Business Management 3130 - Exam 1
YouTube - Green MFGR
- 0 Impact on the environment - Reduce energy (electricity and natural gas) - Reduce waste and water - Get to zero landfill =<1% of plant output - Recycle all cardboard boxes - Recycling or finding alternatives use for plant outputs - Recycle water - Electricity and natural gas reductions
What are the types of customer-introduced variability?
- Arrival variability: Customers arriving at times when there are not enough service providers - Request variability: Travelers requesting a room with a view - Capability variability: A patient being unable to explain symptoms to doctor - Effort variability: Shoppers not putting up carts - Subjective preference variability: Interpreting service action differently Either accommodate the customer and create a higher cost or don't accommodate and dissatisfy the customer. Trade off
Behavior Arrivals
- Balking: Do not join the queue - Reneging: Join the queue but give up and leave before completing service - Jockey: Move from one line to another
Priorities
- Competitive Priorities: What the company WOULD LIKE to achieve - Competitive Capabilities: Knowledge the firm is able to ACTUALLY achieve to satisfy the customer
Competitive Dimensions
- Cost: high or low cost - Quality: consistent quality, superior quality - Time: delivery speed, on-time/reliable delivery, development, speed of new products/services - Flexibility: volume flexibility, customization, postponement, mass customization, variety/mix - Others
Efficiency, Effectiveness, and Value
- Efficiency: Doing something at the lowest possible cost - Effectiveness: Doing the right thing to create the most value for the company - Value: Quality divided by price
What are inputs?
- Employees - Equipment - Raw materials or inventory - Facilities - Information or knowledge - Time - Money - Energy
Independent v.s Dependent Demand
- Independent Demand Inventory: Items for which demand is influenced by market conditions and is not related to production decisions for any other item held in stock. - Dependent Demand Inventory: Items required as components or inputs to a product or service and depends on (can be calculated from) independent demand.
Fixed time period models
- Inventory are reviewed on set schedule or periodic review - Fixed-order-interval system - When more is needed, order up to the target level T - Determined by two parameters: P and T - P: period of time between review - T: target inventory level to order up to
Production process terms
- Lead time - the time needed to respond to a customer order - Customer order decoupling point - where Buffer inventory is positioned to allow entities in the supply chain to operate independently - Lean manufacturing - a means of achieving high levels of customer service with minimal inventory investment (Instructor Comment- Our definition is more holistic to include the elimination of ALL sources of Waste, not just inventory.)
Service System Design Matrix
- Mail contact - Internet and on-site technology - Phone contact - Face-to-face tight specs - Face-to-face loose specs - Face-to-face total customization
Why maintain Inventory?
- Maintain independence of Operations (decoupling) - Meet Variation in product demand (uncertainty) - Allow flexibility in production scheduling - Provide safeguard for variation in raw material delivery time (or supply uncertainty-vendor, material availability) - Take advantage of economic purchase order size (quantity discounts) - To support a competitive dimension or business strategy
Pressures for high inventories
- Ordering Cost: The cost of preparing a purchase or a production order. - Set-up Cost: The cost involved in changing over a machine to produce a different item. - Customer Service: Reduces the potential for stock-outs and backorders. - Labor and Equipment Utilization: (use with caution!) - Transportation Costs: Full truck (FTL) or container loads. - Quantity Discount: Lower price per unit for a sufficiently large order.
Improving processes
- Perform Activities in Parallel - Change the sequence of activities - Reduce Interruptions
Process choice con't
- Project: A setup in which a product remain at one location, and equipment is moved to the product - Work center: Sometimes referred to as a job shop where similar equipment or functions are grouped together. - Manufacturing Cell: Dedicated area where a group of similar products are produced - Assembly Line: A setup in which an item is produced through a fixed sequence of workstations - Continuous Processes: A process that converts raw materials into finished product in one contiguous process. Eg. Utility plant
What is Operations and Supply Chain Strategy
- Setting goals, policies, and creating plans foe using the firms resources to support the organizational strategy - Longer range organizational strategy - Mid-range conversion of strategy into more tactical activities - Short range implementation of tactics
Arrival Characteristics
- Size of the arrival population either infinite or limited (fixed) - Arrival Rate the number of units arriving per period Constant Arrival Distribution (Periodic with exactly the same time between successive arrivals) Ex. Doctors Appointment. Variable random Arrival Distribution (Arrival probabilities described statistically Ex. Restaurants)
What is ABC classification?
- The purpose of this exercise is to prioritize inventory management. Not every item a company uses is equally important - How do we decide? We use Annual $ Usage and not any inventory measure such as Average Value - 80/20 rule
Trade-Off's
- Try to do well in more than one priority which accepts a lesser performance versus the single focus - Focus on one competitive dimension to achieve excellence Note: NO firm excels simultaneously in all Competitive Dimensions nor should it try
What causes a buffer?
- Uncertainty in the Supply Chain - Unbalanced production capacity - Deliberate build-up in anticipation of a demand surge - Purchase or operations efficiency
Cost of Inventory
- Unit/Item Cost - Holding or Carrying Holding Costs - Ordering or Set-up Cost - Stock Out Costs Inventory cost includes either set-up cost or the order cost but not both at the same time
What is price break models or quantity discount model?
- We choose the order quantity based on lowest Total Cost, which may NOT always equal the greatest discount
What is the approach to price break model?
- compute the EOQ for each unit at each price break - if results are not feasible, recompute EOQ at the minimum Q to achieve lower unit cost - Using a feasible Q, calculate and compare Total cost - Goal: choose the quantity at lowest total cost - A calculated EOQ may yield a solution that is not valid for the price point (infeasible) - An EOQ = 400 units for a price threshold of 500+ is NOT a feasible solution - When a calculated outcome is not feasible, we use the minimum order quantity for that price point
What are outputs?
- products - Services - Blends or bundles (products and services) - Information/knowledge -Experiences Organizations need to efficiently and effectively manage their resources and processes to meet demand and add value Goal: use the least inputs to generate the desired output
How does ABC classification work?
1) Determine annual usage for each item 2) Multiply usage by the respective unit cost to determine annual dollar usage. 3) Rank items by dollar usage from highest to lowest 4) Assign ABC categories (standard but can vary) A ~ 75% of $$ and ~ 20% of items B ~ 20% of $$ and ~ 30% of items C ~ 5% of $$ and ~ 50% of items
What factors outside the immediate operations affect the business?
1. Changing business management practices such as lean, TQM and six sigma 2. Technology especially communication and information (internet) 3. Globalization and managing multiple SC nodes 4. The natural environment (the trade-off of impact minimization vs. higher cost) and growing importance of Triple Bottom Line 5. Regional pressures (politics, trade practices) and diverse customers
Service Facility Characteristics
1. Configuration of Service Facility - Number of servers (or channels) - Number of Phases (or service stops) 2. Service Distribution - The time it takes to serve one arrival - Can be fixed or random - Exponential Distribution is often used
How does OM impact society?
1. Creates higher standard of living through improved productivity 2. Better quality of life 3. Lower costs of goods and services 4. Minimizes environmental impacts 5. Improve working conditions
Types of inventory by reason of having it
1. Cycle inventory: inventory that results from the replenishment process of a fixed order quantity 2. Safety Stock: - Extra held due to uncertainties in demand or supply - Increases with higher variation in demand or supply - Should be determined by customer service level goals 3. Anticipation stock: items stocked in anticipation of a known event 4. Hedge stock: inventory of items for possible events such as financial reasons or supply reasons 5. Pipeline Inventory: - items that are enroute from one location to another - considered part of on-hand inventory, even though it is not available 6. Work in Process: inventory undergoing transformation 7.Remanufactured/reconditioned: product returned to supplier/manufacturer to be repaired or repackaged for resale 8. Obsolete stock (dead stock): items for which on demand is expected
How do behavioral issues influence service encounters
1. Front end of encounter ≠ back end of encounter -Preference for improvement, end on a high note 2. Segment the pleasure; combine the pain -Segments seem longer; combinations seem shorter 3. Let the customer control the process -Control enhances satisfaction 4. Pay attention to norms and rituals -Deviations can lead to failures 5. People are easier to blame than systems/procedures 6. Let the punishment fit the crime -Task errors = monetary compensation; -interpersonal treatment errors = apology
How do we improve productivity?
1. Increasing output 2. Decreasing input Productivity is related to efficiency, effectiveness and value
Customer involvement pros and cons
1. More customer contact will impact quality, delivery, flexibility and cost. - Face-to-face contact allows customers to ask questions, provide clarification, and make special requests. -Can also be self-service 2. Customer involvement can be disruptive and make processing inefficient -requires higher skilled and flexible workers -more difficult to measure quality 3. Technology can change the way customers and providers interact
Virtual service
1. Pure virtual customer contact: customers interact in an open environment. -eBay -SecondLife 2. Mixed virtual and actual customer contact: customers interact with one another in a server- moderated environment. -YouTube -Wikipedia
What are the different inventory models?
1. Single period model - Used when we are making a one-time purchase of an item - Seeks to balance the costs of inventory overstock and under stock such as an airline pricing model 2. Fixed order quantity model - Used when we want to maintain an item in-stock and when we restock a certain number of units must be ordered - Event triggered - Economic Order quantity (EOQ) 3. Fixed-time period model - Item is ordered at certain intervals of time - Time triggered - Periodic system, P-mode
what is the nature of service?
1. The customer is the focal point of all decisions and actions. 2. The organization exists to serve the customer. 3. Operations is responsible for service systems. 4. Operations is also responsible for managing the work of the service workforce.
How is service design different from product design?
1. The process and the product must be developed simultaneously. -The process is the product. 2. A service operation lacks the legal protection commonly available to products. 3. The service package constitutes the major output of the development process. 4.Many parts of the service package are defined by the training individuals receive. 5.Many service organizations can change their service offerings virtually overnight.
identify service design methods
1. The production line approach (McDonald's) -Service delivery is treated much like manufacturing. 2.The self-service approach (ATM machines) -Customer takes a greater role in the production of the service. 3.The personal attention approach (Ritz-Carlton Hotel Company) (The top two designs focus on a Competitive Dimension of Low Cost. The third is Service.)
When done well, effective OM and SCM can:
1. Use resources more efficiently 2. Improve relationships between business entities 3. Help meet strategic goals 4. Greater competitiveness 5. Removing waste and increasing value-add 6. Applicable to all managers and all business functions (interferes with all key functions in an organization 7. Improves productivity
Five Distinct Management Process
1.) Planning 2.) Sourcing 3.) Making 4.) Delivering 5.) Returning
Difference between Goods & Services
1.) Services are Intaingible and can not be measured, where as Goods are Tangible 2.) Service requires some degree of customer interaction 3.) Usually heterogeneous i.e they vary from day to day as a function of the attitudes of the customers and servers 4.) Perishable & Time Dependent can not be stored 5.) Specifications of a service are defined and evaluated as a package of features affecting the 5 senses
How does a service process differ from a product process?
1.) The process and the product must be developed simultaneously. The process is the product. 2.) A service operation lacks the legal protection commonly available to products. 3.) The service package constitutes the major output of the development process. 4.) Many parts of the service package are defined by the training individuals receive. 5.) Many service organizations can change their service offerings virtually overnight.
Identify Service Design Methods
1.) The production line approach 2.) Self-Service Approach 3.) The personal attention approach
Article "Coffee on the Double"
1.) What is the Key Competitive Dimensions - Delivery Speed 2.) Other Priorities - High Quality: Premium Beverages - Flexibility: Diversity of Menu 3. Operations Actions Taken - Starbucks - Wendy's - Caribou
What is a well designed system?
1.Consistent with competitive priorities 2.User friendly 3.Robust 4.Consistent performance is possible 5.Links 'front' and 'back' office processes 6.Evidence of quality (value) is visible to customers 7.Cost effective
Kendall's Notation A/B/s
A = Arrival distribution (M for Poisson, D for deterministic, and G for general) B = Service time distribution (M for exponential, D for deterministic, and G for general) s = number of servers
What is Break Even Analysis & How do you calculate it ?
A mathematical technique that allows a comparison of total cost for different processes Equation : Total Revenue (RQ) = Total Cost (F + VQ) OR Q = F / (R - V) Q = The volume of customers or units V = The unit variable cost F = Fixed Cost R = Revenue Per Unit VQ = Total Variable Cost
Buffering
A storage area between stages where the output of a stage is placed prior to being used in a downstream stage
Line of Visibility
Above the line take place in the presence of the customer, below the line take place in the back office.
What is safety stock?
Amount of inventory carried in addition to expected demand based on different criteria" uncertainty in the supply chain or desired service level
Make to Order (MTO)
Begin processing only after receiving a customers order
Assemble to Order (ATO)
Begin processing prior to receiving a customer order, complete after receiving customer order
King Sooper Video
Bread: Line - Volume: High - Flexibility: Low - Automation: High - Capacity Change: Difficult/Expensive Pastry: Batch Process - Volume: Moderate - Flexibility: Moderate - Automation: Moderate - Capacity Change: Moderate Cakes: Job Shop Process - Volume: Low - Flexibility: High - Automation: Low/None - Capacity Change: Easy
Order Winners
Characteristics causing customers to PREFER you over your competitors
Order Qualifiers
Characteristics you need to have o be CONSIDERED by potential customers
Make to Stock (MTS)
Complete processing prior to, and held as inventory until the customer orders
What is a Finite Queue?
Defined number of Q positions
What is a Service Package ?
Definition: A bundle of goods and services that is provided in some enviorment - Supporting facilities: the physical resources that must be in place to provide the service - Facilitating goods: Material purchased or consumed by the customer while receiving the service - Information: data needed to provide the service - Explicit services: Benefits readily observable by customer and an essential feature of the service - Implicit services: Psychological benefits that the customer may vaguely sense or are nonessential features of the service
Product-Process Matrix
Definition: A framework depicting when the different production process types are typically used
How does customer contact affect the design of a Service processes ?
Design of the service depends upon the degree of customer contact - High Contact - Personalized Service - Low Contact - Focus on cost, speed Note: The linkage to Competitive Dimensions
How are processes measured?
Efficiency: how well a resource is being used, expressed as a ratio of actual to standard output Actual output/standard output Productivity: a ratio of outputs to inputs output/input Utilization: the percentage of available time that is being used Time activated/time available Operation time: the time used to process one (or a group) of items. This is the amount of capacity or available time needed. Run time + Set-up time. Flow time: the average amount of time it takes a unit to move through the system. This is the sum of operation, queue, transportation, and delay times. Process Velocity (Throughput Ratio): ratio of value added time to flow time, Value added time/flowtime Cycle time: the average amount of time BETWEEN individual 'units' being completed Throughput rate: the output rate over a period of time 1/cycle time
Little's Law
In a stable system, the long-term average number of units/customers in a stable system (or the system inventory) is equal to the average arrival rate multiplied by the average time in the system. It is a relationship between units and time. Inventory = Throughput rate x Flow time
Pressures for low inventories
Inventory holding cost: the sum of the cost of capital and the variable costs of keeping items on hand, such as storage and handling, taxes, insurance, and shrinkage. - Storage and Handling - Cost of Capital (often the largest portion of holding costs) - Taxes, Insurance - 'Loss' (shrinkage), Obsolescence and Spoilage (shelf life)
What is inventory?
Inventory is the physical items (stock) used by the firm to transform and provide goods and services to customers.
What is Productivity and how is it measured ?
Is a common measure of how well a Country, Industry, or Business unit is using it's resources (or factors of production) Productivity = Output (Goods and Services Produced) / Input (All Resources Used)
Risk
Is represented by any source of unplanned disruption such as: - severe weather event - labor strikes - facility disaster - recalls - terrorism
Product Process Mix
Low-Volume (ETO & MTO) Processes - More complexity, more divergence, more fixed flows - More customer Involvement - More resource flexibility - Less capital Intensity High-Volume (ATO & MTS) Processes - Less complexity, more divergence, more fixed flows - Less customer Involvement - Less resource flexibility - More capital Intensity
Product matrix
MTS: - Shorter delivery time - Finished goods - Low labor skill level - Specialized type of equipment - High volume processes - Low customization Engineered to order: - Longer delivery time - Raw material as inventory - High/flexible labor skill level - General type of equipment - Low volume processes - High customization
What is the traditional view?
Milton Friedman argued that the corporation only has responsibility to its shareholders to crate wealth so long as it plays by the rules People have social responsibility not corporations
Single Period Inventory Model
Newsvendor problem: A technique that determines how much inventory to order when handling perishable products or items that have a limited life span; used to manage airline pricing decisions - Shortage cost: the lost profit from not being able to make a sale, plus any loss of customer goodwill - Excess cost: the different between the purchase cost of an item and its salvage or discounted value
What is a Finite Population?
No limit to the Q limit to the population is 300
Engineer to Order (ETO)
No processing begins until the design is complete
Blocking
Occurs when the activities in a stage must stop because there is no place to deposit the item just completed
Starving
Occurs when the activities in a stage must stop because there is no work
Process
One or more activities that transform inputs such as raw material and labor in to outputs in the form of finished goods and services Inputs - transformation - outputs OM is a process oriented discipline
Economic Order Quantity (EOQ) - Determine how much to order
Ordering Cost = (D/Q)*S Holding Cost = (Q/2)*H or (Q/2)*(C*h) TOTAL Cost (IC) = (D/Q)*S + (Q/2)*H + DC (no SS yet) D = Annual demand or usage of product (units/year§) S = The ordering or set-up cost ($/order) H = Holding cost one unit per year§ (or C*h) C = Average price or value ($ per unit) h = Annual holding rate§ (as a % of product cost or value) Q = Order quantity, batch or lot size (units)
Failsafing - Poka Yokes
Procedures that block a mistake from becoming a service defect
Process choice
Project: unique. Eg. Political compaign Job or work-center: highly customized, high value Batch or manufacturing cell: moderate. Eg. Course packet Assembly line: high volume production Continuous: dedicated products, low cost, high volume. Eg, Electric utility plant
What is the difference between Q-system (fixed-order quantity) and P-system (fixed-time period)?
Q-system: - Inventory remaining must be continually monitored - Has a smaller average inventory - Favors more expensive items - Is more appropriate for important items - Requires more time to maintain - but is usually more automated - Is more expensive to implement P-system: - Counting takes place only at the end of the review period - Has a larger average inventory - Favors less expensive items - Is sufficient for less-important items - Requires less time to maintain - Is less expensive to implement
Bottleneck
Resource that limits the capacity of the process (like three road lanes converging into two)
Service Level
Service level (Cycle-service level): The desired probability of not running out of stock in any one ordering cycle, which begins at the time an order is placed and ends when it arrives
Behavioral considerations in job design
Specialization of labor - Made high-speed, low-cost production possible - Greatly enhanced standard of living - Adverse effects on workers Job enrichment - Making job more interesting to the worker 1. Horizontal enrichment: worker performs a greater number of variety of tasks 2. Vertical enrichment: worker is involved in planning, organizing, and inspecting work (more variety)
Operations Management (About how things get done)
The Process that effectively produce, transform, and deliver a product or service
Sustainability
The ability to meet current resource needs without compromising the ability of the future generations to meet their needs
What IS Cycle Time
The average time between completion of successive units
What is the new view?
The constituency of the corporation includes local communities and society at large
Operations and Supply Chain Management
The design, operation, and improvement of the systems that create and deliver the firms primary products and services
Service Blueprinting
The flowchart of a service process, emphasizing what is visible and what is not visible to the customer
What is utilization
The ratio of the time that a resource is actually activated relative to the time that it is available for use (which is NOT a measure of efficiency!)
What is competitive capabilities?
The unique values, skills, processes and knowledge the firm is able to actually achieve and use to satisfy customers
Total Cost of Queuing System
Total Cost = Cw x L + Cs x s = Waiting Costs + Service Costs Cw = cost of customer waiting time per time period L = average number customers in system Cs = cost of servers per time period s = number of servers
Measuring process con't
Total average value of inventory: sum value (usually at cost) of inventory. Includes raw material, Work in Progress (WIP) and Finished Goods (GI) Inventory turns: the rate at which inventory is consumed, usually expressed annually = cost of goods sold/average inventory value Days of supply: given a set demand rate, how long will a given level of inventory last until a stock-out
Sustainable Strategy
Triple Bottom Line (Also known as the Three P's): evaluating the firm against economic, social and environmental criteria 1.) People (Social Responsibility): Employees and Stakeholders 2.) Profit (Economic Success): Beyond traditional accounting to include economic benefit for the host society 3.) Planet (Environmental Stewardship): Use and impact of resources throughout the life cycle
Production Processes
Used to make any manufactured item
Noodles and CO
What is the competitive dimensions - Quality (better food) - Delivery speed (5 mins, order to table)
What is competitive priorities or dimensions?
What the company would like to achieve. How the company would like to compete and beat their competitors
Product Service Bundling
When a firm builds service activities into its product offerings to create additional value for the customer
What effect does safety stock have on the total cost?
When we hold safety stock, it this adds to the total inventory cost
Measuring Queue Performance
ρ = utilization factor (probability of all servers being busy) Lq = average number of customers in the queue L = average number of customers in the system Wq = average waiting time in the queue W = average time in the system P0 = probability of 0 customers in system Pn = probability of exactly n customers in system
