CPIM

Earliest operation due date (ODD)

Jobs are completed with the earliest operation due date (work center operation) first.

First come, first served (FCFS)

Jobs are done in the order received. This ignores due dates and processing times but may work if schedules are well-designed and stable.

standard time

The length of time that should be required to (1) set up a given machine or operation and (2) run one batch or one or more parts, assemblies, or end products through that operation.

break-even point

The level of production or the volume of sales at which operations are neither profitable nor unprofitable.

Zone

The specific warehouse location assigned to an order picker

Setup time

The time required for a specific machine, resource, work center, process, or line to convert from the production of the last good piece of item A to the first good piece of item B.

Move time

The time that a job spends in transit from one operation to another in the plant.

Gross requirement

The total of independent and dependent demand for a component before the netting of on-hand inventory and scheduled receipts.

Seasonality

a predictable repetitive pattern of demand measured within a year where demand grows and declines.

lead-time offset

a technique used in MRP where a planned order receipt in one time period requires the release of that order in an earlier time period based on the lead time for the item.

remanufacturing

1) An industrial process in which worn-out products are restored to like-new condition. 2) The manufacturing environment where worn-out products are restored to like-new condition.

Bill of lading (uniform) (B/L)

A carrier's contract and receipt for goods the carrier agrees to transport from one place to another and to deliver to a designated person. In case of loss, damage, or delay, It is the basis for filing freight claims.

Shipping manifest

A document that lists the pieces in a shipment.

distribution warehouse

A facility where goods are received in large-volume uniform lots, stored briefly, and then broken down into smaller orders of different items required by the customer. Emphasis is on expeditious movement and handling.

Batch picking

A method of picking orders in which order requirements are aggregated by product across orders to reduce movement to and from product locations. The aggregated quantities of each product are then transported to a common area where the individual orders are constructed.

Wave picking

A method of selecting and sequencing picking lists or items to minimize the waiting time of the delivered material. Shipping orders may be picked in waves combined by common carrier or destination, and manufacturing orders in waves related to work centers.

Fixed-location storage

A method of storage in which a relatively permanent location is assigned for the storage of each item in a storeroom or warehouse.

Customs broker

A person who manages the paperwork required for international shipping and tracks and moves the shipments through the proper channels.

four P's

A set of marketing tools to direct the business offering to the customer. The four Ps are product, price, place, and promotion.

Unit load

A shipping unit made up of a number of items; bulky material arranged or constrained so the mass can be picked up or moved as a single unit

Storage

Activities performed on goods in storage include physical security, inventory accuracy auditing such as cycle counting, and authorized relocations.

quality function deployment (QFD)

A methodology designed to ensure that all the major requirements of the customer are identified and subsequently met or exceeded through the resulting product design process and the design and operation of the supporting production management system.

lean six sigma

A methodology that combines the improvement concepts of lean and six sigma.

Firm planned order (FPO)

A planned order that can be frozen in quantity and time.

input/output control (I/O)

A technique for capacity control where planned and actual inputs and planned and actual outputs of a work center are monitored.

Queue

A waiting line.

Contract carrier

a carrier that does not serve the general public, but provides transportation for hire for one or a limited number of shippers under a specific contract.

quantity discount

a price reduction allowance determined by the quantity or value of a purchase.

Available time formula

Equipment or workers x Hours in time bucket

Net Requirements Formula

Gross Requirements-scheduled receipts-prior projected available

Pegging

In MRP and MPS, the ability to identify for a given item the sources of its gross requirements and/or allocations. Pegging can be thought of as active where-used information.

Uniform plant loading

In lean, the distribution of work between work stations so that the time required for each station to complete all tasks is as close to equal as possible.

Forecasted Demand Formula

Seasonal Index * Deseasonlized Period Forecast

Available inventory

The on-hand inventory balance minus allocations, reservations, backorders, and (usually) quantities held for quality problems. Often called beginning available balance.

Sole-source supplier

The only supplier capable of meeting (usually technical) requirements for an item.

Mixed-model scheduling

The process of developing one or more schedules to enable mixed-model production.

Order promising

The process of making a delivery commitment (i.e., answering the question, "When can you ship?").

manufacturing process

The series of operations performed upon material to convert it from the raw material or a semi finished state to a state of further completion.

distribution center (DC)

Typically a finished goods warehouse designed for demand-driven rapid distribution to retailers (retail distribution centers), wholesalers, or direct shipments to customers (order fulfillment centers)

due date

the date when purchased material or production material is due to be available for use.

demand during lead time formula

units per period x lead time

Which is true regarding a Pareto analysis? a)It separates the significant few from the trivial many. b)It uses the five focusing steps. c)It primarily used in ABC classification, not as a quality tool. d)It assigns weighted costs associated with internal versus external failure costs

a. A Pareto chart separates the significant few from the trivial many by easily visualizing the most common occurrences

Which is a production strategy that avoids idle capacity but could have issues if the forecast is inaccurate? a)Level b)Chase c)Cellular d)Lean

a. A level strategy avoids excess or idle capacity but requires an accurate forecast or there could be shortfalls or excess inventory.

Which is the biggest tradeoff that needs to be accepted when an industry with strong seasonality chooses a level production strategy? a)Increased inventory carrying cost b)Lower production efficiency c)Skilled workers unavailable for rehire d)Increased overtime costs

a. A level strategy for a seasonal product requires building extra inventory in times of low demand to enable satisfying demand at the seasonal peak. This is called anticipation inventory. It results in higher average inventory levels and therefore higher inventory carrying costs. The other answers are tradeoffs of other methods such as the chase strategy.

What type of inventory record system uses transactions as they occur to track inventory levels? a)Perpetual inventory system b)Periodic inventory system c)Two-bin inventory system d)Cycle counting inventory system

a. A perpetual inventory system is an up-to-date, continuous record of transactions. Answer b is an order replenishment system, not an inventory record system. Answer c is a visual replenishment system. Answer d is inventory that buffers against variability of demand, not an inventory record system.

Which originates with the department or person who will be the ultimate user? a)Purchase requisition b)Purchase order c)Vendor selection d)Request for quotation (RFQ)

a. A purchase requisition is prepared by the person or department who will be the ultimate user. Answer b is not correct because a PO originates from the company's purchasing department and is sent to the vendor or supplier. Answers c and d are not correct because vendor or supplier selection and requests for quotation (to obtain the price information before an order is placed) are the responsibilities of the purchasing department

Which is the root cause of forecast error? a)Random variation around the average demand b)Errors in monitoring the forecast c)Differences in lead times d)Differences between sales and demand

a. All the other answers are not root causes of forecast error.

If a bill of material contains one or more independent demand items that are not sold as spare parts, where will the items be found? a)They will be at the top of the bill. b)They could appear at any point. c)All of the lowest items will be independent demand items. d)The bill should not have any independent demand items.

a. An independent demand item will be the topmost item in the bill of material (or the subject of the bill such as in an indented bill of material). However, when multiple single-level bills are combined in various ways, none of the items on the bill might be independent demand items.

Critical Ratio (CR) formula

(Due Date-Present Date)/Lead Time Remaining

New Forecast Formula

(alpha * Last Demand)+((1-alpha)* last Forecast)

annual order cost formula

(annual Demand x cost per order)/lot size quantity

Average Ordering Cost per order formula

(fixed cost/number of orders)+variable cost

average inventory formula

(inventory at period start + inventory at period end)/2

annual carrying cost formula

(lot size quantity/2) x cost per unit x carrying cost rate

customer service level formula

(orders per period - stockout chances per period)/orders per period

Net profit formula

(sales Revenue - True Variable costs) - operating expenses

Open order (released order)

1) A released manufacturing order or purchase order. 2) An unfilled customer order.

stock keeping unit (SKU)

1) An inventory item. For example, a shirt in six colors and five sizes represents 30 different SKUs. 2) In a distribution system, an item at a particular geographic location. For example, one product stocked at the plant and at six different distribution centers would represent seven SKUs.

work order

1) An order to the machine shop for tool manufacture or equipment maintenance; not to be confused with a manufacturing order. 2) An authorization to start work on an activity (e.g., maintenance) or product.

Reorder quantity

1) In a fixed reorder quantity system of inventory control, the fixed quantity that should be ordered each time the available stock (on-hand plus on-order) falls to or below the reorder point. 2) In a variable reorder quantity system, the amount ordered from time period to time period varies.

value added

1) In accounting, the addition of direct labor, direct material, and allocated overhead assigned at an operation. It is the cost roll-up as a part goes through a manufacturing process to finished inventory. 2) In current manufacturing terms, the actual increase of utility from the viewpoint of the customer as a part is transformed from raw material to finished inventory; the contribution made by an operation or a plant to the final usefulness and value of a product, as seen by the customer.

Safety stock

1) In general, a quantity of stock planned to be in inventory to protect against fluctuations in demand or supply. 2) In the context of master production scheduling, the additional inventory and capacity planned as protection against forecast errors and short-term changes in the backlog.

Cycle time

1) In industrial engineering, the time between the completion of two discrete units of production. For example, the cycle time of motors assembled at a rate of 120 per hour is 30 seconds. 2) In materials management, the length of time from when material enters a production facility until it exits.

days of supply

1) Inventory-on-hand metric converted from units to how long the units will last.

Supplier

1) Provider of goods or services. 2) Seller with whom the buyer does business, as opposed to vendor, which is a generic term referring to all sellers in the marketplace.

intermodal transport

1) Shipments moved by different types of equipment combining the best features of each mode. 2) The use of two or more different carrier modes in the through movement of a shipment.

Physical inventory

1) The actual inventory itself. 2) The determination of inventory quantity by actual count. Physical inventories can be taken on a continuous, periodic, or annual basis.

Traceability

1) The attribute allowing the ongoing location of a shipment to be determined. 2) The registering and tracking of parts, processes, and materials used in production, by lot or serial number.

Variance

1) The difference between the expected (budgeted or planned) value and the actual. 2) In statistics, a measurement of dispersion of data.

profit margin

1) The difference between the sales and cost of goods sold for an organization, sometimes expressed as a percentage of sales. 2) In traditional accounting, the product profit margin is the product selling price minus the direct material, direct labor, and allocated overhead for the product, sometimes expressed as a percentage of selling price.

velocity

1) The rate of change of an item with respect to time. 2) In supply chain management, a term used to indicate the relative speed of all transactions, collectively, within a supply chain community.

Setup

1) The work required to change a specific machine, resource, work center, or line from making the last good piece of item A to making the first good piece of item B. 2) The refitting of equipment to neutralize the effects of the last lot produced (e.g., teardown of the just-completed production, preparation of the equipment for production of the next scheduled item).

Forecasting Process

1. determine process 2. set level of aggregation and units of measure 3. Select horizon and planning bucket. 4. Gather and visualize the data. 5. Choose the forecasting technique. 6. prepare the data for the technique. 7. test the forecast using historical data. 8. forecast. 9. Achieve consensus on the forecast. 10. Continuously improve.

general steps in the iterative capacity planning process

1.Calculate the capacity available (this will be the rated or demonstrated capacity as calculated in the next topic). 2.Calculate the load per time bucket (capacity required), and determine differences between capacity available and capacity required. 3.Resolve differences. Adjust available capacity first, and, if necessary, change the priority plan to match capacity available.

S&OP process

1.Data gathering. Data on demand (sales, backorders, etc.), supply (backlogs, inventory levels, etc.), marketing, finance, and external events are gathered. 2.Demand planning. Forecasts are created, and input data or results are modified, as needed, based on evolving assumptions, price changes, new products, promotions, competitors, the economy, etc. How much demand can be generated through marketing efforts is determined. 3.Supply planning. Production planning compares demand requests against capacity in the long and medium terms to identify constraints. 4.Pre-S&OP meeting. Issues that do not require executive attention to balance supply and demand are resolved, and an agenda of exception items is created. 5.Executive meeting. Executives decide on exception items and ensure that the overall plan can still meet objectives and is consistent with strategy.

Master Scheduling Steps

1.Disaggregate the production plan into preliminary master schedules per item. 2.Aggregate master schedules for all related end items. 3.Perform rough-cut capacity planning. 4.Resolve the differences and publish the MPS.

steps in the ABC inventory control process

1.Multiply the annual unit usage by its unit cost to find the annual dollar usage per product or product family. 2.Rank the products by their annual dollar usage from highest to lowest. 3.Calculate the cumulative percentage of total items. 4.Calculate the cumulative percentage of annual dollar usage. 5.Assign A, B, and C classifications based on the items' cumulative percentage of dollar usage, with A items within about 50 percent to 70 percent of cumulative value, B at about 20 percent more of the cumulative value, and C at the remainder. (These percentages are from the definition of ABC classification given above; others can be used.)

Hoshin

A Japanese word meaning statement of objectives

Pareto chart

A bar graph that displays the results of a Pareto analysis. It may or may not display the 80-20 variation, but it does show a distinct variation from the few compared to the many.

third-party logistics (3PL)

A buyer and supplier team with a third party that provides product delivery services. This third party may provide added supply chain expertise.

pallet

A calculation that determines the space needed for the number of pallets for inventory storage or transportation based on a standard pallet size

pallet positions

A calculation that determines the space needed for the number of pallets for inventory storage or transportation based on a standard pallet size.

manufacturing calendar

A calendar used in inventory and production planning functions that consecutively numbers only the working days so that the component and work order scheduling may be done based on the actual number of workdays available.

inventory adjustment

A change made to an inventory record to correct the balance in order to bring it in line with actual physical inventory balances. The adjustment either increases or decreases the item record on-hand balance.

supplier relationship management (SRM)

A comprehensive approach to managing an enterprise's interactions with the organizations that supply the goods and services the enterprise uses.

Transaction channel

A distribution network that deals with change of ownership of goods and services including the activities of negotiation, selling, and contracting.

Waybill

A document containing a list of goods with shipping instructions related to a shipment.

bottleneck

A facility, function, department, or resource whose capacity is less than the demand placed upon it.

extrinsic forecasting method

A forecast method using a correlated leading indicator; for example, estimating furniture sales based on housing starts.

fixed reorder cycle inventory model

A form of independent demand management model in which an order is placed every n time units.

hedge inventory

A form of inventory buildup to buffer against some event that may not happen. Hedge inventory planning involves speculation related to potential labor strikes, price increases, unsettled governments, and events that could severely impair a company's strategic initiatives. Risk and consequences are unusually high, and top management approval is often required.

Indented bill of material

A form of multilevel bill of material. It exhibits the highest-level parents closest to the left margin, and all the components going into these parents are shown indented toward the right.

Master schedule

A format that includes time periods (dates), the forecast, customer orders, projected available balance, available-to-promise, and the master production schedule.

plan-do-check-action (PDCA)

A four-step process for quality improvement. In the first step (plan), a plan to effect improvement is developed.

Work in process (WIP)

A good or goods in various stages of completion throughout the plant, including all material from raw material that has been released for initial processing up to completely processed material awaiting final inspection and acceptance as finished goods inventory.

histogram

A graph of contiguous vertical bars representing a frequency distribution in which the groups or classes of items are marked on the x axis and the number of items in each class is indicated on the y axis. The pictorial nature of the histogram lets people see patterns that are difficult to see in a simple table of numbers.

control chart

A graphic comparison of process performance data with predetermined computed control limits.

Process flow diagram

A graphical and progressive representation of the various steps, events, and tasks that make up an operations process. Provides the viewer with a picture of what actually occurs when a product is manufactured or a service is performed.

scatter chart

A graphical technique to analyze the relationship between two variables.

product family

A group of products or services that pass through similar processing steps, have similar characteristics, and share common equipment prior to shipment or delivery to the customer.

theory of constraints (TOC)

A holistic management philosophy developed by Dr. Eliyahu M. Goldratt, based on the principle that complex systems exhibit inherent simplicity.

Value stream mapping

A lean production tool to visually understand the flow of materials from supplier to customer that includes the current process and flow as well as the value-added and non-value-added time of all the process steps. Used to lead to reduction of waste, decrease flow time, and make the process flow more efficient and effective.

Master production schedule (MPS)

A line on the master schedule grid that reflects the anticipated build schedule for those items assigned to the master scheduler. The master scheduler maintains this schedule, and in turn, it becomes a set of planning numbers that drives material requirements planning. It represents what the company plans to produce, expressed in specific configurations, quantities, and dates. The MPS is not a sales item forecast that represents a statement of demand. It must take into account the forecast, the production plan, and other important considerations such as backlog, availability of material, availability of capacity, and management policies and goals.

Throughput accounting

A management accounting method based on the belief that because every system has a constraint that limits global performance, the most effective way to evaluate the impact that any proposed action will have on the system as a whole is to look at the expected changes in the global measures of throughput, inventory, and operating expense.

split lot

A manufacturing order quantity that has been divided into two or more smaller quantities, usually after the order has been released.

overlapped schedule

A manufacturing schedule that "overlaps" successive operations. Overlapping occurs when the completed portion of an order at one work center is processed at one or more succeeding work centers before the pieces left behind are finished at the preceding work centers.

customer relationship management (CRM)

A marketing philosophy based on putting the customer first.

vendor-managed inventory (VMI)

A means of optimizing supply chain performance in which the supplier has access to the customer's inventory data and is responsible for maintaining the inventory level required by the customer.

on-time schedule performance

A measure (percentage) of meeting the customer's originally negotiated delivery request date. Performance can be expressed as a percentage based on the number of orders, line items, or dollar value shipped on time.

utilization

A measure (usually expressed as a percentage) of how intensively a resource is being used to produce a good or service. Compares actual time used to available time.

level of service

A measure (usually expressed as a percentage) of satisfying demand through inventory or by the current production schedule in time to satisfy the customers' requested delivery dates and quantities.

record accuracy

A measure of the conformity of recorded values in a bookkeeping system to the actual values; for example, the on-hand balance of an item maintained in a computer record relative to the actual on-hand balance of the items in the stockroom.

stockout percentage

A measure of the effectiveness with which a company responds to actual demand or requirements.

efficiency

A measurement (usually expressed as a percentage) of the actual output relative to the standard output expected.

backflush

A method of inventory bookkeeping where the book (computer) inventory of components is automatically reduced by the computer after completion of activity on the component's upper-level parent item based on what should have been used as specified on the bill of material and allocation records.

Discrete order picking

A method of picking orders in which the items on one order are picked before the next order is picked.

Zone picking

A method of subdividing a picking list by areas within a storeroom for more efficient and rapid order picking.

six sigma

A methodology that furnishes tools for the improvement of business processes. The intent is to decrease process variation and improve product quality.

Critical path method (CPM)

A network planning technique for the analysis of a project's completion time used for planning and controlling the activities in a project.

continuous process improvement (CPI)

A never-ending effort to expose and eliminate root causes of problems; small-step improvement as opposed to big-step improvement

time bucket

A number of days of data summarized into a columnar or row-wise display.

periodic inventory

A physical inventory taken at some recurring interval (e.g., monthly, quarterly, or annual physical inventory).

time fence

A policy or guideline established to note where various restrictions or changes in operating procedures take place.

continuous replenishment

A process by which a supplier is notified daily of actual sales or warehouse shipments and commits to replenishing these sales (for example, by size or color) without stockouts and without receiving replenishment orders.

production planning

A process to develop tactical plans based on setting the overall level of manufacturing output (production plan) and other activities to best satisfy the current planned levels of sales (sales plan or forecasts), while meeting general business objectives of profitability, productivity, competitive customer lead times, etc., as expressed in the overall business plan.

sales and operations planning (S&OP)

A process to develop tactical plans that provide management the ability to strategically direct its businesses to achieve competitive advantage on a continuous basis by integrating customer-focused marketing plans for new and existing products with the management of the supply chain

quality at the source

A producer's responsibility to provide 100 percent acceptable quality material to the consumer of the material.

dock-to-stock

A program through which specific quality and packaging requirements are met before the product is released

Delphi method

A qualitative forecasting technique where the opinions of experts are combined in a series of iterations.

Lot

A quantity produced together and sharing the same production costs and specifications.

Batch

A quantity scheduled to be produced or in production.

Kaizen blitz

A rapid improvement of a limited process area; for example, a production cell

capacity-constrained resource (CCR)

A resource that is not a constraint but will become a constraint unless scheduled carefully. Any resource that, if its capacity is not carefully managed, is likely to compromise the throughput of the organization.

Planned order release

A row on an MRP table that is derived from planned order receipts by taking the planned receipt quantity and offsetting to the left by the appropriate lead time.

final assembly schedule (FAS)

A schedule of end items to finish the product for specific customers' orders in a make-to-order or assemble-to-order environment.

forward scheduling

A scheduling technique where the scheduler proceeds from a known start date and computes the completion date for an order, usually proceeding from the first operation to the last.

Bar code

A series of alternating bars and spaces printed or stamped on parts, containers, labels, or other media, representing encoded information that can be read by electronic readers

Order point

A set inventory level where, if the total stock on hand plus on order falls to or below that point, action is taken to replenish the stock

Lot control

A set of procedures (e.g., assigning unique batch numbers and tracking each batch) used to maintain lot integrity from raw materials from the supplier through manufacturing to consumers.

material requirements planning (MRP)

A set of techniques that uses bill of material data, inventory data, and the master production schedule to calculate requirements for materials.

check sheet

A simple data-recording device.

visual review system

A simple inventory control system where the inventory reordering is based on actually looking at the amount of inventory on hand.

Assignable cause (special cause)

A source of variation in a process that can be isolated, especially when its significantly larger magnitude or different origin readily distinguishes it from random causes of variation.

lead time

A span of time required to perform a process (or series of operations)

leading indicators

A specific business activity index that indicates future trends. For example, housing starts is a leading indicator for the industry that supplies builders' hardware.

work center

A specific production area, consisting of one or more people and/or machines with similar capabilities, that can be considered as one unit for purposes of capacity requirements planning and detailed scheduling.

flow control

A specific production control system that is based primarily on setting production rates and feeding work into production to meet these planned rates, then monitoring and controlling production.

Transit time

A standard allowance that is assumed on any given order for the movement of items from one operation to the next.

control limit

A statistically determined line on a control chart (upper control limit or lower control limit). If a value occurs outside this limit, the process is deemed to be out of control.

cause-and-effect diagram

A tool for analyzing process dispersion. It is also referred to as the Ishikawa diagram (because Kaoru Ishikawa developed it) and the fishbone diagram (because the complete diagram resembles a fish skeleton).

Critical ratio (CR)

Actual processing time remaining divided by lead time remaining (i.e., work remaining) results in a ratio that shows the relative priority of the order compared to other orders at the work center.

backlog

All the customer orders received but not yet shipped. Sometimes referred to as open orders or the order board.

Cost of goods sold (COGS)

An accounting classification useful for determining the amount of direct materials, direct labor, and allocated overhead associated with the products sold during a given period of time.

liabilities

An accounting/financial term (balance sheet classification of accounts) representing debts or obligations owed by a company to creditors.

decoupling inventory

An amount of inventory maintained between entities in a manufacturing or distribution network to create independence between processes or entities.

planning bill of material

An artificial grouping of items or events in bill-of-material format used to facilitate master scheduling and material planning.

finite forward scheduling

An equipment scheduling technique that builds a schedule by proceeding sequentially from the initial period to the final period while observing capacity limits.

Forecast

An estimate of future demand.

reverse auction

An internet auction in which suppliers attempt to underbid their competitors. Company identities are known only by the buyer.

cycle counting

An inventory accuracy audit technique where inventory is counted on a cyclic schedule rather than once a year.

projected available balance (PAB)

An inventory balance projected into the future. It is the running sum of on-hand inventory minus requirements plus scheduled receipts and planned orders.

wall-to-wall inventory

An inventory management technique in which material enters a plant and is processed through the plant into finished goods without ever having entered a formal stock area.

Tariff

An official schedule of taxes and fees imposed by a country on imports or exports.

Scheduled receipt

An open order that has an assigned due date.

Productivity

An overall measure of the ability to produce a good or a service. It is the actual output of production compared to the actual input of resources. Productivity is a relative measure across time or against common entities (labor, capital, etc.).

backorder

An unfilled customer order or commitment.

Inventory turnover formula

Annual COGS/average inventory in dollars

constraint

Any element or factor that prevents a system from achieving a higher level of performance with respect to its goal.

balance sheet equation

Assets= laibilities + Owners' Equity or Owners' equity= Assets - Liabilities

finite loading

Assigning no more work to a work center than the work center can be expected to execute in a given time period.

A work center is used 16 hours per day in a 5-day week, and there are 4 pieces of equipment and 8 operators. Each operator requires one piece of equipment to work. Utilization is 80 percent. What is the available time for a five-day week? a)256 hours b)320 hours c)512 hours d)640 hours

Available Time = Equipment or Workers × Hours in Time Bucket. Here equipment is used because this is the constraint. (The fact that the workers operate in two shifts has already been accounted for by listing 16 hours per day as part of the available hours.) Therefore the calculation is 4 pieces of equipment × (5 days × 16 hours per day) = 320 hours. Utilization is not needed to answer this question

Hoshin planning

Breakthrough planning. A Japanese strategic planning process in which a company develops up to four vision statements that indicate where the company should be in the next five years

What document shows the component parts and number of components needed to make one unit of the part? a)Routing sheet b)Material requirements plan c)Bill of material d)Material requisition

C. Bill Of Material

Detention

Carrier charges and fees applied when truck trailers are retained beyond a specified loading or unloading time.

terminal-handling charges

Carrier charges dependent on the number of times a shipment must be loaded, handled, and unloaded.

Common causes (random causes)

Causes of variation that are inherent in a process over time. They affect every outcome of the process and everyone working in the process.

Supplier certification

Certification procedures verifying that a supplier operates, maintains, improves, and documents effective procedures that relate to the customer's requirements.

quality

Conformance to requirements or fitness for use.

Why does the UN Global Compact single out supply chain partners as an important factor in a firm's ability to comply with its 10 principles?

D. It motivates suppliers in countries with low labor costs toward compliance.

In a conventional manufacturing planning and control environment, which of the following objectives often conflict? a)Meet customer service targets and minimize delivery lead times. b)Minimize production costs and decrease product variety. c)Minimize production costs and increase the length of production runs. d)Meet customer service targets and decrease inventory investment.

D. Meet customer service targets and decrease inventory investment

Utilization Formula

Hours actually worked/available time

Net requirements

In MRP, the net requirements for a part or an assembly are derived as a result of applying gross requirements and allocations against inventory on hand, scheduled receipts, and safety stock.

pacemaker

In lean, the resource that is scheduled based on the customer demand rate for that specific value stream; this resource performs an operation or process that governs the flow of materials along the value stream.

available-to-promise (ATP)

In operations, the uncommitted portion of a company's inventory and planned production maintained in the master schedule to support customer-order promising.

Total cost of ownership (TCO)

In supply chain management, the total cost of ownership of the supply delivery system is the sum of all the costs associated with every activity of the supply stream.

Critical chain method

In the theory of constraints, a network planning technique for the analysis of a project's completion time, used for planning and controlling project activities.

buffer management

In the theory of constraints, a process in which all expediting in a shop is driven by what is scheduled to be in the buffers (constraint, shipping, and assembly buffers).

five focusing steps

In the theory of constraints, a process to continuously improve organizational profit by evaluating the production system and market mix to determine how to make the most profit using the system constraint.

Buffer

In the theory of constraints, buffers can be time or material and support throughput and/or due date performance.

productive capacity

In the theory of constraints, the maximum of the output capabilities of a resource (or series of resources) or the market demand for that output for a given time period.

level schedule

In traditional management, a production schedule or master production schedule that generates material and labor requirements that are as evenly spread over time as possible.

routing

Information detailing the method of manufacture of a particular item. It includes the operations to be performed, their sequence, the various work centers involved, and the standards for setup and run.

Inventory on the balance sheet at the end of the last year was $5,000,000. Inventory at the end of this year was $4,000,000. Last year's annual cost of goods sold (COGS) was $3,000,000. This year's annual COGS was $2,300,000. What is this year's inventory turnover? a)0.511 times b)0.575 times c)0.589 times d)1.957 times

Inventory Turnover = Annual COGS/Average Inventory in Dollars. Average Inventory = (Inventory at Period Start + Inventory at Period End)/2. Since the inventory at the end of the last year will be the same as the inventory at the beginning of this year, it can be used when calculating average inventory. Average Inventory for this year: ($5,000,000 + $4,000,000)/2 = $4,500,000. Inventory Turnover = $2,300,000/$4,500,000 = 0.511 times

Pipeline stock

Inventory in the transportation network and the distribution system, including the flow through intermediate stocking points.

Fluctuation inventory

Inventory that is carried as a cushion to protect against forecast error.

Lot-size inventory

Inventory that results whenever quantity price discounts, shipping costs, setup costs, or similar considerations make it more economical to purchase or produce in larger lots than are needed for immediate purposes.

Inventory buffer

Inventory used to protect the throughput of an operation or the schedule against the negative effects caused by delays in delivery, quality problems, delivery of an incorrect quantity, and so on.

Distribution inventory

Inventory, usually spare parts and finished goods, located in the distribution system (e.g., in warehouses or in transit between warehouses and the consumer).

Earliest job due date (EDD)

Jobs are completed with the earliest end unit due date first, which conforms to the basic output of an MRP system and thus EDD is a default option (the other methods refine or override the MRP output in one way or another)

Direct labor

Labor that is specifically applied to the good being manufactured or used in the performance of the service.

time-phased order point (TPOP)

MRP-like time planning logic technique for independent demand items, where gross requirements come from a forecast, not via explosion.

Mixed-model production

Making several different parts or products in varying lot sizes so that a factory produces close to the same mix of products that will be sold that day.

Direct material

Material that becomes a part of the final product in measurable quantities.

poka-yoke (mistake-proof)

Mistake-proofing techniques, such as manufacturing or setup activity, designed in a way to prevent an error from resulting in a product defect

materials handling

Movement and storage of goods inside the distribution center. This represents a capital cost and is balanced against the operating costs of the facility.

An organization had a forecast for June of 125 units but 140 units actually sold. What is the exponential smoothing forecast for July if the alpha smoothing constant is 0.2? a)53 units b)128 units c)130 units d)137 units

New Forecast = α × Latest Demand + (1 - α) × Previous Forecast = (0.2 × 140) + ((1 - 0.2) × 125) = 128

Cycle stock

One of the two main conceptual components of any item inventory, the cycle stock is the most active component.

interplant demand

One plant's need for a part or product that is produced by another plant or division within the same organization.

average inventory turnover

One-half the average lot size plus the safety stock, when demand and lot sizes are expected to be relatively uniform over time.

A particular inventory item sells 50 units per day a retail store. The review period is on a 20-day cycle, and the lead time is 3 days. Safety stock is set as 2 days of supply. If there are 210 units on hand at the order period, what is the order quantity using a periodic review system? a)1,040 units b)1,090 units c)1,250 units d)1,300 units

Order Quantity = Target Level - Inventory on Hand = T - I. Target Level = Demand per Working Day × (Review Period + Lead Time) + Safety Stock. Safety Stock = Days of Supply × Lead Time = 2 × 50 units = 100 units. Target Level = 50 units per day × (20 days + 3 days) + 100 units = 1,250 units. Order Quantity = 1,250 units - 210 units = 1,040 units

Deseasonalized Demand formula

Period Average Demand/ Seasonal Index

Cumulative Variance (inputs) formula

Previous Cumulative Variance + Actual Input - Planned Input

Cumulative Variance (Outputs) formula

Previous Cumulative Variance + Actual Output - Planned Output

Planned Backlog Formula

Previous Planned Backlog + Planned Input - Planned Output

Ending Inventory Formula

Prior Period Ending Inventory+Production-Demand (Forecast)

Put-away

Put-away involves moving goods to picking or storage areas as directed by the WMS and recording the completion of the move and the storage location.

Safety Stock formula

SD or MAD in units x appropriate service factor for SD or MAD

Load leveling

Spreading orders out in time or rescheduling operations so that the amount of work to be done in sequential time periods tends to be distributed evenly and is achievable.

Kaizen

The Japanese term for improvement; refers to continuing improvement involving everyone—managers and workers.

process capability

The ability of the process to produce parts that conform to (engineering) specifications. Process capability relates to the inherent variability of a process that is in a state of statistical control.

Scheduling

The act of creating a schedule, such as a shipping schedule, master production schedule, maintenance schedule, or supplier schedule.

make-or buy decision

The act of deciding whether to produce an item internally or buy it from an outside supplier.

production plan

The agreed-upon plan that comes from the production planning (sales and operations planning) process—specifically, the overall level of manufacturing output planned to be produced, usually stated as a monthly rate for each product family (group of products, items, options, features, and so on).

Yield

The amount of good or acceptable material available after the completion of a process. Usually computed as the final amount divided by the initial amount converted to a decimal or percentage.

Load

The amount of planned work scheduled for and actual work released to a facility, work center, or operation for a specific span of time. Usually expressed in terms of standard hours of work or, when items consume similar resources at the same rate, units of production.

Queue time

The amount of time a job waits at a work center before setup or work is performed on the job.

statistical process control (SPC)

The application of statistical techniques to monitor and adjust an operation. Often used interchangeably with statistical quality control, although statistical quality control includes acceptance sampling as well as statistical process control.

Idle capacity

The available capacity that exists on nonconstraint resources beyond the capacity required to support the constraint.

average inventory

The average can be calculated as an average of several inventory observations taken over several historical time periods; for example, 12-month ending inventories may be averaged.

mean absolute deviation (MAD)

The average of the absolute values of the deviations of observed values from some expected value.

marketing strategy

The basic plan the marketing function expects to use to achieve its business and marketing objectives in a particular market.

Forecasting

The business function that attempts to predict sales and use of products so they can be purchased or manufactured in appropriate quantities in advance.

Procurement

The business functions of procurement planning, purchasing, inventory control, traffic, receiving, incoming inspection, and salvage operations

Capacity available

The capability of a system or resource to produce a quantity of output in a particular time period.

Capacity

The capability of a worker, machine, work center, plant, or organization to produce output per time period.

Capacity required

The capacity of a system or resource needed to produce a desired output in a particular time period.

Demurrage

The carrier charges and fees applied when rail freight cars and ships are retained beyond a specified loading or unloading time.

ABC classification

The classification of a group of items in decreasing order of annual dollar volume (price multiplied by projected volume) or other criteria.

five whys

The common practice in total quality management is to ask "why" five times when confronted with a problem. By the time the answer to the fifth "why" is found, the ultimate cause of the problem is identified.

cross-docking

The concept of packing products on incoming shipments so they can be easily sorted at intermediate warehouses or for outgoing shipments based on final destination

Employee involvement (EI)

The concept of using the experience, creative energy, and intelligence of all employees by treating them with respect, keeping them informed, and including them and their ideas in decision-making processes appropriate to their areas of expertise

Cost of poor quality

The cost associated with providing poor-quality products or services. There are four categories of costs.

carrying cost

The cost of holding inventory, usually defined as a percentage of the dollar value of inventory per unit of time (generally one year).

Internal failure costs

The cost of things that go wrong before the product reaches the customer.

stockout costs

The costs associated with a stockout. Those costs may include lost sales, backorder costs, expediting, and additional manufacturing and purchasing costs.

prevention costs

The costs caused by improvement activities that focus on the reduction of failure and appraisal costs.

Overhead

The costs incurred in the operation of a business that cannot be directly related to the individual goods or services produced.

External failure costs

The costs related to problems found after the product reaches the customer. This usually includes such costs as warranty and returns.

ordering costs

The costs that increase as the number of orders placed increases. Used in calculating order quantities.

Independent demand

The demand for an item that is unrelated to the demand for other items.

Drum schedule

The detailed production schedule for a resource that sets the pace for the entire system. The drum schedule must reconcile the customer requirements with the system's constraint(s).

Gross margin

The difference between total revenue and the cost of goods sold

Distribution channel

The distribution route, from raw materials through consumption, along which products travel.

rated capacity

The expected output capability of a resource or system. Capacity is traditionally calculated from such data as planned hours, efficiency, and utilization. The rated capacity is equal to hours available × efficiency × utilization.

distribution requirements planning (DRP)

The function of determining the need to replenish inventory at branch warehouses. A time-phased order point approach is used where the planned orders at the branch warehouse level are "exploded" via MRP logic to become gross requirements of the supplying source. In the case of multilevel distribution networks, this explosion process can continue down through the various levels of regional warehouses (master warehouse, factory warehouse, etc.) and become input to the master production schedule. Demand on the supplying sources is recognized as dependent, and standard MRP logic applies.

priority planning

The function of determining what material is needed and when. Master production scheduling and material requirements planning are the elements used for the planning and replanning process to maintain proper due dates on required materials.

capacity requirements planning (CRP)

The function of establishing, measuring, and adjusting limits or levels of capacity. In this context, the term refers to the process of determining in detail the amount of labor and machine resources required to accomplish the tasks of production.

Capacity management

The function of establishing, measuring, monitoring, and adjusting limits or levels of capacity in order to execute all manufacturing schedules (i.e., the production plan, master production schedule, material requirements plan, and dispatch list).

demand management

The function of recognizing all demands for goods and services to support the marketplace

production activity control (PAC)

The function of routing and dispatching the work to be accomplished through the production facility and of performing supplier control.

field service

The functions of installing and maintaining a product for a customer after the sale or during the lease. Field service may also include training and implementation assistance.

freight consolidation

The grouping of shipments to obtain reduced costs or improved utilization of the transportation function

Order point system

The inventory method that places an order for a lot whenever the quantity on hand is reduced to a predetermined level known as the order point.

Shortest process time (SPT)

The jobs with the shortest process time are sequenced first. This ignores due dates but gets the most jobs done overall.

cumulative lead time

The longest planned length of time to accomplish the activity in question.

Critical chain

The longest sequence of dependent events through a project network, considering both technical and resource dependencies in completing the project. The critical chain is the constraint of a project.

cash flow

The net flow of dollars into or out of the proposed project. The algebraic sum, in any time period, of all cash receipts, expenses, and investments. Also called cash proceeds or cash generated.

available time

The number of hours a work center can be used, based on management decisions regarding shift structure, extra shifts, regular overtime, observance of weekends and public holidays, shutdowns, and the like.

Flowchart

The output of a flowcharting process; a chart that shows the operations, transportation, storages, delays, inspections, and so on related to a process.

Quality costs

The overall costs associated with prevention activities and the improvement of quality throughout the firm before, during, and after production of a product.

Employee empowerment

The practice of giving non-managerial employees the responsibility and the power to make decisions regarding their jobs or tasks

backhauling

The process of a transportation vehicle returning from the original destination point to the point of origin.

Order entry

The process of accepting and translating what a customer wants into terms used by the manufacturer or distributor.

demand planning

The process of combining statistical forecasting techniques and judgment to construct demand estimates for products or services (both high and low volume; lumpy and continuous) across the supply chain from the suppliers' raw materials to the consumer's needs.

capable-to-promise (CTP)

The process of committing orders against available capacity as well as inventory. This process may involve multiple manufacturing or distribution sites. Used to determine when a new or unscheduled customer order can be delivered.

Priority control

The process of communicating start and completion dates to manufacturing departments in order to execute a plan.

rough-cut capacity planning (RCCP)

The process of converting the master production schedule into requirements for key resources often including labor, machinery, warehouse space, suppliers' capabilities, and, in some cases, money.

Capacity planning

The process of determining the amount of capacity required to produce in the future.

capacity control

The process of measuring production output and comparing it with the capacity plan, determining if the variance exceeds pre-established limits, and taking corrective action to get back on plan if the limits are exceeded.

Master scheduling

The process where the master schedule is generated and reviewed and adjustments are made to the master production schedule to ensure consistency with the production plan.

Value stream

The processes of creating, producing, and delivering a good or service to the market

purchase order

The purchaser's authorization used to formalize a purchase transaction with a supplier.

process batch

The quantity or volume of output that is to be completed at a workstation before switching to a different type of work or changing an equipment setup.

Planned order receipt

The quantity planned to be received at a future date as a result of a planned order release.

On-hand balance

The quantity shown in the inventory records as being physically in stock.

Throughput

The rate at which the system generates "goal units."

tracking signal

The ratio of the cumulative algebraic sum of the deviations between the forecasts and the actual values to the mean absolute deviation.

Protective capacity

The resource capacity needed to protect system throughput—ensuring that some capacity above the capacity required to exploit the constraint is available to catch up when disruptions inevitably occur.

manufacturing philosophy

The set of guiding principles, driving forces, and ingrained attitudes that helps communicate goals, plans, and policies to all employees and that is reinforced through conscious and subconscious behavior within the manufacturing organization.

value analysis

The systematic use of techniques that identify a required function, establish a value for that function, and finally provide that function at the lowest overall cost

Standard costs

The target costs of an operation, process, or product including direct material, direct labor, and overhead charges.

Purchasing

The term used in industry and management to denote the function of and the responsibility for procuring materials, supplies, and services.

Drum-buffer-rope (DBR)

The theory of constraints method for scheduling and managing operations that have an internal constraint or capacity-constrained resource.

Wait time

The time a job remains at a work center after an operation is completed until it is moved to the next operation. It is often expressed as a part of move time.

Internal setup time

The time associated with elements of a setup procedure performed while the process or machine is not running.

External setup time

The time associated with elements of a setup procedure performed while the process or machine is running.

Run time

The time required to process a piece or lot at a specific operation. Run time does not include setup time.

Replenishment lead time

The total period of time that elapses from the moment it is determined that a product should be reordered until the product is back on the shelf available for use.

For-hire (public) carrier

These are carriers that offer transportation services to others.

Billing and collecting costs

These are the fixed administrative costs related to paying for the services described above. Fewer shipments or fewer pickups and deliveries will reduce these costs (similar to ordering costs).

Reliability

This is performance consistency and how long the unit lasts.

Maintainability

This is the ability to repair the unit if it fails

User-based quality

This is the user's expectations of how a product should perform, its features, its aesthetics, its conformance to specifications, and its services (e.g., speed, consistency, availability, and competence of services)

Value-based quality

This is value for the money and is relative to the competition and perceptions. Perceptions can be influenced by marketing and branding.

Transcendent quality

This is what most people think of when asked to define quality, but it is actually very difficult to define precisely and involves opinions.

Product-based quality

This relates to the grade of the product, for example, a low-cost item or a luxury version with many features.

Product

This specifies the product characteristics, which may need to be designed for ease of shipping and handling.

Finished goods inventory

Those items on which all manufacturing operations, including final test, have been completed. These products are available for shipment to the customer as either end items or repair parts.

inventory

Those stocks or items used to support production (raw materials and work-in-process items), supporting activities (maintenance, repair, and operating supplies), and customer service (finished goods and spare parts).

Slack time

Time remaining for an order minus the sum of remaining setup and run times for an order.

Fixed overhead

Traditionally, all manufacturing costs—other than direct labor and direct materials—that continue even if products are not produced.

Common carrier

Transportation available to the public that does not provide special treatment to any one party and is regulated as to the rates charged, the liability assumed, and the service provided

Inventory accuracy

When the on-hand quantity is within an allowed tolerance of the recorded balance.

protective packaging

Wrapping or covering of material that provides containment, protection, and identification of inventory in a warehouse

Which observation about forecasting is most accurate? a)One should forecast only independent demand items. b)Bias is normal and expected in a forecast. c)Product family forecasts are built up from individual product forecasts. d)Forecasted historical data equals the actual units shipped in the period.

a Answer a is correct because dependent demand items are not forecasted. Answer b is incorrect because a normal property of a good forecast is that it is not biased. Answer c is incorrect because product family forecasts are made first and then individual product forecasts are produced later rather than the other way around. Forecast historical data should use demand estimates rather than actual units shipped, which is an incomplete way to estimate demand.

sensei

a Japanese word meaning teacher or one with experience.

jishuken

a Japanese word meaning voluntary study groups

reverse logistics

a complete supply chain dedicated to the reverse flow of products and materials for the purpose of returns, repair, remanufacture, and/or recycling.

perpetual inventory record

a computer record or manual document on which each inventory transaction is posted so that a current record of the inventory is maintained.

traffic

a department or function charged with the responsibility for arranging the most economic classification and method of shipment for both incoming and outgoing materials and products.

load profile

a display of future capacity requirements based on released and/or planned orders over a given span of time.

picking list

a document that lists the material to be picked for manufacturing or shipping orders.

request for quote (RFQ)

a document used to solicit vendor responses when a product has been selected and price quotations are needed from several vendors.

manufacturing order

a document, group of documents, or schedule conveying authority for the manufacture of specified parts or products in specified quantities.

income statement

a financial statement showing the net income for a business over a given period of time.

balance sheet

a financial statement showing the resources owned, the debts owed, and the owner's share of a company at a given point in time.

random variation

a fluctuation in data that is caused by uncertain or random occurrences.

intrinsic forecast method

a forecast based on internal factors, such as an average of past sales.

Private carrier

a group that provides transportation exclusively within an organization

lot-for-lot (L4L)

a lot-sizing technique that generates planned orders in quantities equal to the net requirements in each period.

periodic replenishment

a method of aggregating requirements to place deliveries of varying quantities at evenly spaced time intervals rather than variably spaced deliveries of equal quantities.

chase production method

a production planning method that maintains a stable inventory level while varying production to meet demand.

level production method

a production planning method that maintains a stable production rate while varying inventory levels to meet demand.

sawtooth diagram

a quantity-versus-time graphic representation of the order point/order quantity inventory system showing inventory being received and then used up and reordered.

Incoterms

a set of rules established by the International Chamber of Commerce that provides internationally recognized rules for the interpretation of the most commonly used trade terms in foreign trade and is routinely incorporated in the contracts for the sale of goods worldwide to provide guidance to all parties involved in the transaction.

store

a storage point located upstream of a work station, intended to make it easier to see customer requirements.

Which is an advantage of back scheduling? a)Avoids inventory buildup and cost. b)Commits resources as early as possible. c)Takes advantage of excess capacity. d)Levels the workload.

a. Back scheduling enables manufacturing to avoid committing resources until needed, thus avoiding a buildup of inventory and cost

.How can the objectives of marketing be met while also considering other stakeholder objectives? a)Marketing and production objectives can be met with higher inventories. b)Marketing and finance objectives can be met with higher inventories. c)Marketing and production objectives can be met with lower inventories. d)Marketing and finance objectives can be met with lower inventories.

a. Both marketing and production objectives can be met with higher inventories. Answer b is incorrect because high inventory investment that will increase costs is of concern to finance. Answer c is incorrect because low inventories do not support marketing or production objectives. Answer d is incorrect because marketing prefers higher inventories

What is the key to reducing the organization's overall terminal handling costs for a time period? a)Maximize the weight of individual shipments. b)Use the air transportation mode more often. c)Use a customs broker. d)Maximize the number of shipments handled by the same carrier.

a. By increasing the weight of individual shipments, creating more TL shipments, there will be fewer shipments during a particular time period and therefore lower terminal handling, pickup and delivery, and billing and collecting costs

Which is true about time fences in a master schedule system? a)Changes in the liquid zone can be made with little or no cost to production. b)In the slushy zone, capacity and materials can easily be committed to new orders. c)Changes in the frozen zone entail scheduling difficulty but no added production cost. d)The master planner can authorize changes in the frozen zone.

a. Changes in the liquid zone can be routine and entail no cost to production. Answer b is not true because it is still relatively difficult to change production priorities in the slushy zone. Answers c and d are not true because the cost of changes in the frozen zone is such that authorization should come from the management level above the master planner.

In period 1, planned input was 36 hours but actual input was 32 hours. In period 2, planned and actual input were 36 hours. In period 3, planned input was 34 hours but actual input was 30 hours. All hours are standard hours. What was the cumulative variance? a)-8 standard hours b)-4 standard hours c)4 standard hours d)8 standard hours

a. Cumulative Variance (Inputs) = Previous Cumulative Variance + Actual Input - Planned Input. First day: 32 hours - 36 hours = -4 hours. Second day, no change. Third day: -4 hours + 30 hours - 34 hours = -8 hours

Determining what is required, how much is required, and when it is required is a key function of what manufacturing planning and control process? a)Material requirements planning b)Master planning c)Demand management d)Capacity requirements planning

a. Determining the answers to these questions is a core objective of material requirements planning: to determine the materials needed.

What term is used for the ratio of standard hours of work produced to actual hours worked? a)Efficiency b)Productivity c)Utilization d)Yield

a. Efficiency = Standard Hours Produced/Hours Actually Worked.

An organization offers free standard shipping and charges less than cost for faster shipping. How can this service be characterized? a)Adds place value and time value. b)Adds a non-value added waste. c)Adds a transaction channel. d)Adds capacity-constrained resources.

a. Free or reduced cost shipping adds place value by locating goods where customers want them and time value by making the goods available when they want them. This organization is adding these values at reduced or no extra cost to the consumer presumably to increase market share by making these part of order qualifiers or order winners depending on what the competition offers.

In the prior question, at which level of demand would the market become the constraint? a)70 per hour b)95 per hour c)160 per hour d)230 per hour

a. Given that Operation 3 was the constraint at 100 units per hour in the initial scenario, a rate of demand significantly less than this makes the market the constraint. Answer b is incorrect because the rate of demand is very close to the operation's rate, making Operation 3 the capacity constrained resource at that point

Which factor favors air transport? a)Highly perishable goods b)Dense goods c)Normal operating conditions

a. Highly perishable goods with a short shelf life are often shipped by air, for example, fresh seafood. Air is also best for light, non-bulky, valuable goods and for emergency shipments.

Why is manufacturing important to the economy? a)It adds value to products to generate wealth. b)It uses natural resources and prevents waste. c)It decreases employment and generates wealth. d)It prevents waste and decreases employment.

a. If manufacturing adds value to products, it also creates wealth, which is important to the economy. Answer c is not correct because while manufacturing does create wealth, it does not necessarily reduce employment. Answer d might be true in some but not all cases, so it is not correct. Answer b is not correct because using natural resources without generating wealth is wasteful

Which manufacturing environment has the longest delivery lead time? a)Make-to-order b)Assemble-to-order c)Package-to-order d)Make-to-stock

a. Including all environments, the sequence from longest to shortest delivery time is ETO (not a choice in this problem), MTO, ATO, package-to-order (a subtype of ATO), and MTS

Visualizing the demand data shows a slight upward trend. If analysis shows that the trend will likely continue, how should the exponential smoothing constant alpha be adjusted if the gap between the actual and forecast results appears to be widening? a)Increase the alpha smoothing constant. b)Make no change to the alpha smoothing constant. c)Decrease the alpha smoothing constant. d)Eliminate the alpha smoothing constant because it is a source of bias.

a. Increasing the alpha smoothing constant will put more weight on the latest demand and thus lag the trend less. There are also other forecasting methods (not discussed in this course) that are better than exponential smoothing to use when there is a strong trend in the data.

If one B is made using 2 Ds and 2 Es, and one A is made using 3 Bs and 1 C, which is true? a)A is the parent of B. b)C is the parent of A. c)A is one parent of D. d)D and E are children of A.

a. Item A is the end item and parent of both assembly A and part B. Answer b, part C, is a child (or component) and not a parent of item A. Answer c, item A, is a parent to items B and C, not D. Answer d, items D and E, are children of B.

Which organizational objectives are often tradeoffs with one another? a)Targeted level of customer service and low-cost plant operation b)Low-cost plant operation and strong cash flows c)High inventory investment and targeted level of customer service d)Cash flow and profitability

a. Meeting targeted levels of customer service and lowest-cost plant operations are in conflict. The latter requires long production runs to minimize the unit costs of production. While this will increase inventory levels and maximize customer service for some products, it also will make manufacturing less flexible and not able to meet the many product needs of different customers. Lean manufacturing techniques can diminish the conflict. The objectives paired in b, c, and d are complementary, and, therefore, these choices are incorrect.

Gross requirements for a period on the material requirements planning grid are 100 units for unit A. Two units of A are needed to make one unit of Z. If net requirements are 80 units, what was the available inventory of A? a)20 units b)40 units c)60 units d)Not enough information was provided to answer the question.

a. Net Requirements = Gross Requirements - Available Inventory. This equation can be rearranged as Available Inventory = Gross Requirements - Net Requirements, resulting in 100 units - 80 units = 20 units. The information on how many As are used for the Zs is not needed to answer this question.

Copper is purified and then extruded into various sizes of copper tubing. Using a VATI analysis, what product flow best matches this type of production? a)V b)A c)T d)I

a. One product (copper) is split off into various types of end products, forming a V shape with the start of the process at the bottom of the V and the end products at the top of the V

Which formula is correct? a)Order Point = Demand During the Lead Time + Safety Stock b)Average Inventory = (Quantity + Safety Stock)/2 c)Economic Order Quantity = (2AS/ic) d)Safety Stock = Order Point + Order Quantity

a. Order Point (OP) = Demand During the Lead Time (DDLT) + Safety Stock (SS). Answer b is incorrect because average inventory is order quantity Q/2 + SS, not (Q + SS)/2. Answer c is incorrect because it omits the square root of the equation shown. The formula expressed in answer d is simply incorrect

Some work center outputs might be measured in meters, others in kilograms, and still others in units. What would be the best thing to standardize to measure capacity required across all of these work centers? a)Hours b)Dollars c)Throughput d)Percentage of final unit

a. Physical units of measure are often converted into standard hours of capacity required to produce an order to avoid issues with different units of measure. Answer b is incorrect; dollars should never be used as a measurement of capacity. Dollars measure the value of throughput

Product A is made from components B and C. Component B is made from parts D and E. Which items should be forecasted? a)Only A b)Only A, B, and C c)Only D and E d)Only B, C, D, and E

a. Product A should be forecasted because it is an independent demand item. As components of A or its subassemblies, the other components are dependent demand items and are planned by material requirements planning.

Which are considered ordering costs? a)Production control costs b)Capital costs c)Risk costs d)Obsolescence costs

a. Production control costs are among the main components of ordering costs, along with production control, setup, lost capacity, and purchase costs. Answers b, c, and d do not include any of these costs and thus are incorrect

.What is the rated capacity of a work center that has available time of 320 hours, utilization of 80 percent, and efficiency of 90 percent? a)230 standard hours b)230 actual hours c)444 standard hours d)444 actual hours

a. Rated Capacity = Available Time × Utilization × Efficiency = 320 hours × 0.8 × 0.9 = 230.4 standard hours, rounded to 230 standard hours. Since this is an expectation based on a time study and set as a standard for this work center, it is a standard hours calculation

Which choice can conflict with a desire to minimize transportation costs? a)Reducing in-transit time. b)Ensuring on-time delivery. c)Shipping in full truckloads. d)Using a consolidation center.

a. Reducing in-transit time typically requires using faster modes of transport, which will raise transportation cost

Which factor favors use of the road mode of transport over other modes? a)Dispersed market b)Lowest carrying cost c)Low variable costs d)High capital cost

a. Road is best suited for moving goods to a dispersed market because they can provide door-to-door service so long as there is a suitable road

Safety stock depends on which of the following? a)Variability of demand b)Inventory carrying cost c)Ordering cost d)Risk of obsolescence

a. Safety stock, also known as fluctuation inventory, exists primarily to accommodate variations in demand. The other answer choices might have an indirect influence on safety stock decisions, but none of them provides the best answer

New equipment and workers are added to a constraint work center. If the process is linear and one unit is input and one is output per operation, what might occur next if demand does not change? a)The next slowest work center in terms of production rate may become the constraint. b)The next fastest work center in terms of production rate may become the constraint. c)The system will not have a constraint any more. d)The market cannot become the constraint

a. Since there is always a constraint in a system, when one constraint is removed, either the next slowest operation will become the constraint or the market will become the constraint, given the assumptions in the scenario. Even though demand did not change, the market could become the constraint if demand is less than the next slowest operation

When purchasing natural products like fruit, what should the supplier agreement specify? a)Allowable variation in quantity b)Exact quantity per order c)Exact delivery dates d)Discounts if paying late

a. Specifying allowable variation in quantity for natural products is an example of the specificity needed in supplier agreements so as to avoid later confusion or disagreement. However, specifying exact delivery dates on products that depend on the weather may also not be possible

Which is an advantage of cycle counting? a)Timely detection and correction of problems b)Reduction of direct labor cost c)Use of idle labor d)Replenishment of inventory

a. The advantages of cycle counting are timely detection and correction of problems, little or no loss of production time, and identification and elimination of causes of error. Answers b and c are incorrect because reducing labor and use of spare labor do not relate to cycle counting. Answer d may be affected by the improved accuracy caused by cycle counting but is not a direct advantage of it

Which cost will decrease if order quantity decreases? a)Annual cost of carrying inventory b)Cost of ordering c)Cost of manufacturing operations d)Cost of customer service

a. The annual cost of carrying inventory will decrease as the order quantity decreases because the average inventory level will fall. Answer b will increase as more orders are placed in the same time period. Answers c and d are not affected by the order quantity

Which is an accurate statement about ABC classification? a)About 20 percent of the items will account for about 80 percent of the total value. b)A items should have the most safety stock. c)A general rule for using ABC classification is to have plenty of everything in inventory. d)C items account for about 80 percent of the total value.

a. The general rule of thumb is that about 20 percent of the items will account for about 80 percent of the total value. Answer b is incorrect because A items should have the tightest control over safety stock levels, not the largest amount of safety stock. Answer c is incorrect; good inventory management would not have plenty of everything in stock. Answer d is incorrect because C items account for about 5 percent, not 80 percent, of the total value

Which is an output of material requirements planning and is also part of the priority plan evaluated in capacity requirements planning? a)Planned order receipt dates for work center outputs b)Open order quantities for families of products c)Priority plan due dates and quantities for end items rather than work center outputs d)Validated capacity for components and assemblies

a. The outputs of MRP include planned order quantities and release dates and the due dates or planned order receipt dates for completion of subassemblies and end items. Answer d is incorrect because the question specifies that this is just being sent to capacity requirements planning, so it has yet to be validated

Which manufacturer would be most likely to use a chase strategy? a)Seasonal ice cream candy bar manufacturer b)Compression socks manufacturer c)Seasonal glassware manufacturer d)Paint manufacturer

a. The seasonal ice cream candy bar manufacturer sells perishable products that also have distinct seasonality. Because perishable products cannot be produced long in advance of need, they cannot use a level strategy and may need to use a chase strategy.

What important assumption is made about quantitative forecasting methods? a)The past is a valid indicator of the future. b)Demand trends are rarely linear. c)Seasonal variations are usually not significant. d)Random variations should not exist in a good forecast.

a. There is no basis for the assumptions in answers c and d that seasonal and random variations are small. Answer b might have some validity, but answer a is an assumption upon which a number of commonly used forecast techniques—such moving averages, seasonal indexes, and smoothing forecasts—are based.

Which is set up when a product is available from several sources but only one source gets all of the business? a)Single-source supplier b)Sole-source supplier c)Multisourcing d)Purchase requisition

a. This question describes a situation in which only one supplier is used even though multiple suppliers exist, which conforms to the definition of single-source supplier

Demand for the prior six months is 56, 58, 55, 50, 48, and 45 units, respectively. What is the three-month moving average forecast for the upcoming month? a)48 units b)52 units c)54 units d)104 units

a. To calculate the three-month moving average, sum the most recent three month's results and divide by the number of months, or 3: 50 units + 48 units + 45 units = 143 units/3 months = 47.67 units rounded up to 48 units.

Item A is produced using the following components, and each has lead times as shown: A (1 week), B (2 weeks), C (2 weeks), D (5 weeks), E (3 weeks), F (1 week), and G (5 weeks). If the following choices represent all of the possible paths through the product tree, what is the longest cumulative lead time for use in calculating the planning horizon? a)A-C-G b)A-C-E-F c)A-B d)A-D

a. To determine the longest cumulative lead time, calculate the cumulative lead time for each path shown. A-C-G = 1 week + 2 weeks + 5 weeks = 8 weeks. A-C-E-F = 1 week + 2 weeks + 3 weeks + 1 week = 7 weeks. A-B = 1 week + 2 weeks = 3 weeks. A-D = 1 week + 5 weeks = 6 weeks. The highest total is the longest cumulative lead time (since these are all of the possible paths), which is A-C-G.

If customers refuse to provide information on demand and only provide orders, what can be used instead to reduce the bullwhip effect? a)Vendor managed inventory b)Consignment c)Sole-source supplier agreements d)Single-source supplier agreements

a. Vendor-managed inventory can reduce the bullwhip effect because the supplier takes over management of the inventories at the customer's location. This type of arrangement would, of course, require the customer to agree to the arrangement.

If a large seasonal order from a major retailer is grouped with regular monthly orders from smaller customers, what will be the effect of producing to the total average demand in comparison with preparing these as separate forecasts? a)Average annual inventory will be higher. b)Production costs will be higher. c)Demand will be less lumpy. d)The major customer's service level will suffer.

a. When a large order is grouped with a number of smaller orders it will mask the lumpiness in demand that actually exists. If the organization produces to a level schedule, it will need to produce far in advance of demand and this will raise average annual inventory levels. However, answer b is incorrect because the total amount of production is not necessarily higher than demand. Answer d is incorrect because the major customer's service level may not suffer (it will only suffer if the large order cannot be filled on schedule).

Packaging

adding industrial packaging to protect shipments from damage.

anticipation inventories

additional inventory above basic pipeline stock to cover projected trends of increasing sales, planned sales promotion programs, seasonal fluctuations, plant shutdowns, and vacations.

Tracking Signal Formula

algebraic sum of forecast deviations/MAD

operating expense

all the money an organization spends in generating goal units.

Terms and conditions

all the provisions and agreements of a contract.

tolerance

allowable departure from a nominal value established by design engineers that is deemed acceptable for the functioning of the good or service over its life cycle.

owners' equity

an accounting/financial term (balance sheet classification of accounts) representing the residual claim by the company's owners or shareholders, or both, to the company's assets less its liabilities.

root cause analysis

analytical methods to determine the core problem(s) of an organization, process, product, market, and so forth.

number of orders formula

annual demand/lot size quantity

total inventory cost formula

annual ordering cost + annual carrying cost

Random variation

any variation left over after seasonality and trends have been accounted for.

rated capacity formula

available time x utilization x efficiency

Which is a good description of the purpose of a fishbone diagram? a)Cost buildup method b)Method to determine the root cause of a symptom c)Capability analysis d)Synonym for a Pareto analysis

b. A fishbone diagram is another name for a cause-and-effect diagram, which is used as an aid in brainstorming ideas to identify root causes of a problem and to solve the problem

Which is an example of employee empowerment? a)Spending up to a certain limit given approval b)Authority to reject product that is within specifications c)Ability to join a worker's union d)Ability to supervise employees at the same organizational level

b. A good example of employee empowerment is the ability to reject units of a product, which might be done even if a product was within specifications, such as if it was almost outside of specifications for multiple different specifications

Which shows the capacity required at each center based on planned and released orders for each time period of the plan? a)Work center profile b)Load profile c)Manufacturing calendar d)Routing

b. A load profile is a graphic comparison of each work center's available capacity and the load established by the planned and released orders for each time period of the plan. Answer a, work center profile, shows the available work center capacity but not the capacity required and is therefore incorrect.

If there is insufficient capacity for the priority plan for a period of the master schedule and this overload is based on actual customer orders, what solution might be most likely to succeed and should be attempted first? a)Make a sales promotion for this period happen in a later period. b)Add an evening shift for equipment that is fully staffed on the current shift. c)Add more workers to equipment that is fully staffed on the current shift. d)Change the schedule to reduce demand.

b. Adding a shift is one way to increase capacity. Overtime could also be used. However, answer c is incorrect because adding workers to equipment that is fully staffed will not be as likely to increase capacity since the equipment becomes the constraint. Answers a and d are incorrect because it is preferable to increase capacity before considering changing the plan or reducing demand.

The master production schedule shows that the priority plan exceeds the capacity available. Which can resolve this situation? a)Increase amount advertising for this period. b)Make a sales promotion for this period happen in a later period. c)Authorize short time. d)Take back some work currently assigned to subcontractors.

b. Altering the timing of a sales promotion to occur later may shift demand to a later period, thus reducing the demand level for the period in question. Answer a is incorrect because increasing marketing spend will likely increase demand and thus make the capacity shortfall worse. Answers c and d are incorrect because these actions would further reduce capacity.

Which items in an indented bill of material will be purchased components? a)All items on the bill b)All items on the bill that do not have further indented items below them c)All items on the bill that are at the rightmost level of indenting d)All items on the bill that are at the leftmost level of indenting

b. An indented bill that is fully expanded will, by convention, not be complete until all lowest-level items are purchased components. Therefore, the items that have no further indented items below them will all be purchased components.

Which letter from a VATI analysis would most likely represent the flow of material through the production process of manufacturing an orbital satellite? a)V b)A c)T d)I

b. An orbital satellite is a complex device assembled from many parts and subassemblies, so it conforms to an A type plant where all the parts converge. Answer a is not correct because this type of plant consists primarily of diverging processes where a few raw materials are processed into a variety of products. Answer c is not correct because this type of plant diverges into many possible product combinations. Answer d is not correct because this is a simple linear flow

Which is true about the components of demand? a)A trend is demand that fluctuates based on the time of the year, week, or day. b)The seasonal index estimates how much demand during the season will be above or below the average. c)Seasonality always occurs in summer, fall, winter, and spring. d)Random variation is constant from period to period by definition

b. Answer a describes seasonality, not trends. Answer c is incorrect because seasonality can occur on a number of cycles, such as monthly, weekly, or daily. Answer d is incorrect because, while random variation averages out over time, period-to-period variation is not uniform.

What is the name of the set of priority planning techniques for planning component items below the end-item level? a)Master scheduling b)Material requirements planning c)Capacity planning d)Production activity control

b. Answer a is a set of priority planning techniques used at the end-item planning level, whereas answer b plans at the component level. Answer c addresses the availability of resources to meet priority requirements. Answer d consists of techniques used to implement the priority plan established by the MRP process.

For the purposes of production planning, product families should be established on the basis of a)market segments. b)similarity of manufacturing process. c)the availability of materials. d)the availability of equipment.

b. Answer a is how marketing might group its markets or customers. Manufacturing needs to know what products share the same manufacturing processes, which is why answer b is correct. Answers c and d, the availability of materials and machinery, affect production capacity but are not the basis for establishing product families.

Which is the most accurate statement about the master production schedule? a)It is a plan that the finance and production departments agree to. b)If the MPS is poorly done, past-due schedules and unreliable delivery promises are expected. c)It is a plan for families of products that manufacturing expects to make in some future period. d)It provides input to the production plan.

b. Answer a is incorrect because the MPS is an agreement between the production and sales and marketing departments, although finance does have a say. Answer c is incorrect because the MPS is a plan for end items. Answer d is incorrect because the production plan provides input to the MPS, not the other way around.

Which basic production planning strategy will build inventory and avoid the costs of excess capacity? a)Chase strategy b)Level production strategy c)Product-based strategy d)Demand matching strategy

b. Answers a and d are the same and do not build inventory because they are designed with the capacity and flexibility to match variations in demand over time. Answer c is not a production strategy.

Why is it important to track a forecast? a)To compare actual sales versus the forecast b)To improve the forecasting method c)To start relying more on actual sales data d)To satisfy marketing's need for reporting

b. Answers a, b, and d are valid reasons for monitoring the forecast to a varying extent. Answer d, however, is not as good a reason as answer b, and answer a violates the principle that forecasts should be of demand and not sales, as does answer c. Answer b is a major and important reason for monitoring the forecast in order to understand demand characteristics, variation, and stability—and to improve the forecast by narrowing the range of forecast error.

The information needed to develop a master schedule will come from which source? a)Capacity requirements plan b)Forecast of individual end items c)Production activity control d)Material requirements plan

b. Answers a, c, and d relate to capacity planning, execution, and priority planning activities that follow the master scheduling process.

What is the portion of inventory or production that has yet to be assigned to specific customer orders? a)Anticipation inventory b)Available-to-promise c)Excess production d)Capable-to-promise

b. Available-to-promise (ATP) inventory has not yet been committed to customer orders. Answers c and d are not appropriate descriptions for inventory that might still have a chance of being sold. Answer a is not a term commonly used to describe ATP inventory.

How many times can a stockout occur if an order is placed at the start of each month? a)1 time b)12 times c)52 times d)365 times

b. Because a stockout can occur only when inventory is getting low, it can occur only before a restocking point. If there are 12 restocking points (one per month), then there are 12 chances for a stockout.

Which are costs of carrying inventory? a)Capital costs and production control costs b)Capital costs and storage costs c)Production control costs and purchasing costs d)Storage costs and purchasing costs

b. Capital and storage costs are two of the three main components of inventory carrying costs, along with risk costs. Answers a, c, and d include either production control or purchasing costs, neither of which is a component of inventory carrying cost.

Which best describes the define, measure, analyze, improve, control (DMAIC) methodology? a)Lean method for implementing the plan-do-check-action (PDCA) steps b)Six sigma method for implementing process improvements c)Lean method for justifying manufacturing expenses d)Six sigma methodology for determining how many defects per opportunity are acceptable

b. DMAIC is a six sigma methodology for determining and solving root causes of issues and tracking their resolution over time

A work center actually produces 320, 325, 330, and 322 standard hours per week for 4 weeks. What is the demonstrated capacity? a)320 standard hours b)324 standard hours c)330 standard hours d)332 standard hours

b. Demonstrated Capacity = Sum of Standard Hours per Time Bucket/Number of Time Buckets = (320 hours + 325 hours + 330 hours + 322 hours)/4 = 1,297 hours/4 = 324.25 standard hours, rounded to 324 standard hours

A work center produces 200 units, 220 units, 210 units, 200 units, and 205 units each day of a 5-day week respectively. If the standard hours per item are 0.5, what is the work center's demonstrated capacity for the week? a)Available time, utilization, and efficiency are not provided, so the answer can't be calculated. b)104 standard hours c)207 standard hours d)414 standard hours

b. Demonstrated capacity can be calculated by multiplying the average number of items produced by the standard hours per item. First, find the average number of items produced by summing the units and dividing by the number of units: (200 units + 220 units + 210 units + 200 units + 205 units)/5 days = 1,035 units/5 days = 207 units per day. Next, multiply this average by the standard hours per item: 207 units per day × 0.5 hours per unit = 103.5 standard hours, rounded to 104 standard hours

How is the order point determined for dependent demand items? a)Order point system b)Material requirements planning c)Periodic review system d)Economic order quantity

b. Dependent demand items are ordered using material requirements planning in a conventional manufacturing planning and control system. Order point systems and periodic review systems are used for independent demand items

Three years of first-quarter results are 150, 175, and 200 units, respectively. If the average demand for all quarters is 220 units, what is the first quarter seasonal index? a)0.682 b)0.795 c)0.909 d)1.257

b. First, determine the period average by summing the first-quarter results and dividing by the number of periods: 150 units + 175 units + 200 units = 525 units/3 years = 175 units. Next, divide this period average demand by the average demand for all periods: 175 units/220 units = 0.795 (rounded).

The deseasonalized demand forecast is 500 units for the next year. If the seasonal index for the first quarter is 1.25, what is the forecast for next year's first quarter? a)100 units b)156 units c)178 units d)625 units

b. First, find the period deseasonalized demand by dividing the annual deseasonalized demand by the number of periods: 500 units / 4 quarters = 125 units. Next, multiply the deseasonalized first quarter demand by the seasonal index: 125 x 1.25 = 156.25, rounded to 156 units.

On the income statement, revenue is $6 million. The cost of goods sold is $4 million, and general and administrative expenses are $1 million. What is the gross margin (gross profit)? a)$1 million b)$2 million c)$3 million d)$11 million

b. Gross Margin = Revenue - Cost of Goods Sold = $6 million - $4 million = $2 million. General and administrative expenses are not deducted when calculating the gross margin

If the order quantity is increased, which occurs? a)The cost of carrying inventory decreases and the cost of ordering increases. b)The cost of carrying inventory increases and the cost of ordering decreases. c)The cost of carrying inventory increases and the cost of ordering increases. d)The cost of carrying inventory decreases and the cost of ordering increases.

b. If the order quantity is increased, inventory levels will increase and thus the cost of carrying inventory will increase. The number of times the orders are placed will decrease, resulting in decreased ordering cost

Which is a benefit of supplier partnerships from the suppliers' perspective? a)The supplier can make fewer deliveries in larger quantities. b)The supplier can improve technological skill sets. c)The supplier can eliminate its own long-term forecasting. d)The supplier can get contracts that cover shorter periods of time.

b. In addition to getting a greater share of the business and getting longer-term contracts, suppliers may get an improved ability to plan, improved technological skill sets, and improved competitiveness

What is the name for inventories that are purchased or manufactured in greater quantities than are immediately in demand? a)Fluctuation inventory b)Lot-size inventory c)Transportation inventory d)Scheduled receipts

b. Lot-size inventory is defined as materials, either purchased or manufactured, ordered in quantities greater than needed for immediate purposes for economic or other reasons. With answer a, fluctuation inventories (safety stock) are carried to protect against forecast. Answer c refers to inventory that is in transit. With answer d, scheduled receipts are quantities of items expected to be received, or arrive, on scheduled due dates

In which scenario is finished goods safety stock or its equivalent needed least? a)For a line of less popular board games at a central distribution center b)For a popular line of make-to-order garage doors c)For server cards sold just to corporate customers who order under strict quantity contracts d)For dry pasta held at a regional distribution center

b. Make-to-order items do not need safety stock, as they are made after orders are received. Answer c is incorrect because there is zero variability in demand due to the strict quantity contract. Answers a and d are incorrect because they are made to stock and not particularly perishable, so safety stock is more likely to be carried

A process has four steps in which each has a yield of 99.7 percent (within 3 sigmas or standard deviations) or a 0.3 percent chance of defective material. What is the probability of a defect for the final finished good? a)0.3 percent b)1.195 percent c)3.988 percent d)98.81 percent

b. Multiplying the yields of each successive operation together shows the net yield: 0.997 × 0.997 × 0.997 × 0.997 = 0.988054 or 98.81 percent (rounded). The probability of a defect is the complement, or 1 - 0.988054 = 0.011946 or 1.195 percent (rounded). This illustrates why six sigma promotes the need for high quality of steps above standard quality levels

A production process is an I-type process from a VATI analysis where operations 1, 2, 3, and 4 operate sequentially and operations 1 through 3 require one unit as input for each one unit of output, but operation 4 requires two units as input to produce one unit of output. Unit processing times are 200 per hour for operation 1, 220 per hour for operation 2, 180 per hour for operation 3, and 100 per hour for operation 4. If demand is 110 per hour, which is true? a)The market is the constraint. b)Operation 3 is the constraint. c)Operation 4 is the constraint. d)Operation 4 is the capacity constrained resource.

b. Operation 3 is the constraint because operation 4 requires two units from it to make one unit of output. Therefore, operations 1 through 3 need to operate at twice the rate of operation 4 to match its production, but it operates at only 1.8 times the rate of operation 4. The market is also not the constraint because demand is higher than the output of operation 4

Which is true of part numbers and their relationship on bills of material? a)The same part number can be used to identify the same product at different stages of production before and after value has been added to it. b)A part at a particular processing stage has one and only one part number. c)The same part used on different bills of material will need different part numbers. d)A part can be either a parent or a child but never both.

b. Part numbers must be unique for control purposes, and a part that receives further processing during production will have a new part number when it exits the work center doing the processing.

Which is a characteristic of demand? a)Mean absolute variation b)Seasonal variation c)Maturity d)Standard deviation

b. Seasonal variation is the only demand characteristic shown. Other major characteristics are trend, random variation, and cyclical variation. The other answers describe some of the tools used in analyzing historical demand data and measuring forecast error.

Which system is unique in its focus on the reduction of defects by reducing variation? a)Lean b)Six sigma c)ERP system d)Theory of constraints

b. Six sigma focuses on the reduction of defects to no more than a statistical six sigma level, or 3.4 defects per million opportunities. Answer a, lean, focuses on eliminating wasteful activities—creating flow and continuous improvement. Answer c, ERP system, is an integrated business process system. Answer d, TOC, focuses on identifying and removing constraints that limit a system's ability to meet its goals

A new work center crew is consistently getting work done faster than standards predict. In due time, what should be done for this work center? a)Nothing needs to be done other than to praise the crew. b)Conduct a new engineering study using time-study techniques. c)Adjust the standard hours to reflect the crew's latest output results. d)Use the crew's output rate increase to tighten the standards for all other work centers.

b. Standard hours per unit are determined using engineering studies based on time-study techniques, so this would be the best way to adjust the standard among the options shown

.In a linear sequence of operations A, B, C, D, and E, each operation receives one unit from raw materials or the prior operation and outputs one unit. Operation A produces 11 units a day, operation B produces 6 units a day, operation C produces 10 units per day, operation D produces 9 units a day and operation E, final assembly, produces 8 units a day. Operation E receives inputs from other parts of the process that do not pass through the constraint and it sends its output to shipping. Demand is for 8 units a day. Where would the constraint buffer be located? a)Before operation A. b)Before operation B. c)Before operation D. d)Before operation E.

b. The constraint buffer is from when raw materials are released to the gateway operation until they reach the constraint, and inventory will accumulate before the constraint. Operation B is the constraint because it has the lowest output of the operations and is less than the market demand

Accountants use the first-in, first-out valuation method for determining the value of inventory on the financial statements. In a period of rising costs, which will occur in relation to the recorded versus actual cost of goods sold (COGS)? a)The recorded COGS will be greater than the current COGS, so inventory will be overvalued. b)The recorded COGS will be less than the current COGS, so inventory will be undervalued. c)The recorded COGS will match the current COGS, so inventory will be fairly stated. d)The recorded COGS will be an average of historical and current prices, so inventory value will be close but not exact.

b. The cost of goods made a month ago will be less than for those made today. The inventory replacement costs of these goods will be higher than their assumed costs were a month ago. Therefore, the inventory will be undervalued

There is a scheduled receipt in week 4 for an item with a two-week lead time. What can be inferred from this information? a)The MRP grid should show a corresponding planned order release in week 2. b)A firm planned order must have been used to provide more lead time. c)This item has yet to be released. d)The grid should show a corresponding planned order receipt for week 4.

b. The item has a two-week lead time, so it should still exist as a planned order receipt for week 4, with a corresponding planned order release in week 2. However, it has already been released, and there will be no planned order release or receipt shown any more. A firm planned order must have been used to provide more lead time than the standard, for example, due to production quality issues that need to be resolved

Which forecasting technique sums demand for a number of past periods and divides by the number of periods? a)Exponential smoothing b)Moving average c)Deseasonalization d)Qualitative analysis

b. The moving average technique depends on the use of average demand data for some number of past periods. Answer d might consider past average demand as a factor but does not rely on it. Answers a and c are smoothing techniques; they might indirectly consider average demand data from the past but not to the extent that moving average forecasting does.

Which is an objective of material requirements planning? a)Keep the factory busy. b)Keep priorities current. c)Determine the forecast. d)Minimize inventory investment.

b. The objective of MRP is to keep priorities, or due dates for end items and components, current. Answer a is an objective of capacity planning, answer c is an input to the master production schedule, and answer d is an overall objective of aggregate inventory management.

Which types of orders are considered to be under the control of the planner? a)Released orders only b)Firm planned orders and released orders only c)Firm planned orders, gross requirements, and released orders only d)Scheduled receipts and released orders only

b. The planner controls firm planned orders and released (open) orders. While released (open) orders may incur a cost to change them, the planner could delay, expedite, or cancel these orders.

In an organization that uses an intermittent manufacturing process type, lead times are long, routings are different for different items, operation times for orders differ, and queues tend to be long. What is likely true of this scenario? a)Elevating the constraint will mitigate most of the issues described in the question. b)The constraint may shift spontaneously and often. c)Drum-buffer-rope scheduling will not be useful in this environment. d)Adding a time buffer before the constraint would simply increase WIP inventory.

b. The question describes a typical intermittent manufacturing environment (work center or batch) and the shifting load on various resources as different routings are used will tend to create bottlenecks in different locations spontaneously. However, while this type of environment presents challenges for drum-buffer-rope scheduling, it can still produce real benefits in terms of increasing throughput and reducing WIP inventories

Which is a major objective of materials management? a)Provide sufficient equitable employment. b)Provide the required level of customer service. c)Support cost accounting by decreasing inventory turns. d)Provide cost information for management decisions.

b. The two primary objectives of materials management are to provide the desired level of customer service and to make the best use of company resources. Answer a is incorrect because, although materials management may result in employment, it is not a primary objective. Answer c is incorrect because materials management would rather increase, not decrease, inventory turns. Answer d is incorrect because cost information is an output of production reporting, not an objective of materials management

In the current production environment, throughput is $3 million per year and operating expenses are $1 million. A proposed investment in a new plant to add capacity would result in sales revenue of $5 million, true variable costs of $2 million, and operating expenses of $1.5 million. What is the net profit for the better of these two options? a)$1.5 million b)$2 million c)$2.5 million d)$3 million

b. There are two ways to calculate net profit in TOC, depending on the information available, and this question requires using both methods since the current system option does not provide information on sales revenue or true variable costs. Net Profit = Throughput - Operating Expense. Current system option: Net Profit = $3 million - $1 million = $2 million. The other option uses the alternate but equivalent formula: Net Profit = (Sales Revenue - True Variable Costs) - Operating Expenses. New plant option: Net Profit = ($5 million - $2 million) - $1.5 million = $1.5 million. Therefore the new plant would increase operating expenses without increasing throughput. (Probably because the capacity would not be in the areas truly needed to increase sales revenues or because the increase in revenues would be offset by an equal increase in true variable costs.) Therefore, no change is the most profitable course of action

Which is set up when a product is unique and available from only one source? a)Single-source supplier b)Sole-source supplier c)Multisourcing d)Purchase requisition

b. This question describes a situation in which there is only one available supplier. Single-source supplier is incorrect because this is when the supplier is the only one used but there are multiple potential suppliers. In this scenario, there is only one potential supplier, making this a sole-source supplier

Using the same partially completed figure and the results of your quarterly leveled production calculation, now calculate the ending inventory per quarter. What is the ending inventory for quarter 3? a)80 units b)95 units c)140 units d)180 units

b. To determine the ending inventory per quarter, use the following calculation for each quarter, starting with quarter 1: Ending Inventory = Prior Period Inventory + Current Production - Current Forecast. For quarter 1, this is 100 units + 115 units - 50 units = 165 units. For quarter 2, this is 165 units + 115 units - 100 units = 180 units. For quarter 3, this is 180 units + 115 units - 200 units = 95 units. See the completed figure below.

What will happen with a moving average forecast of a product with distinct seasonality if the seasonality is included when forecasting is performed? a)The forecast will always have a bias toward overproduction. b)At the end of the seasonal upswing, the forecast will show demand continuing to increase. c)At the end of the seasonal low, the forecast will show demand starting to increase again. d)The forecast will lag the trend unless the results are subsequently deseasonalized

b. Using any time series forecast method without first removing seasonality will result in seasonal upswings being projected to continue upward and seasonal downswings projected to continue downward. Therefore, answer a is incorrect, because the forecast will tend toward underproduction at the end of a seasonal downswing. Answer c is incorrect because the trend will continue downward. Answer d is incorrect because deseasonalization needs to be done before forecasting.

A work center has available time of 500 hours per week. It actually produces units for 400 hours per week. Its efficiency is 90 percent. What is the work center's utilization? a)72 percent b)80 percent c)90 percent d)125 percent

b. Utilization = Hours Actually Worked/Available Time = 400 hours/500 hours = 0.8 = 80 percent. Efficiency is not needed to answer this question.

Which statement is true? a)Cost buildup and storage add value to a product. b)Value starts with the customer. c)Cost and value are synonyms. d)Lean manufacturing means always having product ready for the customer.

b. Value should be defined from the customer's point of view, and any activity that does not add value from the customer's point of view is waste. Answer a is not correct because cost buildup and storage do not add value to the customer. Answer c is not correct because cost is the money a company expends to make the product, and value is customer's perception; thus they are not interchangeable. Answer d is not correct because if the product is always ready for the customer, then the company is maintaining finished goods inventory, which is a form of waste in lean

Which is true in relation to cash flows and work-in-process (WIP) inventory? a)Labor, materials, and overhead must be paid for immediately. b)Labor, materials, and overhead immediately become accounts payable or wages payable. c)WIP inventory becomes an asset that increases cash flow. d)WIP inventory is not recognized as an expense until it is finished and sold, so it has no impact on cash flow immediately

b. WIP inventory represents a cash outflow for materials, labor, and overhead that is said to be absorbed by the materials produced. However, these first become accounts payable or wages payable, since organizations have a certain amount of time to pay all of these things. They become cash outflows fairly quickly, so increasing WIP inventory will negatively impact cash flows

Which is an advantage of work cells? a)Maximum machine use b)Reduced material movement c)Larger batches and lower unit costs d)Reduced requirements for worker skills

b. Work cells can result in reduced material movement, or reduced waste, because workstations are placed together in a flow production system. Answer a is not correct because the cellular layout does not necessarily influence the use of the machine. Answer c is not correct because work cells result in smaller batches. Answer d is not correct because workers in a cell need to be cross-trained to perform more than one function

first period ATP formula

beginning inventory-sum of customer orders before period containing first scheduled MPS receipt

Which quality tool can help focus improvement efforts to resolve the most common customer complaints with the least investment of time and money? a)Check sheet b)Cause-and-effect chart c)Pareto chart d)Control chart

c. A Pareto chart ranks the frequency of issues or problems from most frequent to least frequent so that improvement efforts can be focused to get the most impact from time and money spent on continuous improvements

Using the information in the prior question, what is the annual inventory carrying cost? a)$375 b)$525 c)$720 d)$1,440

c. Annual Inventory Carrying Cost = Quantity/2 × Carrying Cost Rate × Unit Cost = Q/2 × i × c = 800/2 × 0.2 × $9 = $720

Which are primary activities in manufacturing planning and control? a)Inventory management and cost information b)Sales support and cost information c)Production planning and inventory management d)Sales support, demand management, and purchasing

c. Answer a is incorrect because cost information is not an activity (though it is an input to manufacturing planning and control). Answers b and d are incorrect because sales support is not a major activity of MPC, though sales does provide important data used in MPC

Which is a correct financial accounting equation? a)Assets = Liabilities - Owners' Equity b)Income = Revenue - Liabilities c)Owners' Equity = Assets - Liabilities d)Revenue = Cost of Goods Sold - General and Administrative Expenses

c. Answer c is a variant of the correct balance sheet equation: Assets = Liabilities + Owners' Equity. Answer a incorrectly subtracts owners' equity from this equation. Answer b is incorrect because the income statement equation is as follows: Income = Revenue - Expenses, not Revenue - Liabilities. Answer d is incorrect because the cost of goods sold and general and administrative expenses are subtracted from revenue to determine net income (or profit) before taxes.

Which is a valid general principle of forecasting? a)Forecasts are more accurate for individual items than for groups of items. b)Forecasts are more accurate for distant periods of time. c)Every forecast should include an estimate of error. d)Forecasts should be expected to be accurate most of the time.

c. Answers a and b are incorrect. Forecasts are more accurate for groups rather than individual items and for shorter rather than distant time periods. Answer d is incorrect because some forecast error is expected in forecasts. The goal of the forecaster is to anticipate actual demand variation so that appropriate service and safety stock levels can be established.

If the lead time for resupply increases, what should be done regarding safety stock at that location if the customer service level needs to remain unchanged? a)Reduce safety stock levels. b)Keep safety stock levels the same. c)Increase safety stock levels. d)No safety stock should be held in the first place.

c. As lead time increases, to maintain the same level of customer service, one will need to increase safety stock levels

Production control wages average at $400,000 per year, production control supplies and operating expenses average at $40,000 per year, and the average setup costs are $90 per order. If 5,000 orders are placed on average per year, what is the average ordering cost per order? a)$168 per order b)$170 per order c)$178 per order d)$187 per order

c. Average Ordering Cost per Order = (Fixed Cost/Number of Orders) + Variable Cost = ([$400,000 + $40,000]/5,000) + $90 per order = $88 per order + $90 per order = $178 per

Which is recorded in control charts? a)Average of specification limits over time b)Root causes of process variation c)Range of each set of samples taken over time d)Mean of the results from product inspection

c. Control charts provide information on the average and range of each set of samples taken over time. However, they do not record the results of inspections, as inspections occur on the final product, while statistical process control occurs at the work center level

Which is a primary use of a control chart? a)Finding the highest frequency of an event b)Determining the specification limits c)Detecting special causes of variation d)Calculating the cost of implementing quality systems

c. Control charts show the upper and lower limits of normal variation for a process and are used to detect special causes as opposed to random, or common, causes. Answer b is not correct, as control charts do not show specification limits. Instead, they show statistical control limits

Which is an objective of a master production schedule? a)Maximize equipment utilization. b)Keep the sales department satisfied. c)Maintain the targeted level of customer service. d)Minimize inventory investment.

c. Customer service is the primary objective of the MPS, but it must balance the objectives of different functions as reflected in answers a, b, and d.

There are currently 5,000 hydraulic door closers in stock, and analysts project that there will be sales of 58,500 this year. If this turns out to be true, how many days of supply are currently on hand? a)11.7 days b)21.3 days c)31.2 days d)36.7 days

c. Days of Supply = Inventory on Hand/Average Daily Usage. To determine average daily usage, divide the annual usage by 365: 58,500/365 = 160.274. Days of Supply = 5,000/160.274 = 31.197, rounded to 31.2 days

A standard for a work center is 2 units of output per standard hour. In 100 hours, the work center actually produces 210 units of output. What is the work center's efficiency? a)48 percent b)95 percent c)105 percent d)125 percent

c. Efficiency = Standard Hours Produced/Hours Actually Worked. To find the answer to this question, first we need to calculate the standard hours produced. To do this, divide the units actually produced by the standard rate of production: 210 units/2 units per standard hour = 105 hours. Efficiency = 105 hours/100 hours = 1.05 = 105 percent. Alternatively, the same answer can be found by dividing the actual rate of production by the standard rate of production: 210 units/200 units = 105 percent.

Which best describes employee empowerment? a)Management is relieved of the responsibility for monitoring employee results. b)Employees are empowered to determine the specification limits for parts they make. c)Line employees are given a certain degree of authority to make decisions. d)Decision-making power is concentrated with more employees in the upper management group.

c. Employee empowerment includes giving more authority to production workers to make decisions regarding production. Answer a is not correct because management still needs to monitor employees' results

Which option would be most likely to result in a realistic and achievable schedule while also taking advantage of excess capacity? a)Infinite forward scheduling b)Infinite backward scheduling c)Finite forward scheduling d)Finite backward scheduling

c. Finite loading is used to generate a realistic and achievable schedule because it takes available capacity into account and forces scheduling of the promise date to reflect capacity constraints. Forward scheduling allows taking advantage of excess capacity and helps with load leveling

What happens when work centers before a bottleneck produce materials at a rate faster than the bottleneck can handle? a)Overall system throughput increases, up to a limit. b)Overall system throughput increases indefinitely. c)The constraint buffer grows in duration. d)There is a reduction in work-in-process inventory.

c. It doesn't make sense for work centers in front of the bottleneck to produce output at a rate faster than the bottleneck can handle because it only leads to a buildup of WIP inventory, specifically a buildup in the form of an increasing constraint buffer

Under which circumstances will firms generally make-to-stock? a)When demand is unpredictable b)When many product options exist c)When required delivery times are shorter than the time needed to make the product d)When customers require special engineering

c. Make-to-order is more appropriate than make-to-stock for answers a (demand is unpredictable), b (many product options exist), and d (customer requires special engineering).

If risk reduction is the organization's primary motivation when selecting one or more suppliers for a good that is available from several sources, which method should it select? a)Single-source supplier b)Sole-source supplier c)Multisourcing d)Purchase requisition

c. Multisourcing is the best answer because this method reduces the risks of a supplier going out of business or having production issues because multisourcing provides alternative sources of supply.

A work order requires 220 units to be run. The setup time is 2 standard hours. The run time is 0.2 standard hours per unit. Queue and wait time are 0.5 standard hours per unit. What is the operation time for this work order? a)44.0 standard hours b)44.4 standard hours c)46.0 standard hours d)46.6 standard hours

c. Operation Time per Work Order = Setup Time + Run Time = Setup Time + (Quantity × Standard Time per Unit) = 2 hours + (220 units × 0.2 hours per unit) = 46 standard hours.

Which is a category of performance measures that relates to daily work routines, such as cycle time and utilization? a)Tactical metrics b)Strategic metrics c)Operational metrics d)Sustainability metrics

c. Operational metrics relate to daily work. Tactical metrics relate to intermediate-term goals to support the strategic plan. Strategic metrics relate to the long-term goals of a business. Although sustainability can be measured, it is not necessarily associated with daily operations

A door handle assembly is sold as an independent demand item. It has an economic order quantity of 500 units, and the average demand is 100 units per week. The stock keeping location holds 80 units of safety stock. There is a lead time of 3 weeks to order and receive units at the location. What is the order point using an order point system? a)240 units b)300 units c)380 units d)500 units

c. Order Point = Demand During the Lead Time + Safety Stock. Demand During the Lead Time = Units per Period × Lead Time = 100 units per period × 3 week lead time = 300 units during lead time. Order Point = 300 units during lead time + 80 units safety stock = 380 units

The ability to relate the demand for an item shown on a material requirements planning grid back to the parent creating the demand is called what? a)Where-used b)Offsetting c)Pegging d)Exploding

c. Pegging in MRP and MPS relates, or traces, a component to its current sources of demand (for example, to all of its parents for which there is current demand).

The day 56 log for a work center shows planned input of 14 hours, actual input of 16 hours, and a cumulative input variance of -2 hours. For the same day the planned output was 15 hours, the actual output was 14 hours and the cumulative output variance was -5 hours. The day 55 log showed the planned backlog was 7 hours and the actual backlog was 6 hours. What is the planned backlog for day 56? a)-7 hours b)0 hours c)6 hours d)8 hours

c. Planned Backlog = Previous Planned Backlog + Planned Input - Planned Output = 7 hours + 14 hours - 15 hours = 6 hours

A work center consists of 2 machines working 8 hours a day and 5 days a week. Historically, utilization has been 80 percent and efficiency has been 90 percent. To the nearest hour, what is the rated capacity? a)37 hours b)40 hours c)58 hours d)80 hours

c. Rated Capacity = Available Time × Utilization × Efficiency = (2 machines × 8 hours/day × 5 days) × 0.8 × 0.9 = 57.6 hours, rounded to 58 hours.

Which correctly identifies the following examples of costs as internal failure (I), external failure (E), appraisal costs (A), and prevention costs (P)? a)Product recalls = I; scrap and in-line inspections = E; loss of customers = A; machine maintenance and operator training = P b)Machine maintenance and in-line inspections = I; scrap and loss of customers = E; product recalls = A; operator training = P c)Scrap = I; product recalls and loss of customers = E; in-line inspections = A; machine maintenance and operator training = P d)Operator training= I; product recalls and loss of customers = E; scrap and machine maintenance= A; in-line inspection = P

c. Scrap is an internal failure cost because it occurs without the customer seeing it. Product recalls and loss of customers are external failure costs because the first is directly experienced by customers and the second is a direct customer reaction to poor quality. In-line inspections are an appraisal cost because this is an example of a quality control activity. Machine maintenance and operator training are examples of prevention costs because these are investments designed to reduce the chances of quality problems occurring in the first place

When using an order point system for inventory that is planned to have a 95 percent customer service level, what will happen first if demand during the lead time is higher than average? a)The order point will be reached sooner. b)There will be an overstock. c)Safety stock will be sold. d)There will be a stockout.

c. Since the inventory has a high customer service level, this is likely supplied by holding safety stock. When demand during the lead time is higher than average, this means that cycle stock will be depleted and the first thing that will happen is that safety stock will be accessed. If sales are high enough (a 5 percent chance), the safety stock will then be depleted and a stockout will occur

Which is an example of a special cause as opposed to a common cause of a variation in a process? a)Room temperature variations throughout the day b)Poorly trained operators c)Use of expired materials d)Poor process design

c. Special causes can be isolated and assigned to a particular source, and use of expired materials fits this description. Common causes are sources of variation that

Which category of a supplier agreement covers specifications, allowable defects, and grade? a)Price b)Term c)Quality d)Quantity

c. Specifications related to allowable defects and grade are quality elements of supplier agreements. Answers a, b, and c are not correct. Items like discounts and taxes are covered under pricing; items like payment dates and discounts are covered under terms; and items like package size and allowable variation of natural products are covered under quantity.

If the lead time is one week, the review period is one week, the average demand is 100 units per week, and the safety stock is 50 units, what is the target or maximum inventory level? a)150 units b)200 units c)250 units d)300 units

c. Target Level = Demand During the Lead Time (DDLT) + Demand During the Review Time + Safety Stock (SS). The target level = (1 week review time × 100 units/week) + (1 week lead time × 100 units/week) + 50 units of safety stock = 250 units

What is the throughput per year if sales revenue equals $250 million and totally variable costs equal $100 million for the year? a)$2.5 million per year b)$100 million per year c)$150 million per year d)$350 million per year

c. The APICS Dictionary, 15th edition, definition of throughput says in part, "If the goal units are money, throughput is an amount of money per time period. In that case, throughput is calculated as revenues received minus totally variable costs divided by units of the chosen time period." Revenues are $250 million minus $100 million of totally variable costs = $150 million. This amount divided by one year equals $150 million per year. This type of analysis is discussed more in Section J

In a functional layout, a)capital costs are higher than in a product-based layout. b)specialized equipment is used. c)each work center must be flexible. d)there is little buildup of WIP inventory.

c. The advantage to a functional layout is that equipment can handle a wide variety of products. Answer a is incorrect because capital costs generally are higher for a product layout, not a process layout. Answer b is incorrect because dedicated equipment is used in a process layout, hence its relative inflexibility. Answer d is incorrect; there tends to be more WIP inventory in a process layout because, unlike in a product layout, workflow is lumpy because of varying batch sizes and non-standard routings

Which is a characteristic of the master production schedule? a)It facilitates forecasting. b)It works with families of products. c)It is a plan that both the production and sales and marketing departments agree to. d)It cannot be used for order promising or capable-to-promise

c. The master production schedule uses the sales and operation planning process as a primary input in the form of the agreed-upon production plan. The APICS Dictionary, 15th edition, states within its definition of master scheduling that "the sum of the master production schedules for the items within the product family must equal the production plan for that family." The MPS is where this agreed-upon plan between the production and sales and marketing departments is put into effect. Answer a is incorrect because forecasts are an input to the MPS. Answer b is incorrect because the MPS plans at the end-item level, not the product family level. Answer d is incorrect because the MPS is used for order promising.

Which is an objective of purchasing? a)To keep many sources of supply available to ensure competitive pricing b)To control budgetary expenditures of all employees through sound purchase order control c)To obtain goods and services of the required quality at the right cost d)To ensure that goods are always purchased at the lowest possible price

c. The objectives of purchasing are to obtain goods and services of the quality and quantity needed at the right cost, to provide customer service, and to identify qualified suppliers and maintain good relations. Answer a is not correct because many sources of a supply may not be available. Answer b is not correct because purchasing does not control or approve the budgetary expenditures. Answer d is not correct because the lowest price is not necessarily the right price

Using the scenario from the prior question, where is the rope? a)The rope goes from operation B to the raw materials used for the drum operation. b)The rope goes from operation E to operation A. c)The rope goes from operation B to the raw materials used by the gateway operation d)The rope goes from operation A to operation E.

c. The rope pulls from the constraint operation to the entry of materials used at the gateway operation. Operation B is the constraint operation and operation A is the gateway operation

Over a one-year period, work center 12 was available for 14,000 hours (269.2 hours per average week), actually worked 11,980 hours, and produced 12,800 standard hours of work. What was the average weekly rated capacity? a)230 standard hours b)230 actual hours c)246 standard hours d)246 actual hours

c. To calculate rated weekly capacity, first calculate utilization and efficiency. Utilization = Actual Hours/Available Hours = 11,980 hours/14,000 hours = 0.8557. Efficiency = Standard Hours Produced/Actual Hours = 12,800 hours/11,980 hours = 1.0684. Rated Weekly Capacity = Available Weekly Hours × Utilization × Efficiency = 269.2 hours per week × 0.8557 × 1.0684 = 246 hours (rounded).

A bill of resources shows that standard hours of labor for product family A is 0.2 hours per unit and for product family B is 0.4 hours per unit. Planned production is 700 units of A and 400 units of B for the month. If there are 2 workers with 160 hours per month available, what is the surplus or shortfall of labor? (Shortfall will be shown as a negative value.) a)-40 units b)-20 units c)20 units d)40 units

c. To determine if there is a shortfall or surplus of labor for the month, first calculate the available hours by multiplying the available hours per worker by the number of workers: 2 workers × 160 hours per worker = 320 hours. Next, determine the load or total hours required by multiplying the number of units for the family by the standard hours for labor for the product family and summing the results: (700 units × 0.2) + (400 units × 0.4) = 140 hours + 160 hours = 300 hours. Finally, the available hours minus the load equals the surplus or shortfall: 320 hours - 300 hours = 20 hours, a surplus.

Using ABC classification for cycle counting, A items are counted every week, B items are counted quarterly, and C items are counted annually. There are 2,000 A items, 5,000 B items, and 20,000 C items. How many items are counted each day in total if there are 251 workdays in the year? a)395 units b)404 units c)574 units d)808 units

c. To determine the total number of items to count, multiply the number of items by the number of times the item is counted for each class and then sum the results. A items are counted weekly, so this is 52 times per year: 2,000 units × 52 weeks = 104,000 counts. B items are counted quarterly, so this is 4 times per year: 5,000 × 4 = 20,000 counts. C items are counted once, so this is just 20,000 counts. Next, sum the counts: 104,000 counts + 20,000 counts + 20,000 counts = 144,000 counts. Then divide this sum by the number of manufacturing calendar days in the year: 144,000 counts/251 days = 573.7 counts per day, rounded to 574 counts per day.

After an order is released, it turns out that not all of the resources needed are available. What will happen next? a)Work-in-process inventory will be lower. b)Dispatching will arrange this order to occur a little later. c)There will be idle capacity at some work centers unless rescheduled. d)An alternate work center will automatically be used.

c. When an order is released, and all resources are not available, WIP levels are higher, orders miss due dates, customers are left unsatisfied, and holes in the production schedule need to be filled

Assuming that demand levels remain the same, what happens if the order quantity increases? a)Ordering costs increase. b)Average inventory levels decrease. c)Carrying costs increase. d)Economic order quantity shifts.

c. When demand remains the same but order quantity increases, carrying costs will increase, average inventory levels will increase, and ordering costs will decrease.

If the projected available balance would go negative in a period, what should be done? a)Do nothing, as this is normal and expected. b)Change the forecast. c)Schedule a master production schedule receipt for that period. d)Change the plan to have a higher beginning inventory balance.

c. When the projected available balance in the master schedule would go negative, an MPS receipt needs to be scheduled for one or more lots of production.

When using throughput (theory of constraints) accounting, what is an important question to ask marketing and/or production professionals related to the throughput component of the analysis? a)Will we need to hire additional workers or buy auxiliary equipment? b)How quickly will the new capacity be depreciated? c)Will higher output be converted to cash quickly or sit in inventory? d)How will inventory costs be impacted by the proposed change?

c. While all of the questions are good questions to ask when considering whether to make a new investment in capacity, only the question about higher output being converted to cash or adding to inventory levels is related to the throughput component of the analysis. Questions about inventory costs relate to the investment component of the analysis, while the need to hire more workers or make side investments and questions related to depreciation relate to the operating expense component of the analysis

infinite loading

calculation of the capacity required at work centers in the time periods required regardless of the capacity available to perform this work.

truckload (TL) carriers

carriers that deliver/charge only for full truckload shipments.

capacity-related costs

costs generally related to increasing (or decreasing) capacity in the medium- to long-range time horizon.

Planning time fence and slushy zone

creates a middle zone that is called slushy because the master scheduler has the authority to make changes. Some changes will be difficult, however, since capacity is established and materials are ordered.

An organization's average inventory in the aggregate is $3 million. Capital costs are 7 percent per year, storage costs are 8 percent per year, and risk costs are 11 percent per year. What is the annual carrying cost? a)$1,848 b)$450,000 c)$570,000 d)$780,000

d Carrying Cost = Average Annual Inventory × Carrying Cost Rate. To determine the carrying cost rate, sum the capital cost, storage cost, and risk cost percentages: 7% + 8% + 11% = 26%. Carrying Cost = $3,000,000 × 0.26 = $780,000

Which is the best description of a stock keeping unit (SKU)? a)Sodas in a 6-pack and a 12-pack are the same SKU if the cans are the same SKU. b)White shirts of the same style and in the same box but in different locations are the same SKU. c)Wires of different gauge that are stocked on the same reels are the same SKU. d)Televisions on display and identical boxed models at the same location are the same SKU.

d. A stock keeping unit identifies the same size and type of item at a particular stock keeping location. The televisions unboxed for display and the same models still in boxes are the same units at the same location

Using the information from the prior question, what was the actual backlog for day 56? a)-7 hours b)0 hours c)6 hours d)8 hours

d. Actual Backlog = Previous Actual Backlog + Actual Input - Actual Output = 6 hours + 16 hours - 14 hours = 8 hours

Which often has the advantages of providing better response to customer wishes, lowering cost, speeding decision making, and helping to get people who are directly aware of problems more involved in solving them? a)Allowing customers to provide feedback in their own words b)Getting upper managers out on the shop floor on a daily basis c)Getting middle managers more involved in everyday decision making d)Allowing people further down the management structure to make decisions independently

d. Allowing people further down the management structure to make independent decisions, or employee empowerment, can have all of the advantages listed in the question. The other answers may provide some but not all of these advantages

Which is a major input to a material requirements planning system? a)Production plan b)Capacity requirements plan c)Production activity control schedule d)Master production schedule

d. Although answer a is an input to the MPS and therefore indirectly an input to MRP, it is not as accurate as answer d. Answers b and c validate and implement the priority plan produced by the MRP system.

.If the inventory turnover ratio is 6 times and the average inventory is $2.5 million, what is the annual cost of goods sold? a)$2.4 million b)$8.5 million c)$12.5 million d)$15 million

d. Annual Cost of Goods Sold = Inventory Turnover Ratio × Average Inventory in Dollars = 6 × $2.5 million = $15 million

Annual demand for an item that costs $9 is 14,000 units, and it has a lot size of 800 units. If the cost per order is $30 and the carrying cost is 20 percent, what is the annual ordering cost? a)$105 b)$225 c)$375 d)$525

d. Annual Ordering Cost = Number of Orders × Cost per Order. Number of Orders = Annual Demand/Lot Size = A/Q = 14,000 units/800 units = 17.5 orders per year. Annual Ordering Cost = 17.5 × $30 = $525

Which type of inventories are used in production but do not end up in the final product? a)Raw materials b)Work-in-process inventory c)Finished goods d)Maintenance, repair, and operating supplies

d. By definition, MRO supplies (maintenance supplies, spare parts, lubricants, and so on) are used to support operations and maintenance, and they are generally not directly incorporated into the product

Which is an inventory rule that is often applied to C items in ABC classification? a)Order frequently to minimize carrying cost. b)Ensure that forecast errors are tracked and followed up on quickly. c)Order in small quantities. d)Keep ample safety stocks.

d. C items in ABC classification can have looser controls than other items because they represent a low dollar volume. Therefore, holding large safety stocks of these items, ordering in bulk, and ordering rarely will ensure that these items are in stock with little negative cost impact.

What should happen in the material requirements planning system if delivery dates change due to purchasing or delivery delays? a)Get master scheduler approval to change the plan, because it is in the frozen zone. b)Shift the items to the slushy zone to give them more time. c)Nothing should be done, as there should be slack time built in and the plan shouldn't change. d)Replanning should be done to keep plans current.

d. Changes in required delivery dates and delays in purchasing and component deliveries are all examples where replanning would be needed in the material requirements planning system. A system objective is to keep priorities current with changing conditions.

Using the information from two questions prior, what is the economic order quantity (EOQ)? a)216 units b)305 units c)483 units d)683 units

d. Economic Order Quantity = Square Root of [(2 × Annual Demand × Order Cost)/(Carrying Cost Rate × Item Cost)] = Square Root of (2AS/ic) = Square Root of [(2 × 14,000 units × $30 per unit)/(0.2 × $9) = Square Root of ($840,000/$1.80) = Square Root of 466,666.7 = 683.13 units rounded to 683 units

Which of the five focusing steps is the point where an organization might add more resources to a capacity-constrained resource? a)Identify the constraint b)Exploit the constraint c)Subordinate everything else to the constraint d)Elevate the constraint

d. If the initial three of the five focusing steps are not sufficient, more action may be required, such as placing additional resources at the CCR. This is termed elevating the constraint

How are suppliers utilized in a lean production environment? a)The supplier's cost reductions are directly awarded to the buyer. b)The buyer will use short-term contracts to cover multiple small deliveries. c)The buyer will take over production planning for the supplier due to the increased complexity. d)The supplier is viewed as an upstream work center.

d. In a lean environment, cost savings are shared by the customer and the supplier, which is also why answer a is incorrect. Answer b is not correct because customers and suppliers enter into long-term contracts with multiple short deliveries and the supplier is viewed as an upstream work center. Because of better communication such as information sharing, pull signal, and long-term contracts with smaller deliveries, planning becomes much more simple; therefore, answer c is incorrect

Using the scenario from three questions ago, where else might inventory be stored in this production system? a)Before and after operation E only. b)At the raw materials before operation A and after operation E only. c)At the raw materials before operation A and before operation E only. d)At the raw materials before operation A and before and after operation E.

d. In addition to the constraint buffer before operation B, there will also be an assembly buffer before the final assembly point E because there are materials made in processes that do not pass through the constraint but are assembled here. There will also be a shipping buffer after operation E and prior to shipping. Finally, there will be stores of raw materials before operation A to ensure that this gateway operation is not starved for materials

Consider the metaphor of a funnel with a certain amount of "product" in the funneling cone leading to a choke point. Which part of this metaphor would correspond to the capacity available? a)The quantity of "product" in the funneling cone b)The rate at which "product" is added to the funneling cone c)The internal area of the funneling cone d)The diameter of the choke point

d. In the funnel metaphor, the capacity available is the rate at which the work center can produce output, so this would correspond to the diameter of the choke point. A wider diameter would let more "product" through faster and thus there would be a higher rate of output per time period

Which is an important feature in total productive maintenance? a)Skilled mechanics are not used for any machine maintenance. b)Inspectors ensure that every machine is ready for work each day. c)Operators regularly report maintenance productivity to management. d)Operators are responsible for most routine machine maintenance.

d. In total productive maintenance, machine operators take responsibility for most of the routine maintenance on their equipment, thus receiving a motivating sense of ownership. Answer a is not correct because skilled mechanics will still perform more involved maintenance or repair as needed. Answer b is not correct because machine operators are trained to ensure that their machines are ready. Answer c is not related to total productive maintenance

At which level of production planning can one perform planning without also considering how to manage inventory? a)Master planning and sales and operations planning b)Master scheduling c)Material requirements planning d)It is not possible to manage the one without the other at any level.

d. Inventory either results from or supports production, sales, marketing, and customer service. Yet it also represents costs. It is not possible to manage one without the other at any level.

What is the next step in the purchasing cycle after a requisition is generated? a)Follow up. b)Approve payment. c)Receive goods. d)Issue purchase order.

d. Once the requisition is generated by the end user, the next step is for purchasing to issue a PO. Answers a, b, and c occur later in the cycle. (The purchasing cycle stages are, in order, generate requisition, issue PO, follow up, receive goods, and approve payment.)

An organization is arranged using a work center process type with a functional process layout. Which tends to be the largest component of lead time for this type of manufacturing? a)Run time b)Setup time c)Move time d)Queue time

d. Queue time tends to consume a large percentage of the total lead time in work center (job shop) process types with functional layouts.

What term is used to show the result of calculating available time × utilization × efficiency? a)Efficiency b)Standard hours c)Demonstrated capacity d)Rated capacity

d. Rated Capacity = Available Time × Utilization × Efficiency.

Which is the best way listed to improve quality at the source for manufactured parts? a)Applying as much automation as possible b)Inspecting all parts for known defectives c)Improving customer warranty coverage d)Reducing the variation in a manufacturing process

d. Reducing variation in the manufacturing processes improves quality. Answer a is not correct because automation does not necessarily improve quality. Answer b is not correct because inspecting all parts is costly and does not improve quality at the source—it only catches defects that have occurred. Answer c is not correct because improving customer warranty coverage does nothing to ensure quality

In developing the standard economic order quantity formula, which assumption is made? a)Demand for the item is subject to only random variation. b)Replenishment is in split lots. c)Ordering and carrying costs are subject to normal market variation. d)Replacement occurs all at once.

d. Replenishment occurs all at once, meaning that the full reorder is available at receipt. The other answers are incorrect and the actual assumptions are as follows: Demand is known and relatively constant; items are purchased or made in batches or lots; and ordering costs and carrying costs are known and the curves are stable

Which observation is true as priority planning moves through the various levels of capacity validation and becomes more and more detailed? a)The duration of the planning horizon gets longer to accommodate the increase in detail. b)Material requirements planning plans detailed resource requirements just for component-level bottlenecks. c)Master scheduling plans all resource capacities at the end-item level. d)Sales and operations planning plans just critical resources at the product family level.

d. S&OP plans critical resources at the product family level; master scheduling plans key resources and bottlenecks at the end-item level; and MRP plans detailed resource requirements at the component level. Answer a is incorrect because the length of the planning horizon gets shorter, not longer.

There are no planned order releases in week 1, but there is a planned order release for 50 As in week 2. The As have a one-week lead time. After advancing forward one week in time, what action will be recommended in the action time bucket? a)No action. b)Not enough information was provided to answer the question. c)Receive planned order receipt of 50 As. d)Release planned order release of 50 As.

d. The action time bucket is the current period 1. Right now there is nothing in the action time bucket. However, next week, the current week 2 will become week 1 and will become the action time bucket. Therefore, the planned order release for 50 As will be recommended for release.

Using the scenario from two questions ago, where is the drum? a)Before operation A. b)At operation A. c)Before operation B. d)At operation B.

d. The drum is at operation B because the pace of the operation is set to match this constraint rate

If the opening inventory is 100 units, sales are 500 units, and the ending inventory should be 200 units, what will manufacturing produce? a)300 units b)400 units c)500 units d)600 units

d. The equation for determining the production quantity is as follows: Total Production = Total Forecast + Backorders + Ending Inventory - Opening Inventory = 500 units + 0 units + 200 units - 100 units = 600 units.

One hundred units of part A are needed at the start of week 6. They have a one-week lead time. Two part Bs are needed for one part A, and Bs have a two-week lead time. Which shows a proper exploding and offsetting entry in the material requirements planning grid? a)Planned order receipt of 100 Bs in week 3 b)Planned order receipt of 200 Bs in week 4 c)Planned order release of 100 Bs in week 4 d)Planned order release of 200 Bs in week 3

d. The planned order receipt of 100 As in week 6 with a one-week lead time means that the planned order release of the 100 As will be in week 5. Because 2 Bs are needed for one A, there will be a planned order receipt for 200 Bs in week 5. Due to the two-week lead time, offsetting will put the planned order release in week 3.

In a product-based layout, a)work centers are located according to equipment type. b)workflow is lumpy. c)a wide variety of different products can be produced. d)there is little build-up of work-in-process (WIP) inventory.

d. There is little build-up of WIP inventory in a product layout. Answer a is incorrect because workstations are located in a line formation for a product layout. Answer b is incorrect because work tends to flow at a regular rate in a product layout. Answer c is incorrect because product layouts are not flexible enough to handle more than a limited variety of products

Forecast deviation per period is 12, -8, 15, 17, -22, and -3 units for each of the prior periods, respectively. What is the mean absolute deviation for these periods? a)1.83 b)2.57 c)3.33 d)12.83

d. To calculate the mean absolute deviation, first remove the plus and minus signs from each deviation and sum these absolute values: 12 units + 8 units + 15 units + 17 units + 22 units + 3 units = 77 units. Next divide by the number of periods, or 6: 77/6 = 12.83 (rounded).

Using the total quality management definition of a customer, who is the production control department's most immediate customer? a)End users of products b)Central supply c)Shipping d)Production shop floor

d. Total quality management identifies both internal and external customers, and internal customers are the people or departments who use one's outputs as their inputs. In this example, production control's most immediate customer is production itself

Which functional area would best be able to help engineers determine whether a material can be used in amounts sufficient for total demand within constraints on the final product cost? a)Finance b)Sales and marketing c)Manufacturing d)Purchasing

d. While all of the functional areas can provide some information to engineers, purchasing has knowledge of suppliers and the prices they charge and can help them determine whether the materials can be found in the right quantity and price

Which tends to increase when shipments are by full truckload rather than less-than-truckload? a)Pickup and delivery costs b)Materials handling costs c)Billing costs d)Carrying costs

d. While full truckloads (or full car or container loads) reduce pickup and delivery costs, handling costs, and billing costs, it does create lot-size inventory (cycle stock) which increases carrying costs.

Summarized bill of material

form of multilevel bill of material that lists all the parts and their quantities required in a given product structure.

Trend

general upward or downward movement of a variable over time (e.g., demand, process attribute).

income statement equation

income=revenue - expenses

seasonal inventory

inventory built up to smooth production in anticipation of a peak seasonal demand.

centralized inventory control

inventory decision making for all stock keeping units exercised from one office or department for an entire company

Days of supply formula

inventory on hand/average daily usage

Ending PAB after demand time fence formula

prior period PAB+scheduled MPS receipt-greater of customer orders or forecast

projected available formula

prior period projected available+scheduled receipts+planned order receipts-gross requirements

ATP for periods containing MPS formula

scheduled MPS receipt-sum of customer orders before next period containing Scheduled MPS receipt.

Order picking

selecting or "picking" the required quantity of specific products for movement to a packaging area (usually in response to one or more shipping orders) and documenting that the material was moved from one location to shipping.

operation time per work order formula

setup time+ (quantity x standard time per unit) or run time

efficiency formula

standard hours produced/hours actually worked

demonstrated capacity formula

sum of standard hours per time bucket/number of time buckets

warehousing

the activities related to receiving, storing, and shipping materials to and from production or distribution locations.

lot size

the amount of a particular item that is ordered from the plant or a supplier or issued as a standard quantity to the production process.

inventory management

the branch of business management concerned with planning and controlling inventories.

general and administrative expenses [G&A]

the category of expenses on an income statement that includes the costs of general managers, computer systems, research and development, etc.

forecast error

the difference between actual demand and forecast demand, stated as an absolute value or as a percentage.

supplier partnership

the establishment of a working relationship with a supplier organization whereby two organizations act as one

Receiving

the function encompassing the physical receipt of material, the inspection of the shipment for conformance with the purchase order (quantity and damage), the identification and delivery to destination, and the preparation of receiving reports.

transportation

the function of planning, scheduling, and controlling activities related to mode, vendor, and movement of inventories into and out of an organization.

parent item

the item produced from one or more components.

consignment

the process of a supplier placing goods at a customer location without receiving payment until after the goods are used or sold.

quality control

the process of measuring quality conformance by comparing the actual with a standard for the characteristic and taking corrective actions on the difference.

job shop scheduling

the production planning and control techniques used to sequence and prioritize production quantities across operations in a job shop.

point of sale (POS)

the relief of inventory and computation of sales data at the time and place of sale, generally through the use of bar coding or magnetic media and equipment.

green reverse logistics

the responsibility of the supplier to dispose of packaging materials or environmentally sensitive materials such as heavy metals.

Liquid zone

the scheduling software might automatically make changes without requiring input from the master scheduler, and other manual changes can also be made.

dispatching

the selecting and sequencing of available jobs to be run at individual workstations and the assignment of those jobs to workers.

start date

the time an activity begins; may be defined as an actual start date or a planned start date.

Cycle

the wavelike patterns observed in the growth and recession trends of the economy over years.

service parts

those modules, components, and elements that are planned to be used without modification to replace an original part.

Shipping

verifying orders, preparing bills of lading and other documents, and loading outgoing vehicles in the proper sequence as directed by the WMS or TMS. (Vehicles may be traveling to more than one destination and need to be unloaded in the right order.)

Which is a major objective of distribution inventory management? a)To provide the required level of customer service. b)To minimize the cost of warehouse space. c)To always have enough of everything on hand so there are no stockouts. d)To minimize labor costs.

a. Answer a is a major objective of distribution inventory management; other objectives include minimizing the cost of transportation and handling and interacting with the factory to minimize scheduling problems. Answer b, c, and d are worthy goals, but not major objectives of distribution inventory management

Which is the factor that primarily determines by how much total line haul costs will vary? a)Distance moved b)Packaging c)Customer discounts d)Perishability of goods

a. Answer a is correct because total line haul costs vary with the distance moved. Answers b, c, and d are incorrect, as line haul costs do not depend on them.

Considering the service desired and the relative cost of the items, which would most likely be shipped by road for a fairly long line haul portion of a trip? a)Regular shipment of cut flowers direct to a florist shop. b)Regular shipments of iron ore direct to a foundry. c)Regular shipments of grain direct to a mill. d)Emergency maintenance parts direct to an auto plant.

a. Answer a would be appropriate to ship by truck because road transportation offers door-to-door service and fast service. Answers b and c would be better shipped by rail due to their high weight and bulk. Answer d would be better shipped by air for a faster response, depending on distance.

Promotion

includes advertising and sales force and reseller incentives. Channel partners can therefore be involved in promotion. Also, promotions can result in increased sales volumes in various locations, and physical distribution needs information on promotions to plan for inventory to be in the right locations in the right amounts.

decentralized inventory control

inventory decision making exercised at each stocking location for SKUs at that location

five Ss (5S)

Five terms beginning with "S" used to create a workplace suitable for lean production: sort, simplify, scrub, standardize, and sustain

Break even in units formula

Fixed Cost/(Price per unit-Variable Cost per unit)

Multisourcing

Procurement of a good or service from more than one independent supplier.

continuous improvement

The act of making incremental, regular improvements and upgrades to a process or product in the search for excellence.

inventory control

The activities and techniques of maintaining the desired levels of items, whether raw materials, work in process, or finished products.

preventive maintenance

The activities, including adjustments, replacements, and basic cleanliness, that forestall machine breakdowns.

Single-source supplier

A company that is selected to have 100 percent of the business for a part although alternate suppliers are available.

order quantity formula

taget level replenishment - on hand inventory level

drop ship

to take the title of the product but not actually handle, stock, or deliver it (i.e., to have one supplier ship directly to another or to have a supplier ship directly to the buyer's customer).

Pareto's law

A concept developed by Vilfredo Pareto, an Italian economist, that states that a small percentage of a group accounts for the largest fraction of its impact or value.

bias

A consistent deviation from the mean in one direction (high or low).

Job costing

A cost accounting system in which costs are assigned to specific jobs. This system can be used with either actual or standard costs in the manufacturing of distinguishable units or lots of products.

Theory of constraints (TOC) accounting

A cost and managerial accounting system that accumulates costs and revenues into three areas—throughput, inventory, and operating expense.

Multilevel bill of material

A display of all the components directly or indirectly used in a parent, together with the quantity required of each component.

single-level bill of material

A display of components that are directly used in a parent item. It shows only the relationships one level down.

bill of material (BOM)

A listing of all the subassemblies, intermediates, parts, and raw materials that go into a parent assembly, showing the quantity of each required to make an assembly.

Where-used list

A listing of every parent item that calls for a given component, and the respective quantity required, from a bill-of-material file.

bill of resources

A listing of the required capacity and key resources needed to manufacture one unit of a selected item or family.

Fixed order quantity

A lot-sizing technique in MRP or inventory management that will always cause planned or actual orders to be generated for a predetermined fixed quantity, or multiples thereof, if net requirements for the period exceed the fixed order quantity.

period order quantity

A lot-sizing technique under which the lot size is equal to the net requirements for a given number of periods (e.g., weeks into the future).

Certified supplier

A status awarded to a supplier that consistently meets predetermined quality, cost, delivery, financial, and count objectives. Incoming inspection may not be required.

Random-location storage

A storage technique in which parts are placed in any space that is empty when they arrive at the storeroom.

house of quality (HOQ)

A structured process that relates customer-defined attributes to the product's technical features needed to support and generate these attributes

Planned order

A suggested order quantity, release date, and due date created by the planning system's logic when it encounters net requirements in processing MRP.

Radio frequency identification (RFID)

A system using electronic tags to store data about items

Radio frequency identification (RFID):

A system using electronic tags to store data about items. Accessing or retrieving this data is accomplished through a specific radio frequency and does not require close proximity or line-of-sight access.

Duty

A tax levied by a government on the importation, exportation, or use and consumption of goods.

back scheduling

A technique for calculating operation start dates and due dates. The schedule is computed starting with the due date for the order and working backward to determine the required start date and/or due dates for each operation.

Operations sequencing

A technique for short-term planning of actual jobs to be run in each work center based upon capacity (i.e., existing workforce and machine availability) and priorities.

Kaizen event

A time-boxed set of activities carried out by the cell team during the week of cell implementation.

sales plan

A time-phased statement of expected customer orders anticipated to be received (incoming sales, not outgoing shipments) for each major product family or item.

economic order quantity (EOQ)

A type of fixed order quantity model that determines the amount of an item to be purchased or manufactured at one time.

two-bin inventory system

A type of fixed-order system in which inventory is carried in two bins

mix-max system

A type of order point replenishment system where the minimum (min) is the order point, and the maximum (max) is the "order up to" inventory level.

purchase requisition

An authorization to the purchasing department to purchase specified materials in specified quantities within a specified time.

Advance ship notice (ASN)

An electronic data interchange (EDI) notification of shipment of product.

safety lead time

An element of time added to normal lead time to protect against fluctuations in lead time so that an order can be completed before its real need date.

Transportation inventory

Inventory that is in transit between locations.

hansei

a Japanese word meaning reflection.

generally accepted accounting principles (GAAP)

accounting practices that conform to conventions, rules, and procedures that are generally accepted by the accounting profession.

What term indicates the percentage of time the work center is active compared to the available time? a)Efficiency b)Productivity c)Utilization d)Yield

c. Utilization = Hours Actually Worked/Available Time

orders per period formula

period demand/order quantity

Demand time fence and frozen zone.

where all capacity and materials are committed to specific orders.

MAD Formula

(Sum Of[Actual-Forecast])/number of periods

voice of the customer (VOC)

Actual customer descriptions in words for the functions and features customers desire for goods and services. In the strict definition, as related to quality function deployment (QFD), the term customer indicates the external customer of the supplying entity.

.On a balance sheet, assets are $1 million. If liabilities are $600,000, what is owners' equity? a)$400,000 b)$600,000 c)$1,600,000 d)Not enough information was provided to answer the question.

Assets = Liabilities + Owners' Equity. Rearranging this question, you get: Owners' Equity = Assets -Liabilities = $1,000,000 - $600,000 = $400,000

Line-haul costs

Basic costs of carrier operation to move a container of freight, including drivers' wages and usage depreciation

Ending Projected Available balance formula

Beginning PAB+scheduled MPS receipt-demand (orders or forecast)

resource planning

Capacity planning conducted at the business plan level. The process of establishing, measuring, and adjusting limits or levels of long-range capacity.

benchmarking

Comparing products, processes, and services to those of another organization thought to have superior performance.

product cost

Cost allocated by some method to the products being produced. Initially recorded in asset (inventory) accounts, product costs become an expense (cost of sales) when the product is sold.

Dependent demand

Demand that is directly related to or derived from the bill-of-material structure for other items or end products.

Transit inventory

Inventory in transit between manufacturing and stocking locations.

Maintenance, repair, and operating (MRO) supplies

Items used in support of general operations and maintenance such as maintenance supplies, spare parts, and consumables used in the manufacturing process and supporting operations.

In-transit inventory

Material moving between two or more locations, usually separated geographically; for example, finished goods being shipped from a plant to a distribution center.

ways

Paths over which a carrier operates, including right-of-way, roadbed, tracks, and other physical facilities.

Seasonal Index formula

Period Average Demand/ Average Demand for All periods

Actual Backlog formula

Previous Actual Backlog + Actual Input - Actual Output

demonstrated capacity

Proven capacity calculated from actual performance data, usually expressed as the average number of items produced multiplied by the standard hours per item.

Raw material

Purchased items or extracted materials that are converted via the manufacturing process into components and products.

Which observation about forecast preparation is most accurate? a)Demand forecasts need to use past sales as their basis. b)Forecasts used at the operational level should be in dollars. c)Seasonality should never be removed until after forecasting is complete. d)Circumstances relating to demand data should be recorded.

Recording circumstances around data is a way of determining if wide variations from the forecast error are attributable to anomalies, which is important in analyzing forecast error. Answer c is correct in forecasts used in master production scheduling but not in sales and operations planning. Answer a is incorrect because forecasts should be based on demand and not sales. Answer b is incorrect because, while forecasts based on monetary units are used in business planning, manufacturing needs forecasts in terms of physical units.

shrinkage

Reductions of actual quantities of items in stock, in process, or in transit. The loss may be caused by scrap, theft, deterioration, evaporation, and so forth.

Moving Average Forecast Formula

Sum of Demand for most recent set of periods/ number of periods

Which of these terms refers to activities that provide present benefit without compromising the needs of future generations?

Sustainability refers to activities that provide present benefit without compromising the needs of future generations.

Physical supply

The movement and storage of goods from suppliers to manufacturing. The cost of physical supply is ultimately passed on to the customer.

inventory turnover

The number of times that an inventory cycles, or "turns over," during the year.

Landed cost

This cost includes the product cost plus the costs of logistics, such as warehousing, transportation, and handling fees.

Manufacturing-based quality

This is conformance to requirements and quality of conformance, as noted earlier, and is a manufacturing responsibility.

Durability

This is resistance to wear and tear

basic seven tools of quality (B7)

Tools that help organizations understand their processes in order to improve them. The tools are the cause-and-effect diagram (also known as the fishbone diagram or the Ishikawa diagram), check sheet, flowchart, histogram, Pareto chart, control chart, and scatter diagram.

Total Production Formula

Total Forecast+Backorders+ending inventory-Opening Inventory

unit cost

Total labor, material, and overhead cost for one unit of production (e.g., one part, one gallon, one pound).

spread

Variability of an action. Often measured by the range or standard deviation of a particular dimension.

order point formula

demand during lead time + safety stock

target level replenishment formula

demand per period x (review period duration + lead time duration) + safety stock

Ending PAB before demand time fence formula

prior period PAB+scheduled MPS receipt-customer orders

Annual Order cost formula

number of orders x cost per order

new safety stock formula

old safety stock x square root(new lead time/old lead time)

Total line-haul costs

vary with the distance shipped and the cost per mile,

bonded warehouse

Buildings or parts of buildings designated by the US Secretary of the Treasury for storing imported merchandise, operated under US Customs supervision.

pickup and delivery costs

Carrier charges for each shipment pickup and the weight of that shipment. Costs can be reduced if several smaller shipments are consolidated and picked up in one trip.

break-bulk

Dividing truckloads, railcars, or containers of homogeneous items into smaller, more appropriate quantities for use

Net Requirements (with Safety Stock)

Gross Requirements−Scheduled Receipts−(prior Projected Available−Safety Stock)

Net Requirements

Gross Requirements−Scheduled Receipts−Prior Projected Available

total cost curve

In cost-volume-profit (breakeven) analysis, the total cost curve is composed of total fixed and variable costs per unit multiplied by the number of units provided. Breakeven quantity occurs where the total cost curve and total sales revenue curve intersect.

terminals

In transportation, locations where carriers load and unload goods to and from vehicles.

Unitization

In warehousing, the consolidation of several units into larger units for fewer handlings.

Post-manufacturing services

Postponement and other delayed manufacturing strategies may require light manufacturing to assemble-to-order or other delayed differentiation, such as adding the power supply, documentation, and packaging for a given country.

Price

Price is the price of the product. Inventory carrying costs are calculated partly based on price, with higher-priced objects falling into the A or B categories of the ABC classification and getting more management attention for security, materials handling, and so on.

Intermodal transport

Shipments moved by different types of equipment combining the best features of each mode

Freight forwarder

The "middle man" between the carrier and the organization shipping the product. Often combines smaller shipments to take advantage of lower bulk costs.

Place

This is where the goods will be located for sale, or market geography, the physical distribution channel(s) that will be used to get them there, and the sales channels customers can use to place orders (e.g., online or retail). The scope of distribution could be local, regional, national, or global, which will require more and more sophisticated management. Each entity in the distribution channel(s) used expects to make a profit and so adds to the total cost. The benefit to customers needs to be high enough that they are willing to pay extra for the services.

order qualifiers

Those competitive characteristics that a firm must exhibit to be a viable competitor in the marketplace.

For the past six months, a manufacturer has experienced deviations from its forecasts. The monthly forecast deviations for the past six months are as follows: 15, -6, 12, 8, -18, and -4 units. What is the mean absolute deviation for these months?

To calculate the mean absolute deviation, first make each deviation positive and sum these absolute values: 15 + 6 + 12 + 8 + 18 + 4 = 63 units. Next divide by the number of periods (six): 63/6 = 10.5.

When should a manufacturer sell to a retailer directly even though they currently sell to a wholesaler who then sells to the retailer? a)When the wholesaler adds more cost than the value they provide. b)When the manufacturer can do so, it should do so. c)The manufacturer should not create these issues if it no longer holds title to the product. d)When the retailer can be shipped to directly at the same cost per truckload.

a. Channel partners expect to make a profit but also provide services. If the value of these services is greater than the cost of the partner, the partner is value added and should be included in the supply chain. If the opposite is true, it would be better to omit this partner

Which would reduce materials handling costs? a)Shipping by full truckload rather than less-than-truckload b)Manually moving materials near at hand rather than going to get a forklift. c)Using traditional warehousing rather than cross-docking. d)Shipping directly to customers rather than using a break-bulk center.

a. Full truckload shipments require less handling than less-than-truckload; cross-docking reduces handling at the distribution centers of smaller orders assembled for delivery to the next level in the distribution system

Assuming demand is stable and continuous, approximately what percentage of storage space will be occupied by goods in a distribution center at any given time if it uses a fixed-location system? a)50 percent b)80 percent c)90 percent d)100 percent

a. If demand for items is stable and continuous, then stock level will draw down steadily and the average level will only be 50 percent. Because its space is reserved, other items cannot be stored there

Staging (marshalling)

assembling individual orders, which may include rearranging pallets or other unit loads; generating pallets, cartons, or other unit loads from individual items; checking orders for completeness; rectifying omissions or errors; and recording backorders or other variances in both shipping documents and system records.

An organization is deciding whether it is worth using a third-party break-bulk distribution center (DC) located near a certain market. Using the information in the figure below, which is the lowest total annual cost between direct shipments to customers versus using the DC? a)$900,000 b)$1,440,000 c)$1,620,000 d)$1,800,000

b. In this case, using the break-bulk DC will allow full truckload shipments that cut the line haul portion of the transportation cost in half. Despite the added carrying cost and pickup and delivery cost, this method still saves the organization $360,000 per year over the direct shipment alternative ($1,800,000 - $1,440,000 = $360,000).

Which is a function of physical distribution? a)Purchasing b)Protective packaging c)Production control d)Physical supply

b. The activities of physical distribution include transportation, distribution inventory, warehousing, material handling, and protective packaging

Which is less expensive for long-distance line haul of large, bulky loads and why? a)Rail is less expensive than road because rail does not need to add as much packaging. b)Road is less expensive than rail because road does not need to add pickup and delivery cost. c)Rail is less expensive than road because most of rail's operating cost is a fixed cost. d)Road is less expensive than rail because most of road's operating cost is a variable cost

c. Most of the operating cost for a railway is fixed; therefore, large volume can be moved at very reasonable prices per carrying capacity

Use the information on the planned order releases from distribution centers (DCs) A and B in the figure below to complete the abbreviated central supply planning distribution requirements planning grid. What is Central Supply's projected available balance for week 3? a)-100 units b)100 units c)400 units d)500 units

c. Since the DC information shows planned order releases already, the offsetting from the planned order receipts is not shown for these DCs and the orders can be directly summed as the gross requirements for each week for central supply. After that, calculate the projected available per week. Projected Available = Prior Period Projected Available + Planned Order Receipts - Gross Requirements. Week 1: 500 units + 0 units - 100 units = 400 units. Week 2: 400 units + 0 units - 300 units = 100 units. Week 3: 100 units + 0 units - 200 units = -100 units. Whenever the projected available would go negative, schedule a planned order receipt in that week for the order quantity amount. Therefore add 500 units in the planned order receipt for week 3 and using offsetting of 2 weeks, also add a planned order release for 500 units in week 1. Finally recalculate the week 3 projected available: 100 units + 500 units - 200 units = 400 units

Which of the four Ps influences how physical distribution planning and execution addresses product volume, location of demand, and demand fluctuations? a)Product b)Price c)Place d)Promotion

d. Answer d (promotion) influences product volume, location of demand, and demand fluctuations. Answer a is incorrect because product is associated with such issues as order-winning and order-qualifying characteristics. Answer b is incorrect because price is associated with such issues as inventory costs. Answer c is incorrect because place is associated with such issues as market geography and distribution or sales channels.

What is the primary reason organizations choose to use a floating-location system for warehouses? a)To minimize warehouse management system costs. b)To increase picking speed. c)To decrease materials handling costs. d)To maximize cube utilization.

d. Because any item can be assigned to any empty space, a floating location system improves cube utilization. However, using this type of system generally requires using a warehouse management system to direct put away and picking. Either a fixed location system or a floating location system could be designed to minimize materials handling costs or picking speed

Due to the 40-day lead time for container ship as opposed to a 2-day lead time for air, the much higher carrying cost for the water option for a given material makes air only slightly more expensive. What else might be considered that could further promote use of the air option? a)Ability to ship more units per load. b)Ability to base more production on forecasts than actual orders. c)Ability to increase product quality. d)Ability to reduce safety stock levels.

d. Drastically reducing lead times also allows organizations to reduce safety stocks because the lead time is shorter and therefore the demand during the lead time is less. Air transport also allows more production to be based on actual orders rather than forecasts and can enhance customer service