SCHM Exam 3 - Chapters 9, 6, 11, 14
conformance quality
a measure of whether or not a delivered product meets its design specifications
materials requirements planning (MRP)
determines the quantity and timing of requirements for all components needed to make related products three key information inputs: 1. master production schedule (MPS) 2. bill of materials (BOM) 3. inventory records
product quality
fitness for consumption in meeting customers needs and desires
unit fill rate
proportion of the units that were delivered compared to the total units ordered = units delivered/units ordered
integrated service providers
provide a range of logistics services; companies can effectively outsource basic logistics services (transportation, warehousing, distribution) to carriers like UPS third party logistics providers (3PLs) allow companies to focus on their core competencies while entrusting their logistics function to them
core values of total quality management
quality improvement methodologies, certifications standards, and awards criteria PDCA, Six Sigma, ISO 9000, DMAIC, and the Malcolm Baldrige Award
six sigma methodology (definition)
quality improvement through elimination of defects and variation; increase the level of confidence in the processes to minimize defects per million "opportunities"; applies to manufacturing and service companies key metric of variation in the program is sigma, the standard deviation from the target six sigma reduces the process standard deviation which squeezes most outcomes into the range between lower and upper specifications set by the tolerances goal of achieving a process sigma 12 times smaller than the range of outputs allowed by the product's design specification (3.4 defective outcomes for every million opportunities to produce the outcome)
value density (definition)
ratio of a product's value to it's weight (carrying cost vs. transportation costs) often determines the type of carrier used
core expectations in customer satisfaction
reliability, responsiveness, access, communication, credibility, security, courtesy, competence, tangibles, and knowing the customer must be met or exceeded
master production schedule (MPS)
schedule for building finished products and shows the quantity of end items to be completed in each time period time bucket: time periods for planning planning horizon: entire time period covered or cumulative lead time; ensures enough time to plan, order, receive and make the end items
line fill rate
service performance as a percentage of distinct line items that were filled in total = lines delivered/lines ordered
enterprise resource planning (ERP)
software that consolidates all business planning systems and data replaces old legacy systems, has multi-function capabilities, facilitates cross-functional coordination, saves time, reduces errors, and enables better business decisions
order-to-delivery lead time
1. design: conceptualize, design and test 2. order: place an schedule for production 3. procurement: source and arrive 4. production: start to end of production 5. delivery: warehousing and transportation to customer different market orientations have different element of OTD lead time 1. engineer to order: design and make to customer specifications 2. make to order: make to customer demand from raw materials and components 3. assemble to order: assemble to customer demand from generic subassemblies 4. make to stock: build and stock in anticipation of customer demand
designing warehouse management strategies
1. determine warehouse roles 2. design and manage operations: receiving/unloading, in-storage handling, storage, order picking, staging, shipping, safety and security
DRP process
1. forecasts and firm orders combined at retailers or DC level 2. planned order receipts and releases determined for each location 3. gross requirements calculated and compared to projected on-hand 4. net requirements and planned orders calculated 5. requirements across stages of distribution consolidation up to the plant level 6. distribution requirements used as input for MPS and MRP
MRP process
1. gross requirements: total amount of an end item that is required (finished good, subassembly, or part) 2. requirements explosion: determines how many additional units, if any, are needed to meet the week's gross requirements; determines the net requirements 3. scheduled receipts: total quantity of items from when the orders are placed in the past and due to be delivered by the beginning of the period; what and when we expect delivery 4. net requirements: the minimum quantity required in the period (net requirements = gross requirements - (scheduled receipts + on hand inventory)) 5. calculate planned order receipt: arrives at the beginning of a period; arrivals come from order than are planned to be placed at the designated time in the future; what we are actually going to receive in this time bucket 6. planned order release: when to place the order; to determine the planned order release for each period, count backward form planned order receipt using the lead time
customer management and relationship strategy
1. high revenue, low profit: high basic service or customer satisfaction 2. low revenue, low profit: review reason for doing business 3. high revenue, high profit: commitment to customer success 4. low revenue, high profit: high basic service or customer satisfaction
consolidation (calculation)
A firm has orders of 12,000lbs each of goods for three customers. It is $15.75 per hundredweight (cwt) to ship direct, or $10.50 cwt for shipments of greater than 30,000lbs with a $300 fee for each stop. Cost of individual shipments: $15.75 x (12,000/100) = $15.75 x 120cwt = $1,890 total for all three shipments = 3 x $1, 890 = $5,670 Consolidated shipments: $10.50 x (36,000/100) = $10.50 x 360cwt = $3,780 including stop charge = 3 x $300 + $3780 = $4,680 Saving with consolidation = $5,670 - $4,680 = $990
value density (calculation)
A firm must ship 30 items each weighing 10lbs valued at $500 each a distance of 1,000 miles. Transportation options are 8-day ground for $50 or 2-day for $90. Holding cost is 20% of the product's value. How should the firm ship their product? Total cost = In-transit holding cost + Freight cost In-transit holding=days in transit/365 x Value x Holding Cost Ground: [(8days/365) x $15,000 x 20%] + $50 = $115.74 Air: [(2days/365) x $15,000 x 20%] + $90 = $106.44 Saving by Air = $9.30 and getting there 6 days earlier!
plan-do-check-act methodology
Deming's wheel; Kaizen (continuous cycle of improvement) 1. plan: identify problems (current gaps) and actions from improvement 2. do: implement formulated plan (roll out) 3. check: monitor results using performance metrics to identify unexpected/previously hidden problems 4. act: take corrective action and institutionalize change
six sigma methodology (calculation)
Rachel loves to bake cookies, but she has an old oven that has trouble maintaining a constant temperature. If the acceptable temperature range for making the cookies is 350 plus or minus 5 degrees, what is the allowable standard deviation in the temperature of her oven in order to achieve a Six Sigma level of quality? 10 degree range/12 = 0.833 (the oven can only have a variation of 0.83 degrees to achieve six sigma level of quality meaning the range of temps is 349.167 - 350.833) range/12 = standard deviation
bill of materials (BOM) (definition)
an indented list/product structure tree diagram includes a list of all its raw materials, parts and subassemblies; shows the sequence of assembly
customer service
basic services: the right amount, product, place, time, condition, information, price basic components of service in terms of ensuring that the product is available, without delay, and with reliability of the product
distribution requirements planning (DRP)
calculates the positioning and replenishment of finished goods inventories throughout the distribution network using similar logic to MRP output of DRP is used as a primary input into operations and logistics planning processes
transportation mode selection
choosing which mode to use requires evaluating the service characteristics and the cost of each mode; compared on five dimensions 1. speed: elapsed time require to move from the point of origin to the destination 2. availability: the ability to service any possible location 3. dependability: the variance in the expected delivery times 4. capability: the ability to handle any type of product and/or size of load 5. frequency: the number of scheduled movements that can be arranged by a shipper
pooled delivery consolidation
combine small shipments from difference shippers going to the same area
market area consolidation
combine small shipments from one shipper going to the same area
cross-docking
combines break-bulk and consolidation activities large shipments from many sources are scheduled to arrive at the facility's receiving docks simultaneously, broken down by destination and distributed to trucks, which then take their portion of each of the large shipments to their specific destination area
carrier types
common carriers: provide service to the public with published rates contract carriers: provide service only to select, contracted customers private carriers: firm owns its own equipment
external failure costs
costs associated with defects found after delivery to customer (ex: warranty, recall, etc.)
appraisal costs (COQ)
costs associated with inspection to assess quality levels (ex: staff, tools, training)
prevention costs (COQ)
costs associated with preventing defects and limiting failure and appraisal costs (ex: training, improvement projects, data gathering, analysis)
internal failure costs
costs from defects found before delivery to the customer (ex: rework, scrap, etc.)
limitation of customer service
customer service involves specifying the firm's commitment to availability, operational performance, and reliability basic service as a competitive advantage depends on: 1. order winners, qualifiers, and losers 2. meeting or beating competitor levels 3. link to competitive strategy 4. link performance to customer satisfaction happy customer does not always equal a loyal customer; customers may be happy with the product bust dissatisfied with a company's service; payment without complaint does not equal satisfaction previous bad experiences can lower expectations, meaning needs are met or exceeded, but the service doesn't delight the customer
define, measure, analyze, improve, and control cycle (DMAIC)
data-driven improvement cycle used for improving, optimizing and stabilizing business processes and designs 1. define: determine critical to quality characteristics from customer's perspectives 2. measure: gather data on critical to quality processes 3. analyze: determine cause of defects 4. improve: modify processes 5. control: ensure improvements are maintained
the perfect order
delivered without failure in any order attribute (complete, on time, damage free, correct documentation)
scheduled delivery consolidation
delivery at specific times; customers adjust their pattern of order to fit the schedule
transportation economics
economy of scale: cost per unit of weight decreases as shipment size increases economy of distance: cost per unit traveled decreases as distance moved increases
fill rate
effectiveness in fulfilling customer demand; impact of stock outs overtime, or over multiple customer orders three different fill rates: 1. unit fill rate 2. line fill rate 3. order fill rate
capacity requirements planning (CRP_
estimate of capacity needed uses planned order releases and scheduled receipts to estimate work loads load profile: compared weekly loads against a profile of actual capacity having too much or too little capacity can be problematic; extra capacity increases holding and materials costs; not enough need overtime or outsourcing
customer satisfaction model gaps
gaps occur at differences between: 1. knowledge: understanding of customer needs 2. standards: internal performance vs. customer expectations 3. performance: standard vs. actual performance 4. communication: actual performance 5. perception: customer's view vs. actual performance 6. satisfaction: customer's perceptions vs. expectations
transportation management
governments typically play a major role because transportation is vital to the overall economy economic regulations: designed to ensure transportation services are available to everyone at reasonable cost; entry of new carriers, rates and services provided safety regulations: ensure carriers operate safely; safe for carriers and public including increased emphasis on security from terrorist activity, the movement of hazardous goods, labor hour maximum, etc.
materials handling and packaging
handling material increases costs and risk of damage packaging decreases handling costs and damage containerization or unitization: filling or creating a larger container from smaller ones automated storage and retrieval systems: robots that get, move, and put-away RIFD: electronic tracking of materials
customer satisfaction
highly subjective appreciation of whether or not customer expectations were met or exceeded
requirements planning
independent demand: demand created by customers dependent demand: driven by demand of another item materials requirements planning (MRP): computes demand for dependent items distribution requirements planning (DRP): computes demand for finished goods in distribution capacity requirements planning (CRP): determines if sufficient resources are available
customer management
intense focus on understanding and providing customers with products/services they desire customer service, customer satisfaction, customer success
ISO 9000
internationally accepted standards for quality management systems 1. fulfilling the customer's quality requirements 2. meeting applicable regulatory requirements 3. while aiming to enhancing customer satisfaction 4. achieving continuous improvement of its performance in pursuit of these objectives
product availability
inventory available when an where desired by customer; for consistent availability, inventory levels (including safety stock) must be managed effectively to avoid failure in fulfilling demand)
activities of integrated logistics management
inventory management, network design, material handling and packaging, warehouse management, transportation management, and order processing logistics is essential in fulfilling these tasks successfully
inventory records
inventory status file: item number and description, lead time information, preferred lot size, safety stock policy, cost, and ordered quantities not yet received lot-for-lot: and order for the exact amount needed, minimizes carrying costs, maximizes setup or ordering costs fixed order quantity (FOQ): same amount each time periodic order quantity (POQ): fixed period of time FOQ and POQ can create "lumpy" orders rather than a smooth continuous flow of materials
break-bulk
large shipments to a local market/region must be broken into smaller shipments to reduce transportation costs splitting a shipment into individual orders and arranging for local delivery
bill of materials (BOM) (product structure tree)
level 0: end product X level 1: B(2) and C(1) level 2: B-->D(3) and E(1); C-->E(2) and F(2) level 3: D-->E(4) and G(2) one X will require: -B: 2 (2 x 1) -C: 1 (1 x 1) -D: 6 (3x2) -E: 28 (1 x 2) + (2 x 1) + (4 x 6) -F: 2 (2 x 1) -G: 12 (2 x 6)
design quality
match between designed features and customer requirements
customer satisfaction
meeting or exceeding customer expectations including: 1. reliability: performance as promised 2. responsiveness: prompt reply and resolution 3. access: easy to sue communication channels 4. communication: proactive order notifications 5. credibility: believable and honest a reliable business delivers as promised, as promptly as possible, facilitates the placement of orders, communicates proactively, and deal with honesty and integrity diminishing doubts or fears of risk including: 1. security: low risk and confidential 2. courtesy: polite, friendly and respectful 3. competence: able to perform 4. tangibles: physical appearance 5. knowing the customer: responsive to unique needs companies tend to see customers as part of a target population; need to see customers as individuals, who expect their individual requirement to be fulfilled the actions of a single employee can tarnish the reputation of the whole company
network design
most impact on supply chain operations multiple factors to consider: labor, proximity to suppliers and customers, cost of land and construction, taxes, incentives and regulations, infrastructure, and quality of life for employees
logistics management
movement and storage of materials to meet customer needs and organizational objectives at the lowest feasible cost while sustaining desired service levels includes forwards and reverse flow, flow of materials and information; and load, offload, move, sort and select material
Malcolm Baldrige Quality Award
national quality award for organization judges to possess outstanding quality and performance excellence in seven areas 1. strategy 2. leadership 3. customers 4. workforce 5. results 6. operations 7. integration
consolidation (definition)
one large shipment of many smaller shipments market area, pooled delivery, and scheduled delivery
cost of quality
operations management framework analysis that clarifies the cost impact of poor conformance quality; assesses four major categories prevention, appraisal, internal, and external costs
quality management
organization wide quality focus merging the development of a quality oriented corporate culture with intensive use of managerial and statistical tools quality has to be an integral part of how an organization operates
dimensions of quality for goods and services
perceived quality, performance, reliability, aesthetics, support, durability, features, conformance
service reliability
performance of all order related activities error-free if a firm has a 97% reliability on four attributes, the probability of a perfect order is 88.5% (0.97x0.97x0.97x0.97)
order fill rate
strictest measurement of the three; measures the percent of order that were delivered in full compared to the total number of orders placed = orders delivered in full/total number of orders
perceived quality of goods and services
subjective assessment based on image, advertising, brand names, reputation, etc. indirectly associated with the product's attributes that is very difficult to measure
aesthetics of goods and services
subjective assessments of a product's exterior appearance, sound, smell, or touch
total landed cost
sum of all product and logistics related costs 1. country costs of manufacturing: raw materials, storage, labor, quality, overhead, exchange rate, etc. 2. cost in transit of country of sale: fuel, insurance, port charges, handling, security, duties, etc. 3. cost within country of sale: local handling, transportation, taxes, safety stock, productivity, etc.
customer success
suppliers are engaged in ensuring customers reach their objectives requires a supplier to have a long-term relationship focus, gain comprehensive knowledge of customer needs, consider the customer's customers, and adapt manufacturing and distribution focus on customer's real requirements over customer expectations; demands an understanding of the individual needs for the customer and a commitment to building long-term relationships with them
customer relationship management
technology-enabled data gathering about customers to develop strategic relationships purpose of developing a customer-centered organization that utilizes every opportunity to delight customers, foster their loyalty, and build long-term, mutually beneficial relationships
support (responsiveness) for goods and services
the competence of product support installation, information, maintenance, or repair
conformance of goods and services
the degree to which a product meets its design specifications/standards
performance of goods and services
the degree to which the product meets or exceeds certain expected operating characteristics
reliability and durability of goods and services
the length of time a product performs before it must be repaired and the amount of use before a product deteriorates
total quality management structure
the workers on the front line of business have primary ownership of operating processes, elevating and empowering front line workers is a core value of total quality management 1.top management 2. middle management 3. lower-level management and front line supervisors 4. employees
lead time performance
time between start and end of an activity; most important in customer management is order-to-delivery lead time
logistics cost minimization and trade-offs
total logistics cost = 25-30% of sales revenue trade-offs: 1. cost-to-service: higher service levels means higher costs and 2. cost-to-cost: higher cost of one activity means lower cost of another
traditional organizational structure
very clear distinctions between managers and workers, often elevating the importance of managers workers are present to support the activities of management 1. front line workers who interact routinely with customers and operational processes; they deal with the bulk of problems and difficulties of running the business 2. lower-level management and front lines supervisors 3. middle management 4. top management that has the primary responsibility for product quality
warehouse consolidation
warehouse combines shipments from a number of sources into one larger shipment going to a single location customer receives an assortment of products in one shipment reducing time, and effort required for the customer implementation of transportation economy of scale
warehouse management
warehouse to store inventory and creating final product assembly in accordance with customer requirements most cost-effective means to provide products to geographically dispersed customers three strategies: 1. break-bulk 2. consolidation 3. cross-docking value added services: providing additional value to the customer (reclamation, disposal sites, postponement of customization, product servicing, etc.)