Supply Chain Management Exam II

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MRP Benefits

- low levels of in process inventory -ability to track material requirements -ability to evaluate capacity requirements -a means of allocating production time

reasons for diseconomies of scale

-distribution costs increase due to traffic congestion and shipping from a centralized facility rather than multiple smaller facilities -complexity increases costs -inflexibility can be an issue -additional levels of bureaucracy -overtime costs

ERP

-enables organization to deal directly with key suppliers -access to availability of key suppliers' resources -key costumers can access firms inventory info- manufacturing and delivery schedules -eliminates inconsistencies and incompatibility -automates business processes rapidly -minimize delivery lead times

reasons for economies of scales

-fixed costs are spread over a larger number of units -construction costs increase at a decreasing rate as facility size increases -processing costs decrease due to standardization

reasons to study decision analysis

-make better decisions -gather your thoughts -organize subjective ideas and judgements

service capacity challenges

-need to be near costumers -inability to store services -degree of demand volatility

Disadvantages of ERP

-requires substantial capital -time and money to evaluate, purchase, implement, train -very complex -difficult to implement -restructure firms processes to be compatible

binding constraints

-shade price values that are non-zero -have no slack or surplus -changing RHS will lead to change in optimal decision values and change the value of objective function

non-binding constraints

-shadow price values that are equal to zero -have slack or surplus -changing RHS will have no effect on optimal solution

Advantages of ERP

-uses single database and common software infrastructure to provide broader scope and up to date info -better management decisions -communicate operational changes fast -integrated with internet technology -VISIBILITY -increases productivity -communicate standardized method -integrate financial, production, supply and costumer order info

Aggregate Production Plan

APP

available to promise

ATP

increase

As one moves down the the BOM the numbers do what?

bill of materials

BOM

costumer relationship management

CRM

capacity requirements planning

CRP

annual ordering cost

D/Q * S

distribution requirement planning

DRP

electronic data interchange

EDI

Economic Order Quantity

EOQ

enterprise resource planning

ERP

failed

The lack of management commitment, resources, training, and communication in addition to an incompatible system environment leads to what type of implantation of ERP?

make to stock

The level production strategy works well with which type of manufacturing firm?

safety stock

The risk of stock out decreases as the amount of what increases?

one

The sum of all weights in a weighted score have to equal what?

work in process

WIP

computer support and accurate realistic inputs

What are the primary requirements for successfully implementing ERP?

dependent demand

What can be calculated once the demand of the final product is known?

inventory

What can be one of the most expensive assets of an organization?

annual $ usage

What is the most often used factor to prioritize items in the ABC system?

planned order release

What the most important output of the MRP?

continuous review

Which inventory system is costly to conduct bust requires less safety stock?

single period

Which model's goal is to identify the order quantity that will minimize long-run excess and shortage costs?

mixed production strategy

Which production strategy minimizes stock-outs and cycle time?

MRP

a computer based materials management system that calculates the exact quantities, need dates, and planned order releases for sub assemblies and materials required to manufacture a final product

make to order

a firm that generally produce one of a kind products based on costumer specifications

make to stock

a firm typically emphasize immediate delivery of off the shelf, standard goods at relatively low prices

APP

a hierarchical planning process that translates annuals business plans and demand forecasts into production plan for all products

RRP

a long range capacity planning module, checks whether aggregate resources are capable of satisfying the aggregate production. Resources considered include gross labor hours and machine hours

objective function

a mathematical statement of profit for a given solution of other metric of measurement

tracking capacity strategy

a moderate strategy that adjust capacity in smalls amounts in response to demand

lead capacity strategy

a proactive approach that adds of subtracts capacity in anticipation of future market conditions and demands

lag capacity strategy

a reactive approach that adjusts its capacity in response to demand

CRP

a short ranged capacity planning technique that is used to check the feasibility of the material requirements plan

system nervousness

a situation where a small change in the upper-level production plan causes a major change in the lower-level production plan- can create serious problems for manufacturing firms

MPS

a time phased detailed dis-aggregation of the aggregate production plan listing the exact end items to be produced

chase production strategy

adjusts capacity to match demand pattern, hire and layoff workers to match production rate to demand- workforce fluctuates but finished goods inventory remains constant

inventory policy

affects how efficiently a firm deploys its assets in producing goods and services

MRP Benefits

allows managers to: -determine with ease the quanitties of each component for a given order size -know when to release orders -alerted when items needs attention

shadow price

amount by which the value of the objective function would change with a one unit change in the RHS value of a constraint

decision variables

amounts of either inputs or outputs

BOM

an engineering document that shows an inclusive listing of all component parts and sub assemblies making up the end item

ERP

an umbrella system that ties together a variety of specialized systems by using a common, shared, centralized database.

D

annual demand

total annual costs

annual holding cost plus annual ordering cost

sensitivity analysis

assessing the impact of potential changes to the numerical values of an LP model

quantity discount total cost

carrying cost plus ordering cost plus purchasing cost

decision analysis environments

certainty, risk and uncertainty

make to order firm

chase production strategy works well because they cant rely on finished goods inventory to satisfy fluctuating demand

Production strategies of APP

chase, level, mixed

turnover ratio

cost of revenue divided by average inventory equals?

excess cost

cost per unit minus salvage value per unit

demand per period

d

independent demand

demand of a firm's end products and has a demand pattern affected by trends, seasonal patterns, and general market conditions

appropriate amount of safety stock

depends upon: 1. average demand rate and average lead time 2. demand and lead variability 3.desired service level

inventory costs

direct vs. indirect, fixed vs. variable, order vs. holding

risk

environment in which certain future events have probable outcomes- uses decision trees

uncertainty

environment in which it is impossible to asses the likelihood of various future events- uses payoff tables

certainty

environment in which relevant parameters have known values-uses linear programming models

laplace

find the average payoff for each alternative and then pick the one with the highest $

a items

highest amount of annual $ usage, monitored more frequently, higher safety stock to guard against stock outs

H

holding cost per unit

regret or opportunity loss

identify the worst regret for each alternative and then pick the one with the lowest $

Economies of Scale

if output rate is less than the optimal level, increasing the output rate results in decreasing average per unit costs

diseconomies of scale

if the output rate is more than the optimal level, increasing the output rate resulting in increasing average per unit costs

stochastic demand

incorporates uncertainty by using probability distribution

dependent demand

items are components and raw materials

independent demand

items that can NOT be derived using the materials requirements planning logic from the demand for other items

level production strategy

keeps constant output rate and capacity and is more suited for firms that require highly skilled labor

LT

lead time

capacity strategies

lead, lag, tracking

independent demand item

level 0 on BOM- final product

constraints

limitations that restrict the available alternatives

average

line above letter in a formula means to use the....

LP model assumptions

linearity, divisibility, certainty, nonnegativity

chase production strategy

major cost components= hiring, training, termination costs

level production strategy

major cost components= inventory carrying and stock-out costs

risk taker, go getter

maxi-max-find the best payoff for each alternative and then pick the one with highest $

pessimist

maxi-min- find worst payoff for each alternative and then pick the one with highest $

Uncertainty decision criteria

maximin, maximax, laplace, minimax regret

MPS

more detailed and shorter planning horizon than the APP, BUT must be longer than production lead time

independent demand

must be forecasted based on market conditions

chase production strategy

negative motivational impact on workers by assuming that workers can easily be acquired (replaced) to perform the job

non negativity

negative values of decision variables are unacceptable

divisibility

non-integer values of decision variables are acceptable

z

number of standard deviations

parameters

numerical constraints

LP model components

objective function, decision variables, constraints, parameters

Q*

optimum quantity

Q

order quantity

S

ordering cost

periodic system

physical count of items in inventory made at periodic intervals

ABC Inventory System

prioritizes inventory into groups, A, B and C

service level

probability that demand will not exceed supply during lead time- 100% minus stockout risk

MPS

production quantity required to meet demand from all sources and is basis for computing the requirements of all time-phased end items

inventory turnover ratio

ratio shows how many times a company sells all its inventory in an accounting period

level production strategy

relies on constant output rate and capacity while varying inventory and backlog levels to handle fluctuating demand pattern-keeps workforce constant, relies on fluctuating finished goods inventories and back logs to meet demand

static demand

stable demand

od

stddev, of demand

oLT

stddev, of lead time

c items

stock-outs may be allowed to save inventory space and carrying cost

mixed production strategy

strives to maintain stable core workforce while using other short term means such as overtime, additional shifts, sub-contracting of the hiring of part-time/temp workers to manage short term high demand.

perpetual inventory system

system that keeps track of removals from inventory continuously, thus monitoring current levels of each item

available to promise

the difference between confirmed costumer orders and the quantity the firm planned to produce

linearity

the impact of decision variables is linear in constraints and in the objective function

dependent demand

the internal demand for parts based on demand of the final product in which the parts are used

service capacity

the number of costumers per day that a firms service delivery systems are designed to serve-could be in terms of some other period of time (costumers per hour, costumers per shift)

dependent demand item

the requirements of all the items in level 1 on BOM and below

lead time

time interval between ordering and receiving the order

shortage cost

unrealized profit per unit revenue per unit minus cost per unit

RCCP

used to check feasibility of MPS. Converts MPS from production needed to capacity required, then compares it to capacity available.

ABC Inventory System

useful technique for determining which inventory should be counted more frequently and managed more closely and which ones should no

certainty

values of parameters are known and constant

dynamic demand

varies over time

deterministic demand

when uncertainty is not included in its characteristics

periodic

which inventory system reviews physical inventory at specific points in time but requires higher level of safety stock.

mixed production strategy

which production strategy is a viable option for firms with multiple products and costumers seeking both low-cost and make to order items

level production strategy

workforce more likely to be more effective with higher morale

service level

z is equal to the

net requirements

The dependent demand management system for MRP takes info to compute what?

ABC inventory matrix

1. classify inventories into A-C based on inventory $ usage 2. classify inventories into A-C based on current of on-hand inventory dollar value 3.combine both analysis to form matrix

categories of inventory

1. raw materials 2.WIP 3.Finished goods 4.MRO 5.goods-in tansit

functions of inventory

1.establish s system for tracking items in inventory 2.make ordering decisions

reorder determinants

1.rate of demand 2.lead time 3.extent of demand and/or lead time variability 4.degree of stock-out risk acceptance to management

approx 40% of items B

15% of annual $ usage

Approx 40% of items C

5% of annual $ usage

approx 20 % of items A

80% of annual $ usage

expected value

EV

scheduling

In the service industry MPS may just be what type of software?

inventory

In the service industry you can not store or use what later?

highest

In weighted scoring you chose the option with what score?

Linear programming

LP

Master Production Schedule

MPS

maintenance, repair and operating

MRO

Materials Requirement planning

MRP

what, how many, when

MRP designed to answer what three questions?

annual holding cost

Q/2 * H

rough cut capacity planning

RCCP

right hand side

RHS

resource requirements planning

RRP

MRP

Requires these to work effectively: 1. independent demand info 2.parent-component relationship from the BOM 3.inventory status of final product and components

effective inventory management

Requires: 1. a tracking system 2.reliable forecast of demand 3.knowledge of lead times and variability 4.reasonable estimates of costs 5. classification system

supplier relationship management

SRM


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