Student Manual Updated June 3, 2015 .docx

Student Manual
Updated June 3, 2015
McGraw-Hill Practice Operations
1
Table of Contents
Introduction
...............................................................................................
................................................................................. 3
Game Description
...............................................................................................
......................................................................................... 3

How to Win
...............................................................................................
...............................................................................................
...... 3
Gameplay
...............................................................................................
...............................................................................................
......... 3
Learning Outcomes
...............................................................................................
..................................................................................... 4
Overview of Modules
...............................................................................................
................................................................................... 4
Module 1: The Production Process
...............................................................................................
................................................ 4
Module 2: Managing Suppliers
...............................................................................................
........................................................ 4
Module 3: Forecasting and Contracts
...............................................................................................
........................................... 4
Module 4: Human Resources and Capacity Planning
...............................................................................................
............ 4
Module 5: The New Branch
............................................................................................ ...
............................................................... 4
Module 6: Maximize Net Worth
...............................................................................................
...................................................... 5

System Requirements
...............................................................................................
................................................................................. 5
Registering and Logging In
...............................................................................................
..................................................... 6
...............................................................................................
...................................... 7
Make-to-Order Processes
...............................................................................................
.......................................................................... 8
Operations Management: Priority and Utilization
...............................................................................................
......................... 9
Follow the Tutorial for Module 1
...............................................................................................
......................................................... 11
...............................................................................................
........................................... 12
The “Lean or “Just-In-Time” Strategy
...............................................................................................
................................................ 13
Quality Inspection
...............................................................................................
...................................................................................... 15

Quantity Flexibility and Supplier Capacity
...............................................................................................
...................................... 16
Creating a Vendor Scorecard
...............................................................................................
................................................................ 17
...............................................................................................
......................................................... 19
...............................................................................................
............................... 20
Research
...............................................................................................
...............................................................................................
......... 20
Make-to-Order vs. Make-to-Stock
...............................................................................................
........................................................ 20
Bids
...............................................................................................
...............................................................................................
................... 20
Work Request
Analysis..................................................................................
.......................................................................................... 21
Batch Manufacturing

...............................................................................................
............................................................................... 23
Forecasting and Specialization
...............................................................................................
............................................................ 24
...............................................................................................
......................................................... 24
...............................................................................................
. 25
Human Resources
...............................................................................................
...................................................................................... 25
2
Training..................................................................................
...............................................................................................
.................. 26
Hiring
...............................................................................................
......................................................................................... ......
......... 26
Managing the Organization Chart
...............................................................................................
................................................ 27

Capacity Planning
...............................................................................................
...................................................................................... 27
Scheduling a Job Shop with a Spreadsheet
...............................................................................................
...................................... 29
Gather Basic Information
...............................................................................................
................................................................. 29
Prepare a Schedule
...............................................................................................
............................................................................. 29
Compare Schedules using Different Priorities
...............................................................................................
....................... 30
Matching Capacity to Demand
...............................................................................................
............................................................. 31
Maximizing Throughput
...............................................................................................
................................................................... 31
Constraints and Bottlenecks
...............................................................................................
.................................................................. 32
Routing
Pathways.................................................................................
..............................................................................................
33
Finding Bottlenecks
...............................................................................................
............................................................................ 33

End of the Tutorial
...............................................................................................
.................................................................................... 36
...............................................................................................
.................................................. 37
Hiring vs. Training
...............................................................................................
..................................................................................... 37
Analyzing Employee Expenses
...............................................................................................
...................................................... 38
Reputation
...............................................................................................
........................................................................................... ....
..... 42
Module 6: Maximizing Profits
...............................................................................................
............................................. 43
Long-Term Perspective
...............................................................................................
............................................................................ 43
Total Cost of Ownership
...............................................................................................
................................................................... 44

3
Introduction
Game Description
Practice Operations puts players in the role of an operations
decision maker for a clothing
manufacturing company. Operations is the engine that drives a
business. Play begins with an overview
of the heart of that engine – managing the production process.
Players review the contract
specifications as well as the production process by walking
through the Production Floor and Shipping
area. Players then analyze the receiving department functions of
managing the supply chain and
material inventories to ensure client needs can be met. In order
to grow the business, players choose
which new contracts to pursue and then optimize their
receiving, production, and shipping departments
accordingly. As the business grows, players manage both the
human and facility resources in order to
meet capacity challenges. Customer satisfaction is a key metric
for success. In the final stages of the
game, the company puts players in complete control over all
areas of operations at the New Branch,
with the challenge to build the most profitable company
possible.
How to Win
Your goal is to make the most money possible. This will

happen if you run your operation efficiently.
Getting orders out to customers on time, with the correct
quantity and quality will make your customers
happy, which in turn raises your reputation. As your reputation
increases, you will be able to
successfully bid on contracts from a larger pool of customers,
which will generate more revenue. If you
run your operation poorly and your customers receive orders
late or with errors in quality or amount,
your sales force will lose bids to your competitors and you will
make less money, or even run a deficit!
Gameplay
The game is turn-based. Each turn is one week. Each module is
a specific length and has objectives that
must be achieved before time runs out.
4
Learning Outcomes
through trial and error and learning
how the elements of operations and production come together.
-of-class play and competition between
you and your fellow students.
-world data and situations that reflect real
world operational situations.

by demonstrating that the various
functional areas of the company – Human Resources,
Manufacturing, Accounting, and Sales –
must work together in order to meet company goals.
-on practice as an operations
manager in a manufacturing scenario
production
process.
the key success metrics.
and students to review and assess
your performance and decision-making.
Overview of Modules
Operations is the engine that drives a business. This module
focuses on the heart of that engine,
managing the production process. Module 1 should take 25-45
minutes to complete.
This module unlocks the receiving department, putting players
in charge of managing the supply
chain and material inventories to meet client needs. Module 2
should take 25-45 minutes to
complete.

In this module, players choose which contracts to pursue, and
optimize their receiving,
production, and shipping departments accordingly. Module 3
should take 25-45 minutes to
complete.
In this challenging scenario, players will manage both human
and facility resources to meet
capacity challenges. Module 4 should take 35-55 minutes to
complete.
In this module, players will have complete control over all areas
of their operations, and will be
challenged to reach a net worth of $50,000 as quickly as
possible. Module 5 should take 1 to 2
hours to complete.
5
Module 6: Maximize Net Worth
In this capstone module, players again have complete control
over all areas of their operations.
The goal is to maximize the net worth of the firm over 50 turns.

Module 6 should take 2 to 3
hours to complete.
System Requirements
Computers used to run Practice Operations must meet the
Technical Requirements listed below.
Windows OS:
1. Operating systems: Windows XP with Service Pack 3 /
Windows Vista SP2 / Windows 7 /
Windows 8.
2. Internet Browser: Firefox version 31 or above OR Internet
Explorer 11 or above OR
Google Chrome version 31 or above
3. Memory: 512MB RAM
4. Processor: Intel Pentium 3-4 processor or equivalent/better
5. Video: NVIDIA GeForce 6600 or better OR ATI Radeon
8500, 9250 or better OR Intel 945
chipset or better, 1024 x 768 resolution minimum
6. Internet: 128kbit/s Cable/DSL/LAN connection per computer
7. Hard Disk Space: 500MB free
8. Direct X: DirectX 9.0c

Mac OSX:
1. Operating system: Must have OS X 10.6 (Snow Leopard) or
later.
2. Processor: Intel Core 2 Duo (PowerPC not supported)
3. RAM: 1GB System Memory
4. Video Memory: 256MB graphics card or decent integrated
graphics chip. Must support
OpenGL 1.5+
5. Internet Browser: Firefox version 31 or above OR Safari 7.1
or above OR Google Chrome
version 31 or above
Apple iPad:
1. Model: iPad2 or later.
2. Operating System: iOS 8 or later.
3. Screen Resolution: 1024x768 or greater.
6
Android Tablet:

1. Operating System: Android 4 or later.
Registering and Logging In
Navigate to www.mhpractice.com. There are two ways to
register for Practice Operations and log in:
1) you can click on the Practice Operations link in Connect, or
2) you can click on the link that has been sent to you from your
instructor by email.
If you are registering for the first time, the following screen
will appear. Click ‘Register’ located in the
lower middle of the screen. If you have already registered,
simply click the Login button.
If you are registering for the first time, you will see the
following screen; enter the code from the card
included with your textbook, or the code that you purchased
separately.
Operations
Operations Sc 101
http://www.mhpractice.com/
7

In this module, you will learn to manage the basic production
process. This product flow appears in the
Production Floor panel (below), and you can also see the
progression of products through the various
machines. The managers in the game will help guide you
through the process.
In Practice Operations, the production floor uses a workcenter
(or job shop) layout, where machines are
grouped by type, with products traveling from one machine to
the next as they are completed. Products
start in Cutting and then move through Sewing, Press Transfer
(for some products), and finally arrive at
Packaging. Additional workcenters will be added in later
modules, and each station can be upgraded for
a one-time cost to increase the speed and maximum amount that
can be processed.
8
Make-to-Order Processes
By following the screen prompts, a production order that
precisely matches the customer order is

started on the production floor. This 1:1 relationship between
customer orders and production orders is
a key characteristic of a make-to-order process.
For example, review the open contract from Stallion Apparel
(below), highlighting the importance of
individual orders in a make-to-order system. In particular, the
key elements are the client, item ordered,
order quantity, unit price, and due date.
9
Once your production is underway, you can
view the details by looking at the Current
Production Runs panel. The side arrows let
you quickly cycle through all products
currently in production. The icons under
Production Tasks let you see which machines
are required for the specific product. You can
view the material required per unit and see
how much of that material you have in stock.
You can view the current status, the amount
being produced, what priority you have it set
for, and finally the quantity of finished
product you have in stock.

Operations Management: Priority and Utilization
One of your key decisions is the sequencing of jobs. By varying
the priority of jobs, the quantity of each
item produced during a given period can be varied widely. In
this example, the priority of three jobs
(shirts, shorts, and pants) is varied to show how this can impact
total output. Prioritization of jobs is
established in the Production Area.
Click the Manager’s Desk, then select each order from the
Production Schedule.
10
To keep track of the state of multiple orders, go to the View
Production Plan panel.
The Production Plan panel shows which machines are in use and
how much of their total capacity is
being utilized. ! Prioritizing jobs can save players from several
utilization mishaps such as being on track
to complete orders for your customers on time only to have
several products all arrive at the packaging
station at the same time

NOTE:
You can also change
priority of production
with the mouse by
grabbing a product in
“Current Production
Runs” and dragging it
to a new slot.
11
Can you get your average utilization to 100 percent?
Probably not, but the higher that score, the more efficient you
are managing your operations. See the
equation below:
�� =
��
��
=
1280
2400

= 53.3%
This priority order has increased the utilization average by
10%!
It’s important to follow the in-game tutorial for this module to
be sure you are introduced to all the key
elements. They will be needed when you start playing Module
2. If you are unsure of any part of the
12
module, replay it, and then review this section of the manual. If
you feel comfortable with the concepts
introduced in Module 1, try playing through it several times to
beat your own high score!
Time to get busy with supply chain management! This module
introduces the receiving department,
and shows how to efficiently order the materials you need to
produce your products. As you learned in

Module 1, proper scheduling is critical to keep your production
running smoothly. The same is true with
managing your supply chain. You must make sure you receive
the proper amount and quality of
materials in a time frame that allows you to sort them, send
them to production to create completed
products, and ship them in enough time to arrive at their
destination within the specified number of
weeks. This will make your clients happy and increase your
reputation.
Of course, it is also important to manage the costs associated
with suppliers. In Practice Operations,
there are two main costs associated with raw materials –
purchasing costs and holding costs. Purchasing
costs can be managed by selecting a vendor with the right
quality (to avoid overpaying for excessive
quality), by taking advantage of lead-time and quantity
discounts, and by comparing prices among
vendors. Holding costs are
charged for materials held in
stock (about 10% per turn for
raw materials, 5% per turn for

finished
products) and
can be
minimized
through careful
scheduling of
purchases and
production.
Excess materials
can be sold, but the cash
received for inventory (either
raw materials or finished
products) that are disposed of
in this manner is a small
portion of the original cost.
In the receiving department,
you click on the manager’s desk to order new materials, and you
will see trucks back up to the loading

13
docks when materials arrive. Materials first go to the double
pallet at the bottom of the screen until
they can be sorted. Then each pallet displays specific raw
materials that are letter coded.
The “Lean” or “Just-In-Time” Strategy
One gameplay option you can experiment with in Module 2 is to
use a true lean/JIT approach, ordering
raw materials to arrive just as they are needed. For example, in
turn 3 (January, week 3) orders arrive for
slacks (250 units) and shorts (400 units). Both of these products
are due to arrive at the customer in 6
weeks (March, week 1). Less than one week is required for
production of these items (the limiting factor
is packaging capacity, but even this step can be completed in
less than a week for both products).
Therefore, with 2 weeks to ship and 1 week to produce, these
two production orders can be started as
late as February, week 2. Therefore, when ordering the raw
materials, ordering with a lead time of 3
weeks will minimize inventory holding and allow for just-in-
time delivery of raw materials.
JIT/Lean requires highly reliable suppliers: for khaki either
United Fabrics or Preston Premium would be
preferred suppliers. Both offer the required level of quality and
both can meet the required quantity.

Since the price is the same for both, place an order for 500 units
of khaki with Preston Premium.
For silk, Preston Premium, Reliable Clothing, and United
Fabrics are highly reliable suppliers. Once again,
all meet the necessary quality level. Reliable Clothing offers a
significantly better price, even though an
order of 400 units of silk will not qualify for a quantity
discount. Preston Premium is more expensive
than Reliable Clothing
and United Fabrics has
a minimum order
quantity of 500 units.
Therefore, we place an
order for 400 units of
silk with Reliable
Clothing.
14
Thanks to our reliable suppliers, the requested
quantities of silk and khaki arrive exactly as
promised in February, week 2, and can be used in
production the following week.

However, we have encountered a
snag! The sorting capacity in the
warehouse is insufficient to process
the shipments. 98 units of khaki and
2 units of silk are left unsorted. This is
going to delay production.
This element of operations is dealt
with in Module 4, where you will get
the opportunity to expand your staff
for different departments. In the
meantime, it’s vital to run the
numbers ahead of time to avoid
these situations, especially since
hiring more staff may not be an
option for you.
Due to the delay in getting materials sorted, the slacks and
shorts are not completed and in finished
goods inventory until February, week 4. As a result, you would
be forced to use expedited shipping to
get the products to the customers on time at an additional cost
of $404! That small holdup will
significantly impact your bottom line!

15
Quality Inspection
Stock inspections can increase the quality of your raw
materials. This identifies and removes sub-
standard items, decreasing the available quantity but increasing
the overall quality of the remaining
stock. Inspection is
generally an expensive
option since you are, in
effect, throwing away raw
materials that you’ve
already paid for.
In Module 2 gameplay, you
are prompted to inspect a
shipment of Denim. Quality
inspection is initiated from
the Material Stock window.
Students are asked to confirm the inspection…
…and are shown the results of the inspection. Here, 19
“defective”
units were removed, raising the quality level of the 81
remaining units
to 59.0.

However, inspection is rarely an
efficient strategy for improving
quality. In fact, if a higher quality
material had been purchased in the
first place, the total cost of the
materials would be significantly
lower.
United Fabrics offers a higher-quality
denim for $1.80 per unit.
A comparison of final cost per unit
shows that purchasing from United Fabrics would result in a
lower cost of ownership.
16
Red Maple Fabrics United Fabrics
Purchase Price per Unit $1.50 $1.80
Inspection Cost 19 x $1.50 = $28.50 $0.00
Final Quantity 81 100
Final Cost per Unit $178.50/81 = $2.20 $1.80

So how can inspections help you? Well, they can allow you to
make use of extra materials. Perhaps you
ordered cotton at a quality of 40 and you have several hundred
left over. If a small order comes in with
a quick turnaround at quality 50, you may be able to produce it
right away by inspecting the lower
quality material and finding enough quality 50 material to get
the job done.
Quantity Flexibility and Supplier Capacity
Although price is an important consideration in vendor
selection, ability to meet surges in demand is
also an
important
attribute.
Vendors with
low levels of
available
capacity may be
unable to meet
demand.
For example,
Alpine and
Tigerlily Textiles
are very similar
suppliers of
wool. Both have
the same price,

reliability, and
quality levels.
However, their
available capacity is not comparable.
17
Vendor selection must include more aspects than just quoted
price. Quantity discounts, lead times, and
other factors can make a significant difference between vendors.
Creating a Vendor Scorecard
By now it is clear that there are several different dimensions
you can use to evaluate the suppliers.
These include price, quality, and reliability. This data can be
used to prepare a vendor scorecard. For
example, an evaluation of cotton suppliers can be prepared by
gathering data from the Receiving
screen.

18
After gathering this data for all cotton suppliers, the following
table can be assembled.
Supplier Price Quality Reliability
Owens Textiles $0.08 50 Low
Freeway Fabrics $0.08 25 Medium
Preston Premium $0.12 80 High
Reliable Clothing $0.10 35 High
Tigerlily Textiles $0.10 60 Medium
United Fabrics $0.12 70 High
The vendor scorecard can be prepared in many ways. One
possibility is to rank the vendors in each
category, and to assign equal weighting to each category. The
vendor with the lowest weighted rating is
most attractive.
Rank
Supplier Price Quality Reliability Score
Owens Textiles 1 4 3 2.67
Freeway Fabrics 1 6 2 3.00

Preston Premium 3 1 1 1.67
Reliable Clothing 2 5 1 2.67
Tigerlily Textiles 2 3 2 2.33
United Fabrics 3 2 1 2.00
In this example, Preston Premium would be considered the
“best” vendor.
Use of different weights for the three categories can lead to a
different result. Consider the results if
price is considered most important (assigned a weight of 0.6),
while quality and reliability are assigned a
weight of 0.2.
3 + 1 + 1
3
= 1.67
19
Rank
Supplier Price Quality Reliability Score

Owens Textiles 1 4 3 2.00
Freeway Fabrics 1 6 2 2.20
Preston Premium 3 1 1 2.20
Reliable Clothing 2 5 1 2.40
Tigerlily Textiles 2 3 2 2.20
United Fabrics 3 2 1 2.40
Now Owens Textiles is the preferred vendor.
As with Module 1, it is important to follow the in-game tutorial
for this module to be sure you are
introduced to all the key elements. A clear understanding of all
the points from the two modules you’ve
played through will be needed when you start playing Module 3.
If you are unsure of any part of the
module, replay it, and review this section of the manual. If you
feel comfortable with the concepts
introduced in Module 2, make use of your Vendor Scorecard
and try playing through it several times to
beat your own high score!

0.6(1) + 0.2(4)
+ 0.2(3) = 2.00
20
NOTE:
In longer games, purchase as much market
research as you can right away. There is a
minimal cost to buy it, and the knowledge
can really help you plan your strategy!
Making the right choices about which contracts to bid on can
make a huge difference on your bottom
line. One way to do that is forecasting. By obtaining market
research that predicts upcoming trends,
you will gain a better understanding of which products
customers will likely be asking for. Another
important element in this module is evaluating contracts and
making effective bids.
Research
You can buy market research reports that forecast

trends for up to a year in advance.
Make-to-Order vs. Make-to-Stock
Until now, you have been running a Lean / Just-in-Time
operation and buying specific raw materials
when you needed them. However, once you have a sense of
what products will be popular in the near
future, you can stockpile required materials in advance, and
upgrade or add machines to your
production floor. Of course, there is a risk involved in
purchasing materials without a specific contract in
place.
Bids
It’s tempting to bid on everything; however, if too many bids
are accepted, you can easily be swamped
and unable to complete the work. Therefore,Module 3 limits you
to 2 bids per turn. A higher concern is
bidding on contracts that you are unlikely to win.In this case,
you can easily find yourself with too much
of your facility idle and losing money. Properly acknowledging
these scenarios can help you build a
positive reputation!

21
Work Request Analysis
A good match between producer and customer is important. The
bidding process offers a chance to
strategically analyze jobs to determine if the opportunity is a
good fit. In Practice Operations, key
aspects are reputation, quality, materials, processes, capacity,
and profitability. The bidding process can
be used to highlight each of these aspects.
At the beginning of
Module 3, there are
three materials already
in stock – Nylon, Silk,
and Cotton.
Notice that the factory
is already short of
cotton, so bidding on
jobs that use cotton
will require additional
purchases. However,
we have unallocated
supplies of both Nylon
and Silk, so jobs that
use those materials will
allow us to reduce our
overall inventory
holdings.

Looking at the production floor, we currently have four
processes available – cutting, sewing, press transfer, and
packaging. Jobs that require other processes will
necessitate a capital investment before we can begin
production.
22
There is only one production run currently in process, so there
is sufficient capacity for additional work requests.
Looking at the work requests available for bid, most are out of
our league (as far as reputation is concerned) or require
materials that are already in short supply, such as cotton.
However, the order for Boxer Shorts (Down Under) and one
order for sports pants (Burgundy Fashion) are possibilities. We
can see that both orders require only cutting, sewing, and
packaging, so no new equipment is needed. Although both
require more material than we currently
have on hand, the lead time is sufficient to obtain more.

These appear to be good matches for
our system.. Notice that the quality
requirements for each are in line
with the quality level of our existing
materials. The final check is to ensure
profitability of the orders.
Boxer Shorts use one unit of silk for
each item. Silk of acceptable quality (50) can be purchased for
$3.20 per unit from Owens Textiles.
Since we are already paying our
employees, their salaries are a sunk
cost, unless we intend to fire them.
However, in this module, employee
costs can be ignored (each employee’s
salary is $0.00 per week).
Shipping the products will cause some additional costs to be
incurred, but the unit price of $15.25, with
a material cost of just $3.20, leaves plenty of room for profit.
23
To overcome the mismatch in reputation with Down Under, we
reduce the unit price to $13.50.
Sports pants use 2 units of nylon for each item. Nylon of

acceptable quality (50) can be purchased for
$1.76 per unit from Owens Textiles. Once again, the unit price
of $14.75 leaves a large profit margin.
To overcome the mismatch in reputation with Burgundy
Fashions, we reduce the unit price to $13.00.
Although both bids are
rejected, additional
opportunities to reduce raw
material inventories will
arise. In turn 3, a work
request from Stallion Apparel
becomes available for
bidding. This request
matches our reputation
better, and still utilizes the
existing stock of nylon.
However, it requires heat
transfer equipment which is
not currently in the factory.
This equipment must be
purchased at a cost of $1,800.
In this case, the profitability of the order ($5,850 less $1,056 in
materials) can justify the purchase of the
new equipment. If the bid is accepted, the new equipment can
be purchased in the next turn.
Batch Manufacturing
In Practice Operations, products are produced in batches. Each
batch moves through the factory
together, from machine to machine, until all necessary
processes have been completed. The
shortcomings of batch manufacturing can be highlighted in

Practice Operations.
For example, a work order for
200 coaches’ jackets will first be
processed at the cutting station,
then proceed to sewing, heat
transfer, and packaging.
Notice that each step doesn’t
begin until the preceding step is
completed, which results in a
long lead time for the products,
with much of the time spent idle.
In this example, each finished
goods item spends 550 seconds
being processed (96 seconds in cutting, 166 seconds in sewing,
144 seconds in heat transfer, and 144
seconds in packaging.) However, total production time for the
batch of 200 units is 1,873 minutes.
Therefore, each item spends less than 0.5% of its time in the
factory actually being processed and over
99.5% of the time waiting! Batch processes can also lead to low
levels of equipment usage.
24
NOTE:
Raw material availability
may allow bidding on
lucrative short lead-time
contracts.

Forecasting and Specialization
Rather than attempting to be all
things to all customers, an effective
strategy is to specialize. Focusing on a
few, similar products can simplify
processes and minimize investment in
equipment. Selecting an area of
specialization can begin with
forecasting.
In the Research screen, the Top
Product and Hot Products are
identified. Examining the reports
(here only the winter and spring
reports since the Module 3 simulation
lasts for 20 turns), it is clear that only a small number of
materials are used to produce the majority of
the Top/Hot products.
Clearly silk and nylon offer more
flexibility. This allows speculative
purchases of these raw materials to
ensure stock is available on short
notice.
In addition to raw material considerations, process commonality
is another key factor. Existing
processes (cutting, sewing, press transfer, and packaging) can
support sports pants, ties, and boxer
shorts. Addition of heat transfer equipment will allow
production of coaches’ jackets and windbreakers.

A specialized production system with cutting, sewing, press
transfer, heat transfer, and packaging, using
nylon and silk raw materials, would support at least two of the
top/hot products for both the winter and
spring seasons.
As with previous modules, it is important to follow the in-game
tutorial for this module to be sure you
are introduced to all the key elements. Players will need a clear
understanding of of the previous
modules before starting Module 4. If you are unsure of any part
of the module, replay it, and review
MATERIAL “HOT” PRODUCTS
Silk Boxer Shorts, Ties
Nylon Sports pants, Coaches Jackets
and Windbreakers
Denim Denim Jackets
Wool Hunting Pants
Khaki Bermuda Shorts

25
this section of the manual. If you feel comfortable with the
concepts introduced in Module 3, try
different bidding and purchasing strategies to see how it affects
your profits.
So far, you’ve been managing production, ordering, shipping,
receiving, sales and predicting the market.
It’s time to add human resources to the mix. This module will
help you identify when and how to
expand your workforce to handle a growing customer base
seeking more and larger orders. You will
also see when it is cost effective to purchase upgraded
equipment and to train existing staff to increase
production capacity.
Human Resources
When more work is required in a specific area, you can either
train an existing employee or hire
somebody new. This area is also where you manage the
organization of each department.

26
NOTE:
Be sure to compare all potential hires
before making a decision. An employee
may require a higher salary but have skill in
multiple areas, saving you the cost of
training later. Conversely, hiring someone
with higher skills in a single area for less
salary can make sense if that area is always
busy.
(More on this is in the Tips in Module 5)
Training
When you get really busy, you will
quickly reach a point where more
help is needed. You can train an
existing employee or hire someone
new. If you have an area that won’t
be busy for several weeks, it can
make sense to train an employee
who is currently working in a
relatively quiet department and

reassign that person to the busy
area. Staff trained in multiple areas
can be very useful at preventing
holdups in production.
Hiring
Training is a good idea overall, but you will also need to
hire new people when the volume of work demands it.
Your pool of potential hires will have a variety of skills and
demand different amounts for a salary. For example, Tom
O’Leary is hired into the receiving department in order to
help sort more incoming materials. As was illustrated
earlier in the manual, the inability to sort fast enough can
delay production. However, that skill will also serve you if
you need to shift Tom to the shipping department after
materials have been sorted and you need more staff
helping to get product out the door.

Try not to wait too long to hire or train new staff.
Anticipating your needs will prevent delays that
may occur while waiting for a person to accept
your offer or complete training.
Severance
27
Employee salaries are paid whether or not
the worker is busy. While it may be
tempting to fire an idle worker, Practice
Operations does impose a severance
charge of two weeks’ salary for any
employee who is fired. Careful planning of
staffing levels, along with retraining and
reassignment of current workers can help
players avoid these charges.

Managing the Organization Chart
Clicking on the HR manager’s desk brings up the organization
chart. Here you can review payroll, both
overall and for specific departments. You can see how many
staff you have in each department and
how good they are at their assigned job. Their skill level raises
the amount of work they can do, so a
person with 4 stars in Production will create more product than
someone with only 2 stars.
Capacity Planning
28
NOTE:
Longer term, you should
observe your usage of raw
materials and plan your
receiving staff accordingly.
The most straightforward approach to capacity planning takes
place in the receiving area. Each shipment

must be sorted before it is available for use. Since incoming
shipments are fairly predictable,
determining the necessary
capacity is easier here than
elsewhere. Each week’s
expected deliveries can be
observed in the Receiving
screen by clicking on the
Delivery Schedule.
For example, early in
Module 4, the delivery
schedule shows 825 units
per week are scheduled to
arrive.
However, there is already a backlog of unsorted stock
(accessed by clicking on the unsorted stock in the Receiving
area) and sorting capacity is currently insufficient to keep
up with incoming materials (in this example, sorting
capacity is 525 units per week as shown in the Unsorted
Stock window). With over 1,400 units unsorted, plus 825
units per week arriving, sorting capacity must be increased
to about 1,525 units per week to clear the backlog in two
weeks. This will require hiring two or three new employees
to work in the receiving area.

29
Scheduling a Job Shop with a Spreadsheet
With multiple work requests in process, prioritization can
become an issue. With three or more
workcenters, even a small number of work requests can be
daunting to prioritize. A spreadsheet
program (for example, Microsoft Excel) can be a useful tool
when evaluating potential schedules.
At the beginning of Module 4,
there are five work requests
waiting to be scheduled in the
Production area.
These five products have different routings, which causes
different processing durations as they pass
through production. Here it will be helpful for you to build an
interactive spreadsheet to evaluate the
impact of different prioritization schemes.

Gather Basic Information
First, some basic information must be gathered and a few
calculations are needed. The quantity for each
order is entered in column C and the due date is entered in
column J. Multiplying the processing time for
each station (Cutting, Sewing, etc.) by the quantity ordered
allows the student to calculate the time
required (shown in weeks here) for each process/job
combination.
Prepare a Schedule
With this information, it is possible to prepare a schedule for
each work center. The Cutting process for
the first job (Plain T-Shirts) starts at time 0 and lasts 0.9 weeks.
Once this order is complete, the next job
at the Cutting center (Sports Shorts) can begin and the Plain T-
Shirts order can begin at the Sewing
center (the next process required for this product).

30
Note that an order cannot begin processing until it has finished
at the preceding workstation. For
example, Sports Shorts cannot begin processing at the Dyeing
station when Plain T-Shirts are finished (at
time 6.0) because the Sports Shorts are not finished at the Press
Transfer station until time 8.2. Sports
Shorts are similarly delayed at the Packaging station.
Compare Schedules using Different Priorities
For example, compared to the earliest due date schedule shown
earlier, scheduling jobs to prioritize
those with the shortest overall duration reduces the number of
late jobs (from two to one), but
increases the total lateness (from 2.4 weeks to 4.2 weeks).
31

Matching Capacity to Demand
On the Production Floor, capacity is determined in two ways.
First, the number of jobs that can be in the
system at any given time is limited by the number of production
employees (one employee is required
for each job after the first). Second, the processing rate of each
machine can limit the number of items
that can be produced each week.
To determine the number of employees to staff the production
floor, it is necessary to balance the
capacity across all aspects of the business. If too many jobs are
active in production, there may be
insufficient capacity in Receiving and/or Shipping. In addition,
to keep production employees busy, it
may be necessary to hire additional
customer service agents.
For example, at the beginning of
Module 4 there are 5 work requests
waiting to be produced.
Maximizing Throughput
In order to maximize throughput, these jobs should be processed
as quickly as possible. Assuming there
are no equipment upgrades, the production floor should be
staffed to maximize utilization of the
equipment. Although this staffing level does depend somewhat
on the order in which jobs are

32
processed, we will assume jobs are processed in order of their
due dates. Therefore, the approximate
production schedule for these jobs will be as follows (if no
equipment upgrades are purchased).
From this production schedule, it is clear that as many as 4 jobs
can be active at any time. In fact, if we
consider that additional work requests may be added to the
schedule as earlier jobs are completed, it
seems that 3 or 4 active jobs will be the norm. Therefore,
staffing the production floor with 3 employees
is a good starting point.
With this production schedule, it will be necessary to have all
raw materials in stock and available within
3 weeks. This means that receiving capacity may need to be as
high as 3,000 units per week. This is, in
fact, not feasible in this module. A more reasonable plan might
be to increase receiving capacity to
1,500 units per week (by hiring 3 new employees for the
receiving area). This causes the production
schedule to be modified, but production staffing of 3 employees
is still reasonable.
In the Shipping area, base capacity is quite low. One order with
a size limit of 75 pounds is insufficient.
Therefore, additional staffing is required. Hiring two workers
increases capacity to three orders per
week with a total weight of about 2,500 pounds. This may be
more weight than is needed, but our long

term goal of having about 3 orders per week in process will
require this level of capacity.
Finally, the Bidding and Contracts area also needs to be in
balance with the rest of the facility. With two
to three jobs being completed each week, the ability to bid on
two or three orders (assuming some bids
will not be won) is needed. Staffing the Bidding and Contracts
area with two employees gives us the
ability to bid on three contracts each week.
At this point, the production system is well-balanced, with each
department capable of supporting the
goal of three active jobs at any given time.
Constraints and Bottlenecks
Because the Practice Operations factory is set up as a job shop
with batch scheduling, attention to
constraints and bottlenecks is particularly important.
Identifying the bottlenecks in the process is
straightforward, beginning with determining cycle time for each
work station.
To prepare for this demonstration, employees must be hired in
Receiving (hire 2 employees) and
Production (hire 2 employees). Start production orders for Plain
T-Shirts, Sports Shorts, White Socks,
and Low-Rise Jeans as soon as all workers are available.
33

Routing Pathways
At the start of Module 4 there are five work requests in the
factory, with three separate routings.
Routing 1 Plain T-shirts Cutting, Sewing, Press Transfer,
Packaging
Routing 2 Sports Shorts and White Socks Cutting, Sewing,
Packaging
Routing 3 Low Rise Jeans and Bermuda Shorts Cutting, Sewing,
Dyeing, Packaging
Finding Bottlenecks
To identify the bottleneck, cycle through the stations and record
the cycle time (notice that the cutting
station has already been upgraded in the first turn).
Process Time (seconds per unit)
Routing Cutting Sewing Press Transfer Dyeing Packaging
Bottleneck
1 72 166 244 N/A 144 Press Transfer
3 72 166 N/A 144 144 Sewing
For routings 1 and 2, the bottleneck operation is Press Transfer.
For routing 3, the bottleneck operation

is Sewing. Upgrading both of these work stations is
recommended (with the following results).
Process Time (seconds per unit)
Routing Cutting Sewing Press Transfer Dyeing Packaging
Bottleneck
3 72 136 N/A 144 144 Dyeing/Packaging
After the upgrades, the Press Transfer station remains the
bottleneck for routings 1 and 2, but Dyeing
and Packaging are now bottlenecks for routing 3.
the presence of several different routings complicates the
bottleneck analysis. An alternative means of
identifying bottlenecks is to examine the utilization of
equipment. Machines with particularly high
utilizations are potential bottlenecks.
34
With four work requests active in the factory, the production
plan initially shows that Sewing is the most
highly-utilized work station (after upgrades as described
earlier).

This is not surprising because Sewing (and Packaging) are two
of the three operations that all work
requests pass through (the third is Cutting, but capacity there is
highest of all workstations). Packaging
has not been highly utilized at this point because no jobs have
reached that stage.
For the next week, the production plan shows that Sewing and
Press Transfer are the most utilized
operations.
For February, Week 2, utilization changes as the product mix
begins to shift.
35
As products move closer to completion, the Packaging station
becomes highly utilized.

36
And remains so for several weeks.
Note that in this example no new jobs were started into the
system. However, it is clear from actual
utilizations that the bottleneck resources are still Sewing and
Packaging. Upgrading each of these
stations is recommended.
Students can continue this analysis as the module progresses to
better tune their system.
End of the Tutorial
There is a brief Tutorial at the start of Module 4 to introduce
Human Resources and describe how to hire
and train people. From then on, you are on your own! Make use
of this manual as a reference
supplement. As you can see from the material above in Module
4, there are a lot of useful tips for
improving your results when playing Practice Operations. More
of these plans are contained in the next

section for the full length game in Module 5.
37
Module 5 gives you the opportunity to be in total control of
Kibby & Strand. Your goal is simple – build
your net worth to $50,000 as quickly as possible. You can
choose any strategy you like, but be sure you
are as efficient as possible to keep those orders (and profits)
rolling in!
You’ve already learned a lot in the other modules, but module 5
offers a chance to polish your human
resources skills. One way to keep your operation efficient is to
employ highly-skilled workers. In Practice
Operations, there are two ways to accomplish this task. You can
hire outside talent or you can develop
your own workers through training.
Hiring vs. Training
A common human resources dilemma is whether to hire talent
from outside the organization or to
develop talent within the firm. This issue can be explored in
Practice Operations, Module 5.

One way to explore the
talent development issue
is to look at the total cost
of employment. At the
beginning of Module 5, a
number of applicants are
waiting to be hired. Two
of these are Aiko Chan
and Sandeep Patel.
If we are hiring for the Production area, Aiko Chan has a higher
skill level (his Machine Operations skill level is 3) than
Sandeep
Patel. However, the higher skill level comes with a higher
salary
cost. To equalize the skill level, we will need to provide
Sandeep
Patel with training at a cost of $800 per week (for two weeks).
In
addition, Sandeep will not be available to work during the two
weeks of training, making the total cost of training $1,240.
However, after training, Sandeep Patel will have equivalent
skills to Aiko Chan at a lower salary. The
train-versus-hire decision can be evaluated using a “make
versus buy” analysis.

38
The total cost of
hiring Sandeep Patel
becomes less
expensive after 42
weeks of employment
(41.33 weeks, in fact)
and benefits of in-
house training
continue to accrue
after that. If you
expect to reach your
goal sooner than 42
weeks, you may be
better off hiring Aiko
Chan.
Analyzing Employee Expenses
The hiring process involves a number of factors. One is the
current needs of the organization while a
second is the availability of candidates. In Module 5, students
can learn that one key element of hiring
success is alignment between different functional units and
human resources. For example, if the firm
has a hiring goal of three production employees, it is helpful for
human resources to have this
information early to allow for strategic hiring.

At the beginning of Module 5, there are three candidates in the
hiring pool.
Employee Training Cost Weekly Salary
Aiko Chan $0 $250
Sandeep Patel $1,240 $220
39
Since we are hiring for the Production area, the candidates’
Machine Operations skills are of highest
interest to us. Clearly, Ali Ismail is significantly more
expensive to hire than either Danny Kaiser or
Joseph Escobar. It seems prudent at this point to hire only two
candidates and to wait to see if a better
candidate arises in the near future. Note that this ability to wait
is only available if the firm has planned
ahead and begins the hiring process before actual needs occur.
In this case, an economic analysis of
total hiring costs can be used to examine the total cost of
employment.
Assuming employees will be actively working in Production for
10 weeks (starting in week 4), total cost
for these three candidates is:

Candidate Week 2 Week 3 Weeks 4 – 13 Total Cost
Ali Ismail $400 $400 $4,000 $4,800
Danny Kaiser $220 $220 $2,200 $2,640
Joseph Escobar $150 $150 $1,500 $1,800
To complete week 1, hire Danny Kaiser and Joseph Escobar,
with
both assigned to the Production area.
At the beginning of week 2,
only one candidate is available in
human resources.
With a weekly salary of $200, Johnathan Martin has a favorable
total cost of employment (compared to both Ali Ismail and
Danny
Kaiser).
Ali Ismail $400 $400 $4,000 $4,800
Danny Kaiser $220 $220 $2,200 $2,640
Joseph Escobar $150 $150 $1,500 $1,800
Johnathan Martin $0 $200 $2,000 $2,200

Although it may be prudent to hire Johnathan Martin, we may
decide to see if a better option will arise
in week 3.
40
In week 3, there are three candidates available.
Total cost analysis for the candidates shows the possible
outcomes.
Ali Ismail $400 $400 $4,000 $4,800
Danny Kaiser $220 $220 $2,200 $2,640
Joseph Escobar $150 $150 $1,500 $1,800
Johnathan Martin $0 $200 $2,000 $2,200
Aleksander Batalev $0 $0 $1,700 $1,700
Ming Zhou $0 $0 $2,200 $2,200
Dolph Bankins $0 $0 $2,000 $2,000
If we choose to hire Aleksander Batalev, total costs for the

decisions made are $6,140.
Danny Kaiser $220 $220 $2,200 $2,640
Joseph Escobar $150 $150 $1,500 $1,800
Total $6,140
41
If we had known the available pool of candidates ahead of time,
we could have made the best possible
hiring decisions, with a resulting total cost of just $5,500.
Joseph Escobar $150 $150 $1,500 $1,800
Dolph Bankins $0 $0 $2,000 $2,000
Total $5,500

On the other hand, hiring the first three available candidates
would result in a total cost of $9,240.
Ali Ismail $400 $400 $4,0000 $4,800
Danny Kaiser $220 $220 $2,200 $2,640
Joseph Escobar $150 $150 $1,500 $1,800
Total $9,240
Remember, if you find you don’t need an employee’s services
you can fire him/her. However, this is not
a decision to be taken lightly. You will be charge the equivalent
of two week’s salary in severance
charges.
42
Reputation
In Practice Operations, customers rate performance on three
dimensions. Quality is determined by the
quality of raw materials used, timeliness is measured by how
well the requested delivery date was met,
and customer service is driven by the number and skill of
Bidding and Contracts staff.

As in the real world, improving your reputation increases your
potential customer base and can improve
margins by allowing the firm to charge a higher price for goods.
Students can directly observe the impact
of quality, timeliness, and customer service on an order-by-
order basis.
In this case,
timeliness was
good, quality was
fair, and customer
service was poor,
leading to a
moderately
satisfied
customer.
In this order,
timeliness was
poor, quality was
bad, and customer
service was good,
leading to a
moderately
dissatisfied
customer.

43
Finally, by
exceeding
customer
expectations in
quality and
delivery, strong
improvements in
customer
satisfaction can be
realized.
Although the treatment of customer satisfaction in Practice
Operations is necessarily simplified, the
impact of meeting (or exceeding) customer expectations is
clearly visible.

Module 6: Maximizing Profits
This is it! A chance to see if all your training in the previous 4
modules will pay off. You are now the
boss of a brand new branch! All the decisions are yours to
make! Can you run an efficient operation
and make so much money that all your fellow classmates can do
is shower you with admiration and ask
your advice? Or will your workcenter be the one labeled as
what –NOT– to do? This section of the
manual will offer you a number of tips to help you be in the
former category. GOOD LUCK!
Long-Term Perspective
In this module, you are committed to run your business for 50
turns, so be sure to consider the long-
term effects of you decisions. The two main expenses you are
likely to encounter are employee wages
and inventory costs. Wages were covered in the Module 4 and 5
guides. In module 6, you should also
pay close attention to your inventory expenses.
44
Total Cost of Ownership
Naturally, the purchase price for raw materials is a key element

of inventory cost. However, other
factors also contribute to the total cost of ownership. One of the
less-visible issues associated with
inventory is holding costs. Holding costs have many potential
causes:
– the inability to use capital that is tied up
in inventory for other purposes
– the need to rent or buy space to hold
inventory
– inventory in storage is susceptible to
many hazards
– some government entities assess annual inventory
taxes on the value of stock being
held
These costs can really add up! In Practice Operations, the cost
of holding raw materials is about 10% of
the inventory value each turn. Finished products are less
expensive, but still cost you 5% of value each
turn. Managing inventory carefully can really contribute to your
net worth.
One way to carefully manage your inventory is to delay raw
material purchases as long as possible. This
expands upon the vendor selection discussion that was started in
module 2. The Total Cost of Ownership
analysis allows us to develop a more complete view of what
each vendor really offers.
Let’s examine the Total Cost of Ownership for silk material by
evaluating two potential vendors. First, we

need to gather the necessary data.
We will compare two potential vendors – Owens Textiles and
Tigerlily Textiles. For silk, the holding cost
is $0.41 per unit each turn (this is based upon the average cost
of all vendors). To continue our analysis,
we will also need the specific quantities and price discounts
offered by each vendor.
45
For now, we will ignore the difference in quality between the
two vendors. Both vendors offer a
quantity discount, although Tigerlily is more generous with this
discount if the quantities are high
enough. On the other hand, Owens offers a larger discount if we
can provide them with sufficient lead
time. To keep our analysis from getting too complicated, we
will assume that we can order with at least
three weeks’ lead time and that we will order at least 175 units
at any given time. This evens the special
discounts to 25% for each vendor.
The biggest difference between the two vendors is their
maximum order quantity. Owens can provide
up to 250 units per week while Tigerlily can meet larger weekly
orders --up to 1,200 units per week. If
we need to accumulate larger quantities, this could be very
beneficial. Of course, Tigerlily’s higher initial

price may still tilt the scales in favor of Owens.
To complete our analysis, we will evaluate the two vendors over
a range of purchase quantities to
determine the total cost of ownership.
For any given desired quantity, we will need to determine how
long it will take to accumulate the
materials from the vendor. This will allow us to calculate the
average inventory and holding costs
associated with waiting for the materials to all become
available.
For example, if we want to have 1,000 units of silk available at
some time in the future (say 5 weeks
from now), we can place an order with Tigerlily to have all
1,000 units delivered 5 weeks from now.
However, the quantity constraints imposed by Owens will
require us to have the deliveries spread over
time. It will take us 4 weeks to accumulate 1,000 units from
Owens, so we will hold inventory according
to this schedule.
Period Week 1 Week 2 Week 3 Week 4 Week 5
Inventory 0 250 500 750 1000
Holding Cost $0.00 $102.50 $205.00 $307.50 $0.00
For weeks 1 through 4, our average inventory is 375 units (
0+250+500+750
4
= 375). At a holding cost of
$0.41 per unit each week, this is a total added cost of $615. If

we choose to work with Tigerlily, we have
no holding costs in weeks 1 – 4 because our entire inventory
arrives in
week 5.
The other major difference between the two vendors is quality.
Owens
delivers a lower quality product, so we may have to perform an
inspection to achieve the higher level of quality offered by
Tigerlily.
Inspecting 250 units of silk from Owens appears to result in
about 11%
46
of the units being rejected. This raises our cost per unit if we
purchase from Owens.
Continuing this analysis for a range of quantities, we can
determine the total cost of ownership
associated with the two vendors.
Total Cost of Ownership – Owens Textiles
Quantity Unit
Price
Time to
accumulate
(weeks)

Average
Inventory
Total
Holding
Cost
Purchase
Cost
Quality
Cost
Total Cost
250 $2.40 1 0 $0.00 $ 600.00 $ 64.80 $664.80
500 $2.40 2 125 $102.50 $1,200.00 $129.60 $1,432.10
750 $2.40 3 250 $307.50 $1,800.00 $194.40 $2,301.90
1000 $2.40 4 375 $615.00 $2,400.00 $259.20 $3,274.20
1250 $2.40 5 500 $1,025.00 $3,000.00 $324.00 $4,349.00
1500 $2.40 6 625 $1,537.50 $3,600.00 $388.80 $5,526.30
1750 $2.40 7 750 $2,152.50 $4,200.00 $453.60 $6,806.10
2000 $2.40 8 875 $2,870.00 $4,800.00 $518.40 $8,188.40
2250 $2.40 9 1,000 $3,690.00 $5,400.00 $583.20
$9,673.20
2500 $2.40 10 1,125 $4,612.50 $6,000.00 $648.00
$11,260.50

2750 $2.40 11 1,250 $5,637.50 $6,600.00 $712.80
$12,950.30
3000 $2.40 12 1,375 $6,765.00 $7,200.00 $777.60
$14,742.60
Total Cost of Ownership – Tigerlily Textiles
Quantity Unit
Price
Time to
accumulate
(weeks)
Average
Inventory
Total
Holding
Cost
Purchase
Cost
Quality
Cost
Total Cost
250 $ 3.00 1 0 $0.00 $ 750.00 $0.00 $750.00
500 $ 3.00 1 0 $0.00 $1,500.00 $0.00 $1,500.00
750 $ 3.00 1 0 $0.00 $2,250.00 $0.00 $2,250.00

1000 $ 3.00 1 0 $0.00 $3,000.00 $0.00 $3,000.00
1250 $ 3.00 2 1200 $492.00 $3,750.00 $0.00 $4,242.00
1500 $ 3.00 2 1200 $492.00 $4,500.00 $0.00 $4,992.00
1750 $ 3.00 2 1200 $492.00 $5,250.00 $0.00 $5,742.00
2000 $ 3.00 2 1200 $492.00 $6,000.00 $0.00 $6,492.00
2250 $ 3.00 2 1200 $492.00 $6,750.00 $0.00 $7,242.00
2500 $ 3.00 3 1800 $738.00 $7,500.00 $0.00 $8,238.00
2750 $ 3.00 3 1800 $738.00 $8,250.00 $0.00 $8,988.00
3000 $ 3.00 3 1800 $738.00 $9,000.00 $0.00 $9,738.00
The results of this comparison show that for small quantities
(500 or fewer units), Owens Textiles
provides a lower total cost of ownership. However, once the
required quantity rises to 750 or more
units, choosing Tigerlily Textiles can lead to significant
savings. In addition, Tigerlily’s ability to provide
47
larger weekly quantities means your firm can respond much
more quickly to large customer orders. By

the time the required quantity reaches 2,000 or more units, the
total savings can add up to thousands of
dollars. Of course, be careful not to order too much material. If
you have to sell it back later you will lose
all of these savings and more!
Careful analysis of purchasing options allows you to consider
all of the costs of buying (and holding)
materials. The cost savings you identify can quickly add up,
enabling your firm to achieve a truly
impressive net worth.j
MAT 510 – Homework Assignment
Assignment 4
The data in below table lists country code and the order to
remittance (OTR) time for hardware / software installations for
the last 76 installations (from first to last). OTR is the time it
takes from an order being placed until the system is installed
and we receive payment (remittance). Because this company
does business internationally, it also notes the country of
installation using a country code. This code is listed in the first
column.
Table: Country Code and OTR Cycle Time for Software
Systems Installation
Country Code
Cycle Time
Country Code
Cycle Time

1
20
5
29
1
24
6
40
1
46
7
157
1
26
8
19
14
38
5
24
1
15
1
81
1
15
7
53
17
23
7
26
1
31
1
28

1
31
1
34
6
64
1
34
5
29
7
50
5
44
1
52
1
32
1
19
1
15
1
44
7
11
14
150
7
14
7
29
1
89
17
23

17
41
6
79
7
41
17
13
1
36
6
32
8
43
7
61
17
21
8
42
8
28
8
46
7
18
7
88
8
47
14
24
6
26
7
7

6
47
1
33
5
9
5
129
7
42
17
41
5
5
17
43
6
27
14
42
6
27
14
42
1
33
7
53
7
44
7
53
1
21
7
48

1
22
5
21
1
50
1
19
Use the date in table above and answer the following questions
in the space provided below:
1. Does the OTR time appear to be stable? Why or why not?
2. If you were to use a control chart to evaluate stability, which
chart would you use? Why?
3. What can you learn about the distribution of the installation
process?
4. Does it appear that the country has an impact on installation
time? Why or why not?
Type your answers below and submit this file in Week 6 of the
online course shell:
MAT 510 – Homework Assignment
Homework Assignment
Describe a work task, a hobby, or another activity that you
regularly do, and sequentially list the various actions you take
in order to complete this activity. You will need to repeat this
activity at least two times to see if the changes you engage in
will assist in reducing the amount of time. Consider the

complexity of your list and the amount of steps required to
complete the activity. Choose an activity that you complete on a
daily basis.
Please consider the choices below or select one task from
personal experience:
· Preparing for a jog, workout, or other sports related activity.
· Cooking a meal or preparing a sandwich.
· Making coffee in the morning.
· Cleaning the house.
· Washing the car.
· Bathing/grooming your dog or cat.
· Setting up a grill to BBQ.
Answer the following questions in the space provided below:
1. How many steps did it take you to complete the activity?
2. What time did each step take and how much time was delayed
between steps?
3. What was the average time each attempt took? Calculate the
average of each repetition. Include your data following the
assignment one example provided under Instructor Insights –
Week 1
4. Differentiate the main actions between doing and improving
your activities. Use the textbook to support your explanation.
See page 7-9.
5. Determine the overall manner in which variation has affected
your activities. Explain what is variation and the importance of
the standard deviation in a process? You will need to calculate
the standard deviation of each attempt. Include your data and
calculation. See page 13-14 to support your answer.
6. Overall, how much time were you able to cut down on when
engaging in the same activity while implementing the new
changes?

Chapter 2
Competitiveness, Strategy, and Productivity
© McGraw-Hill Education. All rights reserved. Authorized only
for instructor use in the classroom. No reproduction or further
distribution permitted without the prior written consent of
McGraw-Hill Education.
1
Learning Objectives (1 of 2)
You should be able to:
2.1List several ways that business organizations compete
2.2Name several reasons that business organizations fail
2.3Define the terms mission and strategy and explain why they
are important
2.4Discuss and compare organization strategy and operations
strategy, and explain why it is important to link the two
2-‹#›
© McGraw-Hill Education.
2.5Describe and give examples of time-based strategies
2.6Define the term productivity and explain why it is important
to organizations and to countries
2.7Describe several factors that affect productivity

2-‹#›
Learning Objective 2.1
A Cold Hard Fact
Better quality, higher productivity, lower costs, and the ability
to respond quickly to customer needs are more important than
ever, and…
the bar is getting higher
2-‹#›
Chapter Focus
This chapter focuses on three separate, but related ideas that are
vitally important to business organizations
Competitiveness
Strategy
Productivity
2-‹#›
Competitiveness
Competitiveness:
How effectively an organization meets the wants and needs of
customers relative to others that offer similar goods or services
Organizations compete through some combination of their
marketing and operations functions
What do customers want?

How can these customer needs best be satisfied?
2-‹#›
Marketing’s Influence
Identifying consumer wants and/or needs
Pricing and quality
Advertising and promotion
2-‹#›
Businesses Compete Using Operations
Product and service design
Cost
Location
Quality
Quick response
Flexibility
Inventory management
Supply chain management
Service
Managers and workers
2-‹#›

Why Some Organizations Fail (1 of 2)
Neglecting operations strategy
Failing to take advantage of strengths and opportunities and/or
failing to recognize competitive threats
Too much emphasis on short-term financial performance at the
expense of R&D
Too much emphasis in product and service design and not
enough on process design and improvement
2-‹#›
Why Some Organizations Fail (2 of 2)
5. Neglecting investments in capital and human resources
6. Failing to establish good internal communications and
cooperation
7. Failing to consider customer wants and needs
2-‹#›
Hierarchical Planning
Mission
Goals
Organizational strategies
Functional strategies
Tactics

2-‹#›
Mission, Goals, and Strategy (1 of 2)
Mission
The reason for an organization’s existence
It answers the question “What business are we in?”
Goals
Provide detail and the scope of the mission
Goals can be viewed as organizational destinations
2-‹#›
Mission, Goals, and Strategy (2 of 2)
Strategy
A plan for achieving organizational goals
Serves as a roadmap for reaching the organizational destinations
The organizational strategy guides the organization by
providing direction for, and alignment of, the goals and
strategies of the functional units
The organizational strategy is a major success/failure factor
2-‹#›
Mission
Mission

The reason for an organization’s existence
Mission statement
States the purpose of the organization
The mission statement should answer the question of “What
business are we in?”
2-‹#›
FedEx Mission Statement
FedEx Corporation will produce superior financial returns for
its shareowners by providing high value-added logistics,
transportation and related information services through focused
operating companies. Customer requirements will be met in the
highest quality manner appropriate to each market segment
served. FedEx Corporation will strive to develop mutually
rewarding relationships with its employees, partners and
suppliers. Safety will be the first consideration in all
operations. Corporate activities will be conducted to the highest
ethical and professional standards.
2-‹#›
Goals
The mission statement serves as the basis for organizational
goals
Goals
Provide detail and the scope of the mission
Goals can be viewed as organizational destinations

Goals serve as the basis for organizational strategies
2-‹#›
Strategies
Strategy
A plan for achieving organizational goals
Serves as a roadmap for reaching the organizational destinations
Organizations have
Organizational strategies
Overall strategies that relate to the entire organization
Support the achievement of organizational goals and mission
Functional level strategies
Strategies that relate to each of the functional areas and that
support achievement of the organizational strategy
2-‹#›
Tactics and Operations
Tactics
The methods and actions taken to accomplish strategies
The “how to” part of the process
Operations
The actual “doing” part of the process
2-‹#›

Core Competencies
Core competencies
The special attributes or abilities that give an organization a
competitive edge
To be effective core competencies and strategies need to be
aligned
2-‹#›
Sample Operations StrategiesOrganizational StrategyOperations
StrategyExamples of Companies or ServicesLow PriceLow
costU.S. first-class postage
Wal-MartResponsivenessShort processing times
On-time deliveryMcDonald’s restaurants
FedExDifferentiation:
High QualityHigh performance design and/or high quality
processing
Consistent qualitySony TV
Coca-ColaDifferentiation:
NewnessInnovation3M, AppleDifferentiation:
VarietyFlexibility
VolumeBurger King (Have it your way”)
McDonald’s (“Buses Welcome”)Differentiation:
ServiceSuperior customer serviceDisneyland
IBMDifferentiation:
LocationConvenienceSupermarkets; mall stores

2-‹#›
Strategy Formulation (1 of 2)
Effective strategy formulation requires taking into account:
Core competencies
Environmental scanning
SWOT
Successful strategy formulation also requires taking into
account:
Order qualifiers
Order winners
2-‹#›
Strategy Formulation (2 of 2)
Order qualifiers
Characteristics that customers perceive as minimum standards
of acceptability for a product or service to be considered as a
potential for purchase
Order winners
Characteristics of an organization’s goods or services that cause
it to be perceived as better than the competition
2-‹#›
Environmental Scanning

Environmental scanning is necessary to identify
Internal factors
Strengths and weaknesses
External factors
Opportunities and threats
2-‹#›
Key External Factors
Economic conditions
Political conditions
Legal environment
Technology
Competition
Markets
2-‹#›
Key Internal Factors
Human resources
Facilities and equipment
Financial resources
Customers
Products and services
Technology
Suppliers
Other

2-‹#›
Operations Strategy
Operations strategy
The approach, consistent with organization strategy, that is used
to guide the operations function
2-‹#›
26
Strategic OM Decision AreasDecision AreaWhat the Decisions
AffectProduct and service designCosts, quality, liability, and
environmental issuesCapacityCost, structure, flexibilityProcess
selection and layoutCosts, flexibility, skill level needed,
capacityWork designQuality of work life, employee safety,
productivityLocationCosts, visibilityQualityAbility to meet or
exceed customer expectationsInventoryCosts,
shortagesMaintenanceCosts, equipment reliability,
productivitySchedulingFlexibility, efficiencySupply
chainsCosts, quality, agility, shortages, vendor
relationsProjectsCosts, new products, services, or operating
systems
2-‹#›

Quality-based strategy
Strategy that focuses on quality in all phases of an organization
Pursuit of such a strategy is rooted in a number of factors:
Trying to overcome a poor quality reputation
Desire to maintain a quality image
A desire to catch up with the competition
A part of a cost reduction strategy
Quality-Based Strategies
2-‹#›
Time-Based Strategies (1 of 2)
Time-based strategies
Strategies that focus on the reduction of time needed to
accomplish tasks
It is believed that by reducing time, costs are lower, quality is
higher, productivity is higher, time-to-market is faster, and
customer service is improved
2-‹#›
Time-Based Strategies (2 of 2)
Areas where organizations have achieved time reductions:
Planning time
Product/service design time
Processing time

Changeover time
Delivery time
Response time for complaints
2-‹#›
Agile Operations
Agile operations
A strategic approach for competitive advantage that emphasizes
the use of flexibility to adapt and prosper in an environment of
change
Involves the blending of several core competencies:
Cost
Quality
Reliability
Flexibility
2-‹#›
The Balanced Scorecard Approach
A top-down management system that organizations can use to
clarify their vision and strategy and transform them into action
Develop objectives
Develop metrics and targets for each objective
Develop initiatives to achieve objectives
Identify links among the various perspectives
Finance
Customer
Internal business processes
Learning and growth

Monitor results
2-‹#›
The Balanced Scorecard
2-‹#›
Productivity
Productivity
A measure of the effective use of resources, usually expressed
as the ratio of output to input
Productivity measures are useful for
Tracking an operating unit’s performance over time
Judging the performance of an entire industry or country
2-‹#›
Why Productivity Matters
High productivity is linked to higher standards of living
As an economy replaces manufacturing jobs with lower
productivity service jobs, it is more difficult to maintain high
standards of living
Higher productivity relative to the competition leads to

competitive advantage in the marketplace
Pricing and profit effects
For an industry, high relative productivity makes it less likely it
will be supplanted by foreign industry
2-‹#›
Productivity Measures
2-‹#›
Productivity Calculation Example
Units produced:5,000
Standard price:$30/unit
Labor input:500 hours
Cost of labor:$25/hour
Cost of materials:$5,000
Cost of overhead:2× labor cost
What is the multifactor productivity?
2-‹#›

Solution
What is the implication of an unitless measure of productivity?
2-‹#›
Productivity Growth
Example: Labor productivity on the ABC assembly line was 25
units per hour in 2014. In 2015, labor productivity was 23 units
per hour. What was the productivity growth from 2014 to 2015?

2-‹#›
Service Sector Productivity (1 of 2)
Service sector productivity is difficult to measure and manage
because
It involves intellectual activities
It has a high degree of variability
A useful measure related to productivity is process yield
Where products are involved
Ratio of output of good product to the quantity of raw material
input
2-‹#›
Service Sector Productivity (2 of 2)
Where services are involved, process yield measurement is
often dependent on the particular process:
Ratio of cars rented to cars available for a given day

Ratio of student acceptances to the total number of students
approved for admission
2-‹#›
Factors Affecting Productivity
Methods
Quality
Management
Technology
Capital
2-‹#›
Improving Productivity
Develop productivity measures for all operations
Determine critical (bottleneck) operations

Develop methods for productivity improvements
Establish reasonable goals
Make it clear that management supports and encourages
productivity improvement
Measure and publicize improvements
Don’t confuse productivity with efficiency
2-‹#›
End of Presentation
2-‹#›
them
produce

to
used
inputs
All
produced
services
or
Goods
Measure
Total
Energy
Capital
Labor
Output
;
Machine
Labor
Output

;
Inputs
Multiple
Output
Measures
r
Multifacto
Capital
Output
;
Labor
Ouput
;
Input
Single
Output
Measures
Partial
Input
Output

=
ty
Productivi
+
+
+
(
)
(
)
(
)
3.5294
=
42,500
$
$150,000
=
hour
$25
hours
500
2

+
$5,000
+
hour
$25
hours
500
unit
$30
units
5,000
=
Overhead
+
Material
+
Labor
Output
=
ty
Productivi
r
Multifacto

´
´
´
%
100
ty
productivi
Previous
ty
productivi
Previous
-
ty
productivi
Current
=
Growth
ty
Productivi

´
%
8
%
100
25
25
-
23
=
Growth
ty
Productivi
-
=
´
Chapter 1
Introduction to Operations Management

1
You should be able to:
1.1Define the terms operations management and supply chain
1.2Identify similarities and differences between production and
service operations
1.3Explain the importance of learning about operations
management
1.4Identify the three major functional areas of organizations and
explain how they interrelate
1.5Summarize the two major aspects of process management
1.6Describe the operations function and the nature of the
operations manager’s job

1-‹#›
1.7Explain the key aspects of operations management decision
making
1.8Briefly describe the historical evolution of operations
management
1.9Describe the current issues in business that impact
operations management
1.10Explain the need to manage the supply chain
1-‹#›
Operations Management
What is operations?
The part of a business organization that is responsible for
producing goods or services
How can we define operations management?
The management of systems or processes that create goods

and/or provide services
1-‹#›
Good or Service? (1 of 2)
Goods are physical items that include raw materials, parts,
subassemblies, and final products.
Automobile
Computer
Oven
Shampoo
1-‹#›
Good or Service? (2 of 2)
Services are activities that provide some combination of time,
location, form or psychological value.

Air travel
Education
Haircut
Legal counsel
1-‹#›
Supply Chain
Supply chain – a sequence of activities and organizations
involved in producing and delivering a good or service
Suppliers’ suppliers
Direct suppliers
Producer
Distributor
Final customers
1-‹#›

The Transformation Process
Feedback = Measurements taken at various points in the
transformation process
Control = The comparison of feedback against previously
established standards to determine if corrective action is needed
1-‹#›
8
Goods-service Continuum
Products are typically neither purely service- or purely goods-
based.
Goods
Services
Surgery, Teaching
Songwriting, Software Development
Computer Repair, Restaurant Meal

Home Remodeling, Retail Sales
Automobile Assembly, Steelmaking
1-‹#›
Manufacturing versus Service
Degree of customer contact
Uniformity of input
Labor content of jobs
Uniformity of output
Measurement of productivity
Production and delivery
Quality assurance
Amount of inventory
Evaluation of work
Ability to patent design
1-‹#›

Why Study Operations Management?
Every aspect of business affects or is affected by operations
Many service jobs are closely related to operations
Financial services
Marketing services
Accounting services
Information services
Through learning about operations and supply chains you will
have a better understanding of:
The world you live in
The global dependencies of companies and nations
Reasons that companies succeed or fail
The importance of working with others
1-‹#›
Basic Functions of the Business Organization
Organization
Marketing

Operations
Finance
1-‹#›
Function Overlap (1 of 2)
Finance & operations
Budgeting
Economic analysis of investment proposals
Provision of funds
Marketing & operations
Demand data
Product and service design
Competitor analysis
Lead time data
1-‹#›

Function Overlap (2 of 2)
1-‹#›
OM and Supply Chain Career Opportunities
Operations manager
Supply chain manager
Production analyst
Schedule coordinator
Production manager
Industrial engineer
Purchasing manager
Inventory manager
Quality manager
1-‹#›

OM-Related Professional Societies
APICS - The Association for Operations Management
American Society for Quality (ASQ)
Institute for Supply Management (ISM)
Institute for Operations Research and Management Science
(INFORMS)
The Production and Operations Management Society (POMS)
The Project Management Institute (PMI)
Council of Supply Chain Management Professionals (CSCMP)
1-‹#›
Process Management
Process - one or more actions that transform inputs into outputs
Three Categories of Business Processes:
Upper-management processes: These govern the operation of the
entire organization.
Operational processes: These are core processes that make up
the value stream.
Supporting processes: These support the core processes.

1-‹#›
Supply & DemandOperations & Supply ChainsSales &
MarketingSupply>
DemandWasteful
CostlySupply<DemandOpportunity Loss
Customer DissatisfactionSupply=DemandIdeal
1-‹#›
Process VariationFour Sources of Variation:Variety of goods or
services being offeredThe greater the variety of goods and
services offered, the greater the variation in production or
service requirements.Structural variation in demandThese are
generally predictable. They are important for capacity
planning.Random variationNatural variation that is present in
all processes. Generally, it cannot be influenced by

managers.Assignable variationVariation that has identifiable
sources. This type of variation can be reduced, or eliminated, by
analysis and corrective action.
Variations can be disruptive to operations and supply chain
processes. They may result in additional costs, delays and
shortages, poor quality, and inefficient work systems.
1-‹#›
Scope of Operations Management
The scope of operations management ranges across the
organization.
The operations function includes many interrelated activities
such as:
Forecasting
Capacity planning
Facilities and layout
Scheduling
Managing inventories
Assuring quality
Motivating employees

Deciding where to locate facilities
And more . . .
1-‹#›
Role of the Operations Manager
The Operations function consists of all activities directly
related to producing goods or providing services.
A primary function of the operations manager is to guide the
system by decision making.
System design decisions
System operation decisions
1-‹#›
System Design Decisions
System design

Capacity
Facility location
Facility layout
Product and service planning
Acquisition and placement of equipment
These are typically strategic decisions that
usually require long-term commitment of resources
determine parameters of system operation
1-‹#›
System Operation Decisions
System operation
These are generally tactical and operational decisions
Management of personnel
Inventory management and control
Scheduling
Project management
Quality assurance
Operations managers spend more time on system operation
decision than any other decision area

They still have a vital stake in system design
1-‹#›
OM Decision Making (1 of 2)
Most operations decisions involve many alternatives that can
have quite different impacts on costs or profits
Typical operations decisions include:
What: What resources are needed, and in what amounts?
When: When will each resource be needed? When should the
work be scheduled? When should materials and other supplies
be ordered?
1-‹#›
OM Decision Making (2 of 2)
Where: Where will the work be done?

How: How will he product or service be designed? How will the
work be done? How will resources be allocated?
Who: Who will do the work?
1-‹#›
General Approach to Decision Making
Modeling is a key tool used by all decision makers
Model - an abstraction of reality; a simplification of something.
Common features of models:
They are simplifications of real-life phenomena
They omit unimportant details of the real-life systems they
mimic so that attention can be focused on the most important
aspects of the real-life system
1-‹#›

Understanding Models
Keys to successfully using a model in decision making
What is its purpose?
How is it used to generate results?
How are the results interpreted and used?
What are the model’s assumptions and limitations?
1-‹#›
Benefits of Models
Models are generally easier to use and less expensive than
dealing with the real system
Require users to organize and sometimes quantify information
Increase understanding of the problem
Enable managers to analyze “What if?” questions
Serve as a consistent tool for evaluation and provide a
standardized format for analyzing a problem
Enable users to bring the power of mathematics to bear on a
problem.

1-‹#›
Model Limitations
Quantitative information may be emphasized at the expense of
qualitative information
Models may be incorrectly applied and the results
misinterpreted
This is a real risk with the widespread availability of
sophisticated, computerized models are placed in the hands of
uninformed users
The use of models does not guarantee good decisions
1-‹#›
Quantitative Approaches
A decision-making approach that frequently seeks to obtain a
mathematically optimal solution
Supported by computer calculations

Often work together with qualitative approaches
1-‹#›
Metrics and Trade-Offs (1 of 2)
Performance metrics
All managers use metrics to manage and control operations
Profits
Costs
Quality
Productivity
Flexibility
Inventories
Schedules
Forecast accuracy
1-‹#›

Metrics and Trade-Offs (2 of 2)
Analysis of trade-offs
A trade-off is giving up one thing in return for something else
Carrying more inventory (an expense) in order to achieve a
greater level of customer service
1-‹#›
Systems Approach (1 of 2)
System - a set of interrelated parts that must work together
The business organization is a system composed of subsystems
Marketing subsystem
Operations subsystem
Finance subsystem
1-‹#›

Systems Approach (2 of 2)
The systems approach
Emphasizes interrelationships among subsystems
Main theme is that the whole is greater than the sum of its parts
The output and objectives of the organization take precedence
over those of any one subsystem
1-‹#›
Establishing Priorities
In nearly all cases, certain issues or items are more important
than others
Recognizing this allows managers to focus their attention to
those efforts that will do the most good
Pareto Phenomenon - a few factors account for a high
percentage of occurrence of some event(s)
The critical few factors should receive the highest priority
This is a concept that is appropriately applied to all areas and
levels of management

1-‹#›
Historical Evolution of OM
Industrial Revolution
Scientific management
Human relations movement
Decision models and management science
Influence of Japanese manufacturers
1-‹#›
Industrial Revolution
Pre-Industrial Revolution
Craft production - System in which highly skilled workers use
simple, flexible tools to produce small quantities of customized
goods
Some key elements of the industrial revolution

Began in England in the 1770s
Division of labor - Adam Smith, 1776
Application of the “rotative” steam engine, 1780s
Cotton gin and interchangeable parts - Eli Whitney, 1792
Management theory and practice did not advance appreciably
during this period
1-‹#›
Scientific Management
Movement was led by efficiency engineer, Frederick Winslow
Taylor
Believed in a “science of management” based on observation,
measurement, analysis and improvement of work methods, and
economic incentives
Management is responsible for planning, carefully selecting and
training workers, finding the best way to perform each job,
achieving cooperation between management and workers, and
separating management activities from work activities
Emphasis was on maximizing output

1-‹#›
Human Relations Movement
The human relations movement emphasized the importance of
the human element in job design
Lillian Gilbreth – applications of psychology
Elton Mayo – Hawthorne studies on worker motivation, 1930
Abraham Maslow – motivation theory, 1940s; hierarchy of
needs, 1954
Frederick Hertzberg – Two Factor Theory, 1959
Douglas McGregor – Theory X and Theory Y, 1960s
William Ouchi – Theory Z, 1981
1-‹#›
Decision Models & Management Science
F.W. Harris – mathematical model for inventory management,

Student Manual Updated June 3, 2015 .docx

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