Chapter 1-4 (EXAM 1)

On what basis should product groups (families) be established?

When a common denominator for measuring total output may be difficult or impossible to find.

Name and describe the three primary activities of manufacturing, planning, and control.

*1. Production Planning* -able to meet marketplace demand. Establishes correct priorities (what is needed and when) to make certain that capacity is available to meet those priorities. Involves (a) forecasting, (b) master planning, (c) material requirements planning, (d) capacity planning. *2. Implementation and Control* - responsible for putting into action and executing the plans made by production plannning. Responsibilities accomplished through production activity control (called shop floor control) and purchasing. *3. Inventory Management* - materials and supplies carried on hand either for sale or to provide material or supplies to the production process. Part of the planning process. Provide a buffer against the differences in demand rates and production rates.

What is the ATP? How is it calculated?

*Available to promise* - that portion of a firm's inventory and planned production that is not already committed and is available to the customer. *Calculated* ATP for Period 1 *=* On-hand inventory *+* MPS *-* Customer orders due before next MPS ATP for following periods *=* MPS *-* Customer orders due before next MPS

Define capacity and priority. Why are they important in production planning?

*Capacity* - the capability of manufacturing to produce goods and services * Priority* - relates to what products are needed, how many are needed, and when they are needed. *Why it's important* - To be profitable, a firm must organize a variety of processes to make the right goods at the right time at top quality and do so as economically as possible.

What kind of production environment would you expect to see if a company uses a chase strategy? What if it uses a level strategy?

*Chase* - producing the amounts demanded at any given time a. farmers b. post office c. restaurants *Production Level* - continually producing an amount equal to the average demand a. Home Goods b. Medicanl Devices c. Toiletries

What is ERP?

*Enterprise Resource Planning* - framework for organizing, defining, and standardizing the business processes necessary to effectively plan and control an organization so the organization can use its internal knowledge to seek external advantage Similar to MRP II except doesn't dwell on manufacturing. Whole enterprise taken into account.

What is a final assembly schedule (FAS)? What is its purpose?

*Final Step Assembly* - used for assembly to custom order step. Schedule to be assembled. Used when there are many options. Difficult to forecast which combination the customers will want. MPC is done at the component level ex. base color. Final assembly takes place only when a customer order is received. *Purpose* - responsible for scheduling from the MPS through final assembly and shipment to the customer. Typically used in both the ATO and MTO environments.

What does the concept of "green production" mean? How will it potentially impact production planning?

*Green Production* - focusing on issues such as environmental impacts, energy conservation, materials usages (waste reduction), reuse, recyclability, and scarcity of various resources. *Impact* -can help in both the design of products and process and in the most effective use of production resources. ex. melts metals avoiding peak demand = prevents local energy supplier from having to increase capacity

At what level should master production scheduling take place?

*In general* - Where the smallest number of product options exists. *Make-to-stock environment* - a limited # of standard items are assembled from many components. MPS is usually a schedule of finished gods items ex. TVs *Make-to-stock environment* - many diff end items are made form a smaller # of components. MPS is usually a schedule of raw material replenishment. ex. custom-tailored clothes *Assemble-to-order environment* - many end items can be made form combination sof basic components, subassemblies, features, and optoins. MPS is usally a chedule of subassembly components.

What is the difference between make-to-order and assemble-to-order? Give an example of each.

*MTO* - manufacturers wait until an order is received from a customer before starting to make the goods. ex. custom-tailored clothing *ATO* - several product options exist where the customer is not willing to wait until the product is made, manufacturers produce and stock standard component parts. Order *-->* assemble component parts from inventory Need assembly time before delivery. ex. automobiles or computers

Describe four conditions under which a firm would make-to-stock or make-to-order.

*Make-to-stock* 1. demand is fairly constant and predictable. 2. There are few product options. 3. Delivery times demanded by the marketplace are much shorter than the time needed to make the product. 4. Product has a long shelf life. *Make-to-order* 1. goods are produced to customer specification. 2. the customer is willing to wait while the order is being made. 3. The product is expensive to make and to store. 4. Several product options are offered.

What is MRP II?

*Manufacturing Resource Planning* - fully integrated planning and control system. A strategic business plan that incorporates the plans of marketing, finance, and production. Marketing: plans are realistic and attainable FIN: plans are desirable from a FIN point of view Production: plan can meet the required demand. Manufacturing planning and control system= master game plan for all dept.

What is the purpose of materials management?

*Materials management* - coordinating function responsible for planning and controlling materials flow. *Purpose* 1. Maximize the use of the firm's resources. 2. Provide the required level of customer service.

What are metrics? What are their uses?

*Metric* - verifiable measure stated in either quantitative or qualitative terms defined with respect to a reference point. *Uses* a. *Performance measure* - must be both quantified and objective and contain at least 2 parameters. *ex.* # of ordres per day consits of both quantity and a time of measurement. b. *Performance standard* - transforming company policies into objectives and specific goals. Each goal should have target values.

What information is needed to develop a make-to-order production plan? How does this differ from that needed for a make-to-stock plan?

*Need:* a. forecast by period for the planning horizon. b. opening backlog of customer orders. c. Desired ending backlog. *Difference* A company doesn't build an inventory of finished goods. Instead, it has a backlog of unfilled customer orders. The backlog normally will be for delivery in the future and does not represent orders that are late or past due.

What is the objective of *production*? How can this objective be met?

*Objective* - Keep operating costs as low as possible Achievable by: *a.* Making long production runs of relatively few products. Fewer changeovers will be needed and specialized equipment can be used, thus reducing the cost of marking the product. *b.* Maintaining high inventories of raw materials and work-in-process so production is not disrupted by shortages.

What is the objectives of *finance*? How can this objective be met?

*Objective* - keep investment and costs low Achieable by: *a.* Reducing inventory so inventory investment is at a minimum *b.* Decreasing the # of plants and warehouses. *c.* Producing large quantities using long production runs. *d.* Manufacturing only to customer order.

What is the objective of *marketing*? What three ways will help it achieve this objective?

*Objective* - maintain and increase revenue Achievable by: *1.* Maintaining high inventories so goods are always avaliable for the customer *2.* Interrupting production runs so that the non-inventories item can be manufactured quickly *3.* Creating an extensive, and consequently costly, distribution system so goods can be shipped to the customer rapidly.

Why can materials management be considered a balancing act?

*Objectives:* (a) deliver what customers want, (b) when and where they want it, and (c) at a minimum cost. Achievable by making tradeoffs between the level of customer service and the cost of providing that service *Rule* - costs rise as the service level increases, and materials mgmt must find that combination of inputs to MAX and MIN cost.

What is the planning horizon? What decides its minimum time? Why would it be longer?

*Planning Horizon* - the time span for which plans are made. *Minimum time* - cover a period at least equal to the time required to accomplish the plan. For the master production scheduling, the minimum planning horizon is the longest cumulative or end-to-end lead time (LT). *Longer why* The longer the horizon, the greater the visibility and the better mgmt.'s ability to avoid future problems or to take advantage of special circumstances.

Give an example of postponement activitiy.

*Postponement activity:* a product design strategy that shifts product differentiation closer to the consumer by postponing identity change to the last possible supply chain location. *Example:* computer printers for a global market that use universal power supplies that can be switched to diff voltages. Upon receipt of a customer's order, they are packaged w/ the appropriate cords, instructions, and labeling.

What is the difference between Strategic business planning and sales and operations planning (S&OP)? What are the major benefits of S&OP?

*Strategic business planning* - integrates the plans of all the departments in an organization and is normally updated annually. *Sales and operations planning* - a process for continually revising the strategic business plan and coordinating plans of the various departments. A cross-functional business plan that involves sales and marketing, product development, operations, and senior management. The forum in which the production plan is developed. *Difference* S&OP represents supply wherease marketing represents demand. *Benefits of S&OP* a. provides a means of updating the strategic plan and the strategic business plan as conditions change. b. provides a means of managing change; forces mgmt to look at the economy at least monthly and places it in a better position to plan changes rather than reacting to them. c. ensures that the various dept plans are realistic and coordinated and support the business plan. d. provides a realistic plan that can achieve the company objectives. e. permits better mgmt of production, inventory, and backlog (unfilled customer orders).

What is supply chain? Describe five important factors in supply chains.

*Supply chain* - a global network used to deliver products and services from raw materials to end customers through an engineered flow of information, physical distribution, and money. *1.* Activities and processes to supply a product or service to a final customer. *2.* Any # of companies linked to the supply chain. *3.* Any number of supplier-customer relationships (bcs one customer can be supplier to another customer) *4.* Any # of intermediaries (distributors) ex. wholesalers, warehouses, retailers *5.* Product/services from Supplier to Customer. Design/demand/info/cash from Customer to Supplier.

Describe the sustainability for production. What are some of the ways that a company can practice sustainability?

*Sustainability* - the capability to continue (sustain) operations in the long term. *Practicing sustainability* - reduce waste and inefficiency in production *==>* fewer resources, producing less waste, and less costly.

What is the purpose of time fences? Name and describe the three main division.

*Time Fence* - a policy of guideline established to note where various restrictions or changes in operating procedures take place. 1. *Frozen zone* - capacity and materials are committed to specific orders. Since changes would result in excessive costs, reduced manufacturing efficiency, and poor customer service, senior mgmt.'s approval is usually required to make changes. Within the demand time fence, demand is usually based on customer orders, not forecast. 2. *Slushy zone* - Capacity and material are committed to a less extent. An area for trade-offs that must be negotiated between marketing and manufacturing. Materials have been ordered and capacity established; difficult to change. Changes in priorities are easier to do. Planning time fence defines this zone. W/in this time fence the computer will generally not allow the automatic resheduling of MPS orders. Any recommendation to change an PS order in this zone will need to be evaluated before changes are made. Often minimum length of the planning time fence is determined by the cumulative lead time of the product. 3. *Liquid zone* - any change can be made to the MPS as long as it is within the limits set by the production plan. Changes are routine and are often made by the computer program without the need for input from the planner.

What is Value added and how is it achieved?

*Value added*- a conversion process (manufacturing or production) that adds value and use to the product for a consumer. It is achieved by designing a production process that efficiently can turn resources into products.

What is wealth and how is it created?

*Wealth*- measured by the gross national product (the output of goods and services produced by the nation in a given time) Created through the transformation of resources into useful goods by a production function.

What is an order qualifier and an order winner?

*order qualifier* - the minimum requirements to be considered a viable competitor in the marketplace (can be based on price, quality, delivery, etc) *order winner* - competitive characteristics that persuade a company's customers to choose its products or services that provide a competitive advantage for the firm **Today's order winners will be tomorrow's order qualifiers**

Describe each of the four basic strategies used in developing a production plan. What are the advantages and disadvantages of each?

1. *Chase Strategy* - producing the amounts demanded at any given time. Inventory levels remain stable while production varies to meet demand. 2. *Production leveling* - continually producing an amount equal to the average demand. 3. *Subcontracting* - a common production choice in those cases is meeting an additional demand through subcontracting (buying the extra amounts demanded from external sources). 4. *Hybrid Strategy* - combined strategies.

What two changing conditions lead to the development of ERP systems?

1. *Computers and IT becoming* significantly faster, more reliable, and more powerful. 2. *Movement toward integration of knowledge and decision making* in all aspects of direct and indirect functions and areas that impact materials flow and materials mgmt.

Describe the five primary manufacturing strategies. How does each affect delivery lead time?

1. *Engineer-to-order* - customer specifications require unique engineering design or sig. customization. Customer is highly involved in the product design. Inventory is not purchased until needed by manufacturing. Long delivery lead time --purchase lead time + design lead time. 2. *Make-to-order* - the production of the product starts once a customer's order is received. The final product is made from standard items but may include custom-designed components. Reduced delivery lead time --little design time + inventory held as a raw material 3. *Configure-to-order* - customer configured a product based on various features and options. Configuration occurs at the beginning of the process. Reduced delivery lead time --no design time+ diff features and options already available. 4. *Assemble-to-order* - product is made from standard components or options that the manufacturer can inventory and assemble according to the customer order. Done at a later stage in the process than configure-to-order. Reduced delivery lead time --no design time + inventory held ready for assembly. 5. *Make-to-stock* - supplier manufactures the good and sells from a finished goods inventory. Little customer involvement in product design. Short delivery lead time -- manufacturing and assembly completed prior.

Name and describe four major factors affecting operations management.

1. *Government* - regulation such as environment, safety, product liability, and taxation. 2. *Economy* - demand changes depending on ex. economic recession 3. *Competition*- internet has allowed buyers to be able to purchase from global as well as local sources with ease. 4. *Customers* - a. higher price b. Higher quality products and services c. Delivery lead time d. better presale and after-sale service e. product and volume flexibility

What are five typical characteristics of the production planning problem?

1. *time horizon of 12 months or more* is used with periodic updating perhaps every month or quarter. 2. *Product demand consists of one or a few product families or common units.* 3. *Demand is fluctuating or seasonal.* 4. *Plant and equipment are fixed within the time horizon.* 5. *A variety of mgmt. objectives are set* such as low inventories, efficient plant operation, good customer service, and good labor relations.

What information is needed to develop a make-to-stock production plan?

1. Forecast by period for the planning horizon. 2. Opening inventory. 3. Desired ending inventory. 4. Any past-due customer orders. These are orders that are late for delivery and are sometimes called backorders.

*Chapter 3* What four functions does the master production schedule (MPS) perform in the production planning system?

1. Forms the link between production planning and what manufacturing will actually build. AKA Customer demand and production facility. 2. Forms the basis for calculating the capacity and resources needed. 3. Drives the material requirements plan. Determine what components are needed from manufacturing and purchasing. 4. Keeps priorities valid. Priority plan for manufacturing.

What are the four objectives of a firm wishing to maximize profit?

1. Provide best customer service. 2. Provide lowest production costs. 3. Provide lowest inventory investment. 4. Provide lowest distribution costs.

What are the steps in developing a make-to-stock production plan?

1. Total forecast demand for the planning horizon 2. Determine the opening inventory and the desired ending inventory. 3. Calculate the total production required Total production *=* total forecast *+* back orders *+* ending inventory *-* opening inventory 4. Calculate the production required each period by dividing the total production by the number of periods. 5. Calculate the ending inventory for each period.

What is the general procedure for developing a level production plan in a make-to-order environment?

1. Total the forecast demand for the planning horizon 2. Determine the opening backlog and the desired ending backlog 3. Calculate the total production *=* total forcast *+* opening backlog *-* ending backlog. 4. Calculate the producton required each period by dividing the total producton by the number of periods 5. Spread the existing backlog over the planning horizon according to the due date per period.

What are the six activities involved in the physical supply/distribution system?

1. Transportation 2. Distribution Inventory 3. Warehousing 4. Packaging 5. Material Handling 6. Order Entry

*Chapter 2* What are the four questions a good planning system must answer?

1. What are we going to make or provide to customers? 2. What does it take to make it? 3. What do we have? 4. What do we need?

What are the three steps in making an MPS?

1. develop a preliminary MPS 2. Check the preliminary MPS against available capacity 3. Resolve differences between the preliminary MPS and capacity availability.

What is Hoshin planning?

A special approach to establishing vision statements and goals as a part of the planning process. Tactical work plans are established for the visions to allow all parts of the organization to move systematically toward the overall goal.

Describe how the objective of marketing, production, and finance are in conflict over customer service, disruption to production, and inventories.

Each department was organized into separate functions and reported to different departments of the company, causing them to implement policies and practices that maximized departmental objectives rather than company objectives. Due to the systems being interrelated, the overall company objectives suffered. *Example:* Transportation dept ships large Q to minimze per-unit shipping costs *-->* increased inventory-carrying costs w/ increased inventory.

What would happen if the planning horizon for the master schedule were too short? Why?

If the planning horizon is *shorter* than the cumulative lead time to make a product, any order placed between the planning horizon and the cumulative lead time most likely will be late if not all of its component are in inventory. *Why?* There will not be enough time to order and receive any component that is not in inventory.

Does the MPS work with families of products or with individual items>

Individual items.

What functions does the MPS perform between sales and production?

Makes possible valid order promises. Is a plan of what is to be produced and when. Tells sales and manufacturing when goods will be available for delivery. Is an agreed-upon plan and a contract between marketing and manufacturing.

What is a hybrid strategy? Why is it used?

Pure strategies have their own set of costs/ cost characteristics. Production mgmt is responsible for finding the combination of strategies that minimizes the sum of all costs involved, providing the level of service required, and meeting the objectives of the financial and marketing plans.

What should a company approach be to risks? What are some of the methods they can use to minimize the impact of negative risks?

Risks reflect problems from some sort of failure of systems, people, or external events that can result in loss of money, productivity, legal problems, and a reduction in the probability of successful implementation of the strategic plan. Positive risks= Opportunities. *Focus* Establish systems and measurements to try to quickly recognize risks and establish strategic mechanisms to minimize impacts form negative risks and take advantage of positive risks.

Name and describe the three main divisions of supply, production, and distribution systems.

Supplier (*Physical Supply*) --> Manufacturer (*Manufacturing/Planning/Controlling*) --> Distribution system (*Physical Distribution*) --> Customer

What is a resource bill? At what level in the planning hierarchy is it used?

The quantity of critical resources (materials, labor, and bottleneck operations) needed to make one average unit of the product group.

Where is the resource bill used?

The resource bill for a single product is used to develop a rough-cut capacity plan. The only interest is in bottleneck work centers and critical resources.

What is the purpose of rough-cut capacity plan?

To check whether critical resources are available to support the preliminary maser production schedules. Critical resources include the bottleneck operations, labor, and critical materials (scarce or has a long lead time).

Which manufacturing strategies are used in a fast-food business? How does this affect the lead time from the customer's POV?

a. *Make-to-order (MTO)* b. *Configure-to-order (CTO)*

Describe the responsibilities and inputs of the marketing, production, finance, and engineering departments to the strategic business plan.

a. *Marketing and Sales* - responsible for analyzing the marketplace and deciding the firm's response. Markets to be served, products supplied, desired levels of customer service, pricing, promotion strategies, etc. b. *Production* - must satisfy the demands of the marketplace. Uses plants, machinery, equipment, labor, and materials as efficiently as possibly to do so. c. *Finance* - Responsible for deciding the sources and uses of funds available to the firm, cash flows, profits, return on investment, and budgets. d. *Engineering* - Responsible for research, development, and design of new products of modifications to existing ones. Engineering must work with marketing and production to produce designs for products that will sell in the marketplace and can be made most economically.

Name and describe the inputs to a manufacturing planning and control system.

a. *Product description* - engineering drawings, specifications, bill of materials (BOM) b. *Process specifications* - routing c. *Time* - standard time d. *Available Facilities* - plant, equipment, labor e. *Quantities required* - forecasts, customer orders, orders to replace finished goods inventory, material requirements plan (MRP)

Describe each of the following plans in terms of their purpose, planning horizon, level of detail, and a planning cycle.

a. *Strategic Plan* - A statement of the major goals and objectives the company expects to achieve over the next 2 to 10 years or more. Low level of detail. b. *Business Plan* - strategic plan is established, then restated in financial terms (including projected revenues), a projected balance sheet, and a projected income statement. Detail is not high. Concerned w/ general market and production requirements (total market for major product groups or product families) not sales of individual items. Stated in dollars rather than units. c. *Production Plan* - involves determining the resources needed to meet market demand, comparing the results to the resources available, and devising a plan to balance requirements and availability. Concerned with: 1. Q of each product group that must be produced in each period. 2. Desired inventory levels. 3. Resources of equipment, labor, and material needed in each period. 4. Availability of the resources needed. d. *Master Production Schedule* - plan for the production of individual end items. Breaks down the production plan to show, for each period, the quantity of each end item to be made. The MPS is greater than for the production plan. Production plan based upon families of products, MPS developed for individual end items. Planning horizon 3 to 18 months. e. *Material Requirements Plan* - plan for the production and purchase of the components used in making the items in the MPS. Level of MRP is high. Establishes when the compoments and parts are needed to make each item. Planning horizon MIN time length of combined purchase and manufacturing lead times; 3-18 months. f. *Production Activity Control* - represents the implementation and control phase of the production planning and control system. Planning horizon is very short (day to a month). Level of detail is high bcs concerned with individual components, workstations, and orders.

What potential problem might arise if time fences are not used? Why?

a. *increased costs* due to rerouting, rescheduling, extra setups, expediting, and buildup of work-in-process inventory. b. *decreased customer service* a change in quantity of delivery can disrupt the schedule of other orders. c. *reduced credibility* for the MPS and the planning process.

In the short run, how can capacity be changed?

a. People can be hired and laid off, overtime and short time can be worked, and shifts can be added or removed. b. Work can be subcontracted or extra equipment leased.

Where does the information come from to develop an MPS?

a. Production plan (aggregated production plan developed during the S&OP process) b. Forecasts for individual end items c. Actual orders received from customers and for stock replenishment. d. Inventory levels for individual end items. e. Capacity restraints.

How do the production plan and the MPS relate to sales and to the sales forecast?

a. The *production plan* reconciles total forecast demand with available resources. It is not concerned with the detail of what will actually be made. It is intended to provide a framework in which detailed plans can be made in the MPS. b. The *MPS* is built from forecasts and actual demands for individual end items. It reconciles demand with the production plan and with available resources to produce a plan that manufacturing can fulfill. The MPS is concerned with that will actually be built, in what quantities, and when, to meet expected demand. c. The *production plan and the MPS* uncouple the sales forecast from manufacturing by establishing a manufacturing plan. Together, they attempt to balance available resources of plant, equipment, labor, and material with forecast demand.

Describe the relationship among the production plan, the master production schedule (MPS), and the material requirements plan (MRP).

a. The output of the Production Plan is an input in the Master Production Schedule. b. The output of the MPS is an input to the MRP.

When making a production plan, why is it necessary to select a common unit or to establish product families?

a. The planning process at this level ignores such details as individual products, colors, styles, or options. A common unit or small number of product groups is what is needed. b. Firms that make a single product, or products that are similar, can measure their output directly by the number of units they produce. *ex.* brewery uses barrels of beer as a common denominator

Describe some of the possible advantages of a company developing a reverse supply chain.

a. recycling and reusing material (sustainability) aka remanufacturing or reverse logistics b. establishing a formal supply chain to retrieve a used product in order to dispose of it, reclaim materials from it, or reuse it in some fashion.