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REVIEW OF PRODUCTION/OPERATIONS MANAGEMENT

William J. Stevenson's book, Production/Operations
Management provides an up-to-date introduction to the field.
The book is well written and makes excellent use of charts,
graphs, illustrations and photographs. Each chapter
includes learning objectives and a chapter outline at the
beginning, and concludes with a summary, a list of key terms
and the pages where they are defined, and solved problems.
In addition, there are discussion and review questions as
well as problems without solutions provided. There are two
appendices, one containing solutions to some problems, and
the other containing appropriate tables for calculations.
Stevenson has also included a number of case studies to
encourage the application of what is presented in the text.
By making good use of headings and subheadings, and by using
shaded areas to call attention to real-world examples,
Stevenson has succeeded in creating a text that is eminently
readable and useful to students of production and operations
management.
The text itself is divided into four sections:
introduction, forecasting, design of production systems and
operating and controlling the system. The bulk of the text
(a full eight of 16 chapters) is dedicated to the fourth
section, indicating the importance which the author gives to
operation and control. Five chapters are dedicated to
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production system design, with the forecasting section made
up of only one chapter. The introduction contains two
chapters, an overview of production management and a chapter
on decision making.
In beginning his book, Stevenson asserts that
operations is one of three main functions of any
organization; marketing and finance comprise the other two
(5). He also defines operations management as being
responsible for the management of productive systems,
"systems that either create goods or provide services" (4).
Recognizing that historically, operations management has
concentrated on manufacturing, Stevenson suggests that the
scope of operations management has expanded to include both
manufacturing and service activities.
Expanding on the idea that operations management is
responsible for all activities directly related to
manufacturing a product or providing a service, the author
suggests that operations management is responsible for
transforming inputs of resources (people, material, energy,
money, information) into useful goods and services. Two
main decision areas have emerged within operations
management as a result: system design and system operation
(11).
System design is concerned with decisions related to
capacity, location, layout and product/process design.
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System operation, on the other hand, is concerned with human
resources, schedule, inventory, overall project management
and quality. The operations manager is charged with
maintaining a high level of productivity (14), which
Stevenson identifies as the relationship between outputs and
inputs.
Recognizing that operations and production management
has evolved over the years, the author concludes this
chapter by identifying issues facing managers today. He
identifies government regulation, increased foreign
competition, and an exponential rate of growth of technology
as having a great influence on the operations manager. At
the same time that the manager's world is becoming more
complex and subject to the influence of a greater number of
variables, there is also a growing emphasis on controlling
costs, increasing quality and maintaining a flexible
atmosphere. The balance of the book is dedicated to
teaching readers how they can accomplish this.
The second chapter of the introductory section of the
book is dedicated to decision making, which the author
identifies as an "integral" part of operations management
(42). Stevenson presents a seven-step decision process to
aid managers: 1) identify the problem; 2) specify
objectives and the decision criteria for choosing a
solution; 3) develop alternatives; 4) analyze and compare
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alternatives; 5) select the best alternative; 6) implement
the chosen alternative; and 7) monitor the results to ensure
that desired results are achieved (42). The author also
introduces the use of quantitative systems models.
Stevenson also presents an overview of decision theory,
which he identifies as providing a framework for decision
analysis. Decision theory includes different techniques
which can be classified according to the level of
uncertainty associated with the particular problem under
consideration (51). Decisions which Stevenson feels are
subject to decision theory are characterized by three
elements: a set of possible future conditions exists that
will have a bearing on the results of the decision; the
manager has a list of alternatives to choose from; there is
a known payoff for each alternative under each possible
future condition (51). The author suggests two visual
tools, decision trees and graphical sensitivity analysis, as
ways of helping managers using decision theory. There is
also a lengthy section on linear programming as a tool for
decision making at the end of the chapter.
The second section of the book, forecasting, has only
one chapter dedicated to it. Stevenson chooses to put this
chapter near the beginning of the text because "forecasts
are the basis for a wide range of design and operating
decisions" (125). In other words, much of what follows in
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the book assumes a knowledge, or at least a passing
understanding, of forecasting. The author is also careful
to point out that while forecasts are traditionally thought
of as belonging in the province of marketing, operations
also is a significant user and developer of forecasts (125).
According to Stevenson, forecasts can be either
quantitative (measurable) or qualitative (subjective). He
presents two quantitative approaches: time series analysis
and associative techniques. Time series analysis are
historically based and make future predictions based on the
behavior of data in the past. Additional variables which
might influence the factor at hand are not considered.
Associated techniques, such as simple and multiple
regression, attempt to account for these variables which
will have an impact on the factor being predicted.
Qualitative techniques rely on the individual's
experience and expertise to make the forecast. Examples of
this type of technique include consumer surveys, sales force
composites, outside opinion and the Delphi technique. When
the Delphi technique is used, a questionnaire is circulated
among individuals who have the background to accurately
assess the situation at hand. Additional questionnaires are
circulated with information gleaned from previous iterations
incorporated. The goal is to achieve a consensus forecast
from among experts (132).
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Stevenson cautions that forecasts are predictions of
the future, and therefore, subject to inaccuracy. He then
presents measures of accuracy which he submits should be
incorporated into any forecast. Such measures can identify
whether the forecasting technique is valuable or appropriate
for the issue, as well as whether the forecast is accurate.
Forecasts must be monitored for accuracy, usefulness and
cost. When selecting a forecasting technique, managers must
align the expected accuracy with the associated cost, and
make decisions appropriately. For example, if a forecast
which has an accuracy level of 95 percent costs
significantly less than a forecast with an accuracy level of
98 percent, the manager must weigh whether an increase of
three points is worth the additional cost.
The next five chapters are dedicated to the design of
production systems. Stevenson recognizes that design
decisions are not made just when an organization is starting
out (although design decisions made at that time are
critical). In fact, design decisions are made throughout
the life cycle of an organization. These decisions have an
effect on the long-term goals of the organization and the
costs associated with doing business. They can be costly
and difficult to reverse. Strategic in nature, design
decisions encompass product and service design, location
planning, process selection and capacity planning,
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facilities layout and the design of work systems. This
section of the text begins with a discussion of product and
service design.
Product and service design is at the heart of a
company's operations because the other design aspects of the
organization are based on the product or service in
question. The dynamic environment in which today's
organizations exist also dictate that product and service
design decisions be subject to constant improvement.
Although costly, research and development (R & D) is an
effective way to develop new products (202). Because of the
cost factor, however, relatively few organizations are able
to indulge in significant R & D efforts. Design by
imitation is less costly than R & D, but does not enable an
organization to be the first provider of a product or
service.
Standardization and reliability are key components of
product design. Uniformity of output and related activities
yields certain economies, but decreases the differentiation
which can be implemented. Reliability has three key
components: probability; definition of failure; and
prescribed operating conditions (207). Reliability is
fundamentally the ability of a part to perform as intended
given a certain set of conditions. Measuring and improving
reliability are key components of systems design.
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Two tools which have been developed to aid in product
design are computer aided design (CAD) and computer aided
manufacturing (CAM). The two are often used in conjunction
with one another. Such sophisticated tools are necessary
since function and cost, both products of design and
manufacturing, are important factors in the success of an
organization.
Stevenson next turns his attention to location
planning, which has long-term ramifications for new and
existing organizations, alike. New organizations make
location decisions based on their long-term goals, expected
rates of growth, product decisions and the capitalization
behind the organization. The variables are similar for
existing organizations, who must determine whether to expand
existing facilities, move the entire operation to new
facilities, or settle on some combination of the two.
Supply sources, including raw materials and labor
supply, influence location decisions. Market conditions,
housing availability and climate can all affect a company's
location decision. Foreign locations may be attractive
because of lower labor costs and raw material availability.
These advantages must be considered against the
disadvantages of language differences and cultural
differences, as well as the stability of the government in
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the foreign location and their sentiments toward Americans
and American companies.
In order to decide which location alternative is
optimum for an organization, operations managers can first
determine a region that meets the overall needs, then
identify the communities which may warrant further
evaluation. Stevenson presents a number of methods,
including location cost-volume analysis and factor rating,
which can be used to make determinations among the final
alternatives. He also presents a transportation model as a
supplement to the chapter.
In chapter 6, Stevenson discusses process selection,
which refers to the ways an organization produces or
provides its products and services. Technology is often a
key component of process selection which, in turn, affects
capacity planning and equipment procurement (296). The
methods used by an organization to produce its product
affect productivity, costs, competitiveness and flexibility.
New products and changes in existing products provide the
reason that most organizations are constantly engaged in
some sort of process selection.
Involved in process selection is the type of processing
currently in use (steady and high-volume, or intermittent
and low-volume, for example), the level of automation in use
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(including computer assisted processing), the amount of
flexibility needed, and processing costs.
Stevenson defines capacity as a "system's potential for
producing goods or delivering services over a specified time
interval" (322). Capacity limitations determine operating
costs as well as provide a maximum level of output which can
be achieved.
Full or maximum capacity is seldom realized; a number
of factors conspire to prevent this. Among these are
facility design and layout, human inefficiency, design,
equipment failures and quality factors. Despite this,
capacity planning has evolved as an integral part of
operations management, with short- and long-term
considerations and goals. Short-term considerations include
anticipating and reacting to variances in demand. Long-term
considerations must account for the overall capacity level,
even with short-term seasonal fluctuations.
Developing capacity alternatives involves taking a
systems approach and realizing that increases in capacity
can be acquired in chunks, rather than units. Flexible
systems which can adapt to short-term fluctuations are
preferable to inflexible systems, and product combinations
which can overcome temporary changes in demand in one
product area are preferable to a one-product system.
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Quantitative and qualitative techniques are used to
evaluate capacity alternatives. Quantitative techniques are
characterized by consideration of economic factors while
qualitative techniques may include factors such as public
opinion and managers' preferences. Cost-volume analysis,
financial analysis and decision theory are also tools which
can be used for analyzing and selecting alternatives.
Stevenson concludes this chapter with a supplement on
financial analysis, including tax considerations and
financial evaluation methods such as payback and net present
value.
Chapter 7, Facilities Layout, includes four-color
photographs of John Deere and Apple Computer, among other
manufacturers, illustrating the points that Stevenson makes
in the text. Layout decisions are directly affected by
location, product and capacity decisions discussed earlier.
Stevenson identifies three types of processing, each of
which has a bearing on facility layout: continuous,
intermittent, and project. Continuous processing has a high
volume of a few (even one) products. Intermittent
processing is able to provide for a broader range of
products. Projects are used to plan and co-ordinate
complicated jobs with brief life spans.
Product layouts are used for continuous processing,
process layouts for intermittent processing and fixed-
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position layouts for projects. Some projects do not require
layouts at all. Workers and equipment are allocated based
on the technological requirements of the product. The
operations manager tries to optimize work flow through the
system when designing the layout. Because the alternatives
facing the decision maker can be overwhelming, computer
software has been developed to help determine the best
alternative.
Chapter 8, the last chapter in this section of the
book, focuses on the design of work systems. Stevenson
asserts that work systems involve job design, work
measurement and compensation (394).
Job design is concerned with what jobs are to
accomplish and the method in which they are to accomplish
those tasks. In recent years, there has been an increasing
awareness of the impact jobs have on workers' behavior and
satisfaction, as well. Productivity, which came into
increasing popularity during the 1980s, also has influenced
job design.
Methods analysis and motion studies can be used to
determine the efficiency of jobs, but they ignore the
behavioral aspects. At the same time, working conditions
are an important part of job design in that they can
increase efficiency and augment behavioral factors, and can
also determine the health and safety of workers.
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Work measurement refers to efforts to determine how
long it should take to complete a given job in a given set
of circumstances. Measurements such as this are necessary
for human resource planning, cost forecasting, budgeting and
scheduling equipment. Stopwatch time studies and
predetermined times are two commonly used approaches. Work
sampling can also be used to determine activity time.
The last eight chapters of the book are dedicated to
operating and controlling the system used to produce the
product, be it a good or a service. Here Stevenson
addresses aggregate planning, inventory management, material
requirements planning (MRP), just-in-time systems (JIT),
scheduling, project management, waiting lines and quality
assurance. This section begins with a bridge between the
design aspects of the first chapters and the operating
aspects of the last chapters.
In fact, aggregate planning seeks to "achieve a
production plan that will effectively utilize the
organization's resources to satisfy expected demand" within
a two- to 18-month timeframe (466). Aggregate planning is
between the broad design decisions necessary for the long-
term goals of the organization and the detailed short-range
decisions that comprise day-to-day operations. Aggregate
planning is characterized by an overall forecast for the
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period in question and methods for applying the plan to
specific products.
The heart of aggregate planning is the combining of an
organization's products and services into one "product."
Such a combination enables the planners to consider overall
employment and inventory levels without becoming bogged down
in the day-to-day details.
Stevenson considers inventory management central to the
success of most organizations, and devotes the tenth chapter
to this issue. Inventory must be maintained at a level
which permits optimum output, but which does not burden the
company with inefficiency. There are holding costs
associated with inventory, just as there are costs
associated with providing a given level of customer
satisfaction. Inventory management is successful when it is
able to balance the two.
The author presents four classes of inventory
management models: economic order quantity (EOQ), reorder
point (ROP), fixed-interval and single-period. If unused
parts can be carried over into subsequent periods, then the
first three models are used. The single-period model is
appropriate, as its name implies, when items cannot be
carried over into the next time period.
EOQ models are based on how much to order. ROP models
are based on when to order and are optimum when there are
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variations in item availability or lead time. Fixed
interval models are useful when the time between orders is
predetermined. Stevenson presents formulas for each of
these models under various conditions, and discusses their
implementation under the same conditions.
In Chapter 11, Stevenson addresses a specific
information system, material requirements planning (MRP),
used to order dependent-demand items, such as components of
assembled products (609). Planning begins with customer
orders, which are used to develop a schedule showing the
timing and quantity of finished products. The finished
items are then "exploded" using their bill of materials, and
plans are developed indicating the quantity and timing for
ordering or producing components.
The salient components of MRP are the timeliness of
requirements, determining what the components are, and
ordering according to planned releases. To be successful,
MRP requires computers and accurate schedules along with
bills of material and inventory data. The lack of any of
these components can cause the failure of the system as a
whole.
MRP II is the term given to recent innovations in MRP.
It refers to manufacturing resource planning and links the
business plan with the production plan and the master
schedule. It does not replace MRP, nor is it simply an
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improved version. Instead, MRP II seeks to incorporate
marketing and finance within the manufacturing plan.
Just-in-time systems (JIT) move items through a system
in such a way that the items reach the next point in the
system at the exact point they are needed. One of the
advantages of such systems is that when successfully
implemented, they reduce the inventory that is carried on
hand because each item arrives just as it is needed.
Because of the nature of JIT, it is best suited to
repetitive manufacturing environments (627).
JIT demands that an even rate of work flow be
maintained as much as possible. High quality is also
necessary to the success of the system since any defective
parts throw off the entire process. Quick set-ups and
special layouts are characteristic of JIT, since they allow
for items to be "pulled" through the system. At the same
time, problem solving within JIT systems tends to be
directed at keeping disruptions to the system at a minimum
and making the system more efficient.
The benefits of JIT, in addition to lower inventory
carrying costs, include high quality, a flexible system,
increased productivity and reduced rework due to poor
quality.
Manufacturers who are considering converting to a JIT
system should consider the support both of management and
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employees, since a high spirit of co-operation is necessary
for its successful implementation. This co-operation also
carries over into the relationships that the manufacturer
enjoys with the suppliers, as vendor compliance with
schedules is also necessary for the success of the system.
Stevenson next takes on the issue of scheduling, which
he identifies as the timing and co-ordination of operations.
Scheduling is basic to every organization. Problems arise
depending on whether a scheduling system is set up for high
volume, intermediate volume, or as a job shop. The
complexity increases in job shops because the number of jobs
that may be processed is quite large.
Two major problems arise in scheduling job shops:
assigning jobs to machines and designating the sequence of
jobs to be processed at those machines. Gantt charts can be
used to help managers obtain a visual picture of the problem
(657) and are also useful to describe and sequence
alternatives.
Scheduling in service systems is significantly
different from that in manufacturing. Appointment and
reservations systems are often employed, but the goal of
balancing the system given the multiple resources involved
(customers, human resources) can be complex and difficult to
manage.
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Chapter 14 focuses on project management. Projects are
defined has having a unique set of activities which seek to
meet a given set of objectives within a certain timeframe
(696). Projects are nonroutine in nature and are co-
ordinated not by the operations manager directly, but by
project managers.
Program evaluation and review techniques (PERT) and
critical path methods (CPM) are two widely used techniques
for managing projects. Both of these methods enable the
project manager to have a graphical model of the project.
Both provide an estimate of how long the project will take.
PERT and CPM both provide an indication of which activities
are most critical to complete the project on time. In
addition, both provide information which can be used to
determine how long any one activity can be delayed without
upsetting the entire project schedule.
Two different methods are used to construct a network
diagram. In one method, arrows are used to show activities.
In the other method, nodes are used to show activities.
Stevenson uses the arrow method to avoid confusion.
Since developing and updating project networks takes a
considerable amount of time for even mildly complex
projects, computer software programs have been written which
can simplify the task. When activity times are generally
accepted and subject to little variance, a deterministic
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approach can be used. When those activity times are subject
to greater variance and some degree of uncertainty, a
probabilistic approach is called for.
In some cases, it is possible to decrease the time it
will take to complete a project by decreasing one or more of
the component activities. Additional resources can be used
to accomplish this, or resources already allocated to the
project might be moved about. Projects are generally
shortened to the point of realizing some gain over the
additional resource cost, or, when resources are moved in an
existing project, when gain is realized over any training
costs.
Waiting lines are associated with service systems and
generally form even when the system is underloaded.
Customers arrive at random times and service times vary.
The result can be temporary overloads. This is the subject
of Chapter 15. Waiting lines appear during overload
periods, but even with good scheduling techniques, there
will be times when human resources (servers) will be idle.
When considering waiting lines and queuing systems, it
is necessary to consider whether the potential number of
customers is unlimited (infinite source) or limited (finite
source) (745). Stevenson describes four models for handling
infinite source situations, and one model based on a finite
source of customers.
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Only one chapter, the last one, is given to quality
assurance, but it is one of Stevenson's longest. Quality
assurance is a comprehensive approach that begins with the
design phase and which continues even after the product or
service has been delivered. Successful quality assurance
demands a clear definition of what is acceptable. Goods and
services must conform to the standards established by the
organization. Samples are taken to determine if the
organization is meeting this level of quality since it is
not generally feasible to actually examine each product.
Stevenson has produced a text which provides a solid
understanding of operations management. Although he tries
to cover both manufacturing and service industries, his
comments on the service area are generally considerably less
than those directed at manufacturers, and he might do well
to separate the two into different texts. This is a small
complaint, however, given the text as a whole.
In fact, Stevenson provides a selected bibliography at
the end of each chapter as well as short readings from
outside sources which serve to give the interested reader
additional sources. Those interested in JIT, for example,
can find additional sources listed at the end of the
chapter.
In all, Stevenson has done a good job of producing a
text which not only explains the salient points of
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operations management, but which also serves to expose the
reader to considerations which are not readily quantifiable.
The book is a good introductory text and is also likely to
be used for reference by current operations managers.


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SOURCE

Stevenson, William J. Production/Operations Management
(Homewood, IL: Irwin, 1990).