Operations Final Exam

Run Chart

trend chart

Effciency

Actual output / Standard output

Chapter 15

Global Sourcing and Procurement

Throughput rate

1 / Cycle Time

Production Design Considerations

- Design for Manufacturing and Assembly [DFMA] - Design for Recycling [DFR] - Design for Disassembly [DFD] - Design for Logistics - Design for Robustness - Design for Reliability

Strategies are typically based on assumptions and predictions about

- LT demand patterns - technological change - competitor behavior

Customer Interaction in Quality

- Moment of Truth Analysis ** experience enhancers **standard expectations **experience detractors - Customer Relationship Management [CRM] -Recovery

Costs and Benefits of Inventory

- Order cost and carrying cost are INVERSELY related - large orders increase average inventory and carry cost, but the large the orders, the less frequently you have to order [thus less ordering cost]

Costs of Quality

- Prevention - Appraisal - Internal Failure - External Failure

Inventory Classifications

- Process Stage [Raw Materials, WIP, FG, Pipeline, Batch] - Number & Value [A, B, C] - Demand Type [Independent, Dependent] - Other [Maintenance, Operating]

Three Types of Service Designs

- Production line approach ** service is treated like manufacturing, standardized, focus on efficiency, employees should be trained to adhere to standards example: McDonald's - Self-service approach **Customer takes greater role in the production of the service, must be user friendly example: ATM machine, salad bars, gas stations, online portals -Personal attention approach ***focus is on customization, not efficiency, to meet individual requirements of customers so they will pay premium prices example: Ritz-Carlton Hotel, Nordstrom

Importance of Quality

- Quality and Value **Value: benefit and cost **Quality enhances benefit and can either increase or decrease overall cost need balance -- quality standards may vary across P/S offerings

Two-Bin System

- Visual system version of fixed quantity Q model - inventory is stored in two bins **inventory is withdrawn from bin 1 **when bin 1 empties, place order and provide supply from bin 2 **when replenishment arrives, bin 2 is restored to normal level or ROP, and rest in put in bin 1

Bill of Materials [BOM]

- a list of subassemblies, components, and raw materials and their respective quantities required to produce specific end items - aka product structure or product tree - low level coding --> a number that identifies items at the lowest level at which they occur, essential in MRP logic

Evaluating Alternatives

- alternatives should be evaluated from varying perspectives Economic = is it economically feasible? how much will it cost? how soon can we have it? what will operating and maintenance costs be? what will its useful life be? will it be compatible with present personnel and present operations? Non-economic public opinion

Green Sourcing

- being environmentally responsible has become a business imperative -many firms are looking to their SC to deliver green results -financial results can often be improved through going green -a comprehensive green sourcing effort should assess how a company uses items that are purchased internally -important to reduce waste

How to find EOQ w/ Q discount

- calculate basic EOQ - if the EOQ falls within the cheapest price range, EOQ = optimal order quantity - otherwise, all ranges with lower price ranges than the range EOQ falls in must be tested

Disadvantages of Inventory

- cost of storage - cost of insurance - reduction in flexibility - cost of lost opportunity [no return from excess inventory while money is invested to obtain inventory]

Advantages of Inventory

- decoupling = reduce the direct dependency of a process step on its predecessor - provide selection for customers - take advantage of quantity discounts - hedge against inflation and upward price changes

P2: System-level design

- definition of the product architecture, decomposition of the product into subsystems and components, final assembly scheme for the production system is usually defined Output: geometric layout of the product, functional specifications for each subsystem, preliminary process flow diagram

Assumptions of basic EOQ Model

- demand = constant and predicted with high accuracy - lead times are known with certainty - orders arrive exactly when inventory drops to zero and are received in single deliveries - shortages = not allowed - purchase price, ordering cost, and per-unit holding cost are independent of quantity ordered [NO Q DISCOUNTS] - items are ordered independently of each other

Distribution Network Configuration

- distribution network includes warehouses, production facilities, retailers, and inventory that flows between them to configure network: - location - where inventory should be kept - transporation design considerations - maximize value, minimize cost - consider current and future needs

Electronic Commerce

- electronic commerce contributes to time reduction - new business frontiers - Click-and-mortar corporation [minimum physical presence] - Online Auctions [Ebay] - Reverse Auctions [lower procurement cost through competitive online bidding]

Product Orientated [Flow Shop] Layouts

- equipment/operations are located according to the progressive steps required to make the product, repetitive focus, very efficient, no customization, high volume ex. cafeteria line

Capacity Cushion

- extra capacity used to offset demand uncertainty CC= 100% - Utilization organizations with higher CC, have greater demand uncertainty organizations with lower CC, have standard products and services

Global Perspectives in Facility Location

- government rules, attitudes, political risk, and incentives - culture and economy - market location and transportation cost - labor availability, attitudes, productivity, and cost - availability of supplies, communications, energy - exchange rates and currency risks

Steps in project crashing

- identify CP - identify costs of reducing each activity on path - crash the most cost effective activity first - look for critical path changes [beware of multiple CP, crash first the activities that are common to all CP, then crash other activities] - crash next activity - stop when one critical path may no longer be crashed

Resolving constraint issues

- identify most pressing constraint - change the operation to achieve maximum benefit, given the constraint - make sure other portions of the process are supportive of the constraint - explore and evaluate ways to overcome the constraint - repeat the process until the constraint levels are at acceptable levels

Capacity Decisions

- impact the ability of the organization to meet future needs - affect operating costs - are a major determinant of initial cost - often involve LT commitment of resources - can affect competitiveness - affect the ease of management - have become more important and complex due to globalization - need to be planned for in advance due to their consumption of financial and other resources

Solutions to Bullwhip Effect

- improve forecasting accuracy by sharing information across the SC - Allow vendors to manage their OWN inventories - encourage smaller order batches by reducing time and cost of placing an order - stabilize prices by instituting an EDLP strategy to eliminate forward buying behavior - keep customers updated about the supply situation - institute ordering policies when shortages occur to reduce phantom orders and order gaming

Yield Management

- increase revenue using differential pricing - works well in HIGH fixed cost and LOW variable cost environment -need to allocate resources [capacity] appropriately for each customer class examples: airlines, car rental

Regional Considerations in Facility Location

- location of raw materials - location of markets - labor factors - climate and taxes - environmental regulations - government incentives

P1: Concept development

- needs of the target market are identified, alternative product concepts are generated and evaluated, one or more concepts are selected for further development and testing

P0: Planning

- precedes with project approval, begins with corporate strategy, includes an assessment of technology developments and market objectives, OUTPUT is the project mission statement

Community Considerations in Facility Location

- quality of life - services - attitudes - taxes - environmental regulations - costs and availability of utilities - developer support - land/construction costs

Designing Service Products

- service products are very complex - direct customer involvement introduces significant divergence in the process Questions to be addressed: 1. How will this variability be addressed? 2. What are the implications for operational cost and the customer service experience?

Product Orientated [Job Shop] Layouts

- similar operations are performed in a common or functional area, regardless of the product in which the parts are used, able to handle customization and different products, low volume - can be difficult to schedule, not efficient at times

Site Related Considerations in Facility Location

- site size, availability of land, and cost - transporation systems [air, rail, highway, and waterway] - zoning restrictions - nearness of services/supplies needed - environmental impact issues - legal issues

benefits of 3PL

- specialists knowledge - their well-developed information system - their ability to obtain more favorable shipping rates

Impacts of Bullwhip Effect

- spiking demand = not good for productivity - high inventory = more carrying costs, longer time to get to market, long cash-to-cash cycles and diminishing financial returns - mismatch between demand and design capacity = increased cost per unit, problem with workforce management

Little's Law

- there is a LT relationship between inventory, throughput rate, and flow time inventory = throughput rate x flow time WIP = throughput time x throughput rate

Master Production Scheduling [MPS]

- time-phased plan for producing specific item [what, how many, and when] - disaggregates the aggregate plan [specific product as opposed to family of products in aggregate plan] -updated more frequently than aggregate plan aggregate plan --> disaggregation --> master schedule

Applications of Poka-Yokes

- warning methods [alarm on ATM to warn customer to take out card] -physical or visual contact methods [the height bar at Six Flags to restrict small children] -three T's

General Purpose Quality Tools

-Process Flow Chart -Run Chart -Cause and Effect Diagram -Pareto Chart -Histogram -Check Sheet -Scatter Diagram -Control Chart

ABC Analysis

-based on Pareto principle - approximately 80% of the effects are result of 20% of the causes - Categorization of inventory items by importance [demand and purchase cost OR dollar usage] as A, B, C items A: Approx. 20% of the items carrying 70-80% of dollar usage B: Approx. 30% of the items carrying 15-25% of dollar usage C: Approx. 50% of the items carrying 5% of dollar usage

P3: Design detail

-complete specifications of the geometry, materials, and tolerances for all parts, identification of all the standard parts to be purchased from suppliers, process plan is established, tooling is designed Output: drawings describing the geometry of each part and its tooling, specifications of purchased parts, process plan

P4: Testing and refinement

-construction and evaluation of multiple preproduction versions of product [same geometry and material as production version, not necessarily fabricated with the actual production processes] - prototypes tested to determine if the product will work as designed

Service-System Design Matrix

-enabling systematic integration of operations and marketing strategies -clarifying exactly which combination of service delivery the firm is providing -permitting comparison of how other firms deliver specific services -indicating life cycle changes as the firm grows

Six Sigma

-evolution of TQM movement -Goals of Six Sigma **reduce process variation to the point where only 3.4 defects in every million are produced by a process **provide a framework and methodologies to analyze and evaluate business processes and reduce waste

Benefits of Good Quality

-good reputation for quality -ability to command premium prices -increased market share -greater customer loyalty -lower liability costs -fewer production or service problems -lower production costs -higher profits

Cellular Layout/Hybrid Approach

-grouping parts into families that follow a common sequence of steps because of similar design or manufacturing characteristics -identifying dominant flow patterns of parts families as a basis for location or relocation of processes -physically grouping machines and processes into cells, higher utilization of machines, relatively less inventory examples: chip manufacturing and metal fabrication

Consequences of Poor Quality

-loss of business -liability -lower productivity -costs

Assemble-to-Order/Hybrid [ATO]

-partially manufactured and held in unfinished state -customer order dictates final configuration -quicker response than MTO and more flexible than MTS

Make-to-Order [MTO]

-process activated by in response to an actual order, standard or custom product -WIP and FG inventory kept to a minimum -tends to have a longer response time -suitable for items with LOW-MEDIUM and VARIABLE demand

Make-to-Stock [MTS]

-process activated to meet expected or forecast demand -customer orders are served from target stocking level, -shorter lead time for stocked items - much longer lead time for out of stock items - risk of obsolescence, shrink, etc. -suitable for items with HIGH and STABLE demand -required when customer lead time is LESS THAN manufacturing lead time

P5: Production ramp-up

-product is made using intended production system, want to train workers and resolve any remaining problems, products may be supplied to preferred customers for evaluation, transition to ongoing production is gradaul

Benchmarking

-selecting the best practices to use as a standard for performance, identifying an organization that excels at some process, then observing that organization in order to learn how to improve - determine what to benchmark - form a benchmark team - identify benchmarking partners - collect and analyze benchmarking information - take action to match or exceed the benchmark

Service Blueprinting

-standard tool for service process design -specialized flow chart with ***failure points ***wait points ***line of visibility

Variants of Product Development Process

-technology-push products -platform products -process-intensive products -customized products -quick-build products -complex systems

Phases of Quality Assurance

1. Acceptance Sampling: Inspection before/after production 2. Process Control: Inspection and corrective action during production 3. Continuous Improvement: Quality built into the process

Five Types of Customer-Introduced Variability

1. Arrival 2. Request 3. Capability 4. Effort 5. Subjective preference

Six Steps to Green Sourcing

1. Assess the opportunity 2. Engage sourcing agents 3. Assess the supply base 4. Develop the sourcing strategy 5. Implement the sourcing strategy 6. Institutionalize the sourcing strategy

Causes of Bullwhip Effect

1. Demand forecast updating 2. Order batching 3. Price Fluctuations 4. Rationing and shortage gaming

Lean Production

1980s, minimize waste!! Just-In-Time: carry less inventory, get it when you need it CAD, TQM

Kano Model

1st level = must be [credit card acceptance at stores] 2nd level = differentiator [quality merchandise at a cheap price] 3rd level = pleasant surprise [free merchandise on a sale day]

ROP for Q model

= Lead time + Safety Stock

Available to Promise [ATP]

= Production Amount in MPS - Outstanding Customer Orders [firm] ATP calculation using look-ahead procedure

How much to order in P model?

= expected demand during OT + safety stock - amount on hand at reorder time

Basic EOQ Model Total Annual Cost

=DC + [D/Q]S + [Q/2]H D = ANNUAL demand Q = Order Quantity C = Purchase cost per unit S = Cost of placing order H = ANNUAL holding cost or carrying cost / unit

Utilization

Actual Output / DESIGN Capacity

Efficiency

Actual Output / EFFECTIVE Capacity

Level Strategy

Aggregate Planning Strategy CONSTANT production rate level workforce by varying inventory high inventory carrying cost ADV. stable output rates and workforce DIS. higher inventory costs increased overtime and idle time resource utilizations vary over time

Chase Strategy

Aggregate Planning Strategy PRODUCTION = DEMAND Chase demand by varying workforce low employee moral ADV. investment in inventory is low labor utilization is high DIS. the cost of adjusting output rates and/or workforce levels

Chapter 12

Aggregate Planning and Master Scheduling

Inventory Turns

Annual COGS / Avg. Level of Inventory Investment can be improved by increasing sales, but this isn't usual interpretation

Average Inventory Investment

Average Level of Inventory x Unit cost of Inventory

Process Improvement Approaches

Business Process Analysis [BPA] - To optimize large processes crossing functional boundaries and better meet customer needs, particular attention paid to transitions between departments with incremental changes. Reengineering/ Business Process Design [BPD] - Clean slate approach to improvement, as opposed to incremental. Radical redesign and drastic improvement, often needed to product a new order winner.

Value Attributes: Consumer Customers vs. Business Customers

CC - Cost, Quality, Convenience, Timeliness, Personalization, Ethical Issues, Style/Fashion, Technology BC: Cost, Quality, Dependability, Flexibility, Response Time

Inventory Turn

COGS during past year / Average Inventory Investment during past year

Six Sigma Quality

Centered Process - 3 Sigma = defects 2700 parts per million - 6 Sigma = defects .002 parts per million Non- Centered Process - 3 Sigma = defects 67,000 parts per million - 6 Sigma = defects 3.4 parts per million

Excess Cost in Newsvendor Model

Cexcess = Cost/unit - Salvage value/unit difference between purchase cost and salvage value of items left over at the end of the period

Chapter 2

Competitiveness, Strategy, and Productivity

Techniques for Evaluating Alternatives

Cost-volume analysis financial analysis decision theory waiting-line theory simulation

Process Capability Ratio

Cp = specification width/ process width, ONLY can be used when process is centered, Cp should be >= 1

Service level in Newsvendor Model

Cs / [Cs+Ce]

Shortage Cost in Newsvendor Model

Cshortage = Revenue/unit - Cost/unit the unrealized profit / unit

Six Sigma Methodologies

Current P/S --> DMAIC [Design, Measure, Analyze, Improve, Control] New P/S --> DMADV [Define, Measure, Analyze, Design, Verify]

Chapter 3

Design of P/S

Four Types of SC Strategies

Efficient SC Risk-hedging SC Responsive SC Agile SC

Six Sigma Hierarchy

Executive Leader [CFO, CIO] Champion Master Black Belt Black Belt Green Belt

Reasons to Outsource & Resulting Benefits

Financially Driven Reasons - improve ROA by reducing inventory, and selling unnecessary assets - generate cash by selling low-return entities - gain access to new markets, particularly in developing countries - reduce costs through a lower cost structure - turn FC into VC Improvement Driven Reasons - improve quality and productivity - shorten cycle time - obtain expertise, skills, and technologies that are not otherwise available - improve risk management - improve credibility and image by associating with superior providers Organizationally Driven Reasons - improve effectiveness by focusing on what firm is good at - increase flexibility to meet changing demand for P/S - increase P/S value by improving response to customer needs

Competing on Response

Flexibility- ability to match changes in marketplace Example: HP responding to design and volume changes of PC Reliability- on time delivery Example: competitiveness of German machine firms despite higher labor costs Quickness Examples: lunch delivered in 15 minutes from Benny's, customized pager delivered in 3 days from Motorola

Two Types of Products

Functional and Innovative

Dimensions of Quality

Goods - Performance - Aesthetics - Features - Conformance - Reliability - Durability - Perceived Quality - Serviceability Services - Convenience - Reliability - Responsiveness - Time - Assurance - Courtesy - Tangibles - Consistency

Inventory Decisions

HOW much to order? WHEN to order?

Quality

How to measure: conformance - reliability in use, design - performance and customer satisfaction, yield - factory and field Impact on Competitiveness: reputation - customer loyalty, relative attractiveness to customers - market share, profitability - cost of ongoing service

Productivity

How to measure: engineering hours per project, cost of materials and tooling per project, actual versus plan Impact of Competitiveness: number of projects- freshness and breadth of line, frequency of projects - economics of development

Time to Market

How to measure: frequency of new product introductions, time from initial concept to market introduction, number started and number completed, actual versus plan, percentage of sales coming from new products Impact on Competitiveness: responsiveness to customers/competitors, quality of design - close to market, frequency of projects - model life

Quality Standards

Industrial Standard Z8101-1981: Specification for TQM in Japan. International Organization for Standardization (ISO) ISO 9000 Series: common quality standards for products sold internationally. ISO 14000 Series: Standards for Environmental Performance. ISO 24700 Series: Standards for office equipment containing reused components. ASQC Q90 Series: American society for quality control MILSTD: military

Chapter 13

Inventory Management

Chapter 18

Project Management

Time and Extent of Increment

Leading: build capacity in anticipation of future demand increases Following: build capacity when demand exceeds current capacity Tracking: similar to following, but add capacity in relatively small increments to keep pace with increasing demand

Chapter 16

Logistics, Distribution, and Transportation

Overview of Operational Planning Activities

Long-Range Planning: focuses on strategic issues relation to capacity, process, selection, and plant location Intermediate-Range Planning: focuses on tactical issues pertaining to aggregate workforce and material requirements for upcoming year Short-Range Planning: address day-to-day issues of scheduling workers on jobs at assigned work stations

Quality Awards

Malcolm Baldridge National Quality Award [MBNQA] European Quality Award [EQA] Deming Prize

Chapter 8

Management of Quality

Manufacturing vs. Service Capacity

Manufacturing - Capacity excess: possible to utilize in forms of WIP, FG inventory - Capacity shortage: lost sales, moderate customer reaction Service - Capacity excess: difficult to utilize excess capacity - Capacity shortage: lost sales, adverse customer reaction

Chapter 5

Manufacturing Processes

Constraint Management

Market, Resource, Material, Financial, Knowledge/Competency, Policy

Costs Associated with Inventory

Order Cost Changeover/Set Up Cost Carrying Cost Stock-Out Cost [lost sales] Purchasing Cost

Productivity

Output/Input

Order Loser

P/S characteristics that repel customers, below par

Six Phases of Generic Product Development Process

P0: Planning P1: Concept development P2: System-level design P3: Design detail P4: Testing and refinement P5: Production ramp-up

Chapter 4

Process Design and Analysis

comparison of products and services

Product tangible, can be stored, quality: later corrections CAN be made, less customer contact, process doesn't always affect customer, higher uniformity in outputs, ****easier to manage Service intangible, can NOT be stored, quality: later actions may not be possible, increased customer contact, process may affect customer, less uniformity in outputs

Variants of EOQ model

Production Order Quantity [POQ] / Economic Production Quantity [EPQ]

Chapter 9

Quality Control

Types of Operations Strategies

Quality-based Strategies: strategies that focus on quality in all phases of an organization Reasons to use QBS - trying to overcome a poor quality reputation -desire to maintain quality/image -a desire to catch up with the competition -a part of a cost reduction strategy Time-based Strategies: strategies that focus on the reduction of time needed to accomplish tasks -it is believed by reducing time, costs are lower, quality is higher, productivity is higher, time-to-market is faster, and customer service is improved Agile Operations: a strategic approach for competitive advantage that emphasizes the use of flexibility to adapt and prosper in an environment of change, involves blending core competencies/competitive priorities

Chapter 11

Strategic Capacity Planning for P/S

Sequential vs. Concurrent

Sequential: one process finished completely before next one begins Concurrent: happening all at once, while others are happening, allows to bring P/S to market faster, more preferred

Chapter 6

Service Processes

Operation time

Setup time + Run time

Types of Productivity

Single-Factor Productivity Output/[1 Input] Multi-factor Productivity Output/[Input+Input]

Organization's implement strategies through

Tactics: the methods and actions taken to accomplish strategies, the "how to" part of the process Operating Procedure: the actual "doing" part of the process

Three T's in Poka-Yokes

Task to be done Treatment according to the customer Tangible features of the service

Utilization

Time Activated / Time Available

Measuring Product Development Performance

Time to Market Productivity Quality

three categories of businesses processes

Upper-Management: these govern the operation of the entire organization Operational: these are core processes that make up the value stream Supporting: these support the core processes

Velocity

Value-added time/ Flow time

Types of data

Variable and Attribute

four sources of variation in process management

Variety of goods or services: greater the variety of goods/services offered, greater the variation in production/service requirements Structural variation in demand: these are generally predictable, they are important for capacity planning [travel agency] Random variation: natural variation that is present in all processes, generally can't be influenced by managers [economy] Assignable variation: variation that has identifiable sources, this type of variation can be reduced, or eliminated, by analysis and corrective action

Key Questions in Capacity Planning

What kind of capacity is needed? How much is needed to match demand? When is it needed?

Average level of Inventory

[beginning inventory + ending inventory] / 2

Lean Six Sigma

a balanced approach to process improvement that integrates principles from lean operation and statistical tools for variation reduction from six sigma to achieve speed and quality, can be applicable to P or S example: GE or Catepillar

Total Involvement

a commitment at all levels of the firm

Productivity

a measure of the effective use of resources, usually expressed as the ratio of output to input -OM job to increase productivity

Crashing Project

a methodical approach to reducing project duration, focuses on the time of activities in CRITICAL PATH, looking for the greatest improvement with LEAST COST - may need additional labor or machinery, overtime and temporary employees, premiums paid to outside contractors for early delivery - the project duration may be shortened by increasing direct expenses, thereby realizing savings in indirect project costs`

Capability Variability

a patient being unable to explain symptoms to a doctor

Strategy

a plan for achieving organizational goals, action plan, how you are going to get there

Statistic Process Control

a quantitative method for determining whether a process is in or out of control Process variations: Random and Assignable

supply chain

a sequence of activities and organizations involved in producing and delivering a good or service or both

project

a set of activities aimed at meeting a goal with a defined beginning and end - LIMITED time frame - NARROW focus, specific objectives - less bureaucratic [matrix organization headed by a project manager]

Buffering

a storage area between stages where the output of a stage is placed prior to being used in a downstream stage

Balanced Scorecard

a top-down management system that organizations can use to clarify their vision and strategy and transform them into action 1. develop objectives 2. develop metrics and targets for each objective 3. develop initiatives to achieve objectives 4. identify links among perspectives [finance, customer, internal business processes, learning and growth] 5. monitor results

Process Capability

ability of a process to meet design specifications

Capacity

ability to produce at a given volume in a specified amount of time, upper limit or ceiling on the load that an operating unit can handle

Cause and Effect Diagram

aka fishbone or Ishiwaka diagram,

Process Flow Chart

akin to process map exhibit

Total Cost Ownership

an estimate of the cost of an item that includes ALL the costs related to the procurement and use of the item, including any related costs in disposing of the item - can be applied to internal costs or more broadly to costs throughout SC

COGS

annual cost for a company to produce the goods or services provided to customers

Collaborative Planning, Forecasting, and Replenishment [CPFR]

approach to demand planning in which partners negotiate and agree on a plan for meeting demand

c-Chart

attribute chart, used to count defects in samples of constant size, center line is the grand mean, c bar, points are cj, number of samples is m

p-Chart

attribute chart, used to track a proportion [fraction] that is defective, center line is grand mean, p bar, points are pj, number of sample is m, size of sample is n use for number of faulty bills

Cycle Time

average time between completion of units

Flow time

average time for a unit to move through the system

When measuring capacity

avoid dollar amounts, measure in units that don't require updating

Alliance

balance between the commitment to low prices and commitment to the relationship

Formation of Operations Strategies

based on competitive priorities - cost, quality, dependability, reliability, flexibility, response time, etc. competitive priorities are not independent, i.e. quicker response time = more flexibility

Order Qualifier

basic characteristics of P/S to be considered as candidates for purchase by customers are necessary but may not be sufficient to win customer

Explicit Services

benefits that are observable by the senses examples: how green is the course, how frequent is the lift coming

Safety Stock for Q model

buffer against uncertainty, reduces risk of stock out z * SD of demand during lead time

platform products

built around a preexisting technological subsystem

Service Package

bundle of goods and services five features: 1. supporting facility 2. facilitating goods 3. information 4. explicit services 5. implicit services

Process Capability Index

can be used when process is NOT centered Cpk = minimum of [Upper specification - x bar / 3SD], x bar - lower specification/ 3SD] Should be >=1

Innovative Products

can enable a company to achieve higher profit margins, newness of innovative products makes demand for them unpredictable - product LC = a few months [imitators quickly erode the competitive advantage they have, companies are forced to introduce a steady stream of newer innovations] - short LC and greater variety typical of these products further increase unpredictability

Effective Capacity

capacity the firm expects to achieve under current operating decisions, design capacity minus allowances such as personal time and maintenance

Order Winner

characteristics of P/S that cause it to be perceived by customers as better than competition, must kept it up to date in regards to technology [cruise control]

Random Variations

common cause, natural variations in the output of a process, created by countless minor factors, difficult/impossible to control

Dependent Demand Inventories

components, demand is related to demand of another item

Continuous Process Improvement

constantly trying to eliminate variability`

Cross-docking

continuous shipment from suppliers to warehouses, where goods are redirected and delivered to retailers in continuous shipments - requires excellent communication links - requires very reliable transportation system - demand forecasts are critical - very cost effective, but typically used in high-volume supply chains that have sophisticated information systems Walmart

Sourcing/Purchasing Design Matrix

contract duration, transaction costs, and specificity

Purchasing Cost

cost of purchasing the actual inventory, sometimes quantity discounts lower this cost, but this comes at expense of raising carrying costs

Carrying Cost

costs associated with carrying inventory - insurance, storage, opportunity cost of money tied up in inventory

Uncompromised Reduction

create complementary demands to smooth arrivals without requiring customers to change their behavior, limit service breadth, target customers based on their requests and motivation and preferences example: Netflix

Nature of Services

customer is at the focal point of all decisions and actions

Arrival Variability

customers arrive at times when there are not enough service providers i.e. peak hours

Information

data provided by the customer examples: tee time, medical records, weather forecast

Attribute data

data that count items, discrete, number of defects in a sample

Variable data

data that measure of a particular product characteristic, continuous, i.e. length or width

External Failure Costs

defects that happen, already reached customers WORST one to have, $$$ i.e. recall on Mattel's toys when lead was found in paint, air bag recall

Materials Requirements Planning [MRP]

determines the number of subassemblies, components, and raw materials required and their build/order dates to complete a given number of end products by a specific end date

Capacity Requirements Planning [CRP]

determining capacity requirements at work centers - use the planned order releases from MRP ** timing of production is more accurate ** accounts for inventory [unlike RCP planning]** - make adjustments if capacity constraints are violated

Strategic Sourcing

development and management of supplier relationships to acquire goods and services to fulfill needs of the business, used to be another word for purchasing, as a result of globalization, sourcing implies a more complex process suitable for products that are strategically important

Direct Shipment

direct ship from supplier to retailers - eliminates warehousing costs - less likely to ship TL - each store requires high levels of safety stock

Differentiation

distinguish offerings of the organization that customers perceive as value add Apple

Mass Production

early 1900s, moving assembly times [Ford], large scale utilizes earlier concepts of interchangeable parts and division of labor

Key Issues for today's Business Operations

economic conditions, innovation, quality problems, risk management, and global competition environmental concerns - sustainability: using resources in ways that don't harm ecological systems that support human existence ethical issues: financial statements, worker safety, product safety, quality, the environment, the community, hiring/firing workers, closing facilities, worker's rights

Appraisal Costs

evaluating products, inspection, TESTING **destructive: crash testing vehicles **non-destructive: testing operating system [chips]

Independent Demand Inventories

finished goods, dictated by marketplace

technology-push products

firm begins with new technology and looks for a market

Pareto Chart

highest frequency to lowest, histogram

Low-Cost Accomodation

hiring low-cost labor, automated tasks, outsource customer service, create self-service options

Warehousing

holding inventory received from suppliers in warehouses until it is needed by retailers ADV. Risk Pooling = inventory held in one warehouse to service a large number of retailers requires less inventory than if held at individual retailers Consolidation = reduced inbound costs because all shipments are going to the same place, like to ship full truckloads [TL] inbound, but less than full truckloads [LTL] outbound

Days-of-Supply

how long inventory will last for On-hand Inventory / Daily Demand

Weeks of Supply

how many weeks worth of inventory is in the system at a particular point in time average aggregate inventory value/COGS x 52

Modes of Transportation

how material will be transported - truck = flexible - ship = high capacity, low cost, SLOW - plane = fast, EXPENSIVE - train = low cost but SLOW and VARIABLE - pipeline = high specialized and limited to liquids, gases, and solids and slurry form - hand delivery = last step in many SC **MULTIMODAL = NORM

SC response refers to

how quickly a customers order can be filled and how quickly a company can respond to a new competing product

Functional Products

include the staples that people buy in a wide range of retail outlets, i.e. grocery stores/gas stations - product LC = more than two years - CM of 5 - 20% - only 10 - 20 product variations - an average forecast error of only 10% - lead time for MTO products is 6 months - 1 year

Bullwhip Effect

increasing variability of orders up the SC, most downstream entities are consumer, upstream are suppliers of the manufacturing phenomenon that variability as we move from the customer to the produce in the SC, a slight change in consumer sales ripples backward as magnified oscillations upstream, like the result of a flick of a bullwhip handle

Aggregate Planning: Proactive Approach

influencing demand through price and promo, INFLUENCES demand backordering during high demand periods creating new demand counter-seasonal product mixing

Quality Function Deployment [QFD]

inter-functional design teams from marketing, design engineering, and manufacturing, translates customer requirements into P/S design, guides corresponding process design, begins with listening to customer [using market research, customer preferences are defined and broken down into customer requirements] QFD tool - House of Quality

Subjective Preference Variability

interpreting service action differently, wanting different levels of services

Pipeline inventory

inventory in transit, inventory in oil pipelines, on trucks, planes, etc. reducing transit times reduces pipeline inventory

Continuous Replenishment

inventory is replaced frequently, as a part of an ongoing process, helps mitigate BWE

WIP

inventory that has begun processing, but has not completed it

Measuring Sourcing Performance

inventory turnover = how often inventory is replaced during the year COGS / Average aggregate inventory value

Dependent demand inventories

inventory whose demand is determined by the production schedule for finished products, usually components and raw materials

Classic Accomodation

involves having additional employees on hand who are skilled and trained, adapt to customer needs, work for customer, and diagnose differences in customer expectations

Stock-Out Cost

lost sales, cost associated with not having inventory when a customer wants it

often effective capacity is

lower than design capacity

Operations Management

management of operations activities to generate value EFFICIENTLY and used to create P/S

three primary business functions

marketing, operations, and finance

Companies must consider when sourcing a product

material, production, outsourcing, and transportation costs

Design Capacity

maximum theoretical output in a given period, max output rate or service capacity an operation, process, or facility is designed for

How much to order? EOQ

minimize the TC

Optimal Operating Level

minimum cost per unit

Single Period [Newsvendor] Model

model for ordering of perishables and other items with limited useful lives

customized products

new products are slight variations of existing configurations

Mass Customization

not completely finishing a product, tweaking at end for customer's needs/preferences Dell

Blocking

occurs when the activities in a stage must stop because there is no place to deposit the item, S1 faster than S2

Starving

occurs when the activities in a stage must stop because there is no work, S2 faster than S1

process

one ore more actions that transform inputs into outputs

Single Stage vs. Multi-Stage Process

one stage until completion vs. more than one stage until completion

Fixed Interval Variable Quantity (P Model)

order at a fixed interval, variable order quantity inventory will not be reviewed until next period

Fixed Q Variable Interval [Q Model]

order the SAME Q every time, order when inventory falls below ROP, intervals between orders may vary most common case = Case 4, variable demand and variable lead time

Third-Party Logistics [3-PL]

outside company is used to handle logistics functions, the outsourcing of logistics management includes warehousing and distribution

Organizational strategies

overall strategies that relate to the entire organization, support the achievement of organizational goals and mission

Time Fence in MPS

periods of time having specified level of opportunity to make changes Frozen = no change to minor change allowed Moderately firm = moderate change allowed Flexible = almost any change allowed

An important strategy for localizing a product in the context of supply chain design is

postponing the task of differentiating a product until the last point in the supply network

Cost Leadership

price lower than competitors, provide the maximum value as perceived by customer, doesn't imply low value or quality Walmart

Poka-Yokes

procedures that block a mistake from becoming a service defect, common in factories

Internal Failure Costs

producing defective parts or services, hasn't left/made it to customer yet

process-intensive products

production process has an impact on the properties of product, and product design cannot be separated from process design

Implicit Services

psychological benefits the customer may sense only vaguely examples: reputation of golf course, safety of lift

quick-build products

rapid modeling and prototyping enables many design-build-test cycles

Prevention Costs

reducing to the potential for defects, PROACTIVE

Specificity in Strategic Sourcing

refers to how common the item is and, in a relative sense, how many substitutes are available, commonly available products can be purchased using a relatively simple process

extent of contact

refers to the percentage of time the customer must be in the system relative to service time

Classic Reduction

require reservations, use reward/penalties, persuade customers to adjust their expectations to match the value proposition, limit service breadth

High vs. Low Contact Systems

services with high degree of customer contact are harder to control

operations function

set of activities in business that generate value by transforming inputs into outputs using efficient processes

Process

set of activities that convert investment in resources to value for which customers pay, converting inputs to outputs objectives of a good process - should add as much value - keep costs as low as possible

Effort Variability

shoppers not putting back carts, some do

DFMA

simplification of the product, primarily reducing the number of separate parts - during manufacturing operation, does the part move relative to all other parts already assembled? - must the part be of a different material or be isolated from other parts already assembled? - must the part be separate from all other parts to allow the disassembly of the product for adjustment or maintenance?

Assignable Variations

special cause, variations whose source can be identified, easy to control/correct

Bottleneck

stage that limits the capacity of the process

Mission

states the rationale of organization's existence, vague, broad, includes goals and strategy

Statistical Quality Control

statistics to manage quality - issue of process CONTROL ** are the variations random? if nonrandom variation is present, the process is Unstable - issue of process CAPABILITY ** given a stable process, is the inherent variability of the process within a range that conforms to performance criteria?

System Design decisions

strategic decisions that deal with LT commitment of resources, and determine parameters of system operation examples: capacity, facility location, facility layout, product and service planning, acquisition and placement of equipment

Functional Strategies

strategies that relate to each of the functional areas and that support achievement of organizational strategy

Aggregate Planning: Reactive Approach

supply options, REACTS to demand varying work force size by: hiring/firing or using part time workers varying production capacity through: overtime or idle time and subcontracting using inventory

complex systems

systems must be decomposed into several subsystems and many components

System Operation decisions

tactical and operational decisions, day-to-day **operations managers generally spend the most time on SOD than any other decision area** examples: management of personnel, inventory management and control, scheduling, project management, quality assurance

Focus

target specific segment of the market, niche market

Outsourcing

the act of moving a firm's internal activities and decision responsibility to outside providers, allows a company to create a competitive advantage while reducing costs, an entire function may be outsourced, or just some elements of an activity, with the rest kept in-house

Logistics

the art and science of obtaining, producing, and distributing material and product in the proper place and in the proper quantities

Cycle Time

the average time between completions of successive units

Changeover/Set-Up Cost

the cost of changing equipment from producing one P/S to another, analogous to order cost

Customer Focus

the customer determines what the quality is, internal or external customer

Order Cost

the fixed cost associated with ordering inventory, processing fee

Facilitating Goods

the material purchased/used/consumed by the buyer or the items provided to the customers examples: golf clubs, medicine, medical supplies, skis

Supporting Facility

the physical infrastructure/ resources that must be in place before a service can be offered examples: golf course, hospital, skilift

customer contact

the physical presence of the customer in the system

Aggregate Planning

the process for determining the most cost effective way to match demand and supply over medium time horizon, time horizon = usually 3-18 months, planning for a group of products

Hub-and-Spoke systems

the purpose of the hub [warehouse] is sorting goods to consolidation areas, where each area is designed for shipment to a specific location

Transfer batch

the quantity produced at a work center before transferring the products to the next step in the process

Utilization

the ratio of the time that a resource is actually used/activated relative to the time that it is available for use

Core Competencies

the special attributes or abilities that give an organization a competitive edge i.e. Sony w/ miniaturization, Mayo Clinic w/ diagnostic services

creation of the service

the work process involved in providing the service itself

Total Quality Management [TQM]

three principles 1. Customer Focus 2. Continuous Process Improvement 3. Total Involvement

Lead time

time needed in order to respond to a customer's order

Average aggregate inventory value

total value of all items held in inventory

successfully implemented Six Sigma

training and selection of the work force, and impressive cost savings of program

Request Variability

travelers requesting a room with a view

SKUs [stock-keeping-units]

unique numbers that identify items in inventory

Process Flowcharting

use of a diagram to present the major elements of a process, an ideal methodology to be used to begin analyzing a process

Request for Proposal [RFP]

used for purchasing items that are more complex or expensive and where there may be a number of potential vendors

Rough-cut Capacity Planning [RCP]

used to check feasibility of tentative MPS relative to available capacity Input: tentative MPS Bill of Capacity [statement of time required on each resource needed to make on unit of product] Available Capacity Output: Approved [adjusted] MPS

Responsive SC

utilize strategies aimed at being responsive and flexible low/stable process, high/innovative product i.e. fashion apparel, computers, popular music

Agile SC

utilize strategies aimed at being responsive and flexible to customer needs high/evolving process, high/innovative product i.e. telecom, high end computers, semiconductor

Efficient SC

utilize strategies aimed at creating highest cost efficiency low/stable process, low/functional products i.e. grocery, basic apparel, food, oil and gas

Risk-hedging SC

utilize strategies aimed at pooling and sharing resources in a SC to share risk high/evolving process, low/functional product i.e. hydroelectric power, some food produce

Vendor Managed Inventory [VMI]

when a customer actually allows the supplier to manage an item or group or items for them

Customer order decoupling point

where inventory is positioned to allow entities in the SC to operate independently

Goals

where you are going