Week 4 Discussion – Operational Excellence

OPEraTiOns ManagEMEnT

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OPERATIONS MANAGEMENT Eighth edition

nigel slack alistair Brandon-Jones robert Johnston

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Pearson Education Limited Edinburgh Gate Harlow CM20 2JE United Kingdom Tel: +44 (0)1279 623623 Web: www.pearson.com/uk

First published under the Pitman Publishing imprint 1995 (print) Second edition (Pitman Publishing) 1998 (print) Third edition 2001 (print) Fourth edition 2004 (print) Fifth edition 2007 (print) Sixth edition 2010 (print) Seventh edition 2013 (print and electronic) Eighth edition published 2016 (print and electronic)

© Nigel Slack, Stuart Chambers, Christine Harland, Alan Harrison, Robert Johnston 1995, 1998 (print) © Nigel Slack, Stuart Chambers, Robert Johnston 2001, 2004, 2007, 2010 (print) © Nigel Slack, Alistair Brandon-Jones, Robert Johnston 2013, 2016 (print and electronic)

The rights of Nigel Slack, Alistair Brandon-Jones and Robert Johnston to be identified as authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988.

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ISBN: 978 1 292 09867 8 (print) 978 1 292 09871 5 (PDF) 978 1 292 17190 6 (ePub)

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NOTE THAT ANY PAGE CROSS REFERENCES REFER TO THE PRINT EDITION

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v

Guide to ‘operations in practice’, examples, short cases and case studies xii

Preface xvi

To the Instructor. . . xviii

To the Student. . . xix

Ten steps to getting a better grade in operations management xx

About the authors xxi

Acknowledgements xxii

Publisher’s acknowledgements xxiv

Part One DirECTing ThE OPEraTiOn 3 1 Operations management 4

2 Operations performance 38

3 Operations strategy 74

4 Product and service innovation 109

5 The structure and scope of operations 140

Supplement to Chapter 5 — Forecasting 170

Part Two DEsigning ThE OPEraTiOn 181 6 Process design 182

7 Layout and flow 216

8 Process technology 246

9 People in operations 276

Supplement to Chapter 9 — Work study 306

Part Three DELivEr 315 10 Planning and control 317

11 Capacity management 350

Supplement to Chapter 11 — Analytical queuing models 391

12 Supply chain management 398

13 Inventory management 432

14 Planning and control systems 468

Supplement to Chapter 14 — Materials requirements planning (MRP) 491

15 Lean operations 498

Part Four DEvELOPMEnT 531 16 Operations improvement 532

17 Quality management 572

Supplement to Chapter 17 — Statistical process control 603

18 Managing risk and recovery 616

19 Project management 646

Notes on chapters 681 Useful websites 689 Glossary 691 Index 704

Brief contents

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vii

How is operations performance judged at an operational level? 48

How can operations performance be measured? 63

How do performance objectives trade off against each other? 66

Summary answers to key questions 68 Case study : Operations objectives at the

Penang Mutiara 70 Problems and applications 72 Selected further reading 73

Chapter 3: Operations strategy 74 Introduction 74

What is strategy and what is operations strategy? 76

What is the difference between a ‘top-down’ and ‘bottom-up’ view of operations strategy? 80

What is the difference between a ‘market requirements’ and an ‘operations resources’ view of operations strategy? 84

How can operations strategy form the basis for operations improvement? 92

How can an operations strategy be put together? The process of operations strategy 98

Summary answers to key questions 102 Case study : McDonald’s: half a century

of growth 104 Problems and applications 107 Selected further reading 108

Chapter 4: Product and service innovation 109 Introduction 109

What is product and service innovation? 110 What is the strategic role of product

and service innovation? 114 What are the stages of product and

service innovation? 119 What are the benefits of interactive

product and service innovation? 130 Summary answers to key questions 134

Contents

Guide to ‘operations in practice’, examples, short cases and case studies xii Preface xvi To the Instructor. . . xviii To the Student. . . xix Ten steps to getting a better grade in operations management xx About the authors xxi Acknowledgements xxii Publisher’s acknowledgements xxiv

Part One

DirECTing ThE OPEraTiOn 3

Chapter 1: Operations management 4 Introduction 4

What is operations management? 5 Why is operations management important

in all types of organization? 8 What is the input–transformation–output

process? 13 What is the process hierarchy? 19 How do operations and processes differ? 22 What do operations managers do? 27 Summary answers to key questions 31 Case study : Design house partnerships at

Concept Design Services 33 Problems and applications 36 Selected further reading 36

Chapter 2: Operations performance 38 Introduction 38

Why is operations performance vital in any organization? 39

How is operations performance judged at a societal level? 41

How is operations performance judged at a strategic level? 46

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viii

Case study: Developing ‘Savory Rosti-crisps’ at Dreddo Dan’s 136

Problems and applications 138 Selected further reading 139

Chapter 5: The structure and scope of operations 140 Introduction 140

What do we mean by the ‘structure’ and ‘scope’ of operations’ supply networks? 141

What configuration should a supply network have? 145

How much capacity should operations plan to have? 149

Where should operations be located? 154 How vertically integrated should an

operation’s network be? 156 How do operations decide what to do

in-house and what to outsource? 161 Summary answers to key questions 164 Case study: Aarens Electronic 166 Problems and applications 168 Selected further reading 169

Supplement to Chapter 5: Forecasting 170 Introduction 170

Forecasting – knowing the options 170 In essence forecasting is simple 171 Approaches to forecasting 172 Selected further reading 178

Summary answers to key questions 211 Case study: The Action Response Applications

Processing Unit (ARAPU) 212 Problems and applications 214 Selected further reading 214

Chapter 7: Layout and flow 216 Introduction 216

What is layout and how can it influence performance? 217

What are the basic layout types used in operations? 220

How does the appearance of an operation affect its performance? 231

How should each basic layout type be designed in detail? 234

Summary answers to key questions 240 Case study: The event hub 241 Problems and applications 244 Selected further reading 244

Chapter 8: Process technology 246 Introduction 246

What is process technology? 247 What do operations managers need to

know about process technology? 251 How are process technologies evaluated? 258 How are process technologies

implemented? 264 Summary answers to key questions 271 Case study: Rochem Ltd 272 Problems and applications 274 Selected further reading 274

Chapter 9: People in operations 276 Introduction 276

Why are people so important in operations management? 277

How do operations managers contribute to human resource strategy? 279

How can the operations function be organized? 281

How do we go about designing jobs? 286 How are work times allocated? 300 Summary answers to key questions 301 Case study: Grace faces (three) problems 302

Part Two

DEsigning ThE OPEraTiOn 181

Chapter 6: Process design 182 Introduction 182

What is process design? 183 What should be the objectives of

process design? 185 How do volume and variety affect

process design? 189 How are processes designed in detail? 195

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ix

Problems and applications 304 Selected further reading 305

Supplement to Chapter 9: Work study 306 Introduction 306

Method study in job design 306 Work measurement in job design 309

Supplement to Chapter 11: analytical queuing models 391 Introduction 391

Notation 391 Variability 391 Incorporating Little’s law 393 Types of queuing system 393

Chapter 12: supply chain management 398 Introduction 398

What is supply chain management? 399 How should supply chains compete? 402 How should relationships in supply chains

be managed? 407 How is the supply side managed? 412 How is the demand side managed? 419 What are the dynamics of supply chains? 423 Summary answers to key questions 426 Case study: Supplying fast fashion 428 Problems and applications 430 Selected further reading 431

Chapter 13: inventory management 432 Introduction 432

What is inventory? 434 Why should there be any inventory? 437 How much to order? The volume decision 442 When to place an order? The timing decision 452 How can inventory be controlled? 458 Summary answers to key questions 463 Case study: supplies4medics.com 465 Problems and applications 466 Selected further reading 467

Chapter 14: Planning and control systems 468 Introduction 468

What are planning and control systems? 469 What is enterprise resource planning and

how did it develop into the most common planning and control system? 475

How should planning and control systems be implemented? 483

Summary answers to key questions 486

DELivEr 315

Chapter 10: Planning and control 317 Introduction 317

What is planning and control? 318 What is the difference between planning

and control? 319 How do supply and demand affect planning

and control? 321 What are the activities of planning and control? 327 Summary answers to key questions 345 Case study: subText Studios Singapore 346 Problems and applications 348 Selected further reading 349

Chapter 11: Capacity management 350 Introduction 350

What is capacity management? 351 How are demand and capacity

measured? 354 How should the operation’s base capacity

be set? 364 What are the ways of coping with

mismatches between demand and capacity? 366

How can operations understand the consequences of their capacity decisions? 373

Summary answers to key questions 382 Case study: Blackberry Hill Farm 384 Problems and applications 388 Selected further reading 389

Part Three

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x

Case study: Psycho Sports Ltd 487 Problems and applications 489 Selected further reading 490

Supplement to Chapter 14: Materials requirements planning (MrP) 491 Introduction 491

Master production schedule 491 The bill of materials (BOM) 492 Inventory records 494 The MRP netting process 494 MRP capacity checks 497 Summary 497

Chapter 15: Lean operations 498 Introduction 498

What is lean? 499 How does lean eliminate waste? 506 How does lean apply throughout the

supply network? 519 How does lean compare with other

approaches? 521 Summary answers to key questions 524 Case study: Saint Bridget’s Hospital 525 Problems and applications 527 Selected further reading 528

Summary answers to key questions 566 Case study: Reinventing Singapore’s

libraries 568 Problems and applications 569 Selected further reading 570

Chapter 17: Quality management 572 Introduction 572

What is quality and why is it so important? 573

What steps lead towards conformance to specification? 580

What is total quality management (TQM)? 587 Summary answers to key questions 597 Case study: Turnaround at the

Preston plant 599 Problems and applications 601 Selected further reading 602

Supplement to Chapter 17: statistical process control 603 Introduction 603

Control charts 603 Variation in process quality 604 Control charts for attributes 608 Control chart for variables 610 Summary of supplement 615 Selected further reading 615

Chapter 18: Managing risk and recovery 616 Introduction 616

What is risk management? 617 How can operations assess the

potential causes and consequences of failure? 619

How can failures be prevented? 632 How can operations mitigate the effects

of failure? 637 How can operations recover from the

effects of failure? 639 Summary answers to key questions 642 Case study: Slagelse Industrial

Services (SIS) 643 Problems and applications 645 Selected further reading 645

Part Four DEvELOPMEnT 531

Chapter 16: Operations improvement 532 Introduction 532

Why is improvement so important in operations management? 533

What are the key elements of operations improvement? 540

What are the broad approaches to improvement? 545

What techniques can be used for improvement? 554

How can the improvement process be managed? 559

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Chapter 19: Project management 646 Introduction 646

What is project management? 647 How are projects planned? 653 How are projects controlled? 669 Summary answers to key questions 674 Case study: United Photonics Malaysia Sdn Bhd 675

Problems and applications 679 Selected further reading 680

Notes on chapters 681

Useful websites 689

Glossary 691

Index 704

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xii

guide to ‘operations in practice’, examples, short cases and case studies

Chapter Location Company/example Region Sector/activity Company size

1 Operations management

Lego Europe Manufacturing Large Torchbox UK Web design Small MSF Global Charity Large Pret a Manger Global Hospitality Medium Formule 1 Europe Hospitality Large Ski Verbier Exclusive Europe Hospitality Small Hewlet Packard Manufacturing Large To be a great operations manager…

Global N/A N/A

Concept design services General Design/manufactur- ing/distribution

Medium

2 Operations performance

Novozymes Europe Pharmaceutical Large Patagonia Global Garments Large Holcim Global Cement/aggregates Large Quality Street Global Confectionary Large The Golden Hour General Healthcare N/A UPS Global Distribution Large Mymusli German Web retail Small Aldi Europe Retail Large Foxconn Taiwan Manufacturing Large

The Penang Mutiara Malaysia Hospitality Medium

3 Operations strategy

SSTL UK/ Space Aerospace Medium Apple retail Global Retail Large Amazon Global Web retail Large Apple supply operations Global Manufacturing Large Nokia Global Telecomm Large Sometimes any plan is better than no plan

Europe Military Large

McDonalds Global Hospitality Large

4 Product and service innova- tion

Apple iPhone Global Design Large Kodak Global Manufacturing Smaller Square watermelons Global Agriculture Various IKEA Global Design/ Retail Large Dyson Global Manufacturing Large The circular economy Global Sustainability Various Dreddo Dan’s Global Snack food Large

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xiii

Chapter Location Company/example Region Sector/activity Company size

5 The structure and scope of operations

ARM and Intel Global Design and Design/ manufacturing

Large

Hollywood studios USA Creative Large Surgery and shipping India/Global Healthcare/transporta-

tion Large

Counting clusters Various Various Various HTC Taiwan Design/manufacturing Large Samsun Korea Manufacturing Large Aarens Electronic Netherlands Manufacturing Medium

6 Process design

Changi airport Singapore Air travel Large Fast food Global Hospitality Large Ecover Europe Manufacturing Large Sands Film Studio UK Creative Small Space4 housing UK Construction Medium Sainsbury’s UK Retail Large

Shouldice hospital Canada Healthcare Small

Action response UK Charity Small

7 Layout and flow

Volkswagen Germany Manufacturing Large Google USA Technology Large Factory flow helps surgery UK Healthcare Medium Apple’s shop UK Retail Large Cadbury’s UK Manufacturing/ enter-

tainment Large

Nestlé Global Manufacturing Large

Office cubicles Various Design Various

Zodiac France / Global

Manufacturing Medium

The Event Hub UK Policing Medium

8 Process technology

I Robot Global Various Various Technology or people? Various Various Various QB house Asia Hairdressing Medium Marmite UK Food Large Technology failures UK Technology Large

Who’s in the cockpit? Global Various Airlines Various

Rochem UK Food processing Medium

9 People in operations

W L Gore Global Manufacturing Large High customer contact jobs USA Air travel Large McDonald’s Global Hospitality Large Yahoo USA Technology Large Music while you work Global Various Various

Grace faces (three) problems UK Legal Medium

10 Planning and control

Joanne manages the schedule

UK Retail Medium

Operations control at Air France

Global Airline Large

Uber Global Technology platform Large Can airline passengers be sequenced?

General Airports Various

The hospital triage system Global Healthcare Various The life and times of a chicken sandwich (part 1)

UK Food processing Medium

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xiv

Chapter Location Company/example Region Sector/activity Company size

11 Capacity management

Heathrow UK Airports Large Panettone Italy Food processing Large Amazon Global Retail Large Lowaters UK Horticulture Medium Demand management USA Public Large Baseball games USA Leisure Medium Blackberry hill farm UK Leisure Small

12 supply chain management

Ocado UK Retail Large The North Face Global Garment manufacture Large Apple Global Technology Large The tsunami effect Asia Various Various

Levi Strauss Global Garment manufacture Large

Seven-Eleven Japan Japan Retail Large

Supplying fast fashion Global Garment design/ manufacture/ retail

Large

13 inventory management

National Health Service Blood and Transplant service

UK Public sector Large

Energy inventory Global Power generation Large Treasury wines Australia Wine production Large Gritting roads Europe Public sector Large Flame electrical South Africa Wholesale Small Amazon Global Retail Large Supplies4medics Europe Retail Medium

14 Planning and control systems

Butchers pet care UK (Dog) food production Medium SAP and its partners Global Systems developers The life and times of a chick- en salad sandwich (part 2)

UK Food production Medium

What a waste USA Recycling Large Psycho sports N/A Manufacturing Small

15 Lean operations

Jamie’s lean meals UK Domestic food preparation

N/A

Pixar adopts lean USA Creative Large Toyota Global Auto production Large Waste reduction in airline maintenance

N/A Air transport N/A

Andon’s in Amazon Global Retail Large

Torchbox UK Web design Small

St Bridget’s Hospital Sweden Healthcare Medium

16 improve- ment

Sonae Corporation Portugal Retail Large The checklist manifesto N/A Healthcare Various 6Wonderkinder Germany App developer Small Improvement at Heineken Netherlands Brewer Large

6Sigma at Wipro India Outsourcers Large

Learning from Formula 1 UK Transport Various

Reinventing Singapore’s libraries

Singapore Public sector Medium

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xv

Chapter Location Company/example Region Sector/activity Company size

17 Quality management

TNT Express Global Transport Large Victorinox Switzerland Manufacturing Large Four Seasons Global Hospitality Large Magic moments UK Photography Small Ryanair’s Europe Airline Large Millbrook Proving Ground UK Auto testing Medium Quick Food Products UK Food production Small Fat finger syndrome Global Finance Various Deliberate defectives Canada Manufacturing Large Preston plant Canada Manufacturing Medium

18 Managing risk and recovery

Tesco UK Retail Large Findus Europe Food production Large G4S UK Outsourcer Large The rise of the micromort N/A Various Various Is failure designed-in to airline operations?

Netherlands Airline Large

General motors USA Auto manufacture Large Slagelse Industrial Services Denmark Manufacturing Medium

19 Project management

Disney Global Leisure Large Vasa’s first voyage Sweden Military N/A Halting the growth of ma- laria

Global Healthcare Large

The Scottish Parliament Building

UK Construction Large

United Photonics Malaysia Development Large

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xvi

Preface

introduction – Operations may not run the World, but it makes the World run Operations management is important . It is concerned with creating the services and products upon which we all depend. And all organizations produce some mixture of services and products, whether that organization is large or small, manufacturing or service, for profit or not for profit, public or private. Thankfully, most companies have now come to understand the importance of opera- tions. This is because they have realized that effective operations management gives the potential to improve both efficiency and customer service simultaneously. But more than this, operations management is everywhere , it is not confined to the operations function. All manag- ers, whether they are called Operations or Marketing or Human Resources or Finance, or whatever, manage pro- cesses and serve customers (internal or external). This makes, at least part of their activities ‘operations’.

Operations management is also exciting . It is at the centre of so many of the changes affecting the business world – changes in customer preference, changes in sup- ply networks brought about by internet-based technolo- gies, changes in what we want to do at work, how we want to work, where we want to work, and so on. There has rarely been a time when operations management was more topical or more at the heart of business and cultural shifts.

Operations management is also challenging . Promoting the creativity that will allow organizations to respond to so many changes is becoming the prime task of operations managers. It is they who must find the solutions to technological and environmental chal- lenges, the pressures to be socially responsible, the increasing globalization of markets and the difficult- to- define areas of knowledge management.

The aim of this book This book provides a clear, authoritative, well-structured and interesting treatment of operations management as it applies to a variety of businesses and organizations. The text provides both a logical path through the activi- ties of operations management and an understanding of their strategic context.

More specifically, this text is:

● Strategic in its perspective. It is unambiguous in treating the operations function as being central to competitiveness.

● Conceptual in the way it explains the reasons why operations managers need to take decisions.

● Comprehensive in its coverage of the significant ideas and issues which are relevant to most types of operation.

● Practical in that the issues and challenges of making operations management decisions in practice are dis- cussed. The ‘Operations in practice’ feature, which starts every chapter, the short cases that appear through the chapters, and the case studies at the end of each chapter, all explore the approaches taken by operations managers in practice.

● International in the examples that are used. There are over 110 descriptions of operations practice from all over the world.

● Balanced in its treatment. This means we reflect the balance of economic activity between service and manufacturing operations. Around seventy-five per cent of examples are from organizations that deal primarily in services and twenty-five per cent from those that are primarily manufacturing.

Who should use this book? This book is for anyone who is interested in how services and products are created.

● Undergraduates on business studies, technical or joint degrees should find it sufficiently structured to provide an understandable route through the subject (no prior knowledge of the area is assumed).

● MBA students should find that its practical discus- sions of operations management activities enhance their own experience.

● Postgraduate students on other specialist Master’s degrees should find that it provides them with a well-grounded and, at times, critical approach to the subject.

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xvii

summary answers to key questions Each chapter is summarized in the form of a list of bullet points. These extract the essential points that answer the key questions posed at the beginning of each chapter.

Case studies Every chapter includes a case study suitable for class discussion. The cases are usually short enough to serve as illustrations, but have sufficient content also to serve as the basis of case sessions.

Problems and applications Every chapter includes a set of problem-type exercises. These can be used to check out your understanding of the concepts illustrated in the worked examples. There are also activities that support the learning objectives of the chapter that can be done individually or in groups.

selected further reading Every chapter ends with a short list of further reading that takes the topics covered in the chapter further, or treats some important related issues. The nature of each further reading is also explained.

Distinctive features Clear structure The structure of the book uses the ‘4Ds’ model of opera- tions management that distinguishes between the strate- gic decisions that govern the direction of the operation, the design of the processes and operations that create products and services, planning and control of the deliv- ery of products and services, and the development, or improvement of operations.

illustrations-based Operations management is a practical subject and cannot be taught satisfactorily in a purely theoretical manner. Because of this we have used examples and short ‘opera- tions in practice’ cases that explain some of the issues faced by real operations.

Worked examples Operations management is a subject that blends qualita- tive and quantitative perspectives; ‘worked examples’ are used to demonstrate how both types of technique can be used.

Critical commentaries Not everyone agrees about what is the best approach to the various topics and issues with operations manage- ment. This is why we have included ‘critical commentar- ies’ that pose alternative views to the one being expressed in the main flow of the text.

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xviii

Teaching and learning resources for the 8th edition

To the instructor . . .

new for the eighth edition This 8 th Edition is different. In fact, it’s the biggest set of changes that we have made between editions. We have been consulting widely with our users, who have very kindly contributed to advising us on how we should further improve both the structure and content of the book. First the structure – we have retained the ‘4Ds’ structure (direct, design, delivery and development) that has proved to be exceptionally popular, but we have shifted two chapters that were in the ‘design’ section into the ‘direct’ section. Our users, quite rightly, pointed out that ‘design innovation’ and ‘the structure and scope of operations’ (what was called ‘Supply network design’ in previous editions) were both fundamental and strategic, and so therefore should be included in the first part of the book. We have done this and made both chap- ters more strategic. We have also moved two chapters (Quality management and Project management) into the ‘Development’ section on the grounds that they are both increasingly seen as part of operations improvement. In terms of the content, we have included various aspects of sustainability and Corporate Social Responsibility in each chapter rather than separating the issue out at the end of the book. The issues covered are just too important to be segregated in that way. Needless to say, as usual, we have tried to keep up to date with the (increasingly) rapid changes taking place in the (wonderful) world of operations.

Specifically, the 8th edition includes the following key changes:

● There are now more than 110 of the popular ‘Opera- tions in Practice’ examples throughout the book, over 40 per cent of which are new.

● The importance of sustainability and Corporate Social Responsibility (CSR) has been emphasised further, and included throughout the book.

● We have even further strengthened the emphasis on the idea that ‘operations management’ is relevant to every type of business and all functional areas of the organization.

● Many new ideas in operations management have been incorporated, including the ‘three level’ approach to performance, the relationship between innovation, creativity and design, crowdsourcing, ideas management, business ecosystems, triadic rela- tionships, office layout, telecommuting and organi- sational ‘ambidexterity’. However, we have retained the emphasis on the foundations of the subject.

● Six of the 19 cases at the end of the chapter are new (but the old ones are still available on the website), and provide an up-to-date selection of operations issues.

● The book has been visually redesigned to aid learn- ing. Instructor’s resources A completely new instruc- tor’s manual is available to lecturers adopting this textbook, together with PowerPoint presentations for each chapter and a Testbank of assessment ques- tions. Visit www.pearsoned.co.uk/slack to access these. Most importantly, a new set of online resourc- es to enable students to check their understanding, practise key techniques and improve their problem- solving skills now accompanies the book.

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