Operations and
Productivity
1
PowerPoint presentation to accompany
Heizer, Render, Munson
Operations Management, Twelfth Edition
Principles of Operations Management, Tenth Edition
PowerPoint slides by Jeff Heyl
Copyright © 2017 Pearson Education, Inc.
1-1
Outline
▶ Global Company Profile: Hard Rock Cafe
▶ What Is Operations Management?
▶ Organizing to Produce Goods and
Services
▶ The Supply Chain
▶ Why Study OM?
▶ What Operations Managers Do
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Outline - Continued
▶
▶
▶
▶
The Heritage of Operations Management
Operations for Goods and Services
The Productivity Challenge
Current Challenges in Operations
Management
▶ Ethics, Social Responsibility, and
Sustainability
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Operations Management
at Hard Rock Cafe
▶ First opened in 1971
▶ Now – 150 restaurants in over 53 countries
▶ Rock music memorabilia
▶ Creates value in the form of good food and
entertainment
▶ 3,500+ custom meals per day in Orlando
▶ How does an item get on the menu?
▶ Role of the Operations Manager
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Learning Objectives
When you complete this chapter
you should be able to:
1.1 Define operations management
1.2 Explain the distinction between
goods and services
1.3 Explain the difference between
production and productivity
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Learning Objectives
When you complete this chapter
you should be able to:
1.4 Compute single-factor productivity
1.5 Compute multifactor productivity
1.6 Identify the critical variables in
enhancing productivity
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What Is Operations
Management?
Production is the creation of
goods and services
Operations management (OM) is
the set of activities that create
value in the form of goods and
services by transforming inputs
into outputs
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Organizing to Produce
Goods and Services
▶ Essential functions:
1. Marketing – generates demand
2. Production/operations – creates the
product
3. Finance/accounting – tracks how
well the organization is doing, pays
bills, collects the money
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Organizational Charts
Figure 1.1
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Organizational Charts
Figure 1.1
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Organizational Charts
Figure 1.1
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The Supply Chain
▶ A global network of organizations and
activities that supply a firm with goods and
services
▶ Members of the supply chain collaborate to
achieve high levels of customer satisfaction,
efficiency and competitive advantage
Figure 1.2
Farmer
Syrup
producer
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Bottler
Distributor
Retailer
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Why Study OM?
1. OM is one of three major functions of any
organization; we want to study how people
organize themselves for productive
enterprise
2. We want (and need) to know how goods
and services are produced
3. We want to understand what operations
managers do
4. OM is such a costly part of an
organization
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Options for Increasing
Contribution
TABLE 1.1
MARKETING
OPTION
FINANCE/
ACCOUNTING
OPTION
OM OPTION
CURRENT
INCREASE
SALES
REVENUE 50%
REDUCE
FINANCE
COSTS 50%
REDUCE
PRODUCTION
COSTS 20%
$100,000
$150,000
$100,000
$100,000
Cost of goods
–80,000
–120,000
–80,000
–64,000
Gross margin
20,000
30,000
20,000
36,000
Finance costs
–6,000
–6,000
–3,000
–6,000
Subtotal
14,000
24,000
17,000
30,000
Taxes at 25%
–3,500
–6,000
–4,200
–7,500
Contribution
$ 10,500
$ 18,000
$ 12,750
$ 22,500
Sales
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What Operations
Managers Do
Basic Management Functions
▶
▶
▶
▶
▶
Planning
Organizing
Staffing
Leading
Controlling
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Ten Strategic Decisions
TABLE 1.2
DECISION
CHAPTER(S)
1. Design of goods and services
5, Supplement 5
2. Managing quality
6, Supplement 6
3. Process and capacity strategy
7, Supplement 7
4. Location strategy
8
5. Layout strategy
9
6. Human resources and job design
10
7. Supply-chain management
11, Supplement 11
8. Inventory management
12, 14, 16
9. Scheduling
13, 15
10. Maintenance
17
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The Strategic Decisions
1. Design of goods and services
▶
Defines what is required of operations
▶
Product design determines quality,
sustainability and human resources
2. Managing quality
▶
Determine the customer’s quality
expectations
▶
Establish policies and procedures to
identify and achieve that quality
Table 1.2 (cont.)
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The Strategic Decisions
3. Process and capacity design
▶
How is a good or service produced?
▶
Commits management to specific
technology, quality, resources, and
investment
4. Location strategy
▶
Nearness to customers, suppliers, and
talent
▶
Considering costs, infrastructure, logistics,
and government
Table 1.2 (cont.)
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The Strategic Decisions
5. Layout strategy
▶
Integrate capacity needs, personnel levels,
technology, and inventory
▶
Determine the efficient flow of materials,
people, and information
6. Human resources and job design
▶
Recruit, motivate, and retain personnel with
the required talent and skills
▶
Integral and expensive part of the total
system design
Table 1.2 (cont.)
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The Strategic Decisions
7. Supply chain management
▶
Integrate supply chain into the firm’s strategy
▶
Determine what is to be purchased, from
whom, and under what conditions
8. Inventory management
▶
Inventory ordering and holding decisions
▶
Optimize considering customer satisfaction,
supplier capability, and production schedules
Table 1.2 (cont.)
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The Strategic Decisions
9.
Scheduling
▶ Determine and implement intermediateand short-term schedules
▶ Utilize personnel and facilities while
meeting customer demands
10. Maintenance
▶ Consider facility capacity, production
demands, and personnel
▶ Maintain a reliable and stable process
Table 1.2 (cont.)
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Where are the OM Jobs?
▶
▶
▶
▶
▶
▶
▶
▶
▶
▶
Technology/methods
Facilities/space utilization
Strategic issues
Response time
People/team development
Customer service
Quality
Cost reduction
Inventory reduction
Productivity improvement
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Opportunities
Figure 1.3
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Certifications
▶
APICS, the Association for Operations
Management
▶
American Society for Quality (ASQ)
▶
Institute for Supply Management (ISM)
▶
Project Management Institute (PMI)
▶
Council of Supply Chain Management
Professionals
▶
Charter Institute of Procurement and Supply
(CIPS)
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Significant Events in OM
Figure 1.4
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The Heritage of OM
▶ Division of labor (Adam Smith 1776; Charles
Babbage 1852)
▶ Standardized parts (Whitney 1800)
▶ Scientific Management (Taylor 1881)
▶ Coordinated assembly line (Ford/ Sorenson 1913)
▶ Gantt charts (Gantt 1916)
▶ Motion study (Frank and Lillian Gilbreth 1922)
▶ Quality control (Shewhart 1924; Deming 1950)
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The Heritage of OM
▶ Computer (Atanasoff 1938)
▶ CPM/PERT (DuPont 1957, Navy 1958)
▶ Material requirements planning (Orlicky 1960)
▶ Computer aided design (CAD 1970)
▶ Flexible manufacturing system (FMS 1975)
▶ Baldrige Quality Awards (1980)
▶ Computer integrated manufacturing (1990)
▶ Globalization (1992)
▶ Internet (1995)
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Eli Whitney
▶ Born 1765; died 1825
▶ In 1798, received government
contract to make 10,000 muskets
▶ Showed that machine tools could
make standardized parts to exact
specifications
▶ Musket parts could be used in any
musket
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Frederick W. Taylor
▶ Born 1856; died 1915
▶ Known as ‘father of scientific
management’
▶ In 1881, as chief engineer for
Midvale Steel, studied how tasks
were done
▶ Began first motion and time studies
▶ Created efficiency principles
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Taylor’s Principles
Management Should Take More
Responsibility for:
1. Matching employees to right job
2. Providing the proper training
3. Providing proper work methods and
tools
4. Establishing legitimate incentives for
work to be accomplished
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Frank and Lillian Gilbreth
▶ Frank (1868-1924); Lillian (1878-1972)
▶ Husband and wife engineering team
▶ Further developed work measurement
methods
▶ Applied efficiency methods to their
home and 12 children!
▶ Book and Movie: “Cheaper by the
Dozen,” “Bells on Their Toes”
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Henry Ford
▶ Born 1863; died 1947
▶ In 1903, created Ford Motor Company
▶ In 1913, first used moving assembly
line to make Model T
▶ Unfinished product moved by conveyor
past work station
▶ Paid workers very well for 1911
($5/day!)
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W. Edwards Deming
▶ Born 1900; died 1993
▶ Engineer and physicist
▶ Credited with teaching Japan quality
control methods in post-WW2
▶ Used statistics to analyze process
▶ His methods involve workers in
decisions
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Contributions From
▶ Industrial engineering
▶ Statistics
▶ Management
▶ Economics
▶ Physical sciences
▶ Information technology
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Operations for
Goods and Services
Services – Economic activities that
typically produce an intangible product
(such as education, entertainment,
lodging, government, financial, and
health services)
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Operations for
Goods and Services
▶ Manufacturers produce tangible product,
services often intangible
▶ Operations activities often very similar
▶ Distinction not always clear
▶ Few pure services
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Differences Between Goods and
Services
TABLE 1.3
CHARACTERISTICS OF SERVICES
CHARACTERISTICS OF GOODS
Intangible: Ride in an airline seat
Tangible: The seat itself
Produced and consumed simultaneously: Beauty salon
produces a haircut that is consumed as it is produced
Product can usually be kept in inventory (beauty care
products)
Unique: Your investments and medical care are unique
Similar products produced (iPods)
High customer interaction: Often what the customer is
paying for (consulting, education)
Limited customer involvement in production
Inconsistent product definition: Auto Insurance
changes with age and type of car
Product standardized (iPhone)
Often knowledge based: Legal, education, and medical
services are hard to automate
Standard tangible product tends to make automation
feasible
Services dispersed: Service may occur at retail store,
local office, house call, or via internet.
Product typically produced at a fixed facility
Quality may be hard to evaluate: Consulting,
education, and medical services
Many aspects of quality for tangible products are easy
to evaluate (strength of a bolt)
Reselling is unusual: Musical concert or medical care
Product often has some residual value
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U.S. Agriculture, Manufacturing,
and Service Employment
Figure 1.5
100 -
Percent of Workforce
80 –
60 –
40 –
20 –
0 .
|
1800
|
1825
|
1850
Agriculture
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|
1875
|
|
1900
1925
Services
|
1950
|
|
1975
2000
2025 (est.)
Manufacturing
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Organizations in Each Sector
TABLE 1.4
SECTOR
EXAMPLE
PERCENT OF
ALL JOBS
Service Sector
Education, Medical, Other
San Diego State University, Arnold Palmer
Hospital
15.3
Trade (retail, wholesale),
Transportation
Walgreen's, Walmart, Nordstrom, Alaska
Airlines
15.8
Information, Publishers, Broadcast
IBM, Bloomberg, Pearson, ESPN
Professional, Legal, Business
Services, Associations
Snelling and Snelling, Waste Management, Inc.,
American Medical Association, Ernst & Young
Finance, Insurance, Real Estate
Citicorp, American Express, Prudential, Aetna
Food, Lodging, Entertainment
Olive Garden, Motel 6, Walt Disney
10.4
Public Administration
U.S., State of Alabama, Cook County
15.6
1.9
13.6
85.2
9.6
Manufacturing Sector
General Electric, Ford, U.S. Steel, Intel
8.6
Construction Sector
Bechtel, McDermott
4.3
Agriculture
King Ranch
1.4
Mining Sector
Homestake Mining
Grand Total
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.5
100.0
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Service Pay
▶ Perception that services are low-paying
▶ 42% of service workers receive above
average wages
▶ 14 of 33 service industries pay below
average
▶ Retail trade pays only 61% of national
average
▶ Overall average wage is 96% of the
average
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Productivity Challenge
Productivity is the ratio of outputs (goods
and services) divided by the inputs
(resources such as labor and capital)
The objective is to improve productivity!
Important Note!
Production is a measure of output only
and not a measure of efficiency
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The Economic System
Inputs
Labor,
capital,
management
Transformation
The U.S. economic system
transforms inputs to outputs at
about an annual 2.5% increase
in productivity per year. The
productivity increase is the
result of a mix of capital (38%
of 2.5%), labor (10% of 2.5%),
and management (52% of
2.5%).
Outputs
Goods
and
services
Feedback loop
Figure 1.6
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Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways
to shave time. Some
improvements:
Stop requiring signatures
on credit card purchases
under $25
Saved 8 seconds
per transaction
Change the size of the ice
scoop
Saved 14 seconds
per drink
New espresso machines
Saved 12 seconds
per shot
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Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways
to shave time. Some
improvements:
Operations improvements have
helped StarbucksSaved
increase
yearly
Stop requiring signatures
8 seconds
revenue per outlet
bytransaction
$250,000 to
on credit card purchases
per
$1,000,000.
under $25
27%, or
Change the size Productivity
of the ice has improved
Saved 14by
seconds
about 4.5% per year.
scoop
per drink
New espresso machines
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Saved 12 seconds
per shot
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Productivity
Productivity =
Units produced
Input used
▶ Measure of process improvement
▶ Represents output relative to input
▶ Only through productivity increases
can our standard of living improve
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Productivity Calculations
Labor Productivity
Units produced
Productivity =
Labor-hours used
=
1,000
250
= 4 units/labor-hour
One resource input single-factor productivity
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Multi-Factor Productivity
Output
Multifactor =
Labor + Material + Energy +
Capital + Miscellaneous
►
Also known as total factor productivity
►
Output and inputs are often expressed in
dollars
Multiple resource inputs multi-factor productivity
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Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
8 titles/day
Overhead = $400/day
8 titles/day
Old labor
=
= .25 titles/labor-hr
productivity
32 labor-hrs
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Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day
8 titles/day
Overhead = $400/day
Overhead = $800/day
8 titles/day
Old labor
=
= .25 titles/labor-hr
productivity
32 labor-hrs
14 titles/day
New labor
=
= .4375 titles/labor-hr
productivity
32 labor-hrs
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Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day
8 titles/day
Overhead = $400/day
Overhead = $800/day
8 titles/day
Old multifactor
=
= .0077 titles/dollar
productivity
$640 + 400
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Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day
Payroll cost = $640/day
New System:
14 titles/day
8 titles/day
Overhead = $400/day
Overhead = $800/day
8 titles/day
Old multifactor
=
= .0077 titles/dollar
productivity
$640 + 400
14 titles/day
New multifactor
=
= .0097 titles/dollar
productivity
$640 + 800
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Measurement Problems
1. Quality may change while the
quantity of inputs and outputs remains
constant
2. External elements may cause an
increase or decrease in productivity
3. Precise units of measure may be
lacking
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Productivity Variables
1. Labor - contributes
about 10% of the
annual increase
2. Capital - contributes
about 38% of the
annual increase
3. Management contributes about 52%
of the annual increase
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Key Variables for Improved
Labor Productivity
1. Basic education appropriate for the
labor force
2. Diet of the labor force
3. Social overhead that makes labor
available
▶ Challenge is in maintaining and enhancing
skills in the midst of rapidly changing
technology and knowledge
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Labor Skills
About half of the 17-year-olds in the U.S. cannot
correctly answer questions of this type
Figure 1.7
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Capital
Percent increase in productivity
10
8
6
4
2
0
10
15
20
25
30
35
Percentage investment
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Management
▶ Ensures labor and capital are effectively
used to increase productivity
▶ Use of knowledge
▶ Application of technologies
▶ Knowledge societies
▶ Labor has migrated from manual work to
technical and information-processing tasks
▶ More effective use of technology,
knowledge, and capital
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Productivity in the Service
Sector
▶ Productivity improvement in services is
difficult because:
1. Typically labor intensive
2. Frequently focused on unique individual
attributes or desires
3. Often an intellectual task performed by
professionals
4. Often difficult to mechanize and automate
5. Often difficult to evaluate for quality
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Productivity at Taco Bell
Improvements:
▶ Revised the menu
▶ Designed meals for easy
preparation
▶ Shifted some preparation to
suppliers
▶ Efficient layout and automation
▶ Training and employee empowerment
▶ New water and energy saving grills
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Results:
Productivity
at Taco Bell
▶ Preparation time cut to 8 seconds
▶ Management span of control increased from 5
Improvements:
to 30
▶ In-store labor cut by 15 hours/day
▶ Floor space reduced by more than 50%
▶ Stores average 164 seconds/customer from
drive-up to pull-out
▶ Water- and energy-savings grills conserve 300
million gallons of water and 200 million KwH of
electricity each year
▶ Green-inspired cooking method saves 5,800
restaurants $17 million per year
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Current Challenges in OM
▶
▶
▶
▶
▶
▶
Globalization
Supply-chain partnering
Sustainability
Rapid product development
Mass customization
Lean operations
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Ethics, Social Responsibility,
and Sustainability
Challenges facing
operations managers:
▶ Develop and produce safe, high-quality
green products
▶ Train, retrain, and motivate employees
in a safe workplace
▶ Honor stakeholder commitments
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Ethics,Stakeholders
Social Responsibility,
Those Sustainability
with a vested interest in an
and
organization, including customers,
distributors,
Challenges
facing suppliers, owners, lenders,
employees,
and
community
members.
operations managers:
▶ Develop and produce safe, high-quality
green products
▶ Train, retrain, and motivate employees
in a safe workplace
▶ Honor stakeholder commitments
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All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher.
Printed in the United States of America.
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answers. Include YOUR NAME and Problem 2.9 in Title Bar.
[SEE ATTACHED!]
4.) REQUIRED ESSAY [20 points)
SELECT ONE OF THE FOLLOWING VIDEOS from Chapters 1 & 2 of Heizer and
Render.
(i.) Chapter 1: "Frito-Lay. OM in Manufacturing" (page 25 and on MyOMLab)
(ii.) Chapter 1: "Hard Rock Café: OM in Services" (page 25-26 and on MyOMLab)
(ii.) Chapter 2: "Strategy at Regal Marine" (page 55 and on MyOMLab)
(iv.) Chapter 2: "Hard Rock Café Global Strategy" (pages 55-56 & on MyOMLab)
(v.) Chapter 2: "Outsourcing Offshore at Darden" (page 56 and on MyOMLab).
Select ONE of these two videos and write a good total for all parts TWO-
PAGE* ESSAY DOUBLE-SPACED WORD-PROCESSED ESSAY that consists of
the following: You need to LABEL where parts (a), (b), (c) are in your essay.
*If you use a larger than 1 inch margins on top and bottom and left and right,
then you MUST continue your word-processed essay onto a third sheet in
order to have equivalent of two-full pages of text!!!
Write a SUMMARY of the ONE video you selected.
(a.)
(b.)
Write an essay of how the CONCEPTS in corresponding Chapter relate
and can be applied to your SELECTED video case. Be specific to how
terminology discussed in Chapter can be applied (e.g. IF video selected
from Chapter 2, "Competing on Differentiation" discussed on pages 35-
36.).
(c.)
Write your own CRITIQUE of the applications of OM techniques used
for your SELECTED video case study. E.g., Are the other OM
techniques that it should have applied but didn't? Did it or didn't it
overdo some OM technique(s)? Are the OM techniques applied to your
selected case study that are applied globally be applied uniformly or
differently for different parts of the world or commodities it deals
with? Be specific.
Purchase answer to see full
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