advanced cost ch20

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Total Ordering and Carrying Costs

PD/Q+CQ/2

vendor Kanban

a card or marker that signals to a supplier the quantity of materials that need to be delivered and the time of delivery.

production Kanban

a card or marker that specifies the quantity the preceding process should produce.

withdrawal Kanban

a marker or card that specifies the quantity that a subsequent process should withdraw from a preceding process.

constraints

a mathematical expression that expresses a resource limitation.

Linear programming

a method that searches among possible solutions until it finds the optimal solution.

feasible solution

a product mix that satisfies all constraints.

total preventive maintenance

a program of preventive maintenance that has zero machine failures as its standard.

just-in-case inventory management

a traditional inventory model based on anticipated demand.

Ropes

actions taken to tie the rate at which raw material is released into the plant (at the first operation) to the production rate of the constrained resource.

simplex method

an algorithm that identifies the optimal solution for a linear programming problem.

Kanban system

an information system that controls production on a demand-pull basis through the use of cards or markers.

Electronic data interchange (EDI)

an inventory management method that allows suppliers access to a buyer's online database.

Constrained optimization

choosing the optimal mix given the constraints faced by the firm.

binding constraint

constraints whose limited resources are fully used by a product mix.

loose constraints

constraints whose limited resources are not fully used by a product mix.

linear programming model

expresses a constrained optimization problem as a linear objective function subject to a set of linear constraints.

Safety stock

extra inventory carried to serve as insurance against fluctuations in demand.

Lead time

for purchasing, the time to receive an order after it is placed. For manufacturing, the time to produce a product from start to finish.

Internal constraints

limiting factors found within the firm.

External constraints

limiting factors imposed on the firm from external sources.

theory of constraints

method used to continuously improve manufacturing activities and nonmanufacturing activities.

drum-buffer-rope (DBR) system

the TOC inventory management system that relies on the drum beat of the major constrained resource, time buffers, and ropes to determine inventory levels.

Shadow prices

the amount by which throughput will increase for one additional unit of scarce resource.

economic order quantity (EOQ)

the amount that should be ordered (or produced) to minimize the total ordering (or setup) and carrying costs.

constraint set

the collection of all constraints that pertain to a particular optimization problem.

feasible set of solutions

the collection of all feasible solutions.

Just-in-time inventory management

the continual pursuit of productivity through the elimination of waste.

Carrying costs

the costs of holding inventory.

Stock-out costs

the costs of insufficient inventory.

Ordering costs

the costs of placing and receiving an order.

Setup costs

the costs of preparing equipment and facilities so that they can be used for production.

objective function

the function to be optimized, usually a profit function; thus, optimization usually means maximizing profits.

time buffer

the inventory needed to keep the constrained resource busy for a specified time interval.

drummer

the major binding constraint.

Operating expenses

the money an organization spends in turning inventories into throughput.

Inventory

the money an organization spends in turning raw materials into throughput.

reorder point

the point in time at which a new order (or setup) should be initiated. RATE OF USAGE X LEAD TIME AVERAGE OF UDAGE X LEAD TIME

Throughput

the rate at which an organization generates money through sales. (Sales revenue-unit-level variance expense)/time

Continuous replenishment

when a manufacturer assumes the inventory management function for the retailer.


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