BUSQOM 1070 - Exam 2
Project-Process Matrix - Project - Workcenter - Manufacturing Cell - Assembly Line - Continuous Process
Framework depicting when the different production process types are typically used, depending on product volume and product standardized; measures five basic structures... - _____: the product remains in a fixed location, equipment is moved to the product (e.g., construction jobs); low product volume, low product standardization - _____: similar equipment or functions are grouped together (e.g., drilling machines in one area, stamping machines in another); low-med product volume, low-med product standardization - _____ _____: dedicated area where products that are similar in processing requirements are produced; med product volume, medium product standardization - _____ _____: work processes are arranged according to the progressive steps by which the product is made; high-med product volume, high-med product standardization - _____ _____: the flow is continuous, such as with liquids (e.g., gasoline); assembly line only; high product volume, high product standardization
Required Coordination - Outsource
How difficult it is to ensure that the activity will integrate well with the overall process - Don't _____ highly specific activities requiring coordination, back-and-forth information, and immature technology - Do _____ standardized activities with highly-codified information
Buyers; Suppliers
In online bidding, _____ get improved pricing ("market rates") while _____ get new opportunities (for challengers) and new competition (for incumbents)
Order Quantity
Lot-for-lot; varies in different situations
Green Sourcing 1. Costs 2. Sourcing Agents 3. Supply Base 4. Sourcing Strategy 5. Vendors; Products 6. Metrics; Audits
- Can drive reductions by way of product content substitution, waste reduction (e.g., energy, water, packaging, transportation), lower usage, etc. - Should assess how a company uses items that are purchased internally - Six-step process... 1. Assess the opportunity; evaluate/prioritize _____ 2. Engage _____ _____; encourage cross-functional ownership of the process 3. Assess the _____ _____; engage vendors in the process 4. Develop the _____ _____; develop quantitative criteria 5. Implement #4; select _____ and _____ based on criteria 6. Institutionalize #4; implement _____ and _____ to monitor performance
Enterprise Resource Planning (ERP)
- Computer system that integrates application programs in accounting, sales, manufacturing, and other functions in a firm - Can link all areas if a business (manufacturing knows about new orders as soon as they are entered into the system, sales knows the exact order status, etc.) - Typically includes OSCM functions such as sales and distribution, production planning, quality management, material management, and plant maintenance
The Probability Approach
- Considers the probability of running out of stock (doesn't consider how many units short we are) - Plot a normal distribution for the expected demand and note where the amount we have on-hand lies on the curve
Bill-of-Materials (BOM)
- Contains the complete product description, listing the materials, parts, and components along with the sequence in which the product is created - Also referred to as a product structure file or product tree due to how it shows a product being put together and the information to identify each item and the quantity used per unit
Request for Bid (RFB)
- Curates a package specifying everything you want or need to purchase - On the sourcing/purchasing design matrix, it has a medium contract duration, medium/high transaction costs, and medium specificity
Master Production Scheduling (MPS)
- Deals with end items (finished goods) and is a major input to the MRP process - Time-phased plan specifying how many end items the firm plans to build and when
Phantom Bills
- Describe subassemblies that exist only temporarily (e.g., the colored scooter subassembly before packaging) - Are part of another assembly and never go into inventory
Least Unit Cost (LUC)
- Dynamic lot-sizing technique that adds the ordering and inventory carrying costs for each trial lot size and divides by the number of units in each lot size, picking the lot size with the lowest unit cost - Focuses on optimization - Influenced by the length of the planning horizon
Least Total Cost (LTC)
- Dynamic lot-sizing technique that calculates the order quantity by comparing the carrying cost and setup costs for various lot sizes and then selecting the lot in which these are most nearly equal - Influenced by the length of the planning horizon
Total Cost of Ownership (TCO)
- Estimate of the cost of an item that includes all the costs related to the procurement and use of an item, including any related costs in disposing of the item after it is no longer useful - Includes acquisition, ownership, and post-ownership costs - Can be applied to internal costs or costs throughout the supply chain - Draws from finance, accounting, operations management, marketing, IT, etc.
Peg Records
- Files created by the MRP program that allow us to retrace a material requirement upward in the BOM through each level, identifying each parent item that created the demand - When we have a dependent demand for a part and we want to know why
Engineer-to-Order
- Firm works with the customer to design the product, then make it from purchased materials, parts, and components - Emphasis is placed on managing the capacity of critical resources such as engineering and construction crews
Assemble-to-Order
- Firms that combine a number of pre-assembled modules to meet a customer's specifications - Pre-assembled components, subassemblies, and modules are put together in response to a specific customer order - Less expensive but also slower, using WIP - Products include computers, custom shoes, etc. - Requires an engineering design that enables as much flexibility as possible in combining components - Use lean manufacturing to reduce the time required to assemble finished goods
Make-to-Order
- Firms that serve customers from finished goods inventory; must balance the level of finished inventory against the level of customer service - The product is built directly from raw materials and components in response to a specific customer order - Cheaper but takes long (e.g., restaurants, construction, Boeing's process for making commercial aircraft) - Customization, and has backlogs - Emphasis is placed on managing the capacity of critical resources such as engineering and construction crews
Planning Bills
- Group subassemblies to reduce the number of items planned and scheduled - Also called "pseudo" - Create standard "kits" for production
Vertical Integration
- Having or developing the ability to produce goods or services (that can be or previously was purchased) - Can be done backwards with raw materials; supply chain (e.g., AWS, Apple iPhone chips) or forwards with finished goods; customers (e.g., Amazon Go, Apple Stores) - Requires capital, a broader set of managerial skills, and risk in industries with rapid technological change
Supply Chain Uncertainty Framework
- Helps managers understand the nature of demand for their products and then devise the supply chain that can best satisfy that demand - Takes into account product life cycle, demand predictability, product variety, and market standards for lead times and service - Outlines efficient supply chains, responsive supply chains, risk-hedging supply chains, and agile supply chains - Considers required coordination, strategic control, intellectual property, core activities, and strategic activities
Specificity
- How common an item is and, in a relative sense, how many substitutes might be available - Commonly available products can be purchased using a relatively simple process, such as online catalogs, but more complex products may be purchased via RFP
Safety Stock
- How much inventory you set aside/carry in addition to the expected demand - Helps capture variability in demand - A common approach is to keep a certain number of weeks-of-supply in safety stock; a better approach is to use probability
Inventory Turnover
- How often inventory is replaced during the year - Measures sourcing performance; better measure than total average value of inventory - Found by dividing COGS by the average aggregate inventory value - Measure of how efficiently inventory is used
Available to Promise
- Identifies the difference between the number of units currently included in the master schedule and the actual customer orders (e.g., stock held in inventory to be available for future customer orders) - Communicating this can be a powerful tool for coordinating the activities of sales and production
- Master Production Schedule; Bill of Materials; Inventory Records
MRP System Structure The _____ _____ _____states the number of items to be produced during specific time periods; a _____ _____ _____ file identifies the specific materials used to make each item and how much of each material is needed, while the _____ _____ file contains data such as the number of units on-hand and on-order; these are all data sources for the MRP
Assembly; Fabrication; Low
MRP is most valuable to companies involved in _____ operations (e.g., assemble-to-stock, assemble-to-order, engineer-to-order) and least valuable to those in _____ or those with a _____ number of units produced annually, expensive production, or complex R&D (e.g., make-to-stock, make-to-order)
1. Sequence of Steps 2. Dominant Flow Patterns 3. Machines; Processes
Manufacturing Cell Development 1. Group parts into families that follow a common _____ of _____ 2. Identify _____ _____ _____ for each part family 3. _____ and the associated _____ are physically regrouped into cells
Sourcing/Purchasing Design Matrix
Matrix that functions across three vertices... - _____ costs, which judge how difficult/expensive it is to make a purchase; the higher they are, the longer they take to carry out - _____, which gauges how much information is needed to make a purchase; the higher it is, the more highly-involved the product is - And lastly, contract duration
Planned-Order Releases
Planned order receipts offset for lead times
Functional Products
- Include the staples that people buy in a wide range of retail outlets, such as grocery stores and gas stations - Satisfy basic needs (which don't change much over time) and have stable, predictable demand and long life cycles - Invite competition, which can lower profit margins - Have a product life cycle of more than 2 years and a contribution margin of 5% - 20% - Only have 10 - 20 product variations - Average forecast error of only 10% - Lead time for make-to-order products of 6 months - 1 year
Super BOM
- Includes items with fractional options - Created to assign an artificial parent to the BOM
Ownership Costs
- Incurred after the initial purchase and are associated with the ongoing use of the product or material - Energy costs, maintenance and repair, financing, and supply chain/supply network costs - Part of TCO
Acquisition Costs
- Initial costs associated with the purchase of materials, products, and services; represent immediate cash outflow - Purchase planning costs, quality costs, taxes, purchase price, and financing costs - Part of TCO
Continuous Replenishment
- Inventory is replaced frequently, as part of an ongoing process to reduce variability - Helps prevent the bullwhip effect and smooth the flow of materials through the supply chain
Days of Supply
- Inverse of inventory turn scaled to days - Found by multiplying inventory turnover by 365 days
Inventory Transaction Files
- Keep the inventory status file up to date - Tracks changes due to stock receipts, disbursements, scrap losses, wrong parts, canceled orders, etc.
Inventory Records
- Lengthy files that contain information such as items master data (e.g., lead time, safety stock, order quantity), inventory statuses (where we apply the MRP), and subsidiary data (e.g., order details, keeping track, pending action) - Performs analysis from the top of the BOM downward - Also include peg files and inventory transactions files
Lot-for-Lot (L4L)
- Lot sizing strategy that sets planned orders to exactly match net requirements; produces exactly what is needed with none carried over into future periods - Minimizes carrying costs, since there is no inventory left over - Can be limiting, since it doesn't consider setup costs or capacity limitations
Net Change Systems
- MRP system that calculates the impact of a change in the MRP data (e.g., inventory status, BOM, or master schedule) immediately - Requirements and schedules are updated whenever a transaction is processed that has an impact on the item
Time Fences
- Maintain a reasonably controlled flow through the production system - Periods of time having some specified level of opportunity for the customer to make changes - Create flexibility within the MPS via production lead time, commitment of parts and components to a specific item, the relationship between customer and vendor, the amount of excess capacity, and management's willingness to make changes
Innovative Products
- Many companies introduce innovations to incentivize customers to buy - Enable a company to achieve higher profit margins, but their newness makes demand unpredictable - Typically have a lifecycle of only a few months, and imitators can quickly erase any competitive advantage
Outsourcing
- Moving some of a firm's internal activities and decision responsibility to outside providers - Allows firms to focus on their core competencies, creating a competitive advantage while reducing cost
Master Scheduler
- Person who maintains the master schedule and specifies exactly what is to be produced for each item within the group, all while responding to pressures from various functional areas of a firm - Includes all demands from product sales, warehouse replenishment, spares, and interplant requirements - Never loses sight of the aggregate plan - Involved with customer promising and is visible to all layers of management - Objectively manages conflicts between manufacturing, marketing, and engineering - Identifies and communicates all problems
Weeks of Supply
- Preferred measure of supply chain efficiency - Found by multiplying inventory turnover by 52 weeks
Post-Ownership Costs
- Salvage value and disposal costs, long-term environmental impact, warranty and product liabilities, customer dissatisfaction costs, etc. - Part of TCO
Request for Proposal (RFP)
- Solicitation that asks for a detailed proposal from a vendor interested in a supplying an item; sends a problem you are trying to solve to suppliers, and they try to suit you with a selection of items to purchase - Used for purchasing items that are more complex or expensive and where there may be a number of potential vendors - On the sourcing/purchasing design matrix, it has a short contract duration, high transaction costs, and low specificity
e-Procurement
- Speeds purchasing, reduces costs, and integrates the supply chain - Uses online catalogs and exchanges (standard items or industry-specific websites) as well as online auctions (low barriers to entry, reserve auctions for buyers, price is not always an important factor)
MRP Record
- Standard way of viewing the MRP process on paper - Contains gross requirements, scheduled receipts, projected available balance, planned-order receipts, and planned-order releases
Sourcing
Process suitable for procuring products that are strategically important to the firm
Forward Buying
- Stocking up on products (far in advance of when they will actually be used) due to temporary price reductions - Makes variability even worse, creating the bullwhip effect
Lead Time
- The amount of time it takes for materials to get to their intended place - The time needed to respond to customer orders
Strategic Sourcing
- The development and management of supplier relationships to acquire goods and services in a way that aids in achieving the immediate and long-term needs of the business - Must excel in cost, quality, and delivery/responsiveness to be successful
- Known Customers - Aggregate Production Plan
Product demand for end items comes from... - _____ _____: have placed specific orders; generated by sales personnel and interdepartmental transactions - _____ _____ _____: a firm's strategy for meeting demand in the future, implemented through the MPS
Material Requirements Planning (MRP)
- The logic (usually some sort of software) that ties production functions together from a material planning and control view - Manages the number and timing of parts, components, and materials needed to produce end products - Helps firms figure out RPRPRT and provides a schedule for when each item should be ordered or produced - Driven by dependent demand
Logistics (Chpt 13 Definition)
- The management functions that support the complete cycle of material flow, from the purchase and internal control of production materials to the planning and control of WIPs to purchasing, shipping, and distributing finished products - Can be, and often is, outsourced
Lot Sizes
- The part quantities issued in the planned-order receipt and planned-order release sections of an MRP schedule - Generally meet part requirements for one or more periods - Deal with how to balance setup costs and holding costs associated with meeting net requirements generated by the MRP planning process - Include lot-for-lot, economic order quantity, least total cost, and least unit cost
The Bullwhip Effect
- The phenomenon of variability magnification as we move from the customer to the producer in the supply chain - A slight change in consumer sales ripples backward as magnified oscillations upstream - Indicates a lack of synchronization among supply chain members; because supply patterns don't match demand patterns, inventory accumulates at some stages and shortages/delays occur at others - Worsens due to forward buying, but can be prevented using continuous replenishment
Process Selection
- The strategic decision of selecting which kind of production processes to use to produce a product or provide a service - Includes projects, workcenters, manufacturing cells, assembly lines, and continuous processes
Total Average Value of Inventory
- The total investment in inventory at a firm - Made up of the sum of the value (at cost) of the raw material, WIP, and finished goods inventory
Production Processes 1. Sourcing 2. Making 3. Sending
- Used to make any manufacturing item - Include 3 steps... 1. _____ 2. _____ 3. _____
Economic Order Quantity (EOQ)
- Uses an estimate of total annual demand, setup cost, and annual holding cost to find a more economical fixed number - Helps calculate reorder quantity - Not designed for discrete time periods such as MRP; doesn't always cover the entire number of periods - Can succeed only if there is fairly constant demand or safety stock is kept to provide for demand variability
Responsive Supply Chains
- Utilize strategies aimed at being responsive and flexible to customer needs - Innovative products, stable manufacturing processes - Fashion apparel, low-end computers, seasonal products
Agile Supply Chains
- Utilize strategies aimed at being responsive and flexible to customer needs while managing supply chain risks - Innovative products, evolving manufacturing processes - Cell phones, high-end computers, semiconductors
Efficient Supply Chains
- Utilize strategies aimed at creating the highest cost efficiency - Functional products, stable manufacturing processes - Groceries, basic apparel, food, oil/gas
Risk-Hedging Supply Chains
- Utilize strategies aimed at pooling and sharing resources in a supply chain to share risk - Functional products, evolving manufacturing processes - Hydroelectric power, food dependent on weather
Customer Order Decoupling Point
- Where inventory is positioned to allow entities or processes in the supply chain to operate independently - Selected strategically to determine customer lead times; can impact inventory investment - The closer to the customer, the quicker they can be served; faster customer response time often means greater inventory investment
Stable Supply Processes
- Where the manufacturing process and the underlying technology are mature and the supply base is well established - Low or manageable manufacturing complexity - Highly automated with long-term contracts
Evolving Supply Processes
- Where the manufacturing process and the underlying technology are still under early development and are rapidly changing - Requires lots of fine-tuning and is often subject to breakdowns and uncertain yields - Not relaible
Strategic Alliance
- Working closely with everyone for the long-term - On the sourcing/purchasing design matrix, it has a long contract duration, high transaction costs, and high specificity
Spot Purchase
- You perform a one-time quick purchase at the market rate - On the sourcing/purchasing design matrix, it has a short contract duration, low transaction costs, and low specificity
Electric Catalog
- Your partner curates a list of things for you to purchase from - On the sourcing/purchasing design matrix, it has a long contract duration, low transaction costs, and high specificity
Vendor Managed Inventory
- Your vendor buys and holds onto what you need - On the sourcing/purchasing design matrix, it has a long contract duration, low transaction costs, and high specificity
- Functional - Innovative
- _____ products have predictable demand, long product lives, low inventory value, low product variety, high volume, and low stock-out cost - _____ products have unpredictable demand, short product lives, high inventory value, high product variety, low volume, and high stock-out cost
- Stable - Evolving
- _____ supply processes have few breakdowns, high process yields, few quality problems, many supply sources, few process changes, and dependable lead times - _____ supply processes have many breakdowns, low process yields, many quality problems, few supply sources, many process changes, and unpredictable lead times
Scheduled Receipts
Represent orders that have already been released and that are scheduled to arrive as of the beginning of the period
- Sales and Distribution - Production Planning - Material Management - Quality Management - Plant Maintenance
The OSCM functions included within ERP include... - _____ and _____: products and services sold to customers - _____ _____: supports discrete and process manufacturing processes and includes MRP applications - _____ _____: covers all tasks within the supply chain - _____ _____: oversees procedures for inspection and quality assurance - _____ _____: supports activities related to planning and performance repairs and preventative maintenance
Net Requirements
The amount needed when the projected available balance plus the scheduled receipts in a period are not sufficient to cover the gross requirement
Projected Available Balance
The amount of inventory expected as of the end of a period
Investment in Strategic Assets Outsource
The degree of loss that would be incurred if the relationship with the partner were severed - Don't _____ difficult-to-recover investments and highly-specialized assets that require big investments - Do _____ assets that are commonly available from many suppliers
MRP Explosion Process 1. End Items 2. Current On-Hand; Schedule of Orders 3. Net Requirements 4. Planned-Order Receipts; Lead Time 5. 1 6. Gross Requirements
The process of calculating the exact requirements for each item managed by the system 1. The requirement for "_____ _____" (lvl 0) are retrieved from the master schedule 2. The _____ _____-_____ balance and _____ of _____ are used to calculate net requirements 3. _____ _____ data is used to calculate when orders should be received to meet these requirements; this is called the planned-order receipt 4. The _____-_____ _____ are offset by the required _____ _____ to find a schedule for when orders are actually released 5. Move to lvl _____ items 6. The _____ _____ for each lvl 1 item are calculated from the planned-order release schedule for the parents of each lvl 1 item 7. The net requirements, planned-order receipts, and planned-order releases are calculated as described in steps 2 - 4 8. Repeat for all items in BOM
- Frozen - Slushy - Liquid
Time schedules within time fences include... - _____ Time Schedule: no changes/minor changes in a company - _____ Time Schedule: some changes in specific products within a product group as long as parts are available - _____ Time Schedule: almost any variations in products, with the provisions that capacity remains about the same and there are no long lead times involves
Gross Requirements
Total amount required for a particular item; can come from external customer demand or demand calculated due to manufacturing requirements
Safety Stock
Using probability to find _____ _____... - Assume demand over a period of time is normally distributed with a mean and standard deviation - Then, add a service level; say you want a 95% service level (so 95% of the distribution), this would mean that 95% of the time you will not be risking running out - Plot a normal distribution for expected demand and note where the amount we have lies on the curve
Financial
_____ Reasons to Outsource - Improve ROA by reducing inventory and selling unnecessary assets - Generate cash by selling low-return entities - Gain access to new markets, particularly in developing countries - Reduce costs through lower cost structure - Turn fixed costs into variable costs
Organizational
_____ Reasons to Outsource - Improve effectiveness by focusing on what the firm does best - Increase flexibility to meet changing demand for products and services - Increase product and service value by improving response to customer needs
Improvement
_____ Reasons to Outsource - Improve quality and productivity - Shorten cycle time - Obtain expertise, skills, and tech that are otherwise unavailable - Improve risk management - Improve credibility and image by associating with superior providers
Core; Strategic
_____ activities are key to a business, but don't confer a competitive advantage, while _____ activities are a key source of competitive advantage
- High - Low - High - Low - High - Medium
Expected Benefits from MRP - Assemble-to-Stock = _____ expected benefits - Make-to-Stock = _____ expected benefits - Assemble-to-Order= _____ expected benefits - Make-to-Order= _____ expected benefits - Engineer-to-Order= _____ expected benefits - Process = _____ expected benefits
Average Inventory
Expected amount of inventory over time
Average Aggregate Inventory Value
Average total value of all items help in inventory for the firm valued at cost (e.g., raw materials, WIPs, finished goods, distribution inventory "owned" by the company)
Lean Manufacturing
A means of achieving high levels of customer service with minimal inventory investment
Intellectual Property Outsource
A work or invention that is a result of creativity - Don't _____ weak intellectual property that is easy to imitate - Do _____ strong intellectual property that uses difficult-to-imitate technology
Planned-Order Receipts
Amount of an order that is required to meet a net requirement in the period
Cost of Goods Sold (COGS)
Annual cost for a company to produce the goods or services provides to customer
- Workstation Cycle Time - Assembly-Line Balancing - Precedence Relationship
Assembly Line Design - _____ _____ _____: a uniform time interval in which a moving conveyor passes a series of workstations; time between successive units coming off the end of an assembly line - _____-_____ _____: assigning all tasks to a series of workstations so that the required cycle time is met and idle time is minimized; 7-step process - _____ _____: the required order in which tasks must be performed in an assembly line; complicates the assembly-line balancing problem
Modular BOM
- A buildable item that can be produced and stocked as a subassembly - Not final products, but components that can be assembled into multiple end items - If the same item is used in multiple products, this can help minimize the total inventory investment - Can significantly simplify forecasting, scheduling, and control
Make-to-Stock Firms
- A production environment where the customer is served "on-demand" from finished goods inventory and items are manufactured from purchased materials rather than assembled from parts - Most expensive inventory, using finished goods - Retail stores, grocery stores, Amazon - Examples of products include TVs, clothing, packaged food - Essential issue in satisfying customers is to balance inventory costs against the level of customer service; trade-off must be made - Use lean manufacturing to achieve higher service levels for a given inventory investment
Production Process Mapping
- Achieved by developing a high-level map of a supply chain process - Useful to understand how material flows and where inventory is held - This is the first step in analyzing the flow of material through a production process
Specificity
- Blank USB drives are available from many different vendors and have low _____ - A custom-made envelope shaped to fit a specific item is high _____
