Chapter 14 study module
An item's annual holding cost is $75. Each setup costs $100. Lead time is 2 weeks. Annual demand is 15,000. The EOQ lot size quantity would be ___________. A) 200 B) 60 C) 72
A) 200 The EOQ is 200. Using the basic EOQ formula: Q* = Economic Order Quantity D = Annual Demand (in this case 15,000 units) S = Fixed cost per setup (in this case $100) H = Holding or Carrying cost ($75) Step 1: calculate 2*D (Annual Demand)*S(Setup Cost) 2*15,000*100 = 300,000 Step 2: Divide 2*D (Annual Demand)*S(Setup Cost)/H 300,000/75 = 40,000 Step 3: Take square root of 40,000 Square root of 40,000 = 200.
Each X requires 2 of component Y; each Y requires 4 of part Z. The lead time for assembly of X is 1 week. The lead time for the manufacturer of Y is 1 week. The lead time for procurement of Z is 6 weeks. The cumulative lead time for X is __________ weeks. A) 8 B) 10 C) 6
A) 8 The cumulative lead time for X is 8 weeks. To calculate the cumulative lead time, you must include lead time for procurement and manufacturing of the dependent parts and supplies as well as the assembly time for the final product. In this case, the lead time for part Y is 1 week; the lead time for part Z is 6 weeks, and the final assembly time for product X is 1 week. Therefore, 1 week (lead time for part Y) + 6 weeks (lead time for part Z) + 1 week (assembly time for product X) = 8 weeks cumulative lead time
MRP II is accurately described as: A) MRP augmented by other resource variables B) MRP software designed for services C) enhanced MRP that includes all elements of the supply chain
A) MRP augmented by other resource variables MRP II is accurately described as MRP augmented by other resource variables. The critical difference between basic MRP systems and MRP II systems is the broadened focus on resource variables other than inventory. Therefore, once MRP II systems are utilized, they are frequently called material resource planning systems rather than material requirement planning systems. MRP II is not accurately described as an enhanced MRP that includes all elements of the supply chain. In fact, given the dependent demand assumptions of MRP systems it would be almost impossible to include all elements of a supply chain. Additionally, traditional MRP systems can be utilized for service based business.
Which of the following statements regarding MRP in services is true? A) Services such as restaurant meals illustrate dependent demand, and require product structure trees, bills-of-material, and scheduling. B) MRP does not work well in services because there is little (or no) dependent demand. C) MRP can be used in services, but only for those that offer little customization.
A) Services such as restaurant meals illustrate dependent demand, and require product structure trees, bills-of-material, and scheduling. The true statement regarding MRP in services is that "services such as restaurant meals illustrate dependent demand, and require product structure trees, bills-of-material, and scheduling." MRP can have a tremendous impact on operations in service firms with dependent demand. There are many types of service that have dependent demand including restaurants, hospitals, hotels, and retail. Furthermore, MRP can be used in services where there is a huge degree of customization such as surgery in a hospital. While most surgeries require known materials, equipment, and supplies many unknown variables (size and health of client, prior medical history, etc.) create the need to customize elements of traditional surgeries.
Which of the following is a step towards integrating MRP and finite capacity? A) Using smaller buckets B) Using pegging C) Using time fences
A) Using smaller buckets Using smaller buckets is a step towards integrating MRP and finite capacity. Buckets are time units (usually in one week intervals). By design, MRP systems use infinite buckets/time units and schedules work to be accomplished without considering facility capacity (which is finite due to labor and equipment constraints). This mismatch between infinite buckets and finite capacity creates planning problems. Using smaller buckets of time and linking those time segments to equipment capacity is one way to integrate finite capacity with sound material-requirements-planning (MRP). Pegging and time fences are both ways to deal with MRP dynamics and system nervousness. Pegging is used to trace upward in the bill of materials from the component to the parent item. This process allows the production planner to determine the need for a part and make informed decisions about adjusting production schedules. Time fences allow a segment of the master schedule to be labeled as "not to be rescheduled".
The phrase "demand related to the demand for other products" describes __________. A) dependent demand B) recursive demand C) a dependent variable
A) dependent demand The phrase "demand related to the demand for other products" describes dependent demand. Dependent demand occurs when the relationship between items can be determined. For example, in order to make a Ford F-150 the production manager knows every single component, wire, bolt, and hose that will be needed to complete the build. Thus, when ordered to make another F-150 the manager knows specifically what parts to order because the components have dependent demand with the truck. Material Requirement Planning (MRP) is the dependent demand system that is used in a manufacturing environment.
In MRP, system nervousness is caused by __________. A) management's attempt to continually respond to minor changes in production requirements B) the use of the lot-for-lot approach C) management's attempt to evaluate alternative plans before taking action
A) management's attempt to continually respond to minor changes in production requirements In MRP, system nervousness is caused by management's attempt to continually respond to minor changes in production requirements. System nervousness is evidenced by frequent changes to MRP systems including production schedule and order changes. Most firms have recognized that it is not effective to respond to minor scheduling or quantity changes even if they are aware of them because it will create system nervousness. The lot-for-lot approach is a production plan that is focused on producing the exact amount to meet forecasted demand. This approach does not deal with system nervousness. Management's attempt to evaluate alternative plans before taking action would actually reduce system nervousness because it would lead to more measured responses to changes in schedule and/or quantity orders.
A document calls for the production of 50 small garden tractors in week 1; 50 small garden tractors and 100 riding mowers in week 2; 100 riding mowers and 200 garden utility carts in week 3; and 100 riding mowers in week 4. This document is most likely a __________. A) master production schedule B) bill of material C) planning bill
A) master production schedule This document is most likely a master production schedule. The master production schedule disaggregates the production plan because it takes the production plan and then determines the specific quantities of parts and supplies needed to build the necessary number of products. The master production schedule informs operations managers and employees about what level of production is required to satisfy demand and meet the production plan. A bill of material is a list of the quantities of components and materials needed to manufacture a product. Planning bills are used to create an artificial grouping of materials into a single bill of material. This is particularly helpful for small items (such as washers, nuts, etc.) that are frequently grouped with other parts (such as bolts, screws, etc.). While both the bill of material and planning bills are related to the production process, they do not clearly specify the number (and type) of products to produce at a given time.
A paint company mixes ten different base colors into 3,000 different color options. If the MPS is organized around the ten different base colors, their bills of material are classified as: A) modular B) planning C) phantom
A) modular If the MPS is organized around the ten different base colors, their bills of material are classified as modular. When bills of material are organized around product modules such as paint colors (rather than final products) they are referred to as modular bills. Modular bills are particularly useful because final product builds are often organized around a small number of final modules rather than a very large number of independent parts. Planning bills are used to create an artificial grouping of materials into a single bill of material. This is particularly helpful for small items (such as washers, nuts, etc.) that are frequently grouped with other parts (such as bolts, screws, etc.). Phantom bills are used for components that exist only temporarily and are never included in inventories. Phantom bills are coded to receive special treatment and lead times are set to zero. An example would be a computer fan that will be placed inside of a particular computer box during production.
If a load report (resource requirements profile) shows a work center scheduled beyond capacity, then __________. A) the work center's load may be smoothed B) the company must add capacity by enlarging the facility C) the aggregate plan must be revised
A) the work center's load may be smoothed If a load report (resource requirements profile) shows a work center scheduled beyond capacity, then the work center's load may be smoothed. Production planners can use load reports to understand how to move work between time periods to smooth the load or bring it within capacity. There are a number of ways that a workload can be smoothed including overlapping production, operations splitting, and order or lot splitting. Load reports are not used to build additional capacity by enlarging a facility nor are they used to indicate that an aggregate plan needs to be revised.
Which of the following best describes a gross material requirements plan? A) An intermediate-range plan for the scheduling of families of products. B) A schedule that shows total demand for an item, when it must be ordered from a supplier, or when production must start. C) A schedule showing which products are to be manufactured and in what quantities.
B) A schedule that shows total demand for an item, when it must be ordered from a supplier, or when production must start. The statement "a schedule that shows total demand for an item, when it must be ordered from a supplier, or when production must start" best describes a gross material requirements plan. A gross material requirements plan is a schedule that combines a master production schedule and a time-phased schedule. This combination clearly specifics when an item must be ordered from suppliers if there is no inventory on hand or when the production of an item must be started to satisfy demand for the finished product.
Capacity planning in closed-loop MRP does not do which of the following? A) Utilize feedback about workload B) Adds in additional capacity C) Smooth work center loads
B) Adds in additional capacity Capacity planning in closed-loop MRP does not add in additional capacity. Adding capacity in terms of additional personnel, machinery, overtime, or subcontracting is an operations decision that falls outside the closed-loop MRP system. However, information from the closed-loop monitoring can be useful in helping understand capacity issues. Closed-loop MRP systems are designed to provide feedback from the inventory control system. During the closed-loop process, operations managers will used utilize feedback from load reports and attempt to smooth work load and minimize the impact of changed workloads through methods such as operation splitting or lot splitting.
Effective use of MRP and other dependent demand models does not require which of the following? A) Bill of Materials B) Cost of individual components C) Lead times
B) Cost of individual components Effective use of MRP and other dependent demand models does not require the cost of individual components. Dependent inventory models require managers to have the following information: (1) a master production schedule that outlines what products are to be made when; (2) specifications or bill of material that outlines the materials and parts necessary to make the product; (3) inventory availability; (4) purchase orders outstanding; and (5) lead times outlining how long it will take to get various components.
Which of the following lot-sizing techniques results in the lowest holding costs? A) Part period balancing B) Lot-for-lot C) Economic order quantity
B) Lot-for-lot The lot-for-lot lot-sizing technique results in the lowest holding costs. The lot-for-lot approach is a production plan that is focused on producing the exact amount to meet forecasted demand. There are no holding costs associated with this technique if the number of products generated meets the planned demand. The economic order quantity includes inventory holding costs in the model calculations. Part period balancing (PPB) is a dynamic approach to balance setup and holding costs. With the PPB system a business will place an order each time holding costs are equal to order costs.
Enterprise Resource Planning __________. A) does not integrate well with other functional areas beyond operations B) automates and integrates the majority of business processes C) seldom requires additional software
B) automates and integrates the majority of business processes Enterprise Resource Planning automates and integrates the majority of business processes. Enterprise resource planning is a software system that allows companies to: (1) automate and integrate many (or most) of their business processes; (2) share a common database and business practices throughout the enterprise; and (3) produce information in real time. The objective of ERP systems is to integrate and coordinate a firm's entire business from supplier evaluation to employee tracking to customer feedback.
Distortion in MRP systems can be minimized when safety stock is held at the __________. A) any inventory point B) raw material level C) work-in-process level
B) raw material level Distortion in MRP systems can be minimized when safety stock is held at the raw material level. In general, it is best to hold safety stock at the raw material level or the finished goods level because it removes questions about subassembly availability. Holding safety stock at any other point, such as work-in-process level, increases distortion because it is more difficult to calculate lead times in the planning process regarding delivery times for the remaining parts and assembly times for the final product. Safety stock represents inventory held at any point (raw materials, work-in-process, or finished goods) that is used to help protect a business against unpredictable spikes in demand, late shipments, long shipment times, or production breakdowns. Because it is expensive to store inventory, businesses try to minimize reliance on safety stock.
Which of the following statements regarding the gross material requirements plan is false? A) It shows when an item must be ordered or when production must be started B) It combines a master production schedule with the time-phased schedule C) It includes inventory on hand
C) It includes inventory on hand The statement indicating that the gross material requirements plan "it includes inventory on hand" is false. The gross material requirements plan assumes that there is no inventory on hand. When there is inventory on hand an operations manager needs to utilize the net requirements plan instead. The net requirements plan takes into account assemblies, subassemblies, and individual parts in the production order and planning state. A gross material requirements plan is a schedule that combines a master production schedule and a time-phased schedule. This combination clearly specifics when an item must be ordered from suppliers if there is no inventory on hand or when the production of an item must be started to satisfy demand for the finished product.
Which of the following is false concerning enterprise resource planning? A) It shares common data and practices across the enterprise. B) It provides and accesses information in a real-time environment. C) It is inexpensive to implement.
C) It is inexpensive to implement. The false statement concerning enterprise resource planning is that it is (ERP system) inexpensive to implement. Because of the broad scope (i.e., the focus on the entire organization) and the need to implement new software, ERP systems tend to be expensive to implement. However, these upfront costs can improve the efficiency of internal operations and effectiveness of a business. Enterprise resource planning is a software system that allows companies to: (1) automate and integrate many (or most) of their business processes; (2) share a common database and business practices throughout the enterprise; and (3) produce information in real time.
What lot-sizing technique is generally preferred when inventory holding costs are extremely high? A) Part period balancing B) Economic order quantity C) Lot-for-lot
C) Lot-for-lot The lot-for-lot lot-sizing technique is generally preferred when inventory holding costs are extremely high. The lot-for-lot approach is a production plan that is focused on producing the exact amount to meet forecasted demand. There are no holding costs associated with this technique if the number of products generated meets the planned demand. The economic order quantity includes inventory holding costs in the model calculations. Part period balancing (PPB) is a dynamic approach to balance setup and holding costs. With the PPB system a business will place an order each time holding costs are equal to order costs.
Which of the following is not a key benefit of MRP? A) Faster response to market changes B) Improved response to customers C) Quality increases
C) Quality increases Quality increases is not a key benefit of MRP. Quality increases are not one of the benefits frequently associated with MRP systems. There are many benefits of material requirement planning (MRP) systems including: (1) better response to customer orders because of improved scheduling; (2) faster response to market changes; (3) improved utilization of facilities and labor; and (4) reduced inventory levels. Material Requirement Planning (MRP) is the dependent demand system that is used in a manufacturing environment.
Material requirements planning (MRP) does not consider __________. A) time buckets B) service organizations C) capacity
C) capacity MRP does not recognize finite labor and/or equipment capacity. Most MRP systems load work into infinite time intervals (called buckets) without regard to any capacity issues. For example, an MRP system will tell you that a certain set of jobs needs to be completed in a given week to meet demand, but it does not consider facility capacity or labor utilization. MRP requires time buckets, but MRP utilizes infinite time buckets. MRP can be applied to service organizations such as restaurants, hospitals, and hotels.
The __________ is the MRP input detailing which end items are to be produced, when they are needed, and in what quantities. A) purchase order B) bill of material C) master production schedule
C) master production schedule The master production schedule is the MRP input detailing which end items are to be produced, when they are needed, and in what quantities. The master production schedule disaggregates the production plan because it takes the production plan and then determines the specific quantities of parts and supplies needed to build the necessary number of products. The master production schedule informs operations managers and employees about what level of production is required to satisfy demand and meet the production plan. A purchase order and a bill of material are both required components of the material requirements planning (MRP) process, but they are not necessary for the master production schedule.
Firms making many different final products use __________ to facilitate production scheduling. A) phantom bills B) planning bills C) modular bills
C) modular bills Firms making many different final products use modular bill to facilitate production scheduling. When bills of material are organized around product modules (rather than final products), they are referred to as modular bills. Modular bills are particularly useful because final product builds are often organized around a small number of final modules rather than a very large number of independent parts. Planning bills are used to create an artificial grouping of materials into a single bill of material. This is particularly helpful for small items (such as washers, nuts, etc.) that are frequently grouped with other parts (such as bolts, screws, etc.). Phantom bills are used for components that exist only temporarily and are never included in inventories. Phantom bills are coded to receive special treatment and lead times are set to zero. An example would be a computer fan that will be placed inside of a particular computer box during production.
Linking a part requirement with a parent component that caused the requirement is referred to as: A) net requirement planning B) leveling C) pegging
C) pegging Linking a part requirement with a parent component that caused the requirement is referred to as pegging. Pegging is used to trace upward in the bill of materials from the component to the parent item. This process allows the production planner to determine the need for a part and make informed decisions about adjusting production schedules. The net requirements plan takes into account assemblies, subassemblies, and individual parts in the production order and planning state. It does not, however, require the production manager to link a part requirement with a parent component. Leveling is a production management process where operations managers set a level production schedule in an effort to build inventories that will meet fluctuations in demand.
All of the following are advantages of enterprise resource planning except it __________. A) increases communication and collaboration between business units worldwide B) can provide a strategic advantage over competitors C) requires additional training
C) requires additional training All of the following are advantages of enterprise resource planning except it requires additional training. Full implementation of ERP systems require employees to receive training to understand the company level changes and the impact on existing processes. Enterprise resource planning is a software system that allows companies to: (1) automate and integrate many (or most) of their business processes; (2) share a common database and business practices throughout the enterprise; and (3) produce information in real time. Two results of these positive changes are increased communication and collaboration between business units and a potential strategic advantage of competitors due to the ability to produce (and react to) information in real time.