CPIM Part 1

On the balance sheet, if owner's equity is $5,000 and liabilities are $3,000, what are the assets?

$8,000 Assets = liabilities + owner's equity. Assets = $3,000 + $5,000, or $8,000.

Capacity requirements planning

Capacity requirements planning (CRP) refers to the process of determining in detail the amount of labor and machine resources required to accomplish the tasks of production. Capacity requirements planning is most appropriately used to test the feasibility of the plans generated by material requirements planning. CRP uses planned and firm planned orders from MRP to calculate requirements. At the material requirements planning level, the preliminary material requirements plan is sent to capacity requirements planning in the form of planned and open orders. These are translated into load on specific work centers, which is compared to their available capacity. Capacity Requirements Planning (CRP) receives the preliminary requirements plan in the form of routing. The function of establishing, measuring, and adjusting limits or levels of capacity. In this context, the term refers to the process of determining in detail the amount of labor and machine resources required to accomplish the tasks of production. Open shop orders and planned orders in the MRP system are input to CRP, which through the use of parts routings and time standards translates these orders into hours of work by work center by time period. Even though rough-cut capacity planning may indicate that sufficient capacity exists to execute the MPS, CRP may show that capacity is insufficient during specific time periods.

total costs

"considering all cost impacts, rather than just one cost impact, on customer service improvement."

Fluctuation inventory

Inventory that is carried as a cushion to protect against forecast error.

dispatching

'Earliest job due date' is actually one of the dispatching rules used to determine which job should be run first at an operation. Dispatching refers to the selecting and sequencing of available jobs to be run at individual workstations and the assignment of those jobs to workers.

Transportation inventory

Inventory that is in transit between locations.

Increasing revenues by $1,000,000 will increase gross profit to? Revenue (sales) = $2,000,000 Cost of Goods Sold - Direct Material = $600,000 (30%) - Direct Labor = $200,000 (10%) - Overhead (constant) = $500,000 (25%) Gross Profit = $700,000 (35%)

1300000 Increasing revenue by 1,000,000 increases cost of goods sold to 1,700,000 (overhead does not increase), resulting in a gross profit of 1,300,000.

A manufacturer has a 7 working day week. Using a periodic review system, multiple orders are placed every Tuesday, with a lead time of two days. For one item, a manufacturer maintains a safety stock level of 50, and has an average daily demand of 25. What would be the target (maximum) inventory level?

275 T = D x (R + L) + SS. In this case: 25 x (7 + 2) + 50 = 275.

A manufacturer is experiencing a delay in raw materials delivery, which will arrive a week later than expected. As a result, it must adjust its level of safety stock. The company needs 85 units of safety stock to meet its customer service level. If the original lead time was six weeks, what is the new level of safety stock required?

92 New safety stock = old safety stock x √(new lead time/old lead time). In this case: 85 x √(7/6); or 85 x 1.08 = 92 (rounded).

If a manufacturer typically produces 80 orders of a given product per year, and calculates that three stockouts are acceptable, what is their customer service level?

96% Customer service level = (orders per period Ð stockout chances per period)/orders per period. In this case: 77/80 = 0.96 = 96%.

Capable-to-promise

A customer contacts a manufacturer's salesman and wants to purchase all production supply and capacity for a given item. Capable-to-promise is what the salesman need to obtain from his company to respond to his customer? The process of committing orders against available capacity as well as inventory. This process may involve multiple manufacturing or distribution sites. Used to determine when a new or unscheduled customer order can be delivered. Employs a finite-scheduling model of the manufacturing system to determine when an item can be delivered. Includes any constraints that might restrict the production, such as availability of resources, lead times for raw materials or purchased parts, and requirements for lower-level components or subassemblies. The resulting delivery date takes into consideration production capacity, the current manufacturing environment, and future order commitments. The objective is to reduce the time spent by production planners in expediting orders and adjusting plans because of inaccurate delivery-date promises.

dynamic demand

A dynamic demand pattern is one where demand patterns for products and services change over time and the pattern is not stable. The peaks and valleys are irregular, rather than regular, and the trend is not stable and may go upward and downward at times. The calculation of demand is not a characteristic of a dynamic demand pattern. A characteristic of a dynamic demand pattern is that the pattern changes over time.

Flow shop

A form of manufacturing organization in which machines and operators handle a standard, usually uninterrupted, material flow. The operators generally perform the same operations for each production run. A flow shop is often referred to as a mass production shop or is said to have a continuous manufacturing layout. The plant layout (arrangement of machines, benches, assembly lines, etc.) is designed to facilitate a product "flow." Some process industries (chemicals, oil, paint, etc.) are extreme examples of flow shops. Each product, though variable in material specifications, uses the same flow pattern through the shop. Production is set at a given rate, and the products are generally manufactured in bulk. In a flow shop the machines and operators process a standard, uninterrupted material flow. The same operations are performed for each production run. The layout is designed to facilitate a product flow. A mass production shop with a continuous layout where products follow the same process is also known as a flow shop.

manufacturing cell

A manufacturing cell is defined as a manufacturing process that produces families of parts within a single line or cell of machines controlled by operators who work only within the line or cell. A manufacturing cell is characterized by production of similar items.

Quick change-over of equipment

A manufacturing environment that is characterized by agility and nimbleness has the best chance of responding to changes in volume and mix to its products. Decreased safety stock is incorrect because, if anything, decreased safety stock levels inhibit quick production change-overs. Increased forecast accuracy is incorrect because while in the long run better forecasting will assist in better production planning, it is too long-range to impact very short-term schedule change requirements. Continuous production is incorrect because continuous production is normally focused on producing large lot quantities. These large lot quantities are produced in a very narrow range of highly standardized products, where shop floor setup cannot be easily changed economically to accommodate abrupt changes in the schedule. Quick change-over of equipment will best enable a company to react swiftly to changes in the volume and mix of its products?

on-time schedule performance

A measure (percentage) of meeting the customer's originally negotiated delivery request date. Performance can be expressed as a percentage based on the number of orders, line items, or dollar value shipped on time.

level of service

A measure (usually expressed as a percentage) of satisfying demand through inventory or by the current production schedule in time to satisfy the customers' requested delivery dates and quantities. In a make-to-stock environment, level of service is sometimes calculated as the percentage of orders picked complete from stock upon receipt of the customer order, the percentage of line items picked complete, or the percentage of total dollar demand picked complete. In make-to-order and design-to-order environments, level of service is the percentage of times the customer-requested or acknowledged date was met by shipping complete product quantities.

stockout percentage

A measure of the effectiveness with which a company responds to actual demand or requirements. The stockout percentage can be a comparison of total orders containing a stockout to total orders, or of line items incurring stockouts to total line items ordered during a period.

Routing

A routing is information detailing the method of manufacture of a particular item. It includes the operations to be performed, their sequence, the various work centers involved, and the standard for setup and run. In some companies, it will also include information on tooling, operator skill levels, inspection operations, and testing requirements. Production is about to start manufacturing a new product. In order to begin, they will need to have specific information and instructions. The product's routing will contain this information.

Space buffer

A space buffer is located immediately downstream of the constraint and protects against downtime downstream from the constraint. The size allowed should be enough to protect against any reasonably foreseeable downtime. Usually this buffer is empty.

stockkeeping unit

A stockkeeping unit is an item stocked at a particular location.

anticipation inventories

Additional inventory above basic pipeline stock to cover projected trends of increasing sales, planned sales promotion programs, seasonal fluctuations, plant shutdowns, and vacations. Building up inventory in advance of an anticipated need would lower the need for overtime, subcontracting and additional capacity later. It would also raise inventory costs. Lower overtime costs is a result of anticipation inventory.

Interplant orders

Although it is not a customer order, interplant demand is usually handled by the master production scheduling system in a similar manner. The master production schedule (MPS) handles several types of demand. In addition to customer orders, the MPS might also handle Interplant orders.

decoupling inventory

An amount of inventory maintained between entities in a manufacturing or distribution network to create independence between processes or entities. The objective of decoupling inventory is to disconnect the rate of use from the rate of supply of the item.

income statement

An income statement is a summary of a management's performance as reflected in the profitability of an organization over a certain period. It itemizes the revenues and expenses that led to the current profit or loss, and indicates what may be done to improve the results. A financial document that shows sources of revenue (sales in cash or as accounts receivable) followed by various types of expenses incurred throughout the period is known as an income statement.

Vision

An organization's vision describes the organization as it would appear in a future successful state. The shared perception of the organization's future, or what the organization will achieve, is known as its vision.

master production schedule (MPS)

Because products are standardized with no modification, planning at the master schedule level is performed for the finished good. Finished goods inventories represent the largest cost of inventory not WIP. Work centers used for make-to-stock products are dedicated to producing a limited range of similar products. Production planning and scheduling in an MTS environment uses an MRP push system where, in turn, demand from suppliers is also based on the MRP push. In a market where customers accept a standardized product offering, the master schedule typically is stated for the finished product level is a characteristic of the production environment. The MPS takes the forecast and order information from sales and outputs a schedule for manufacturing. The master production schedule serves as the basis for communication between sales and manufacturing. The master production schedule details schedule at the individual item level. A line on the master schedule grid that reflects the anticipated build schedule for those items assigned to the master scheduler. The master scheduler maintains this schedule, and in turn, it becomes a set of planning numbers that drives material requirements planning. It represents what the company plans to produce, expressed in specific configurations, quantities, and dates. The MPS is not a sales item forecast that represents a statement of demand. It must take into account the forecast, the production plan, and other important considerations such as backlog, availability of material, availability of capacity, and management policies and goals.

Capital costs

Capital cost, also called the cost of capital (finance professionals may use the term weighted average cost of capital, or WACC, but it is not defined here) reflects the opportunity cost of carrying inventory. If money was borrowed to finance the inventory, the capital cost is the direct cost of the loan. Even if this is not the case, money invested in inventory is tied up and cannot be used for another purpose. Finance will estimate the capital cost of inventory by determining the interest rate that could have been earned from making an investment in something of similar risk. This could be either the prevailing interest rate for a financial instrument or the return expected from an alternative business investment.

Carrying costs

Carrying costs include cost of obsolescence and cost of storage. Carrying cost is the cost of holding inventory. Carrying cost depends mainly on the cost of capital invested as well as such costs of maintaining the inventory as taxes and insurance, obsolescence, spoilage, and space occupied. Elements of carrying cost include capital, storage and risk costs. also called holding cost, as follows: The cost of holding inventory, usually defined as a percentage of the dollar value of inventory per unit of time (generally one year). Carrying cost depends mainly on the cost of capital invested as well as costs of maintaining the inventory such as taxes and insurance, obsolescence, spoilage, and space occupied. Such costs vary from 10 percent to 35 percent annually, depending on type of industry. Carrying cost is ultimately a policy variable reflecting the opportunity cost of alternative uses for funds invested in inventory.

Cost of goods

Cost of goods is classically defined as consisting of direct labor, direct material, and overhead.

Ordering costs

Cost of storage and cost of order processing, cost of setup and cost of storage, and cost of obsolescence and cost of setup. The costs that increase as the number of orders placed increases. Used in calculating order quantities. Includes costs related to the clerical work of preparing, releasing, monitoring, and receiving orders; the physical handling of goods; inspections; and setup costs, as applicable.

Customer relationship management (CRM)

Customer relationship management (CRM) is a marketing philosophy based on putting the customer first. The collection and analysis of information designed for sales and marketing decision support to understand and support existing and potential customer needs. The software-enabled process that collects and seeks to understand customer needs based on collection and analysis of information is Customer relationship management. Data mining is concerned with unearthing patterns in customer behavior. Research and development is focused on converting customer needs into actual products and services. Marketing segmentation is incorrect because it is defined as a marketing strategy in which the total market is disaggregated into submarkets, or segments, that share some measurable characteristic based on demographics, psychographics, lifestyle, geography, benefits, and so forth.

Customer service

Customer service is the ability of a company to address the needs, inquiries, and requests from customers.

Make-to-stock

Customers purchase finished goods in a make-to-stock environment. Raw materials and component inventories are used to make finished goods and are not normally sold. Work-in-process inventory refers to items in the process of being converted into finished goods. In a make-to-stock environment, the delivery lead time would be from the time the order is received to the time the product reaches the customer; no design, manufacturing or assembly would be required. If the design, purchase, inventory, manufacturing, assembly and ship time are the same, the delivery lead time is least in a make-to-stock environment.

Cycle counting

Cycle counting breaks down counts by item and location and tracks accuracy by location. This reduces downtime due to missing inventory. Material count is accurate by location is a benefit for production. Material count overages are offset by shortages, material value overages are offset by shortages, and material count is accurate within a tolerance refer to disadvantages of a periodic physical inventory. Cycle counting is an inventory accuracy audit technique where inventory is counted on a cyclic schedule rather than once a year. The purpose of cycle counting is to find and correct the cause of errors.

Data governance

Data governance is a set of processes that ensures that important data assets are formally managed throughout the enterprise. The overall management of the accessibility, usability, reliability, and security of data used to ensure data record accuracy.

Days of supply

Days of supply is an inventory-on-hand metric converted from units to how long the units will last. A metric that measures the amount of inventory on hand is days of supply.

If the replenishment lead time of two weeks is reduced by 50% and all other factors remain constant, the safety stock will most likely:

Decrease The following formula is used to determine a new safety stock when the lead time interval changes: New safety stock = Old safety stock - square root of (new lead time interval / old lead time interval). Using the example of old safety stock of 150, an old lead time of two weeks, and a new lead time of one week (reduced by 50%, per this problem), the new safety stock becomes 106, which is a decrease from 150.

Demand planning

Demand planning is the process of combining statistical forecasting techniques and judgment to construct demand estimates for products or services across the supply chain from the suppliers' raw materials to the consumer's needs.

Distribution inventories

Distribution inventory includes all finished goods inventory at any point in the distribution system. Distribution inventories create a time value by placing the product close to the customer. Distribution inventory typically includes spare parts and finished goods, located in the distribution system (e.g., in warehouses, in-transit between warehouses and the consumer). The term used to describe inventory in a network of warehouse, in-transit between warehouses and the consumer is called distribution inventory. This is the value of all finished goods at any point in the physical distribution channel(s). It is often the second largest part of distribution costs.

Economic order quantity (EOQ)

Economic order quantity (EOQ) is a type of fixed order quantity model intended to minimize the combined costs of acquiring and carrying inventory. EOQ is based on certain assumptions, including that demand is constant and known, the item is produced or purchased in batches continuously, order preparation and inventory-carrying costs are constant and known, and replacement occurs all at once. Given these assumptions, the EOQ occurs when the cost of ordering equals the cost of carrying. The four components of the economic order quantity (EOQ) formula are: 1) annual usage, 2) order cost, 3) carrying cost percent, and 4) unit cost. Setup cost is part of the order cost. Setup cost must be known to compute an EOQ. Independent demand items with stable demand is one of the assumptions for using EOQ. Finished goods whose demand is independent and fairly uniform warrants considering using EOQ.

Exceptional events

Exceptional events might include customer stockpiling product based on an anticipated strike, customer plant shutdowns or equipment failures, or severe weather keeping customers at home. Events such as these need to be recorded in the forecast notes, to differentiate them from potential changes in a trend. In the middle of April, an unusually large order comes in from a customer, at odds with forecast data. In May, the customer's orders are more in line with forecasts. This could be the result of an exceptional event.

Flow manufacturing

Flow manufacturing produces high-volume standard products, so work centers are dedicated to producing similar products. Flow manufacturing is concerned with the production of a small number of high-volume standard products produced repetitively or in a continuous manufacturing environment.

production and inventory control

For the most part, products subject to independent demand are driven by a forecast and will use either a reorder point or ERP master scheduling for planning and replenishment. Normally, production inventories that should be planned in an MRP system are subject to dependent demand. In production and inventory control, it is important to know whether demand is independent or dependent because the distinction determines the selection of appropriate replenishment methods.

Forecasters

Forecasters, and users of forecasts, utilize information on forecast accuracy to understand the reliability and relevance of the data as it is used to determine demand characteristics, variation, and stability.

Forecasts

Forecasts attempt to look into the unknown future and, except by sheer luck, will be wrong to some degree. Errors are inevitable and must be expected and planned for.

Hedge inventory

Hedge inventory is a form of inventory buildup to buffer against some event that may not happen. Hedge inventory planning involves speculation related to potential labor strikes, price increases, unsettled governments, and events that could severely impair a company's strategic initiatives. Risk and consequences are unusually high, and top management approval is often required.

Idle capacity

In a TOC environment, in order to elevate the constraint, other productive resources that might be used to supplement the constraint should be reviewed for idle capacity. If idle capacity exists at this resource, then work should be routed to fill the open capacity. This will elevate the constraint and increase total utilization. Excess capacity describes a situation where output capabilities at a nonconstraint resource exceed the amount of productive and protective capacity required to achieve a given level of throughput at the constraint. Protective capacity describes a situation where a given amount of extra capacity at nonconstraints above the system constraint's capacity is maintained. It is used to protect against statistical fluctuations. Productive capacity describes the maximum output capabilities of a resource (or series of resources), or the market demand for that output for a given period of time. Using theory of constraints (TOC) to increase overall facility utilization, idle should be reviewed. The available capacity that exists on nonconstraint resources beyond the capacity required to support the constraint. Idle capacity has two components: protective capacity and excess capacity.

job shop

In a job shop plant, the different methods and equipment for producing inventory are separated into departments. Production jobs pass serially through each department as detailed on the production order routing. Work center load is unpredictable is incorrect because production is intermittent in a job shop. Routings for all products are the same is incorrect because the routings for products in a job shop are often make-to-order with very different routings. Kanban is the most appropriate scheduling method is incorrect because kanban is better fit to a continuous production environment. Work centers are organized by function characterizes a job shop environment. 1) An organization in which similar equipment is organized by function. Each job follows a distinct routing through the shop. 2) A type of manufacturing process used to produce items to each customer's specifications. Production operations are designed to handle a wide range of product designs and are performed at fixed plant locations using general-purpose equipment.

first-in first-out

In a period of rising prices, replacement is at a higher price than the assumed cost. This method does not reflect current prices, and replacement will be understated. The reverse is true in a falling price market. For example, an opening PO arrives for 10 units at $2.00. A second PO arrives for 10 units at $1.00. The price is falling and is therefore lower than the assumed cost. Therefore, the replacement cost of the item will be overstated. In a market where prices are decreasing, the replacement value of products will be overstated for a company that uses first-in, first-out method of evaluating inventory.

Zoned inventory storage

In a zoned inventory storage location system, goods are stored in a designated area of the warehouse assigned based on their physical characteristics or frequency of use. A manufacturer stocks flammable goods in a designated area.

Fixed costs

In contrast to variable costs, fixed costs do not change with the volume of goods carried. Railways have large fixed costs such as tracks, terminals, and vehicles. Rail is the mode of transportation that typically the carrier has the highest fixed costs.

Weakest link

In every system there is one weakest link - the constraint that limits the system from achieving higher levels of its goal. In the theory of constraints (TOC) philosophy, the term the weakest link is used to describe the resource with the least throughput in the system.

Input/output control

Input/output control is a technique in which actual input and output of a work center is compared with the planned input and output developed by CRP. A technique for capacity control where planned and actual inputs and planned and actual outputs of a work center are monitored. Planned inputs and outputs for each work center are developed by capacity requirements planning and approved by manufacturing management. Actual input is compared to planned input to identify when work center output might vary from the plan because work is not available at the work center. Actual output is also compared to planned output to identify problems within the work center.

Intrinsic

Intrinsic forecasts are based on internal factors, such as an average of past sales, knowledge of seasonal spending habits, etc. Projections, based on historical sales information, are intrinsic. "a forecast based on internal factors, such as an average of past sales." Intrinsic, or time series, forecasting uses internal information such as the organization's historical data on demand for a product family or individual products. These techniques assume that the near-term past is a good guide to the near-term future. This assumption may or may not be true.

Pipeline stock

Inventory in the transportation network and the distribution system, including the flow through intermediate stocking points. The flow time through the pipeline has a major effect on the amount of inventory required in the pipeline. Time factors involve order transmission, order processing, scheduling, shipping, transportation, receiving, stocking, review time, and so forth.

Transit inventory

Inventory in transit between manufacturing and stocking locations. Material moving between two or more locations, usually separated geographically; for example, finished goods being shipped from a plant to a distribution center.

Risk costs

Inventory might be perishable, in which case it could spoil, but even nonperishable inventory can suffer from deterioration such as damage from rot or evaporation. Another risk is obsolescence. When new and improved products come on the market, the old model loses value. Some products lose value simply because tastes change. Transportation and materials handling also pose a risk of product damage. Goods may be subject to pilferage, which includes theft as well as goods that are misplaced. The cost of insurance for the inventory may be included. Perishable goods, innovative technology, and items with a high street value can have high risk costs, while other products will have low risk costs. Estimates of the types of risks are made by product, and an average percentage risk cost is determined.

Lot-size inventory

Inventory that results whenever quantity price discounts, shipping costs, setup costs, or similar considerations make it more economical to purchase or produce in larger lots than are needed for immediate purposes.

Inventory turnover

Inventory turnover is the number of times that an inventory cycles, or 'turns over,' during the year. A frequently used method to compute inventory turnover is to divide the average inventory level into the annual cost of sales. Dividing the average inventory level into the annual cost of sales will produce inventory turnover. Inventory turns = cost of goods sold/average inventory investment.

Inventory buffer

Inventory used to protect the throughput of an operation or the schedule against the negative effects caused by delays in delivery, quality problems, delivery of an incorrect quantity, and so on.

Item cost

Item cost is the price paid for a purchased item, which consists of the cost of the item and any other direct costs associated with getting the item into the plant. Item costs include transportation, customs duties, and insurance in addition to the purchase price. Delivery, setup, and acquisition are elements of item cost.

Maintenance, repair, and operating (MRO) supplies

Items used in support of general operations and maintenance such as maintenance supplies, spare parts, and consumables used in the manufacturing process and supporting operations.

Jidoka

Jidoka is the Japanese term for the practice of stopping the production line when a defect occurs.

Line process

Line is a type of manufacturing process used to produce a narrow range of standard items with identical or highly similar designs. Production volumes are high, production and material handling equipment is specialized, and all products typically pass through the same sequence of operations.

Point of Sale

Point of Sale refers to the relief of inventory and computation of sales data at the time and place of retail purchase, generally through the use of bar coding or magnetic media and equipment. Point of Sale data is an integral part to meeting and replenishing demand in a retail supply chain.

Cycle stock

One of the two main conceptual components of any item inventory, the cycle stock is the most active component. The cycle stock depletes gradually as customer orders are received and is replenished cyclically when supplier orders are received. The other conceptual component of the item inventory is the safety stock, which is a cushion of protection against uncertainty in the demand or in the replenishment lead time.

Period order quantity

Period order quantity is a lot-sizing technique under which the lot size is equal to the net requirements for a given number of periods. This method orders enough SKUs to satisfy demand for a particular number of time periods, such as months, weeks, or days. An order has been placed and approved for delivery in two months' time. The factory produces the product at a steady rate, meaning days of supply is stable. Period order quantity could be used to achieve appropriate levels of supply in this situation. A lot-sizing technique under which the lot size is equal to the net requirements for a given number of periods (e.g., weeks into the future). The number of periods to order is variable, each order size equalizing the holding costs and the ordering costs for the interval.

Product mixing

Product mixing deals with the grouping of different items into an order and the economies that warehouses can provide in doing this. Without a distribution center, customers would have to order from each source and pay LTL transport from each source. Using a distribution center, orders can be placed and delivered from a central location. Product mixing is the role of a finished goods warehouses to deal with the grouping of different items into an order.

Profit margin

Profit margin is the difference between the sales and cost of goods sold for an organization, sometimes expressed as a percentage of sales. from a perspective of gross profit margin as 1) The difference between the sales and cost of goods sold for an organization, sometimes expressed as a percentage of sales. 2) In traditional accounting, the product profit margin is the product selling price minus the direct material, direct labor, and allocated overhead for the product, sometimes expressed as a percentage of selling price.

Record accuracy

Record accuracy is a measure of the conformity of recorded values in a bookkeeping system to the actual values. This measure is critically important to production planning and purchasing teams as inaccurate records lead to stock outs and lost production time. A key performance indicator critical to manufacturing execution and accurately reflecting the company's assets is record accuracy. A measure of the conformity of recorded values in a bookkeeping system to the actual values; for example, the on-hand balance of an item maintained in a computer record relative to the actual on-hand balance of the items in the stockroom.

Resource planning

Resource planning addresses capacity planning conducted at the business plan level. Resource planning can add value to the strategic plan by, for example, validating the need and timing of capacity requirements and by recommending whether to expand capacity in advance of need all at once, expand capacity incrementally in steps, or to lag behind the need.

Sales and operations planning

Sales and operations planning is the process by which an organization reviews its strategic plan and revises and coordinates plans between its various departments. Strategic planning is a statement of how the organization is to determine and assemble the resources and perform the actions necessary to support the business plan. Groupthink is when a team seizes on one solution to a problem and does not consider other viable solutions. The business plan sets the long-range strategy and revenue, cost, and profit objectives and is normally set once a year. The most important task of the sales and operations planning (S&OP) process is to balance aggregate demand with the firm's available aggregate inventory and production capacity. Scheduling of production and inventory replenishment occurs after the S&OP plan has been authorized and disaggregated down to the master schedule and MRP levels. The detailed planning of finished goods is performed on the master schedule level. Planning the use of manufacturing resources is performed on the capacity planning level. A continual process of reviewing the strategic business plan and revising and coordinating plans of various departments is called sales and operations planning. Formal balancing of supply and demand is a result of sales and operations planning. The sales & operations planning process brings together all the plans for the business (sales, marketing, development, manufacturing, sourcing, and financial) into one integrated set of plans. The sales and operations planning process must reconcile all supply, demand, and new-product plans at both the detail and aggregate levels and tie to the business plan.

Seasonality

Seasonality is a repetitive pattern of demand from year to year (or other repeating time interval) with some periods considerably higher than others.

Service parts

Service parts are those modules, components, and elements that are planned to be used without modification to replace an original part. "those modules, components, and elements that are planned to be used without modification to replace an original part." An organization can sell service parts to satisfy independent demand for the parts, so in this case, they are a type of finished good. However, when the organization buys service parts for its own use, they do not become part of the final product and thus are MRO supplies.

Setup costs

Setup goes from the last good part of the prior operation to the first good part of the next operation, so it includes teardown costs. This cost is incurred per order. (Run time is calculated per unit.)

Storage costs

Storage costs reflect the fact that warehouses cost money—for the land, the building, the material-handling equipment, the labor, and the overhead, such as utilities. These costs are expressed as a percentage.

transit time

The average amount of inventory that is in transit at any given time is a function of the average transit time in days. Reducing average transit time in days is the only way to reduce transportation inventory levels. This can be done by using faster modes of transport or by selecting suppliers that are closer to the organization. This reduces both cost and lead times. If faster transport is used its increased cost may offset any cost savings. The other answers are less significant given shorter transit times.

drum-buffer-rope (DBR)

The basic goal of the DBR method is to recognize that all processes contain a weak link or constraint that limits the productive output of the entire system. The purpose of the DBR method is to schedule production around the constraint and not to minimize inventory. In fact, the DBR method calls for a buffer of inventory to be present to ensure that a problem does not cause the constraint to go idle. Schedules a constraint is the function that the DBR mthod performs. In the theory of constraints, the drum represents the pace of the constraint, which sets the production pace for the entire system. The drum in the drum-buffer-rope method represents the pace of the slowest machine in the process.

Chase production method

The chase production method seeks to keep inventory levels stable while varying production levels based on demand. This method typically has higher costs associated with varying staffing and overtime.

Production control costs

The cost of issuing, closing, scheduling, loading, dispatching, moving, and expediting open orders. These costs are made up of the costs for labor, supplies, and operating expenses for the operations.

stockout costs

The costs associated with a stockout. Those costs may include lost sales, backorder costs, expediting, and additional manufacturing and purchasing costs.

four Ps

The four Ps are a set of marketing tools to direct the business offering to the customer. The four Ps are product, price, place, and promotion.

capacity planning

The goal of capacity planning is determining how much capacity is going to be required to execute the firm's production plans.

Periodic inventory

The main purpose of periodic inventory is to satisfy financial auditors that the inventory records represent the value of the inventory. Periodic inventory is a method of verifying inventory records that primarily focuses on ensuring that the inventory records accurately represent the value of inventory. A physical inventory taken at some recurring interval (e.g., monthly, quarterly, or annual physical inventory).

buffer

The purpose of the TOC buffer placed in front of a constrained work center is to provide adequate material to protect the constraint from the longest reasonably foreseeable downtime. It prevents unplanned idleness in the constrained work center - purpose of a buffer in the theory of constraints.

Standard cost

The standard cost consists of a fixed cost composed of direct material, direct labor, and overhead. This cost remains fixed until a decision is made to update it as time passes to arrive at a new standard. Any difference between the standard and the actual cost is a variance that can be quantified to show how much actual costs have fallen or risen since the last standard cost update. An average cost assumes an average of all process paid for a good or service. The problem with this method in changing process (rising or falling) is that the cost used is not related to the actual cost. The last in, first out method assumes the newest (last) item received into stock is the first sold. Given rising prices, replacement can be made at the current price. In a falling price market, existing inventory is overvalued.When the oldest (first) first in stock is sold first, rising prices cause the replacement cost to be set at a higher price than the assumed cost. This method does not reflect current process, and replacement will be understated. Standard cost best measures falling costs. The target costs of an operation, process, or product including direct material, direct labor, and overhead charges.

setup reduction

The time it takes to setup a product has a direct cost that is a component of the overall cost of producing the item. Not only is the cost of setup reduced, but also the lot size produced can be reduced along with queue and lead times. When the setup time is reduced, it will immediately decrease the overall cost of the product. The other answers will occur over time, but not immediately, as a result of setup time reduction. Reduced product cost is the benefit of setup reduction that is most immediate.

costs of inventory

The two key costs of inventory are carrying costs and order costs. A larger purchase order receipt will increase carrying costs but decrease ordering costs and, therefore, decrease total cost. If a quantity discount is taken on a purchase order, the typical effects are carrying cost increases and total cost decreases.

total quality management (TQM)

The ultimate goal and singular objective of total quality management (TQM) is to produce products that achieve the highest levels of customer satisfaction. Reducing product defects, increasing employee involvement and improving equipment utilization are not in themselves primary goals, although they can all help to further the main objective of achieving maximum customer satisfaction. Achieving customer satisfaction is the primary objective of total quality management (TQM). TQM is a management approach to long-term success through customer satisfaction. TQM is based on the participation of all members of an organization in improving processes, goods, services, and the culture in which they work. The most important objective of total quality management (TQM) is improved customer satisfaction. A term coined to describe Japanese-style management approaches to quality improvement. Since then, total quality management (TQM) has taken on many meanings. Simply put, TQM is a management approach to long-term success through customer satisfaction. TQM is based on the participation of all members of an organization in improving processes, goods, services, and the culture in which they work. The methods for implementing this approach are found in teachings of such quality leaders as Philip B. Crosby, W. Edwards Deming, Armand V. Feigenbaum, Kaoru Ishikawa, J.M. Juran, and Genichi Taguchi.

Demand management

Three critical functions within demand management include marketing management, customer relationship management, and demand planning. Demand management is the overall function of recognizing all demands for goods and services to support the marketplace. Forecasting is an aspect of demand management that is assumed in the correct answer.

Transportation

Transportation concerns all the activities referenced in the question relating to the movement of inventories into and out of an organization. Distribution is concerned only with the movement of goods out of an organization. Inventory control refers to those activities and techniques of maintaining the desired levels of items. Supply chain management is described as the design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand, and measuring performance globally. The function of planning, scheduling, and controlling activities related to mode, vendor, and movement of inventories into and out of an organization is known as transportation. The physical movement of goods via road, air, water, rail, or pipeline. This is usually the largest part of distribution costs.

Trend

Trend forecasting models are used for forecasting sales data when a definite upward or downward pattern exists. A new thermostat that learns the preferences of its owners is consistently growing in demand month after month.

Two-bin inventory

Two-bin inventory is a fixed-order system in which inventory is carried in two bins. A replenishment quantity is ordered after the first is exhausted. During the replenishment time, material in the remaining bin is used. At a toy manufacturer, one work center is assigned the task of attaching an action figure's head. Two lots of the figure's head are provided. As soon as one lot is exhausted, a replenishment order is issued. The worker continues to work on assembly using the second lot while the replenishment lot is processed. Two-bin inventory system is the name for this inventory system.

Value chain analysis

Value chain analysis is an examination of all links a company uses to produce and deliver its products and services starting from the origination point and continuing through delivery to the final customer. A company losing market share due to price competition should incorporate value stream analysis.

Lead time: 3 weeks Order Quantity: 100 Net Requirement exists in week: 6 Net Requirement Quantity: 150 In what week would a planned order release be generated to satisfy this net requirement?

Week 3 Because the net requirement exists in Week 6, the planned order release is offset by the lead time of three weeks. Thus, the planned order release will be released in Week 6 - 3 weeks = Week 3.

Bias

When bias exists, the forecasting method, or its parameters, should be changed. Deleting the demand for periods that introduced the bias would not be an acceptable practice, although there may be occasions where the demand history must be adjusted to account for exceptional circumstances. Introducing sales programs to reduce the bias does not remove the cause of the bias in the forecast. Finally, recording the circumstances that created the bias may be useful, but is not the most appropriate course of action. Change the forecasting method or parameters is most appropriate when bias is detected in a forecast.

Lost capacity cost

Whenever another order is placed, the setup time reduces the available run time for the work center, so it is an opportunity cost related to capacity. This is especially problematic for bottleneck work centers that need as much of their capacity as possible for run time. Each order that requires setup time at a bottleneck will reduce sales and profit.

balance sheet

a financial statement showing the resources owned, the debts owed, and the owner's share of a company at a given point in time.

capacity-related costs

in part as costs generally related to increasing (or decreasing) capacity in the medium- to long-range time horizon.