
c) 270
d) 300
25. Bills of materials are kept current with changes using:
a) Master scheduling systems
b) Engineering change order systems
c) Inventory tracking systems
d) Capacity planning systems
e) Manufacturing execution systems
26. Lead time for completion of a job is a function of both:
a) Capacity and demand
b) Demand and priority decisions
c) Capacity and priority decisions
d) Capacity and supply decisions
e) None of the aboveITEM: E
Lot Size: L4L LT: 3
Period
1 2 3 4 5 6 7
Gross Requirements 200 100 200 200 300 200 300
Schedule Receipts 300
Project on Hand 500
Net Requirements
Planned Order Receipts
Planned Order Releases
Metropolitan State University DSCI 6681 Final Exam Spring 2023 5
27. On 3/1/24, a private company has $150,000 in building assets, $300,000 in accounts receivable and
$200,000 in accounts payable. The CGS for period is $100,000 and depreciation expenses are
$50,000. What is the owners’ equity for this company at the end of the last period?
a) 200,000
b) 450,000
c) 250,000
d) None of the above
28. All are true about DBR except
a) Time buffers are established to account for common cause variation
b) If there is no true internal constraint, then the market becomes the constraint
c) The Drum is a finite schedule at the constraint
d) Material release schedules are based on forward scheduling from the drum schedule
e) All are true.
29. The primary cause of the key benefits of a pull system is that
a) there is a limit on the maximum amount of inventory in the system
b) It is based on demand.
c) It has short lead times.
d) Variation has been reduced.
30. Which of the following inputs into MRP must have excellent data integrity for MRP to be effective?
I. Bill of Materials
II. Inventory information
III. Master Schedule
IV. Process routing precedence logic
a) I and II
b) II, III and IV
c) I, II, III
d) All are needed.
31. The most effective aggregate planning strategy depends on
a) The demand distribution
b) The competitive position
c) The firm’s cost structure
d) All of the above
32. According to TOC, when a constraint is internal, we should evaluate product mix decisions based on:
a) The product with the highest profit margin
b) The product with the lowest unit cost
c) The product with least activity-based allocations
d) The throughput generated per unit time on the constraint
e) Marketing considerations
Note: The next 2 questions regard product A. Demand for product demand A is 60 a day. The company
reviews its orders every 20 days and maintains a safety stock level of 180. The lead-time A is 2 days and
today there are 260 units in stock.
33. The target inventory level for item A is:
a) 1500
b) 1200
c) 120
d) 1800
Metropolitan State University DSCI 6681 Final Exam Spring 2023 6
34. If an order for A is placed today, the order quantity should be:
a) 1130
b) 1500
c) 1240
d) 1340
35. If a chase demand strategy is used, then the number of workers hired at the start of quarter 2 is:
a) 10
b) 20
c) 35
d) 80
36. If a level production strategy is used, then the inventory at the end of quarter 3 is
a) 18,750
b) 12,500
c) 25,650
d) 31,250
37. A computerized inventory system checks inventory levels at the end of the week and produces
suggested orders for the coming week. What kind of system is this?
a) A periodic review system
b) A continuous review system
c) A service level system
d) An ABC inventory system.
38. Examples of fixed costs include all except:
a) Raw materials
b) Rent
c) Salaries
d) Fringe benefits
e) Property taxes
39. Receiving, handling, and shipping costs are examples of
a) shortage costs.
b) carrying costs.
c) ordering costs.
d) none of the above.
40. If a factory has 100,000 units of materials in the system and if the average throughput of system is
5,000 units per day, then the average lead-time is.
a) 0.5 days.
b) 20 days.
c) 0.05 days.
d) 100 days.The information for the next 2 problems is shown here. The following information relates to a
company’s aggregate production planning activities:
§ Beginning Workforce = 35 workers
§ Production per Employee = 1,250 units per
quarter
§ Hiring Cost = $500 per worker
§ Firing Cost = $1,000 per worker
§ Inventory Carrying Cost = $20 per unit per
quarter
Quarter Demand Forecast
1 75,000
2 100,000
3 75,000
4 125,000
Metropolitan State University DSCI 6681 Final Exam Spring 2023 7
41. The selection of suppliers is called.
a) Outsourcing
b) Procurement
c) Sourcing
d) None of the above
42. When the company is facing a market constraint, operations should focus on:
a) Reducing operational costs
b) Reducing operation capacity to below the market constraint
c) Do what is needed to support the market.
d) Use variable costing instead of absorption costing
e) All of the above
43. A restaurant currently uses 62,500 boxes of napkins each year at a constant daily rate. The cost to
order napkins is $200.00 per order and the annual carrying cost for one box of napkins is $1.00. If the
restaurant orders the economic order quantity each time an order is placed, then ______orders are
placed during the year.
a) 13
b) 15
c) 20
d) 25
44. The traditional sequencing rule that minimizes average tardiness for a set of jobs to be processed on
one machine is
a) First-come-first served (FCFS).
b) Longest processing time (LPT)
c) Shortest process time (SPT)
d) Due date (DDATE)
45. All of the following about operations management are true except
a) Variation reduces the overall output
b) Every system has a constraint
c) If more material work goes into the system than what the system can produce, we will get more
out of the system assuming we can expedite any material
d) Little’s law is the primary law of flow in a stable operation
e) Various buffers are used to manage variation.
46. In capacity planning, the feasibility of the sales and operations production plan is verified by a
a) Resource requirements plan
b) Rough-cut capacity plan
c) Capacity requirements plan
d) Master production schedule
Metropolitan State University DSCI 6681 Final Exam Spring 2023 8
47. A company sells widgets. It is made up of 6 resources, each with the capacity shown in the diagram.
Recent market efforts have pushed sales to 100 widgets/day. The suppliers can provide up to 200
widgets/day in material & information if needed. Customer service can enter up to 115 widgets/day.
Where is this company’s bottleneck?
a) Resource 6
b) Resource 3
c) Customer Service
d) Market/Sales
e) None of the above
48. A forecasting model has produced the following forecasts: At the end of May the tracking signal
would be
a) 0.000.
b) 0.667
c) 1.333.
d) 2.143
49. A load profile compares.
a) requirements for all lower-level items to higher-level items.
b) cumulative lead times to projected lead times.
c) the quantities in which items should be produced to actual demand.
d) released and planned orders with work center capacity.
50. Use the identical original conditions presented in the lecture notes,
the “No-Hassle” plant is shown below. Assume we make a
marketing investment that increases the market demand for P by 10
units/week. What would the new PQ product mix be?
a) 50 P’s, 20 Q’s
b) 110 P’s, 25 Q’s
c) 110 P’s, 30 Q’s
d) 80 P’s, 30 Q’EM 664 Final Exam
Spring, 2023
Multiple Choice: (2 points each) – Please select the best answer for each question. Record your answers
on the Excel answer sheet (Separate file). Please make sure your name is on the Excel answer sheet
1. Which of the following is not an assumption of the EOQ model?
a) demand is known and constant
b) no shortages allowed.
c) lead time is determined by quantity ordered.
d) order quantity is received all at once.
2. A service level of 95% means there is a 0.95 probability.
a) Of meeting all demand
b) Of a stock-out
c) That supply will exceed demand
d) That demand will be met during the lead time
3. A company produces a product which is designed to weigh 10 oz., with a tolerance of + 0.5 oz. The
process produces products with an average weight of 9.95 oz. and a standard deviation of 0.10 oz. The
process capability ratio for this process is with z = 3.
a) 1.67
b) 0
c) 0.8333
d) -1.67
Given the following weekly demand figures below, answer the next 2 questions below:
Week
Demand
1
20
2
60
3
30
4
20
5
40
4. Using a three-week moving average, what is your forecast for week six?
a) 30
b) 35
c) 32.5
d) 25
5. What is the exponentially smoothed forecast for week 2? (Use F1 = 25 and alpha = .2)
a) 21.0
b) 24.0
c) 32.0
d) 53.0
6. Companies often outsource to
a) Focus on core competencies.
b) Achieve greater flexibility.
c) Reduce costs.
d) All of the above
Metropolitan State University DSCI 6681 Final Exam Spring 2023
1
7. What is the exponentially smoothed forecast for week 6? (Use F5 = 33 and alpha = 0.0)
a) 33
b) 31.7
c) 30
d) 20
e) Given the following MRP matrix for Item E:
8. The overriding of the S&OP’s production and sales plans with uncoordinated informal plans typically
result in all except:
a) Improved overall company performance
b) Confusion and over reaction
c) Increased stress levels within the company’s staff
d) Decreased ERP performance
e) All of the above
9. A ___________ is an up-and-down movement in demand that repeats itself over a lengthy time period
of more than a year.
a) Trend
b) seasonal pattern
c) random variation
d) cycle
10. The demand for an electronic component is normally distributed with an average daily demand of 500
units and a standard deviation of 50. The lead time for the component is 9 days. If a service level of
95% is desired, then the company’s safety stock for this component is approximately
a) 150 units.
b) 247 units.
c) 336 units.
d) 740 units
11. In a production environment, examples of TOC Exploitation Tactics include all except:
a) Make sure all material is of good quality
b) Assure constraint resource runs as much as possible
c) Schedule the constraining resource the best way possible to maximize throughput
d) Create a buffer between the material release point and the constraining resource
e) None of the above
12. Traditionally, inventory turnover is computed by
a) Dividing the annual cost of goods sold by the average aggregate inventory value.
b) Dividing the average aggregate inventory value by costs of goods sold.
c) Multiplying the average aggregate inventory value by cost of goods sold.
d) Subtracting cost of goods sold from the average aggregate inventory value
13. In general, we know that forecasting has all but the following characteristics.
a) The more elaborate and complex the formula used, the more accurate the forecast will be.
b) Forecasts tend be wrong.
c) Forecasts are more accurate for larger groups of items.
d) Forecasts are more accurate for shorter periods of time.
Metropolitan State University DSCI 6681 Final Exam Spring 2023
2
14. A quick oil change company employs 3 people to change the automobile oil for its customers. Before
the customer can get their oil changed, they first meet with the manager to get all needed information,
averaging 1 minute for this process. Once the customer completes order entry, it takes an average of
25 minutes to the complete the oil change. After this, the customer meets with the manager again and
it takes 3 minutes to complete the payment process. On average, 5 customers arrive at the company
per hour. Based on this, what is the average number of customers physically inside the company?
a) 2.42
b) 5.00
c) 10.30
d) 2.08
15. All of the following about S&OP is true except:
a) Performed at the product/service family level
b) Senior management involvement is not needed
c) Operations commits to make/service the operations plan
d) Used as input into the MPS
e) Typically conducted monthly
16. The MRP process of determining requirements for lower-level items based on the master production
schedule is referred to as
a) Lot sizing.
b) Netting.
c) Backward scheduling.
d) Exploding
17. The lessons of Kingsman formula include all except:
a) Management must decide the tradeoffs in the business environment between these factors
b) Large utilization in organizations can result in people burnout
c) If utilization is high, common variation will have small negative impact
d) If used as the primary operations performance measure of resources, it may lead to sub-optimal
system performance (lower profit)
18. In TOC all are true except:
a) The level of utilization of a non-bottleneck is determined by the system constraint
b) In non-bottlenecks, any extra production made there will be used by the market quickly
c) In a true internal bottleneck, all production can be immediately sold and turned into Throughput
d) Most resources are non-bottlenecks
19. In MRP time phasing is
a) The process of scheduling forward from today’s date to determine the earliest time a job can be
completed
b) The process of subtracting an item’s lead time from its due date to determine when an order
should be released
c) The process of scheduling backward from a due date to determine when to begin a job
d) The process of determining requirements for lower-level items by multiplying the planned orders
of parent items by the quantity per assembly of component items
20. Independent demand inventory consists of:
a) Inventory whose demand comes from independent suppliers
b) Inventory that is independent of any known rules of demand and supply
c) Demand that is related to the demand for another item
d) Inventory whose demand is determined by the marketplace
e) None of the above
Metropolitan State University DSCI 6681 Final Exam Spring 2023
3
21. Techniques to help reduce the uncertainty of forecasting include all expect:
a) Try to minimize the need to forecast parts of the operation, rather use actual demand instead (Pull)
where possible
b) Utilize a complex computerized forecasting system
c) Assure someone is responsible for the forecast process
d) Use processes that are less reliant on forecasting
e) Try to reduce lead times so the forecasting efforts are minimized i.e.
22. The primary cost associated with the level production strategy is the cost of
a) holding inventory.
b) hiring and firing workers.
c) overtime.
d) outsourcing (subcontracting)
23. When management accepts more orders that can be produced, which law of operations has been
violated?
a) Variation/Uncertainty reduces global output
b) Input into the system must be carefully managed or WIP, Lead Times, Service Levels and Excess
Expediting will reduce throughput
c) The basic rule describing the overall relationship between output, inventory and cycle time is
Little’s Law
d) At any given time, every operational system will have a constraint that limits the global output.
24. The planned order release for period 3 would be
a) 100
ITEM: E
b) 200
c) 270
Lot Size: L4L
LT: 3
d) 300
Gross Requirements
Schedule Receipts
Project on Hand
500
Net Requirements
Planned Order Receipts
Planned Order Releases
1
2
200 100
Period
3
4
5
200 200 300
300
6
7
200 300
25. Bills of materials are kept current with changes using:
a) Master scheduling systems
b) Engineering change order systems
c) Inventory tracking systems
d) Capacity planning systems
e) Manufacturing execution systems
26. Lead time for completion of a job is a function of both:
a) Capacity and demand
b) Demand and priority decisions
c) Capacity and priority decisions
d) Capacity and supply decisions
e) None of the above
Metropolitan State University DSCI 6681 Final Exam Spring 2023
4
27. On 3/1/24, a private company has $150,000 in building assets, $300,000 in accounts receivable and
$200,000 in accounts payable. The CGS for period is $100,000 and depreciation expenses are
$50,000. What is the owners’ equity for this company at the end of the last period?
a) 200,000
b) 450,000
c) 250,000
d) None of the above
28. All are true about DBR except
a) Time buffers are established to account for common cause variation
b) If there is no true internal constraint, then the market becomes the constraint
c) The Drum is a finite schedule at the constraint
d) Material release schedules are based on forward scheduling from the drum schedule
e) All are true.
29. The primary cause of the key benefits of a pull system is that
a) there is a limit on the maximum amount of inventory in the system
b) It is based on demand.
c) It has short lead times.
d) Variation has been reduced.
30. Which of the following inputs into MRP must have excellent data integrity for MRP to be effective?
I. Bill of Materials
II. Inventory information
III. Master Schedule
IV. Process routing precedence logic
a) I and II
b) II, III and IV
c) I, II, III
d) All are needed.
31. The most effective aggregate planning strategy depends on
a) The demand distribution
b) The competitive position
c) The firm’s cost structure
d) All of the above
32. According to TOC, when a constraint is internal, we should evaluate product mix decisions based on:
a) The product with the highest profit margin
b) The product with the lowest unit cost
c) The product with least activity-based allocations
d) The throughput generated per unit time on the constraint
e) Marketing considerations
Note: The next 2 questions regard product A. Demand for product demand A is 60 a day. The company
reviews its orders every 20 days and maintains a safety stock level of 180. The lead-time A is 2 days and
today there are 260 units in stock.
33. The target inventory level for item A is:
a) 1500
b) 1200
c) 120
d) 1800
Metropolitan State University DSCI 6681 Final Exam Spring 2023
5
34. If an order for A is placed today, the order quantity should be:
a) 1130
b) 1500
c) 1240
d) 1340
The information for the next 2 problems is shown here. The following information relates to a
company’s aggregate production planning activities:
§ Beginning Workforce = 35 workers
Quarter
Demand Forecast
§ Production per Employee = 1,250 units per
1
75,000
quarter
2
100,000
§ Hiring Cost = $500 per worker
3
75,000
§ Firing Cost = $1,000 per worker
4
125,000
§ Inventory Carrying Cost = $20 per unit per
quarter
35. If a chase demand strategy is used, then the number of workers hired at the start of quarter 2 is:
a) 10
b) 20
c) 35
d) 80
36. If a level production strategy is used, then the inventory at the end of quarter 3 is
a) 18,750
b) 12,500
c) 25,650
d) 31,250
37. A computerized inventory system checks inventory levels at the end of the week and produces
suggested orders for the coming week. What kind of system is this?
a) A periodic review system
b) A continuous review system
c) A service level system
d) An ABC inventory system.
38. Examples of fixed costs include all except:
a) Raw materials
b) Rent
c) Salaries
d) Fringe benefits
e) Property taxes
39. Receiving, handling, and shipping costs are examples of
a) shortage costs.
b) carrying costs.
c) ordering costs.
d) none of the above.
40. If a factory has 100,000 units of materials in the system and if the average throughput of system is
5,000 units per day, then the average lead-time is.
a) 0.5 days.
b) 20 days.
c) 0.05 days.
d) 100 days.
Metropolitan State University DSCI 6681 Final Exam Spring 2023
6
41. The selection of suppliers is called.
a) Outsourcing
b) Procurement
c) Sourcing
d) None of the above
42. When the company is facing a market constraint, operations should focus on:
a) Reducing operational costs
b) Reducing operation capacity to below the market constraint
c) Do what is needed to support the market.
d) Use variable costing instead of absorption costing
e) All of the above
43. A restaurant currently uses 62,500 boxes of napkins each year at a constant daily rate. The cost to
order napkins is $200.00 per order and the annual carrying cost for one box of napkins is $1.00. If the
restaurant orders the economic order quantity each time an order is placed, then ______orders are
placed during the year.
a) 13
b) 15
c) 20
d) 25
44. The traditional sequencing rule that minimizes average tardiness for a set of jobs to be processed on
one machine is
a) First-come-first served (FCFS).
b) Longest processing time (LPT)
c) Shortest process time (SPT)
d) Due date (DDATE)
45. All of the following about operations management are true except
a) Variation reduces the overall output
b) Every system has a constraint
c) If more material work goes into the system than what the system can produce, we will get more
out of the system assuming we can expedite any material
d) Little’s law is the primary law of flow in a stable operation
e) Various buffers are used to manage variation.
46. In capacity planning, the feasibility of the sales and operations production plan is verified by a
a) Resource requirements plan
b) Rough-cut capacity plan
c) Capacity requirements plan
d) Master production schedule
Metropolitan State University DSCI 6681 Final Exam Spring 2023
7
47. A company sells widgets. It is made up of 6 resources, each with the capacity shown in the diagram.
Recent market efforts have pushed sales to 100 widgets/day. The suppliers can provide up to 200
widgets/day in material & information if needed. Customer service can enter up to 115 widgets/day.
Where is this company’s bottleneck?
a) Resource 6
Resource 1
Resource 2
b) Resource 3
Input
250/day
120/day
c) Customer Service
d) Market/Sales
Resource 3
Resource 4
Resource 6
110/day
300/day
115/day
e) None of the above
Input
Input
Resource 5
150/day
48. A forecasting model has produced the following forecasts: At the end of May the tracking signal
would be
Period
Demand
Forecast
Error
a) 0.000.
January
120
110
b) 0.667
c) 1.333.
February
110
115
d) 2.143
March
115
120
April
125
115
May
130
125
49. A load profile compares.
a) requirements for all lower-level items to higher-level items.
b) cumulative lead times to projected lead times.
c) the quantities in which items should be produced to actual demand.
d) released and planned orders with work center capacity.
50. Use the identical original conditions presented in the lecture notes,
the “No-Hassle” plant is shown below. Assume we make a
marketing investment that increases the market demand for P by 10
units/week. What would the new PQ product mix be?
a) 50 P’s, 20 Q’s
b) 110 P’s, 25 Q’s
c) 110 P’s, 30 Q’s
d) 80 P’s, 30 Q’s
Purchased
Part Z
$5 each
Metropolitan State University DSCI 6681 Final Exam Spring 2023
Product P
Sell at $90 each
Demand =100/Wk
Product Q
Sell at $100 each
Demand = 50/Wk
Resource D
15 minutes
Resource D
5 minutes
Resource C
10 minutes
Resource C
5 minutes
Resource B
15 minutes
Resource A
15 minutes
Resource B
15 minutes
Resource A
10 minutes
Purchased
Material 1
$20 each
Purchased
Material 2
$20 each
Purchased
Material 3
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8
EM 664 Final Exam Solution Sheet
2023
Name
1
2
3
4
5
6
7
8
9
10
11
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Page iii
7 TH EDITION
Operations
Management
Creating Value Along the Supply Chain
Roberta S. Russell
Professor
Virginia Polytechnic Institute and State University
Bernard W. Taylor III
R. B. Pamplin Professor
Virginia Polytechnic Institute and State University
JOHN WILEY & SONS, INC.
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To my mother, Margaret Snead, with appreciation
for your love and support.
To my mother, Jean V. Taylor,
and in memory of my father, Bernard W. Taylor, Jr.,
with love and appreciation.
Opener Photo Credits
Repeat chocolate chip © Geoffrey Holman/iStockphoto, Chapter 1 © Yin Yang/iStockphoto,
Chapter 2 © ECKEHARD SCHULZ/AP/Wide World Photos, Chapter 3 © H. Mark Weidman Photography/
Alamy, Chapter 4 © Ina Peters/iStockphoto, Chapter 5 © Patrik Urban/Alamy, Chapter 6 © Yaiza Fernandez
Garcia/iStockphoto, Chapter 7 © Lyn Hughes/Corbis, Chapter 8 © “Andersen Ross/Getty Images, Inc.”,
Chapter 9 © John O’Boyle/Star Ledger/Corbis, Chapter 10 © Norman Chan/iStockphoto, Chapter 11 © Jim
West/ Alamy, Chapter 12 © “Spencer Platt/Getty Images, Inc.”, Chapter 13 © Julian Nieman/Alamy,
Chapter 14 © Richard Levine/Alamy, Chapter 15 © H-Gall/iStockphoto, Chapter Opener 16 © mediablitzimages
Limited/Alamy, Chapter 17 © Ei Katsumata/Alamy
VP & EXECTUIVE PUBLIHSER
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This book was set in Times by Thomson Digital and printed and bound by Courier/Kendallville.
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Copyright © 2011 John Wiley and Sons, Inc. All rights reserved. No part of this publication, stored in a retrieval
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About the Authors
Bernard W. Taylor III and Roberta S. Russell
Bernard W. Taylor III is the Pamplin Professor of Management Science and Head of the Department of Business Information Technology in the Pamplin College of Business at
Virginia Polytechnic Institute and State University. He received a Ph.D. and an M.B.A. from the University of Georgia
and a B.I.E. from the Georgia Institute of Technology. He is
the author of the book Introduction to Management Science
(10th ed.) and co-author of Management Science (4th ed.),
both published by Prentice Hall. Dr. Taylor has published
over 80 articles in such journals as Operations Research,
Management Science, Decision Sciences, IIE Transactions,
Journal of the Operational Research Society, Computers and
Operations Research, Omega, and the International Journal
of Production Research, among others. His paper in Decision
Sciences (with P. Y. Huang and L. P. Rees) on the Japanese
kanban production system received the Stanley T. Hardy
Award for its contribution to the field of production and operations management. He has served as President of the Decision Sciences Institute (DSI) as well as Program Chair,
Council Member, Vice President, Treasurer, and as the Editor
of Decision Line, the newsletter of DSI. He is a Fellow of
DSI and a recipient of their Distinguished Service Award. He
is a former President, Vice-President, and Program Chair of
the Southeast Decision Sciences Institute and a recipient of
their Distinguished Service Award. He teaches management
science and production and operations management courses
at both the undergraduate and graduate level. He has received
the University Certificate of Teaching Excellence on four
occasions, the Pamplin College of Business Certificate of
Teaching Excellence Award, and the Pamplin College of
Business Ph.D. Teaching Excellence Award at Virginia Tech.
Roberta S. Russell is a Professor of Business Information
Technology in the Pamplin College of Business at Virginia
Polytechnic Institute and State University. She received a
Ph.D. from Virginia Polytechnic Institute and State University, an M.B.A. from Old Dominion University, and a B.S.
degree from Virginia Polytechnic Institute and State University. Dr. Russell’s primary research and teaching interests are
in the areas of operations and supply chain management, service operations, scheduling, and quality. She has published
in Decision Sciences, IIE Transactions, International Journal
of Production Research, Journal of Operations Management,
IEEE Transactions, Annals of Operations Research, Computers and Operations Research, and others. She is also coauthor of the Prentice Hall book Service Management and
Operations. Dr. Russell is a member of DSI, ASQ, POMS,
and IIE and a certified fellow of APICS. She is past Vice
President of POMS, past President of the Southwest Virginia
Chapter of APICS and has held numerous offices in Southeast DSI. She has received the Pamplin College of Business
Certificate of Teaching Excellence, the University Certificate
of Teaching Excellence, and the MBA Association’s Outstanding Professor Award. She serves on the Education and
Research Foundation Board of APICS, and is a certified supply chain management professional (CSCMP). Her consulting experience with IBM, AT&T, Dupont, Courtaulds, Xaloy,
Northrup Grumman Shipbuilding and others brings a practical perspective into the classroom.
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Brief Contents
PART ONE:
1.
Operations Management
1
Introduction to Operations and Supply Chain Management
1
Operational Decision-Making Tools: Decision Analysis
33
S1.
2.
Quality Management
54
3.
Statistical Process Control
108
S3.
Operational Decision-Making Tools: Acceptance Sampling
148
4.
Product Design
156
5.
Service Design
189
6.
Processes and Technology
226
7.
Capacity and Facilities Design
257
S7.
8.
Human Resources
S8.
9.
Operational Decision-Making Tools: Facility Location Models
297
315
Operational Decision-Making Tools: Work Measurement
Project Management
348
366
PART TWO: Supply Chain Management
420
10.
Supply Chain Management Strategy and Design
420
11.
Global Supply Chain Procurement and Distribution
450
S11. Operational Decison-Making Tools: Transportation
and Transshipment Models
475
12.
Forecasting
495
13.
Inventory Management
553
S13. Operational Decision-Making Tools: Simulation
590
Sales and Operations Planning
607
S14. Operational Decision-Making Tools: Linear Programming
645
15.
Resource Planning
678
16.
Lean Systems
720
17.
Scheduling
755
14.
APPENDIX A—Normal Curve Areas
789
SOLUTIONS TO SELECTED ODD-NUMBERED PROBLEMS
INDEX
798
790
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PART ONE:
OPERATIONS MANAGEMENT
1
Introduction to Operations and
1. Supply Chain Management
■ Operations and Supply Chain Management
for Chocolate
■ What Do Operations and Supply Chain
Managers Do?
The Operations Function
■ OM Dialogue: Mark Jackson, Marketing Manager
The Evolution of Operations and Supply Chain Management
Globalization
The China Factor
■ The Balancing Act at New Balance
India, The World’s Service Provider
Productivity and Competitiveness
Strategy and Operations
Primary Task
Core Competencies
Order Winners and Order Qualifiers
Positioning the Firm
Competing on Cost
Competing on Speed
■ Trader Joe’s Unique Strategy
Competing on Quality
Competing on Flexibility
Strategy Deployment
Policy Deployment
Balanced Scorecard
Operations Strategy
Organization of this Text
Learning Objectives of this Course
Summary
Summary of Key Terms
Questions
Problems
Case Problem 1.1–Visualize This
Case Problem 1.2–Whither an MBA at Strutledge?
Case Problem 1.3–Weighing Options at the Weight Club
References
1
1
3
2
6
6
9
10
12
13
14
17
17
18
18
19
19
19
20
21
21
21
21
23
25
25
26
26
27
27
28
30
30
31
31
SUPPLEMENT
1. Operational Decision-Making Tools:
Decision Analysis
Decision Analysis With and Without Probabilities
Decision Making Without Probabilities
Decision Analysis With Excel
Decision Analysis With OM Tools
33
33
34
36
37
Decision Making With Probabilities
Expected Value of Perfect Information
Sequential Decision Trees
Summary
Summary of Key Formulas
Summary of Key Terms
Solved Problems
Problems
Case Problem S1.1–Whither an MBA at Strutledge?
Case Problem S1.2–Transformer Replacement at
Mountain States Electric Service
Case Problem S1.3–Evaluating Projects at Nexcom
Systems
References
2. Quality Management
■ Quality Management at Mars
What Is Quality?
Quality from the Customer’s Perspective
Dimensions of Quality for Manufactured Products
Dimensions of Quality for Services
Quality from the Producer’s Perspective
A Final Perspective on Quality
Quality Management System
The Evolution of Quality Management
■ Applying Deming’s PDCA Cycle in Baldrige
Award-Winning Schools and Hospitals
Quality Tools
Process Flowcharts
Cause-and-Effect Diagrams
Checksheets and Histograms
Pareto Analysis
Scatter Diagrams
Process Control Charts and Statistical Quality Control
TQM and QMS
The Focus of Quality Management—Customers
Quality Management in the Supply Chain
Measuring Customer Satisfaction
■ Measuring Customer Satisfaction with
“Voice of the Customer (VoC)” at Two
Baldrige Award Winners
The Role of Employees in Quality Improvement
Kaizen and Continuous Improvement
Quality Circles
Process Improvement Teams
■ Customer Focus and Employee Empowerment
in a Baldrige Award-Winning City
Quality in Services
38
38
39
41
42
42
42
42
51
51
52
53
54
54
55
56
56
56
58
59
59
59
62
62
64
64
65
65
66
67
67
68
68
69
70
70
71
72
72
73
73
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Quality Attributes in Services
■ Ritz-Carlton Hotels: Two-Time Baldrige National
Quality Award Winner
Six Sigma
The Six Sigma Goal—3.4 DPMO
■ Motorola’s Six Sigma Quality
The Six Sigma Process
■ Six Sigma Highlights
Improvement Projects
The Breakthrough Strategy: DMAIC
■ North Shore University Hospital: A Six Sigma
Project Example
Black Belts and Green Belts
Design for Six Sigma
Lean Six Sigma
The Bottom Line—Profitability
The Cost of Quality
The Cost of Achieving Good Quality
The Cost of Poor Quality
Measuring and Reporting Quality Costs
The Quality–Cost Relationship
The Effect of Quality Management on Productivity
Productivity
Measuring Product Yield and Productivity
The Quality–Productivity Ratio
Quality Awards
The Malcolm Baldrige Award
Other Awards for Quality
■ Baldrige National Quality Award Winners:
What It Takes
ISO 9000
Standards
Certification
Implications of ISO 9000 for U.S. Companies
■ ISO 9001 Certification at Monarcas Morelia
ISO Registrars
Summary
Summary of Key Formulas
Summary of Key Terms
Solved Problems
Questions
Problems
Case Problem 2.1–Designing a Quality-Management
Program for the Internet at D4Q
Case Problem 2.2–Quality Management at State University
Case Problem 2.3–Quality Problems at the Tech Bookstores
Case Problem 2.4–Product Yield at Continental Luggage
Company
References
74
75
76
76
77
78
78
79
79
79
80
80
80
82
83
84
84
85
87
87
87
88
90
91
91
93
93
94
94
95
95
96
97
98
98
98
99
99
102
104
105
105
107
107
3. Statistical Process Control
108
■ Statistical Process Control at Mars and
Hershey’s
The Basics of Statistical Process Control
SPC in Quality Management
Quality Measures: Attributes and Variables
108
109
110
110
SPC Applied to Services
Where to Use Control Charts
Control Charts
Control Charts for Attributes
p-Chart
■ Using Control Charts for Improving
Health-Care Quality
c-Chart
Control Charts for Variables
Mean (x–) Chart
Range (R-) Chart
Using x–- and R- Charts Together
Control Chart Patterns
Sample Size Determination
SPC with Excel and OM Tools
Process Capability
Process Capability Measures
■ Design Tolerances at Harley-Davidson
Company
Process Capability with Excel and OM Tools
Summary
Summary of Key Formulas
Summary of Key Terms
Solved Problems
Questions
Problems
Case Problem 3.1–Quality Control at Rainwater
Brewery
Case Problem 3.2–Quality Control at Grass, Unlimited
Case Problem 3.3–Improving Service Time at Dave’s
Burgers
References
111
112
112
113
114
116
117
119
119
122
123
124
125
126
127
130
131
132
133
133
133
134
135
135
145
146
147
147
SUPPLEMENT
3. Operational Decision-Making Tools:
Acceptance Sampling
148
Single-Sample Attribute Plan
Producer’s and Consumer’s Risks
The Operating Characteristic Curve
Developing a Sampling Plan with OM Tools
Average Outgoing Quality
Double- and Multiple-Sampling Plans
Summary
Summary of Key Terms
Solved Problem
Questions
Problems
149
149
150
151
152
153
154
154
154
155
155
4. Product Design
156
■ Product Design at Mars
The Design Process
Idea Generation
Feasibility Study
■ Pixar’s Creativity
Rapid Prototyping and Concurrent Design
156
157
158
159
160
160
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Contents
Form Design
■ Apple’s Design Process
Functional Design
Reliability
Maintainability
Usability
Production Design
Final Design and Process Plans
Technology in Design
Collaborative Product Design Systems
Design Quality Reviews
■ Jugaad, Design for the Times
Design for Environment
Green Sourcing
Green Manufacture
Green Consumption
Recycling and Re-Use
Quality Function Deployment
■ Nike’s Trash Talking Shoes
Design for Robustness
Summary
Summary of Key Terms
Summary of Key Formulas
Solved Problems
Questions
Problems
Case Problem 4.1–Greening Product Design
Case Problem 4.2–Lean and Mean
References
161
162
163
163
164
165
165
167
167
168
169
170
170
172
172
173
173
173
174
179
181
181
182
182
183
183
186
187
188
5. Service Design
189
■ Service Design at Hershey’s
The Service Economy
Characteristics of Services
The Service Design Process
■ Redbox Brings Self-Service to Movie Rentals
The Service-Process Matrix
Tools for Service Design
Service Blueprinting
Front Office and Back-Office Activities
Servicescapes
Quantitative Techniques
Waiting Line Analysis for Service Improvement
Elements of Waiting Line Analysis
Elements of a Waiting Line
The Calling Population
The Arrival Rate
Service Times
Queue Discipline and Length
Basic Waiting Line Structures
Operating Characteristics
Traditional Cost Relationships in Waiting Line
Analysis
The Psychology of Waiting
Waiting Line Models
The Basic Single-Server Model
189
190
191
193
193
195
196
198
199
199
199
200
200
200
200
201
202
202
202
204
204
205
206
206
Service Improvement Analysis
Solution of the Single-Server Model with Excel
Advanced Single-Server Models
Multiple-Server Model
The Basic Multiple-Server Model
Summary
Summary of Key Terms
Summary of Key Formulas
Solved Problems
Questions
Problems
Case Problem 5.1–Streamlining the Refinancing Process
Case Problem 5.2–Herding the Patient
Case Problem 5.3–The College of Business Copy
Center
Case Problem 5.4–Northwoods Backpackers
References
6. Processes and Technology
ix
207
209
209
210
210
214
214
215
215
216
217
222
223
223
224
225
226
■ Processes and Technology for Chocolate
Manufacturing
Process Planning
Outsourcing
Process Selection
Process Selection with Breakeven Analysis
Process Plans
Process Analysis
Process Flowcharts
■ Making Fast Food Faster
Process Innovation
Steps in Process Innovation
■ OM Dialogue: Anastasia Thatcher, Business
Process Manager
Technology Decisions
Financial Justification of Technology
A Technology Primer
Summary
Summary of Key Terms
Summary of Key Formulas
Solved Problems
Questions
Problems
Case Problem 6.1–A Manager’s Woes
Case Problem 6.2–Wrong Meds, Again!
Case Problem 6.3–The DPA Protocol
References
244
245
245
246
249
249
249
249
250
251
253
254
255
255
7. Capacity and Facilities Design
257
■ Capacity and Facilities Design at the
New England Confectionery Company
Capacity Planning
Facilities
Objectives of Facility Layout
■ Bank of America’s Towering Achievement in
Green Design
226
228
228
229
230
235
235
236
238
241
241
257
258
261
261
261
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Basic Layouts
Process Layouts
Product Layouts
Fixed-Position Layouts
Designing Process Layouts
Block Diagramming
■ The Health Benefits of Good Layout
Relationship Diagramming
Computerized Layout Solutions
■ Urban Outfitters’ New Distribution Facility
Designing Service Layouts
Designing Product Layouts
Line Balancing
Computerized Line Balancing
Hybrid Layouts
Cellular Layouts
Advantages of Cellular Layouts
Disadvantages of Cellular Layouts
Flexible Manufacturing Systems
Mixed-Model Assembly Lines
Summary
Summary of Key Formulas
Summary of Key Terms
Solved Problems
Questions
Problems
Case Problem 7.1–Workout Plus
Case Problem 7.2–Photo Op–Please Line Up
Case Problem 7.3–The Grab ’n Go Café
References
262
262
264
266
266
266
267
269
271
272
273
274
274
278
278
278
280
281
282
282
284
285
285
286
287
287
293
294
294
296
SUPPLEMENT 7
7. Operational Decision-Making Tools:
Facility Location Models
Types of Facilities
Site Selection: Where to Locate
Global Supply Chain Factors
Regional and Community Location Factors in
the United States
Location Incentives
Geographic Information Systems
Location Analysis Techniques
Location Factor Rating
Location Factor Rating with Excel and OM Tools
Center-of-Gravity Technique
Center-of-Gravity Technique with Excel and OM Tools
Load-Distance Technique
Load-Distance Technique with Excel and OM Tools
Summary
Summary of Key Formulas
Summary of Key Terms
Solved Problems
Questions
Problems
Case Problem S7.1–Selecting a European Distribution Center
Site for American International Automotive Industries
References
297
297
298
299
299
300
301
302
302
303
304
305
305
307
308
308
308
309
309
310
314
314
8. Human Resources
■ Human Resources at Hershey’s
Human Resources and Quality Management
The Changing Nature of Human Resources Management
The Assembly Line
Limitations of Scientific Management
Employee Motivation
■ Human Resources Management at Baldrige
National Quality Award-Winning Companies
Contemporary Trends in Human Resources Management
Job Training
Cross Training
■ Employee Training at Kyphon, Inc., and Triage
Consulting Group
Job Enrichment
Empowerment
Teams
■ Reducing Costs by Going Green in the
Workplace
Flexible Work Schedules
Alternative Workplaces and Telecommuting
Temporary and Part-Time Employees
■ Telecommuting at Capital One
Employee Compensation
■ Part-Time Employees at UPS
Types of Pay
Gainsharing and Profit Sharing
Managing Diversity in the Workplace
■ English in the Workplace
Affirmative Action and Equal Opportunity
Diversity Management Programs
■ A Commitment to Diversity at UPS and Kodak
Global Diversity Issues
■ Developing a Skilled Workforce in China
Job Design
The Elements of Job Design
Task Analysis
Worker Analysis
Environmental Analysis
Ergonomics
Technology and Automation
Job Analysis
Process Flowchart
Worker-Machine Chart
Motion Study
Learning Curves
Determining Learning Curves with Excel
Learning Curves with OM Tools
Summary
Summary of Key Formulas
Summary of Key Terms
Solved Problems
Questions
Problems
Case Problem 8.1–Maury Mills
References
315
315
317
318
318
319
319
320
321
321
321
322
322
323
323
324
324
324
325
326
326
327
327
327
328
328
329
329
330
331
331
332
333
333
333
334
334
334
335
335
336
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338
341
342
342
342
343
343
343
344
345
347
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Contents
SUPPLEMENT 8
8. Operational Decision-Making Tools:
Work Measurement
Time Studies
Stopwatch Time Study
Number of Cycles
Elemental Time Files
Predetermined Motion Times
Work Sampling
Summary
Summary of Key Formulas
Summary of Key Terms
Solved Problems
Questions
Problems
Case Problem S8.1–Measuring Faculty Work Activity
at State University
References
9. Project Management
■ Project Management at Mars
Project Planning
Elements of a Project Plan
Project Return
The Project Team
■ Cross-Cultural Project Teams
The Project Manager
Scope Statement
Work Breakdown Structure
Responsibility Assignment Matrix
■ Green Projects on the Increase Around the
World
Global and Diversity Issues in Project Management
■ Project Management Diversity in China
Project Scheduling
The Gantt Chart
Project Control
Time Management
Cost Management
Quality Management
Performance Management
Communication
■ Reconstructing the Pentagon after 9/11
Enterprise Project Management
CPM/PERT
The Project Network
AOA Network
AON Network
■ British Airport Authority’s Terminal 5 Project
at Heathrow Airport
The Critical Path
Activity Scheduling
Activity Slack
■ A Couple of Iconic Building Renovation Projects
Probabilistic Activity Times
348
348
349
353
354
354
356
358
358
358
359
359
360
364
365
Probabilistic Time Estimates
■ An Interstate Highway Construction Project
in Virginia
CPM/PERT Analysis with OM Tools
Probabilistic Network Analysis
Microsoft Project
PERT Analysis with Microsoft Project
■ The Corps of Engineers Hurricane Katrina
New Orleans Restoration Project
Project Crashing and Time-Cost Tradeoff
Project Crashing
The General Relationship of Time and Cost
Summary
Summary of Key Formulas
Summary of Key Terms
Solved Problems
Questions
Problems
Case Problem 9.1–The Bloodless Coup Concert
Case Problem 9.2–Moore Housing Contractors
References
xi
389
392
393
393
396
398
399
400
401
403
404
405
405
406
407
408
417
418
419
366
366
367
369
369
370
370
371
371
371
372
372
373
374
375
376
377
377
377
377
377
378
378
379
379
380
380
381
382
382
383
386
388
389
PART TWO:
SUPPLY CHAIN MANAGEMENT
420
Supply Chain Management Strategy
10. and Design
■ Supply Chain Management Strategy and
Design at Mars
Supply Chains
Supply Chains for Service Providers
Value Chains
The Management of Supply Chains
Supply Chain Uncertainty and Inventory
The Bullwhip Effect
Risk Pooling
■ Eliminating the Bullwhip Effect at Philips
Electronics
“Green” Supply Chains
■ Going Green at Walmart
Sustainability and Quality Management
■ Achieving Sustainability While Reducing
Costs and Increasing Profits
Information Technology: A Supply Chain Enabler
Electronic Business
Electronic Data Interchange
■ Strategic Supply Chain Design at 7-Eleven
in Japan and the United States
Bar Codes
Radio Frequency Identification
The Internet
■ Supply Chain Management at Gaylord Hotels
Build-To-Order (BTO)
Supply Chain Integration
Collaborative Planning, Forecasting, and
Replenishment
420
420
421
423
425
425
425
426
427
427
428
428
429
430
431
431
432
432
433
433
435
436
437
437
437
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Supply Chain Management (SCM) Software
Measuring Supply Chain Performance
Key Performance Indicators
■ Apple’s Top-Ranked Supply Chain
Process Control
SCOR
Summary
Summary of Key Terms
Summary of Key Formulas
Solved Problems
Questions
Problems
Case Problem 10.1–Somerset Furniture Company’s
Global Supply Chain
References
438
439
439
441
441
442
444
444
444
444
445
447
448
449
Global Supply Chain Procurement
11. and Distribution
■ Global Supply Chain Procurement and
Distribution at Hershey’s
Procurement
Outsourcing
E-Procurement
E-Marketplaces
■ Virtual Manufacturing at Palm Inc.
Reverse Auctions
Distribution
Speed and Quality
Internet Companies: Amazon.com
■ Achieving Warehouse Efficiency and
Sustainability at Genzyme Corporation
Distribution Centers and Warehousing
Postponement
■ Supply Chain Management at Royal Caribbean
Warehouse Management Systems
Vendor-Managed Inventory
■ Vendor-Managed Inventory (VMI) at Dell
Collaborative Logistics
Distribution Outsourcing
Transportation
■ Supply Chain Operations at Food Distributor
Sysco Corporation
Internet Transportation Exchanges
The Global Supply Chain
Obstacles to Global Supply Chain Management
Duties, Tariffs, and Global Trading Groups
Landed Cost
Web-Based International Trade Logistics Systems
■ Achieving Global Sustainability at HP in
China
Recent Trends in Globalization for U.S. Companies
China’s Increasing Role in the Global Supply Chain
■ Brazil as a Potential Near Shore Supplier for
the United States
Reverse Globalization
■ Reverse Globalization at K’NEX
Effects of Terrorism on Global Supply Chains
Summary of Key Terms
450
450
451
452
453
454
454
454
455
455
455
456
457
457
457
458
459
459
459
460
460
462
463
463
464
464
465
465
467
468
468
470
470
472
472
473
Questions
Case Problem 11.1–Somerset Furniture Company’s
Global Supply Chain–Continued
473
474
SUPPLEMENT 11
11. Operational Decision-Making Tools:
Transportation and Transshipment
Models
The Transportation Model
Solution of the Transportation Model with Excel
The Transshipment Model
Solution of the Transshipment Problem with Excel
Summary
Summary of Key Terms
Solved Problems
Problems
Case Problem S11.1–Stateline Shipping and Transport
Company
Case Problem S11.2–Global Supply Chain Management
at Cantrex Apparel International
References
12. Forecasting
■ Forecasting at Hershey’s
The Strategic Role of Forecasting in Supply Chain
Management
Supply Chain Management
■ Sharing Forecasts at Boeing and Alcoa
Quality Management
Strategic Planning
■ Supply Chain Forecasting at Heineken USA
Components of Forecasting Demand
Time Frame
Demand Behavior
Forecasting Methods
Forecasting Process
■ Forecasting at Dell
Time Series Methods
Moving Average
Weighted Moving Average
Exponential Smoothing
Adjusted Exponential Smoothing
Linear Trend Line
Seasonal Adjustments
■ The CPFR Process at Bayer Consumer Care
in the EU
Forecast Accuracy
Mean Absolute Deviation
Cumulative Error
Forecast Control
■ Forecasting Market Demand at NBC
Time Series Forecasting Using Excel
Forecasting with OM Tools
Regression Methods
Linear Regression
Correlation
475
475
477
480
481
482
482
482
483
492
493
494
495
495
496
496
498
498
499
499
499
499
500
501
502
503
503
504
506
507
510
512
514
516
517
517
519
520
523
524
526
526
527
529
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Regression Analysis with Excel
Multiple Regression with Excel
■ Forecasting Airport Security Gate Arrivals at
the Transportation Security Administration
Summary
Summary of Key Formulas
Summary of Key Terms
Solved Problems
Questions
Problems
Case Problem 12.1–Forecasting at State University
Case Problem 12.2–The University Bookstore Student
Computer Purchase Program
Case Problem 12.3–Cascades Swim Club
Case problem 12.4–Forecasting Passenger Arrivals at the
Gotham International Airport
References
13. Inventory Management
■ Inventory Management at Mars
The Role of Inventory in Supply Chain Management
The Effects of Information Technology on Inventory
Management
Inventory and Quality Management in the Supply Chain
The Elements of Inventory Management
Demand
Inventory Costs
Inventory Control Systems
Continuous Inventory Systems
Periodic Inventory Systems
The ABC Classification System
■ Inventory Management at Dell
■ Determining Supply Chain Strategy
by Evaluating Inventory Costs at
Hewlett-Packard
Economic Order Quantity Models
The Basic EOQ Model
The Production Quantity Model
Solution of EOQ Models with Excel
Solution of EOQ Models with OM Tools
Quantity Discounts
Quantity Discounts with Constant Carrying Cost
Quantity Discount Model Solution with Excel
Reorder Point
Safety Stocks
Service Level
Reorder Point with Variable Demand
Determining the Reorder Point with Excel
■ Establishing Inventory Safety Stocks at
Kellogg’s
Order Quantity for a Periodic Inventory System
Order Quantity with Variable Demand
Determining the Order Quantity for the Fixed-Period
Model with Excel
Summary
Summary of Key Formulas
Summary of Key Terms
529
530
533
534
534
535
535
537
538
549
549
550
551
552
553
553
555
556
556
557
557
557
559
559
560
560
561
563
564
564
567
569
570
570
571
573
573
574
574
575
576
577
577
578
578
579
580
580
Solved Problems
Questions
Problems
Case Problem 13.1–The Instant Paper Clip Office
Supply Company
Case Problem 13.2–The Texas Gladiators Apparel
Store Case
Problem 13.3–Pharr Foods Company
References
xiii
580
582
582
587
587
588
589
SUPPLEMENT 13
13. Operational Decision-Making Tools:
Simulation
590
Monte Carlo Simulation
Computer Simulation with Excel
Decision Making with Simulation
Areas of Simulation Application
Waiting Lines/Service
Inventory Management
Production and Manufacturing Systems
Capital Investment and Budgeting
Logistics
Service Operations
Environmental and Resource Analysis
Summary
Summary of Key Terms
Solved Problems
Questions
Problems
References
590
594
596
598
599
599
599
599
599
599
599
600
600
600
602
602
606
14. Sales and Operations Planning
607
■ Sales and Operations Planning at
Hershey’s
The Sales and Operations Planning Process
■ Disney’s Magic Numbers
Strategies for Adjusting Capacity
Level Production
Chase Demand
Peak Demand
Overtime and Undertime
Subcontracting
Part-Time Workers
■ Meeting Demand for Panettones
Backlogs, Backordering, and Lost Sales
Strategies for Managing Demand
■ The Bullwhip Effect in a Slowdown
Quantitative Techniques for Aggregate Planning
Pure Strategies
General Linear Programming Model
Mixed Strategies
The Transportation Method
Other Quantitative Techniques
The Hierarchical Nature of Planning
Collaborative Planning
Available-to-Promise
607
608
611
612
612
612
613
613
613
613
613
614
614
615
616
616
618
619
623
623
626
628
628
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Aggregate Planning for Services
Revenue Management
Overbooking
Fare Classes
■ Revenue Management at Harrah’s
Single Order Quantities
Summary
Summary of Key Terms
Solved Problems
Questions
Problems
Case Problem 14.1–Seats for Sale
Case Problem 14.2–Erin’s Energy Plan
References
630
631
631
631
631
632
634
634
635
636
637
642
643
644
SUPPLEMENT 14
14. Operational Decision-Making Tools:
Linear Programming
Model Formulation
Graphical Solution Method
Linear Programming Model Solution
The Simplex Method
Slack and Surplus Variables
Solving Linear Programming Problems with Excel
Sensitivity Analysis
Sensitivity Ranges
Summary
Summary of Key Terms
Solved Problems
Questions
Problems
Case Problem S14.1–Mosaic Tile Company
Case Problem S14.2–Summer Sports Camp at
State University
Case Problem S14.3–Spring Garden Tools
Case Problem S14.4–Walsh’s Juice Company
Case Problem S14.5–Julia’s Food Booth
Case Problem S14.6–The Sea Village Amusement Park
References
645
646
648
652
652
653
654
655
656
658
658
658
659
659
672
673
674
674
675
676
677
15. Resource Planning
678
■ Resource Planning at Hershey’s
Material Requirements Planning (MRP)
When to Use MRP
Dependent Demand
Discrete Demand
Complex Products
Erratic Orders
Assemble-to-Order
Master Production Schedule
Product Structure File
Phantom Bills
K-Bills
Modular Bills
Time-Phased Bills
678
679
680
680
681
681
682
682
682
683
685
685
685
686
Item Master File
■ OM Dialogue: Vignesh Ramachandran,
Systems Auditor
The MRP Process
Lot Sizing in MRP Systems
Economic Order Quantity
Periodic Order Quantity
MRP Outputs
Capacity Requirements Planning (CRP)
Calculating Capacity
Load Profiles
Overloads
Load Leveling
Relaxing MRP Assumptions
Enterprise Resource Planning (ERP)
■ OM Dialogue: John Snead, Financial
Planning and Analysis
ERP Modules
Finance/Accounting
Sales/Marketing
Production/Materials Management
Human Resources
ERP Implementation
■ Under Armour at the Top of Their Game
with ERP
Analyze Business Processes
Choose Modules to Implement
Align Level of Sophistication
Finalize Delivery and Access
Link with External Partners
Customer Relationship Management (CRM)
Supply Chain Management (SCM)
Product Lifecycle Management (PLM)
Connectivity, Integration, and Services
Summary
Summary of Key Terms
Questions
Solved Problems
Problems
Case Problem 15.1–Just ERP
Case Problem 15.2–Hosuki
References
687
704
706
706
706
707
707
707
707
708
708
709
710
710
711
712
717
717
718
16. Lean Systems
720
■ Lean Production at Mars and Nestlé
The Basic Elements of Lean Production
Flexible Resources
Cellular Layouts
The Pull System
Kanbans
Small Lots
Quick Setups
Uniform Production Levels
■ Production On-Demand at Conmed
Quality at the Source
Visual Control
720
722
723
724
726
726
730
730
732
735
735
735
687
688
692
692
692
694
695
696
697
698
699
700
700
701
702
702
703
703
703
704
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Kaizen
■ Universal Studios Holds “Treasure Hunt”
Kaizen Event
Jidoka
Total Productive Maintenance
Supplier Networks
The Benefits of Lean Production
Implementing Lean Production
Drawbacks of Lean Production
■ OM Dialogue: Nicole Sanders, Commodity
Manager
■ Toyota’s Quality Problems
Lean Services
Lean Retailing
Lean Banking
Lean Health Care
Leaning the Supply Chain
Lean Six Sigma
Lean and the Environment
Value Stream Mapping (VSM)
Summary
Summary of Key Formulas
Summary of Key Terms
Questions
Problems
Case Problem 16.1–The Blitz is On
Case Problem 16.2–Where’s My Cart?
References
735
742
743
744
745
745
745
745
746
746
746
748
748
749
749
750
751
751
753
17. Scheduling
755
■ Scheduling at Ghirardelli’s
Objectives in Scheduling
755
757
737
737
738
739
740
741
742
xv
Loading
The Assignment Method of Loading
Sequencing
Sequencing Jobs Through One Process
Sequencing Jobs Through Two Serial Processes
Guidelines for Selecting a Sequencing Rule
■ Patient Scheduling
Monitoring
Gantt Charts
Input/Output Control
■ OM Dialogue: Margie Deck, Plant
Manager
Advanced Planning and Scheduling Systems
■ When Good Genes Make Good Schedules
Theory of Constraints
Drum-Buffer-Rope
Process vs. Transfer Batch Sizes
Employee Scheduling
Automated Scheduling Systems
Summary
Summary of Key Formulas
Summary of Key Terms
Solved Problems
Questions
Problems
Case Problem 17.1–America Reads, America Counts
Case Problem 17.2–From a Different Perspective
References
757
758
761
762
764
766
767
768
768
769
772
772
774
774
775
775
777
779
779
780
780
780
781
782
786
787
788
Appendix A Normal Curve Areas
Solutions to Selected Odd-Numbered Problems
Index
789
790
798
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CHANGES IN THE SEVENTH EDITION
This new seventh edition is organized around the increasingly important and prevalent topic of operations
as the creation of value along the supply chain. We describe how every chapter topic fits within a supply
chain framework in a company or organization in a global operating environment. To this end two
chapters deal directly with supply chain management: Chapter 10, Supply Chain Management Strategy
and Design, and Chapter 11, Global Supply Chain Procurement and Distribution. However, every chapter
includes material relating the chapter topic(s) to supply chain management. In addition, Chapter 5,
Service Design, reflects the expanding presence and importance of service companies in operations
management. We have also added new material in almost every chapter on an increasingly important
global topic: sustainability.
To help us show how the OM topics in this new edition all fit together within a supply chain
framework, we open each chapter with a specific example about one product: chocolate. Chocolate is
an ideal product to use as an example to introduce the various OM topics in this text because its supply
chain is global, and its production process is straightforward and interesting.
In addition to opening each chapter with a chocolate example, this new edition also includes
numerous new “Along the Supply Chain” boxes within each chapter that describe real-world business
applications of OM topics. This edition includes discussion questions that accompany many of these
boxes for in-class or online discussion.
Chapter 1 focuses on examples of excellence in operations management and on the strategic design
of operations and supply chain management. Chapter 2, Quality Management, emphasizes quality
management systems and has expanded coverage of Six Sigma, including the Six Sigma process, Six
Sigma tools, Six Sigma and profitability, and lean Six Sigma.
Chapter 4, has new sections on Design for the Environment. Chapter 5, Service Design, includes
discussions of the service economy, characteristics of services, the service design process, and tools for
service design. A streamlined waiting line analysis section is included in this chapter. Chapter 6 emphasizes
process analysis skills, and Chapter 7 contains examples of various service layouts.
Both Chapter 8, Human Resources, and Chapter 9, Project Management, emphasize diversity in the
workplace and global diversity issues. Chapter 10, Supply Chain Management Strategy and Design, and
Chapter 11, Supply Chain Procurement and Distribution, both focus on creating value along the supply
chain and include new material on sustainability. Chapter 11 includes a section on China’s increasing role
in the global supply chain. Chapter 12, Forecasting, and Chapter 13, Inventory Management, both
emphasize the important role of these topics in operations and supply chain management.
Chapter 14 introduces Sales and Operations Planning into the aggregate planning process. Chapter 15,
updates resource planning with discussions of SOA (service oriented architecture) and PLM (product
lifecycle management). Chapter 16, has sections on leaning the supply chain, lean services, value
stream mapping, and lean and the environment.
MAJOR TEXT THEMES
OPERATIONS STRATEGY: CREATING VALUE ALONG
THE SUPPLY CHAIN
A company’s plan for being competitive is its strategy. The success of a strategic plan is largely
determined by how well a company coordinates all of its internal processes, including operations, with
its suppliers and customers to produce products and services that provide value. Throughout this book,
we try to show how the functions and processes described in each chapter fit into a company’s strategic
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design for the creation of value. In each chapter, we emphasize the need for considering the overall
strategic implications of particular operating decisions.
One way in which companies can gain a competitive edge is by deploying the basic functions of
operations management in a more effective manner than their rivals, e.g., build a better supply chain.
Therefore, we give literally dozens of examples that explain how companies deploy specific operations
functions along their supply chain to provide value and make them successful. Throughout the book,
“Along the Supply Chain” boxes describe how successful companies have gained a competitive edge
through operations.
GLOBAL OPERATIONS
Companies and organizations today must increasingly compete in a global marketplace. The
establishment of new trade agreements between countries, innovations in information technology, and
improvements in transport and shipping are just a few of the factors that have enabled companies to
develop global supply chains. The opening of the global marketplace has only served to introduce more
competitors and make competition tougher, thus making strategic supply chain design even more
important for achieving success. In this edition, we have sought to introduce this global aspect of
operations into our discussion at every opportunity. In each chapter, we include examples that touch on
the impact of global operations relative to the topic under discussion, and we discuss how globalization
affects supply chain management.
SUSTAINABILITY
Environmental concerns are changing every aspect of operations and supply chain management from
product and service design, to supplier sourcing, to manufacture and delivery. In virtually every chapter of
this text we address the impact of “sustainability” (i.e., meeting present needs without sacrificing future
resources) and give examples of “green practices”. For example, in Chapter 4 on product design, we
discuss the design for environment lifecycle, eco-labeling, recycling and reuse, and sustainable operations.
In Chapter 6 on processes we discuss green manufacturing; in Chapter 7 on facilities we discuss LEED
certified green buildings; in Chapter 10 on supply chain management we discuss green sourcing; and in
Chapter 16 on lean systems we discuss lean and the environment.
SERVICES AND MANUFACTURING
We have attempted to strike a balance between manufacturing and service operations in this book.
Traditionally, operations management was thought of almost exclusively in a manufacturing context.
However, in the United States and other industrialized nations, there has been a dramatic shift toward
service industries. Thus, managing service operations is an important area of study. In many cases,
operations management processes and techniques are indistinguishable between service and
manufacturing. However, in many other instances, service operations present unique situations and
problems that require focused attention and unique solutions. We have tried to reflect the uniqueness
of service operations by providing focused discussions on service operations throughout the text. For
example, in Chapter 2 on quality management we specifically address the importance of quality
management in service companies, in Chapter 5 on Service Design we emphasize the differences in
design considerations between manufacturing and services, and in Chapter 14 we discuss aggregate
planning in services. One type of service examined in virtually every chapter in the book is health
care.
QUALITATIVE AND QUANTITATIVE PROCESSES
We have also attempted to strike a balance between the qualitative (or managerial) aspects of operations
management and the quantitative aspects. In the contemporary world of operations management, the
quantitative and technological aspects are probably more important than ever. The ability to manage
people and resources effectively, to motivate, organize, control, evaluate, and adapt to change, have
become critical to competing in today’s global markets. Thus, throughout this book we seek to explain
and clearly demonstrate how the successful operations manager manages and how to use quantitative
techniques and technology when they are applicable.
However, we attempt to present these quantitative topics in a way that’s not overly complex or
mathematically intimidating. Above all, we want to show how the quantitative topics fit in with, and
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complement, the qualitative aspects of operations management. We want you to be able to see both “the
forest and the trees.”
TEACHING AND LEARNING SUPPORT FEATURES
This text is accompanied by many features and supplements both in the text and online for students and
instructors.
PEDAGOGY IN THE TEXTBOOK
“Along the Supply Chain” Boxes
These boxes are located in every chapter in the text. They describe the application of operations in a
real world company, organization or agency related to specific topics in each chapter. They emphasize
how companies effectively compete with operations management in the global marketplace. The
descriptions of operations at actual companies in these boxes help the student understand how specific
OM techniques and concepts are used by companies, which also make the topics and concepts easier to
understand. In addition, we have added discussion questions to these boxes to help students and
teachers “connect” the example to the chapter topics.
OM Dialogue Boxes
These boxes include dialogues with recent college business school graduates who are working in
operations management in the real world. They describe how they apply various OM topics in the text
in their own jobs and the value of their own OM training in college. This provides students with a
perspective on the benefit of studying operations management now and its future benefit.
Marginal Notes
Notes are included in the margins that serve the same basic function as notes that students
themselves might write in the margin. They highlight important topics, making it easier for students
to locate them; they summarize important points and key concepts and provide brief definitions of
key terms.
Examples
The primary means of teaching the various quantitative topics in this text is through examples. These
examples are liberally distributed throughout the text to demonstrate how problems are solved in a
clear, straightforward approach to make them easier to understand.
Solved Example Problems
At the end of each chapter, just prior to the homework questions and problems, there is a section with
solved examples to serve as a guide for working the homework problems. These examples are solved in
a detailed step-by-step manner.
Summary of Key Formulas
These summaries at the end of each chapter and supplement include all of the key quantitative formulas
introduced in the chapter in one location for easy reference.
Summary of Key Terms
Located at the end of each chapter these summaries provide a list of key terms introduced in that
chapter and their definitions in one convenient location for quick and easy reference.
Homework Problems, Questions and Cases
Our text contains a large number of end-of-chapter exercises for student assignments. There are over 560
homework problems and 55 more advanced end-of-chapter case problems. There are also 420 end-ofchapter discussion questions including new questions. Answers to selected odd-numbered homework
problems are included in the back of the book. As we mention in the following “Online Resources for
Instructors” section, Excel spreadsheet solution files are available to the instructor for the majority of the
end-of-chapter problems and cases.
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ONLINE RESOURCES FOR STUDENTS,
WWW.WILEY.COM/ COLLEGE/RUSSELL
No other innovation has affected operations management in the past few years as much as computer
technology and the Internet, and this is no less true in education. Therefore, we make full use of this
technology as a learning and teaching medium in the courses we teach and in our text. Students can link
to the text Web site where an exciting set of Internet resources have been compiled.
The text web site contains animated demo problems, interactive applications and exercises, and direct
links to other sources on the Internet. These various resources and learning tools are organized by chapter
and are flagged in the textbook with a web icon. Here are some of the items found on the text web site.
Web links for companies and concepts discussed in each chapter can be accessed online. These
provide enrichment for those students who want to learn more about a topic, and serve as a valuable
resource for student assignments and papers.
Virtual Tours provided for each chapter bring operations management to life. Selected tours are
accompanied by a set of questions directly related to concepts discussed in the chapter.
Internet Exercises provide up-to-date access to current issues in operations. These add immediacy
to classroom discussions and ensure that operations management topics remain relevant to the student.
Practice Quizzes are provided online where students can get immediate feedback on their progress.
EXCEL FILES OF EXHIBITS
Excel is used extensively throughout the text to solve various quantitative problems and many Excel
illustrations are provided throughout the text.
Exhibit 12.1
Every Excel spreadsheet used to prepare the examples in the text is available on the text Web site for
students and instructors. They are organized by chapter and are listed by their exhibit number. Above is
an example of Exhibit 12.1 from Chapter 12 (Forecasting). Notice the file name is simply the Exhibit
number (i.e., Exhibit 12.1.xls). Please look in each file carefully. In many cases several sheets in one file
have been used to display different parts of a problem, such as a graphical solution as well as a numerical
solution. Example files are also available for MS Project files in Chapter 9.
ONLINE RESOURCES FOR INSTRUCTORS
www.wiley.com/college/russell
Instructor’s Manual The Instructor’s Manual, updated by the authors, features sample course syllabi,
chapter outlines, teaching notes, experiential exercises, alternate examples to those provided in the text,
pause and reflect questions for classroom discussion, practice quizzes, videos guide, projects,
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Test Bank Fully revised from the previous edition by Scott Hedin of Gonzaga University this test bank
consists of true/false, multiple-choice, short answer, and essay questions. All questions have been
carefully accuracy-checked to ensure the highest quality of materials for our customers. The questions
are also available electronically on the textbook support site. The Computerized Test Bank, for use on a
PC running Windows, is from a test-generating program that allows instructors to modify and add
questions in order to customize their exams.
PowerPoint Presentation Slides The PowerPoint presentation slides, revised by Lance Matheson of
Virginia Tech, include outlines for every chapter, exhibits from the text, and additional examples,
providing instructors with a number of learning opportunities for students. The PowerPoint slides can be
accessed on the instructor’s portion of the 7th edition Web site and lecture notes accompany each slide.
Instructor Solutions Manual The Instructor Solutions Manual, updated by the authors, features
detailed answers to end-of-chapter questions, homework problems, and case problems.
Excel Homework Solutions and Excel Exhibit Files This new edition includes of 560 end-of-chapter
homework problems and 55 case problems. Excel solution files for the instructor are provided on the
Web site for the majority of these problems. In addition, Microsoft Project solution files are provided for
most of the homework problems in Chapter 9 (Project Management). Excel worksheets for class
handouts or homework assignments are provided for QFD, process flow charts, MRP matrices, and
others. Excel exhibit files for every example in the text solved with Excel are provided as templates for
solving similar problems for both student and instructor and are available on the text website.
Web Quizzes These online quizzes, revised by Scott Hedin of Gonzaga University vary in level of
difficulty and are designed to help your students evaluate their individual progress through a chapter.
Web quizzes are available on the student portion of the Web site. Here students will have the ability to
test themselves with 15–20 questions per chapter that include true-false and multiple choice questions.
OM Tools OM Tools is an Excel add-in designed to accompany the Russell/Taylor, Operations
Management, 7th edition text. The software consists of 18 modules with over 60 problem types. OM
Tools is easy to use and interpret, and is accompanied by a help file with text references.
Virtual Tours Are online tours of service and production facilities. These are made available to students
on the student portion of the website, along with questions that help students apply the concepts they’ve
learned in the text to real-world companies. Answers to the Virtual Tours questions are available to
professors on the instructor Web site.
Wiley Operations Management Video Series, Winners of the Malcolm Baldrige Award Wiley Video
Series for Operations Management: Winners of the Malcolm Baldrige Award. Clips feature interviews and
footage from the inside of major companies. These videos are accompanied by a video guide, found on
the 7th edition instructor Web site. Please go to www.wiley.com/college/russell, then to the Supplements
section, to get information on how to access a DVD of the videos.
OM Student Videos Offered on DVD and on the instructor companion website, we offer a collection of
videos done by students that provide excellent examples of the concepts illustrated in the text. These
videos can be accessed on the instructor companion Website. Please go to www.wiley.com/college/
russell, then to the Supplements section, for more information.
Business Extra Select Business Extra Select enables you to add copyright-cleared articles, cases, and
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WWW.WILEY.COM/COLLEGE/RUSSELL
WileyPLUS
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Preface
What do students receive with WileyPLUS?
A Research-based Design. WileyPLUS provides an online environment that integrates relevant
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Acknowledgments
T
he writing and revision of a textbook, like any large project, requires the help and creative
energy of many people, and this is certainly not the exception. We especially appreciate the
confidence, support, help, and friendship of our editor at Wiley. We also thank the Wiley staff
members who helped with our book including:
Sarah Vernon, Assistant Editor; Lise Johnson, Executive
Editor; Alison Morris, Media Editor; Elena SantaMaria, Associate Media Editor; Karolina Zarychta,
Marketing Manager; Anna Melhorn, Production Editor;
and numerous other people who work behind the scenes
to whom we never saw or talked. We are indebted to the
reviewers of the text including: Robert Donnelly;
Robert Aboolian, California State University San
Marcos; Ajay Aggarwal, Millsaps College; Fred
Anderson, Indiana University of Pennsylvania; Beni
Asllani, University of Tennessee Chattanooga; Anteneh
Ayanso, University of Connecticut, Storrs; Brent Bandy,
University of Wisconsin, Oshkosh; Joe Biggs,
California Polytechnic State University; Tom
Bramorski, University of Wisconsin, Whitewater;
Kimball Bullington, Middle Tennessee State University;
Cem Canel, University of North Carolina, Wilmington;
Janice Cerveny, Florida Atlantic University; Robert
Clark, SUNY Stony Brook; Ajay Das, Baruch College
CUNY; Kathy Dhanda, University of Portland; Susan
Emens, Kent State University; Yee Fok, University of
New Orleans; Phillip Fry, Boise State University; Mark
Gershon, Temple University; Robert Greve, Oklahoma
State University; Robert Frese, Maryville University;
Jay Jayaram, University of South Carolina, Columbia;
Vaidy Jayaraman, University of Miami; Serge Karalli,
DePaul University; William Kime, University of New
Mexico; Peter Klein, Ohio University; Howard Kraye,
University of New Mexico, Albuquerque; John Kros,
East Carolina University; Gopalan Kutty, Mansfield
University; Bingguang Li, Albany State University;
Royce Lorentz, Slippery Rock University; Sheldon Lou,
California State University, San Marcos; Ken Mannino,
Milwaukee School of Engineering; Lance Matheson,
Virgina Tech; Duncan McDougall, Plymouth State
University; Jaideep Motwani, Grand Valley State
University; Hilary Moyes, University of Pittsburgh;
Barin Nag, Towson University; Ozgur Ozluk, San
Francisco State University; Amer Qureshi, University of
Texas Arlington; Jim Robison, Sonoma State
University; Raj Selladurai, Indiana University
Northwest; Robert Setaputro, University of Wisconisin,
Milwaukee; Jacob Simons, Georgia Southern
University; Marilyn Smith, Winthrop University; Donna
Stewart, University of Wisconsin, Stout; Donald Stout,
St. Martin’s College; Dothang Truong, Fayetteville
State University; Elizabeth Trybus, California State
University,
Northridge;
Ray
Vankataraman,
Pennsylvania State University, Erie; Timothy Vaughan,
University of Wisconsin, Eau Claire; Mark
Vrobelfski, University of Arizona; Gustavo Vulcano, New
York University; Kevin Watson, University of New
Orleans; Michel Whittenberg, University of Texas,
Arlington; Hulya Yazici, University of Wisconsin, La
Crosse; Jinfeng Yue, Middle Tennessee State
University; and Xiaoqun Zhang, Pennsylvania State
University, Harrisburg. We also thank the reviewers of
the sixth edition including: Ajay Aggarwal, Millsaps
College; Binguang Li, Albany State University;
Christina McCart, Roanoke College; Cuneyt Altinoz,
East Carolina University; Dana Johnson, Michigan
Technical University; David Frantz, Indiana University;
Donald Stout, St. Martin’s University; Doug Hales,
University of Rhode Island; Drew Stapleton, University
of Wisconsin, LaCrosse; Fataneh Taghaboni-Dutta,
University of Michigan, Flint; Ike Ehie, Kansas State
University; John Hebert, University of Akron; John
Kros, East Carolina University; Kaushik Sengupta,
Hofstra University; Larry White, Eastern Illinois
University; Lewis Coopersmith, Rider University;
Mohammad Sedaghat, Fairleigh Dickinson University;
Morgan Henrie, University of Alaska, Anchorage; Phil
Fry, Boise State University; Robert Aboolian, California
State University, San Marcos; Robert Clark, SUNY,
Stony Brook; Scott Hedin, Gonzaga University; Susan
Emens, Kent State University, Trumbull; Tom Wilder,
California State University, Chico; Zhiwei Zhu,
University of Louisiana, Lafayette.
They contributed numerous suggestions, comments, and ideas that dramatically improved and
changed this edition. We would also like to thank David Frantz, Indiana University for his insightful
suggestions about the book title. We offer our sincere thanks to these colleagues and hope that they can
take some satisfaction in their contribution to our final product. We wish to thank our students who
have class-tested, critiqued, and contributed to the first six editions and this seventh edition from a
consumer’s point of view. We thank colleagues Kellie Keeling, University of Denver, for her
extensive work on OM Tools; Laura Clark, Virginia Tech, for her help with WileyPLUS; Anita Lee
Post, University of Kentucky, who accuracy checked all of the supplements for this text; and
Franklin Warren, PhD student, for his assistance in numerous capacities. We are especially grateful
to Tracy McCoy and Sylvia Seavey at Virginia Tech for their unstinting help, hard work, and patience.
R.S.R. and B.W.T.
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PART I
Chapter
Operations Management
1
Web resources for
this chapter include
OM Tools Software
Internet Exercises
Online Practice Quizzes
Lecture Slides in
PowerPoint
Virtual Tours
Excel Exhibits
Company and Resource
Weblinks
www.wiley.com/college/russell
Introduction to
Operations and
Supply Chain
Management
In this chapter, you will learn about . . .
The Operations Function
The Evolution of Operations and
Supply Chain Management
Globalization
Productivity and Competitiveness
Strategy and Operations
Organization of This Text
Learning Objectives of This Course
Operations and Supply Chain
Management FOR CHOCOLATE
T
HROUGHOUT THIS TEXT, we’ll use chocolate to introduce the topics to
be covered in each chapter. The cacao bean, from which chocolate is
made, is the third most traded raw material in the world. We’ll trace
the path of cacao beans through the supply chain from South America and
the Ivory Coast of Africa through the roasters, brokers, and importers, to
global factories and regional distribution centers, to local stores and other
outlets that sell the myriad types of chocolate products. We’ll look at large
and small companies, specialty products, mass-produced products, and
services. We’ll cover design and quality, processes and technology, planning
and control, supply chains, and more. At each stage we’ll illustrate how the
principles of operations and supply chain management can be applied. Join
us on this journey through the world of chocolate.
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Part 1 • Operations Management
Operations management:
the design, operation, and
improvement of productive
systems.
Operations:
a function or system that
transforms inputs into outputs of
greater value.
Value chain:
a series of activities from supplier
to customer that add value to a
product or service.
perations management designs, operates, and improves productive systems—systems for getting work done. The food you eat, the movies you watch, the stores in which you shop,
and the books you read are provided to you by the people in operations. Operations managers are found in banks, hospitals, factories, and government. They design systems, ensure
quality, produce products, and deliver services. They work with customers and suppliers, the
latest technology, and global partners. They solve problems, reengineer processes, innovate,
and integrate. Operations is more than planning and controlling; it’s doing. Whether it’s superior quality, speed-to-market, customization, or low cost, excellence in operations is critical to
a firm’s success.
Operations is often defined as a transformation process. As shown in Figure 1.1, inputs (such
as material, machines, labor, management, and capital) are transformed into outputs (goods
and services). Requirements and feedback from customers are used to adjust factors in the
transformation process, which may in turn alter inputs. In operations management, we try to
ensure that the transformation process is performed efficiently and that the output is of greater
value than the sum of the inputs. Thus, the role of operations is to create value. The transformation process itself can be viewed as a series of activities along a value chain extending from
supplier to customer.
The input–transformation–output process is characteristic of a wide variety of operating systems. In an automobile factory, sheet steel is formed into different shapes, painted and finished,
and then assembled with thousands of component parts to produce a working automobile. In an
aluminum factory, various grades of bauxite are mixed, heated, and cast into ingots of different
sizes. In a hospital, patients are helped to become healthier individuals through special care,
meals, medication, lab work, and surgical procedures. Obviously, “operations” can take many different forms. The transformation process can be
O
physical,
locational,
exchange,
physiological,
psychological,
informational,
as in manufacturing operations;
as in transportation or warehouse operations;
as in retail operations;
as in health care;
as in entertainment; or
as in communication.
THE OPERATIONS FUNCTION
Activities in operations management (OM) include organizing work, selecting processes,
arranging layouts, locating facilities, designing jobs, measuring performance, controlling quality, scheduling work, managing inventory, and planning production. Operations managers deal
with people, technology, and deadlines. These managers need good technical, conceptual,
and behavioral skills. Their activities are closely intertwined with other functional areas of a
firm.
Figure 1.1
Operations as a
Transformation
Process
INPUT
Material
Machines
Labor
Management
Capital
TRANSFORMATION
PROCESS
Feedback
Requirements
OUTPUT
Goods
Services
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Chapter 1 • Introduction to Operations and Supply Chain Management
A L O N G T H E S U P P LY C H A I N
What Do Operations and Supply
Chain Managers Do?
Operations managers are the improvement people, the realistic, hard-nosed, make-it-work, get-it-done people; the planners, coordinators, and negotiators. They perform a variety of
tasks in many different types of businesses and organizations.
© H. Mark Weidman Photography/Alamy
Tom McCarthy/Index Stock
iStockphoto
Let’s meet Claire Thielen, director of informatics at
ARAMARK Healthcare; Ada Liu, division manager for Li &
Fung Trading Company; and Erin Hiller, food technologist
at a major chocolate manufacturer.
Claire Thielen is a health-care professional who specializes in decision support, process improvement, and organizational performance. She facilitates interdisciplinary teams
as they pursue continuous quality improvement projects and
analyzes methods and systems for managing information.
Her projects include determining staffing patterns and workflow for computerized scheduling systems; consolidating
policies, procedures, and practices for hospital mergers;
developing and implementing balanced scorecards and
benchmarking reports; designing clinical studies of new medication effectiveness; and conducting training sessions on
process mapping and analysis. Claire Thielen improves quality, productivity, and information in the health-care industry.
Ada Liu is a division manager for Li & Fung, a global
sourcing company. She coordinates global production and
distribution for major players in the garment industry. For
one particular trouser order, she had the fabric woven in
China (for their unique dyeing process), chose fasteners
from Hong Kong and Korea (for their durability), and sent
the raw materials to Guatemala for sewing (for their basic
skills, low cost, and proximity to the United States). If problems should arise, Liu can reroute the order to one of its
7,500 suppliers in 37 countries. Ada Liu is a supply chain
expert for Li & Fung.
Erin Hiller is a food technologist at a major chocolate
manufacturer. She supports product, process, and cost
improvement activities across various product lines in the
manufacturing facilities. She undertakes, initiates, and coordinates projects for determining process capabilities, reducing waste and rework, and improving both quality and
productivity. She evaluates new and emerging technologies
and determines whether they would be beneficial to the
product lines and manufacturing operations. Erin Hiller
keeps operations up-to-date and running smoothly for making chocolate.
Sources: Claire Theilen, LinkedIn, accessed January 10, 2010; Joanne
Lee-Young, “Furiously Fast Fashions.” The Industry Standard Magazine,
(June 22, 2001); Job posting, http://jobview.monster.com/ FoodTechnologist-Confectionery-Chocolate-Experience-Job, accessed
January 10, 2010 (fictional name).
3
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Part 1 • Operations Management
Figure 1.2
Finance/Accounting
Operations as
the Technical
Core
Production and
inventory data
Capital budgeting requests
Capacity expansion and
technology plans
Budgets
Cost analysis
Capital investments
Stockholder
requirements
Orders for materials
Production and delivery
schedules
Quality requirements
Design/performance specs
Product/service
availability
Lead-time estimates
Status of order
Delivery schedules
Operations
Sales forecasts
Customer orders
Customer feedback
Promotions
Material availability
Quality data
Delivery schedules
Designs
Personnel needs
Skill sets
Performance evaluations
Job design
Work measurement
Marketing
Suppliers
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Hiring/firing
Training
Legal requirements
Union contract negotiations
Human Resources
The four primary functional areas of a firm are marketing, finance, operations, and human
resources. As shown in Figure 1.2, for most firms, operations is the technical core or “hub” of the
organization, interacting with the other functional areas and suppliers to produce goods and provide services for customers. For example, to obtain monetary resources for production, operations
provides finance and accounting with production and inventory data, capital budgeting requests,
and capacity expansion and technology plans. Finance pays workers and suppliers, performs cost
analyses, approves capital investments, and communicates requirements of shareholders and
financial markets. Marketing provides operations with sales forecasts, customer orders, customer
feedback, and information on promotions and product development. Operations, in turn, provides
marketing with information on product or service availability, lead-time estimates, order status,
and delivery schedules. For personnel needs, operations relies on human resources to recruit,
train, evaluate, and compensate workers and to assist with legal issues, job design, and union
activities. Outside the organization operations interacts with suppliers to order materials or services, communicate production and delivery requirements, certify quality, negotiate contracts, and
finalize design specifications.
As a field of study, operations brings together many disciplines and provides an integrated
view of business organizations. Operations managers are in demand in business, industry, and
government. Chief operating officers (COOs) run major corporations as shown in Figure 1.3,
Vice-presidents of Operations and Supply Chain Management oversee scores of departments,
facilities, and employees. Typical jobs for new college graduates include business process analyst, inventory analyst, project coordinator, unit supervisor, supply chain analyst, materials
manager, quality assurance specialist, production scheduler, and logistics planner. Even if you
do not pursue a career in operations, you’ll be able to use the ideas you learn in this course to
organize work, ensure quality, and manage processes. Regardless of your major, you can apply
some aspect of operations management to your future career—as did Mark, Nicole, John,
Vignesh, Margie, and Anastasia who tell their stories in Figure 1.4 and the OM Dialogues
dispersed throughout the text. Let’s hear first from Mark Jackson, marketing manager for
Pizza Hut.
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Chapter 1 • Introduction to Operations and Supply Chain Management
Figure 1.3
CEO
Chief Executive Officer
CFO
Chief Financial Officer
COO
Chief Operating Officer
Sample
Organizational
Structure
CIO
Chief Information Officer
VP
Human Resources
VP
Operations
VP
Supply Chain Management
VP
Marketing
Figure 1.4
How Is Operations
Relevant
to My Major?
Roberta Russell
5
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Part 1 • Operations Management
MARK JACKSON,
Marketing Manager for Pizza Hut
As regional marketing manager
for Pizza Hut, I’m responsible for
21 stores. It’s my job to make
sure each store is operating
properly and, when new products
come out, to see that they are
given the attention they deserve. I also coach managers
and employees about their job and their relationship with
the customer.
You would think that a marketing manager’s job
would be concerned solely with advertising, special promotions, store signage, customer service, and the like.
But we also deal with quality, forecasting, logistics, and
other operational issues. Marketing and operations are
almost inseparable in services. We can come out with a
new product and spend mega bucks advertising it, but if
the product is not made or delivered properly, all is lost.
The most important aspect of quality is consistency—
so that the customer gets the same pizza at any Pizza
Hut from whichever cook happens to be on shift. We have
exact standards and specifications for our products, and
it’s important that operating procedures be followed.
Scheduling is somewhat of a headache because of
staff turnover and individual limitations on working
hours. Some of that is alleviated in our new system
where we allow employees to request days off up to six
months in advance. They can put requests into the
system when they clock in each day, and they can view
upcoming schedules.
Our forecasting system keeps historical data on sales
by hour and day of the week five years back. Forecasts are
weighted averages of past demand—usually 60% of the
past two weeks’ sales and 40% of the past six weeks’
sales. A manager can freeze the forecast and make manual adjustments, such as increasing demand during a
home football game weekend or when a local festival is
under way. Managers can also enter notes into the system
when unusual occurrences affect demand, like a snowstorm. When the forecast is set, it generates a labor plan
for the week, along with prep plans for salad, dough,
breadsticks, and so forth. The labor plan just specifies the
number of workers needed; it is up to the manager to do
the detailed scheduling of individuals.
After quality, it’s all about speed of delivery—whether
to the customer’s table or to the customer’s home. We
have initiatives such as Ready for Revenue where we presauce and pre-cheese in anticipation of customer orders,
and Aces in Their Places where we make sure the best
people are scheduled and ready to go for peak demand
periods. As for delivery, we keep track of percent of deliveries under 39 minutes and percent of deliveries to
promise. We found we could significantly reduce the number of drivers needed (and keep the same customer satisfaction numbers) by promising delivery within 39 minutes
rather than 30. We also are more efficient now that dispatching divides our delivery areas into delivery pods and
uses computerized estimates of transit time.
Now that you are aware of how operations might relate to your interests, let’s take a brief look
at how the field of OM has evolved to its present state.
THE EVOLUTION OF OPERATIONS AND SUPPLY CHAIN MANAGEMENT
Craft production:
the process of handcrafting
products or services for individual
customers.
Division of labor:
dividing a job into a series of small
tasks each performed by a different
worker.
Interchangeable parts:
the standardization of parts
initially as replacement parts
enabled mass production.
Although history is full of amazing production feats—the pyramids of Egypt, the Great Wall of
China, the roads and aqueducts of Rome—the widespread production of consumer goods—and
thus, operations management—did not begin until the Industrial Revolution in the 1700s. Prior to
that time, skilled craftspersons and their apprentices fashioned goods for individual customers
from studios in their own homes. Every piece was unique, hand-fitted, and made entirely by one
person, a process known as craft production. Although craft production still exists today, the availability of coal, iron ore, and steam power set into motion a series of industrial inventions that
revolutionized the way work was performed. Great mechanically powered machines replaced the
laborer as the primary factor of production and brought workers to a central location to perform
tasks under the direction of an “overseer” in a place called a “factory.” The revolution first took
hold in textile mills, grain mills, metalworking, and machine-making facilities.
Around the same time, Adam Smith’s Wealth of Nations (1776) proposed the division of labor, in
which the production process was broken down into a series of small tasks, each performed by a different worker. The specialization of the workers on limited, repetitive tasks allowed them to become
very proficient at those tasks and further encouraged the development of specialized machinery.
The introduction of interchangeable parts by Eli Whitney (1790s) allowed the manufacture of
firearms, clocks, watches, sewing machines, and other goods to shift from customized one-at-a-time
production to volume production of standardized parts. This meant the factory needed a system of
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Chapter 1 • Introduction to Operations and Supply Chain Management
measurements and inspection, a standard method of production, and supervisors to check the quality
of the worker’s production.
Advances in technology continued through the 1800s. Cost accounting and other control systems were developed, but management theory and practice were virtually nonexistent.
In the early 1900s an enterprising laborer (and later chief engineer) at Midvale Steel Works
named Frederick W. Taylor approached the management of work as a science. Based on observation, measurement, and analysis, he identified the best method for performing each job. Once
determined, the methods were standardized for all workers, and economic incentives were
established to encourage workers to follow the standards. Taylor’s philosophy became known
as scientific management. His ideas were embraced and extended by efficiency experts Frank and
Lillian Gilbreth, Henry Gantt, and others. One of Taylor’s biggest advocates was Henry Ford.
Henry Ford applied scientific management to the production of the Model T in 1913 and reduced
the time required to assemble a car from a high of 728 hours to 11>2 hours. A Model T chassis moved
slowly down a conveyor belt with six workers walking alongside it, picking up parts from carefully
spaced piles on the floor and fitting them to the chassis.1 The short assembly time per car allowed the
Model T to be produced in high volumes, or “en masse,” yielding the name mass production.
American manufacturers became adept at mass production over the next 50 years and easily
dominated manufacturing worldwide. The human relations movement of the 1930s, led by Elton
Mayo and the Hawthorne studies, introduced the idea that worker motivation, as well as the technical aspects of work, affected productivity. Theories of motivation were developed by Frederick
Herzberg, Abraham Maslow, Douglas McGregor, and others. Quantitative models and techniques
spawned by the operations research groups of World War II continued to develop and were applied
successfully to manufacturing and services. Computers and automation led still another upsurge in
technological advancements applied to operations. These events are summarized in Table 1.1.
From the Industrial Revolution through the 1960s, the United States was the world’s greatest
producer of goods and services, as well as the major source of managerial and technical expertise.
But in the 1970s and 1980s, industry by industry, U.S. manufacturing superiority was challenged by
lower costs and higher quality from foreign manufacturers, led by Japan. Several studies published
during those years confirmed what the consumer already knew—U.S.-made products of that era
were inferior and could not compete on the world market. Early rationalizations that the Japanese
success in manufacturing was a cultural phenomenon were disproved by the successes of Japaneseowned plants in the United States, such as the Matsushita purchase of a failing Quasar television
plant in Chicago from Motorola. Part of the purchase contract specified that Matsushita had to retain
the entire hourly workforce of 1000 persons. After only two years, with the identical workers, half
the management staff, and little or no capital investment, Matsushita doubled production, cut assembly repairs from 130% to 6%, and reduced warranty costs from $16 million a year to $2 million a
year. You can bet Motorola took notice, as did the rest of U.S. industry.
The quality revolution brought with it a realization that production should be tied to consumer
demand. Product proliferation, shortened product lifecycles, shortened product development
times, changes in technology, more customized products, and segmented markets did not fit mass
production assumptions. Using a concept known as just-in-time, Toyota changed the rules of production from mass production to lean production, a system that prizes flexibility (rather than efficiency) and quality (rather than quantity).
The renewed emphasis on quality and the strategic importance of operations made some U.S.
companies competitive again. Others continued to stagnate, buoyed tempora…
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