Chapter 09 – Production and Operations Management of Goods and Services
9-73
profit calculation worksheet
Each production unit (paper airplane) that meets quality criteria will be purchased for $2.50. De-
fective products will be valued at $0. Raw materials (paper) cost $1.00 per unit. Production equipment
(box) costs $25.00 rental. Each team member will be paid $5.00 in labor cost.
Revenue
______ acceptable units @ $2.50 ________________
Expenses
Raw material costs:
______ units of raw material @ $1.00 ________________
(include defective units)
Equipment cost ____$25.00_______
Labor costs:
______ team members @ $5.00 each ________________
Total Expenses ________________
Profit (Loss) ________________
(Revenue minus expenses)
Chapter 09 – Production and Operations Management of Goods and Services
9-74
Name: ___________________________
Date: ___________________________
critical thinking exercise 9-2
PRODUCTION PROCESSES
The text discusses two types of manufacturing systems: Process manufacturing physically or
chemically changes materials. The assembly process puts together components to make a product. Look
at each of the products listed below and check whether each was produced using a process manufacturing
or assembly system.
Product
Process Manufacturing
Assembly Process
Orange juice
Hair brush
Motor oil
Computer
Desk
Textbook
Milk
Dress
Coal
Newspaper
Telephone
Chapter 09 – Production and Operations Management of Goods and Services
9-75
notes on critical thinking exercise 9-2
Product
Process Manufacturing
Assembly Process
Orange juice
X
Hair brush
X
Motor oil
X
Computer
X
Desk
X
Textbook
X
Milk
X
Dress
X
Coal
X
Newspaper
X
Telephone
X
Chapter 09 – Production and Operations Management of Goods and Services
9-76
Name: ___________________________
Date: ___________________________
critical thinking exercise 9-3
SITE SELECTION
As you drive to school or work, you probably pass a number of manufacturing plants. Choose
three of these plants and see if you can figure out why the company chose to locate the plant there. The
chart below lists the factors that managers consider in site selection that were discussed in your text.
Check the factors that seem to apply to the companies you selected.
Factor in Site Selection
Company A
Company B
Company C
Inexpensive labor
Plenty of skilled labor
Abundant and inexpensive
resources (water, electricity,
wood, coal, etc.)
Located close to market
Low cost of land
Chapter 09 – Production and Operations Management of Goods and Services
9-77
critical thinking exercise 9-3 (continued)
Factor in Site Selection
Company A
Company B
Company C
Tax and government
support
Access to transportation
Chapter 09 – Production and Operations Management of Goods and Services
9-78
Name: ___________________________
Date: ___________________________
critical thinking exercise 9-4
DESIGNING PLANT LAYOUT
Review the various production layouts presented in text Figure 9.2. Choose one of the four prod-
ucts below and design a plant layout for a firm producing that product. To better understand how these
products are produced, you can research the subject using the Internet.
Product choices:
Clock radios
Bicycles
Newsprint
Aluminum
Draw your plant design below.
Chapter 09 – Production and Operations Management of Goods and Services
9-79
Name: ___________________________
Date: ___________________________
critical thinking exercise 9-5
DRAWING A PERT DIAGRAM
Review the material in the text on developing a PERT diagram.
1. For one of the following production processes, draw a PERT diagram, including estimated
completion times. Be sure to include purchasing and transportation elements.
a. Painting a house, inside and outside
b. Planting and harvesting an acre of corn
c. Building a Soapbox Derby racer
d. Landscaping a back yard (from bare dirt)
2. Clearly identify the critical path.
Chapter 09 – Production and Operations Management of Goods and Services
9-80
bonus
cases
bonus case 9-1
THE STATE OF AMERICAN MANUFACTURING
Even before the recession, American manufacturing was on the skids. Outsourcing and techno-
logical advancements made the American worker obsolete in the eyes of many companies. And just when
it seemed like it couldn’t get any worse, the recession hit. Since December 2007, the manufacturing sector
has lost more than 2 million jobs, roughly one out of seven positions. Nevertheless, the American manu-
facturing sector generates billions of dollars annually, producing everything from cars to cosmetics to
computer chips. In fact, the manufacturing sector’s dollar value generally continued to rise throughout
1987 and 2007. Even as jobs disappeared, American manufacturers remained afloat by producing sophis-
ticated goods that can be built by high-skilled workers.
Though American manufacturers are keeping their heads above water at the moment, economists
fear they could eventually lose their edge to foreign competitors. That may seem like old news, but the
new fear for manufacturers isn’t losing jobs, it’s losing America’s dominance in technological innovation.
Foreign companies that produce high-tech items like solar panels and compact fluorescent lights are often
doing the design work and product development as well. In recent years the United States began lagging
behind in research and development. If this lack of innovation persists, the country could find itself with-
out the necessary infrastructure and suppliers to continue to be a leader in high-tech manufacturing.
Foreign companies also threaten American manufacturers on their own turf. Many of the coun-
try’s largest manufacturers are actually foreign companies that produce goods within the United States. In
fact, approximately 1 of every 12 U.S. manufacturing workers are employed by a foreign company. Still,
much of the American manufacturing industry relies on small companies that employ less than 100 work-
ers. These companies usually provide larger companies with small items such as specialized screws. De-
spite the importance of these manufacturers, economists don’t hold much hope that they’ll reignite the
United States into an industrial powerhouse. Even on a global scale, manufacturing jobs are disappearing
from many foreign countries, including China, due to technological improvements.ix
discussion questions for bonus case 9-1
1. Was the loss of traditional manufacturing inevitable in the U.S. economy?
2. Can the United States hold on to its current manufacturing base?
Chapter 09 – Production and Operations Management of Goods and Services
9-81
notes on discussion questions for bonus case 9-1
1. Was the loss of traditional manufacturing inevitable in the U.S. economy?
economy.
2. Can the United States hold on to its current manufacturing base?
As the case notes, this will be difficult. However, so long as American workers remain the most
Chapter 09 – Production and Operations Management of Goods and Services
9-82
bonus case 9-2
A SMALL HOMECOMING BY AMERICAN MANUFACTURERS
Like many other companies, the recession has not been kind to construction giant Caterpillar Inc.
Since late 2008 the company slashed approximately 20,000 U.S. jobs after profits plunged with the stock
market. In 2009 Caterpillar cut its worldwide employment further by 17%. Now the company is in recov-
ery mode, trying to level out after such drastic setbacks. One money-saving option for Caterpillar would
seem natural for any global industrial conglomerate: move some manufacturing operations overseas to a
more cost-effective country. Caterpillar, however, plans to defy the convention by relocating some of its
heavy-equipment production facilities from Asia to the United States.
Caterpillar is just one of several U.S. companies that have recently begun “onshoring” some fac-
tories back to American soil. Despite outsourcing’s cost advantages, the system has long been plagued by
quality issues, high shipping costs, and communication difficulties. Plus, with the value of the dollar de-
clining, the cost of importing goods back to the United States has risen, eclipsing the savings of offshor-
ing for some companies. Domestic salaries are getting lower, too, after several trade unions agreed to
lower wages in order to encourage more manufacturers to hire.
Still, though onshoring is a growing trend, it is unlikely to increase manufacturing jobs in any
significant way. In Caterpillar’s plan, for example, the company will consolidate production of construc-
tion excavators from two existing factories, one in Japan and the other in Illinois. While the Japanese
plant will remain in production to serve the Asian market, the future is foggier for Caterpillar’s American
plant, which could possibly face job losses. Nevertheless, competition among local governments over
where Caterpillar builds its new factory should be fierce as many states try to dig themselves out of debt.x
discussion questions for bonus case 9-2
1. Will “onshoring” become an ongoing trend in the 2010s?
2. Why do states compete so fiercely for new manufacturing operations?
notes on discussion questions for bonus case 9-2
1. Will “onshoring” become an ongoing trend in the 2010s?
Our best guess is that we will see more companies “onshoring” as we slowly pull out of the pain-
States.
2. Why do states compete so fiercely for new manufacturing operations?
One simple reason is jobs. The other is that new manufacturing facilities usually mean long-term
Chapter 09 – Production and Operations Management of Goods and Services
9-83
endnotes
iSources: Neil Shah, “U.S. Factories Outpace Their Global Rivals,” The Wall Street Journal, March 1, 2013; Rana
Foroohar, “How ‘Made in the USA’ Is Making a Comeback,” Time, April 11, 2013.
ii Source: James R. Hagerty, “Forget Revolution. More Like Renovation,” The Wall Street Journal, June 11, 2013.
iii Source: Judy Keen, “Toledo Reinvents Itself as a Solar–Power Innovator,” USA Today, June 15, 2010.
ivSource: Lauren Coleman-Lochner, “Procter & Gamble’s High–Tech Quest for the Perfect Diaper,” Bloomberg
BusinessWeek, March 13, 2014.
v Source: John Patrick Pullen, “Color Wheels,” Entrepreneur, October 2013.
vi Sources: David Whitford, “Can Farming Save Detroit?” Fortune, January 18, 2010; David Runk, “Detroit Is Pon-
dering Radical Renewal Program,” Associated Press, March 9, 2010.
viiSources: Maggie Overfelt, “The Great American Company: Quest for Perfection,” Fortune Small Business,
March 19, 2003; Tam Harbert, “Lean, Mean, Six Sigma Machines: Electronics Companies Have Used Lean Six to
Trim Down, But Can It Help Them Pump Up?” Electronic Business, June 1, 2006.
viiiSource: John Koten, “What’s Hot in Manufacturing Technology,” The Wall Street Journal, June 11, 2013.
ix Source: Allison Linn, “Yes, We Do Still Make Things in America,” MSNBC, March 15, 2010.
x Source: Kris Maher and Bob Tita, “Caterpillar Joins ‘Onshoring’ Trend,” The Wall Street Journal, March 12,
2010.