Exam #3 Review - Ferrin WMU

We are ordering T-shirts for the spring party and are selling them for twice what we paid for them. We expect to sell 100 shirts and the standard deviation associated with our forecast is 10 shirts. How many shirts should we order?

100 shirts

For which of these should a "p-chart" be used to monitor process quality?

A "p-chart" could be used for any of the above

Process Control

A process improvement methodology to monitor, control, and continuously optimize a process. Process control is a subset of Six Sigma usually associated with control charts and Design of Experiments.

What is useful for checking quality when we periodically purchase large quantities of an item and it would be very costly to check each unit individually?

Acceptance sampling

According to the video CPI, which is not an advantage of increasing "right first time" quality?

According to the video, all of the above are advantages of increased "right first time" quality

What is the variation that can be clearly identified and possibly managed?

Assignable variation

Inventory Turn

COGS/Average inventory value

What is the variation inherent in the process itself?

Common variation

Six Sigma Quality

Concept: refers to the philosophy and methods companies such as General Electric and Motorola use to eliminate defects in their products and processes. 1) Unit. The item produced or being serviced. 2) Defect. Any item or event that does not meet the customer's requirements. 3) Opportunity. A chance for a defect to occur. Metric Used: defects per million opportunities (DPMO). Calculating DPMO: (Number of Defects)/(# opportunities for error per unit)x(Number of units) x1,000,000

Approaches for managing quality: Total Quality Management

Concepts: - Committed and involved engagement - Focus on the customer - Involvement of the total work force - Continuous process improvement - Supplier partnering - Performance measures

What relates to how well a product or service meets design specifications?

Conformance quality

Six Sigma Methodology

DMAIC 1) Define 2) Measure 3) Analyze 4) Improve 5) Control

What is the standard quality improvement methodology developed by General Electric?

DMAIC cycle

Managing Quality: Six Sigma

Define: A flow chart is likely to be used during this six sigma quality improvement program Measure: A Pareto chart is likely to be used during this six sigma quality improvement program Analyze: A fishbone diagram is likely to be used during this six sigma quality improvement program Improve: An opportunity diagram is likely to be used during this six sigma quality improvement program Control: The last phase of Six Sigma. The focus is to make sure that the action item created in the Improve phase is well-implemented and maintained.

Total Quality Management

Defined as: managing the entire organization so that it excels on all dimensions of products and services that are important to the customer. It has two goals: 1) Careful design of the product or service. 2) Assurance that the organization's systems can consistently produce the design.

TQM: Customer Focus

Defines quality as meeting or exceeding customer expectations. This means listening to the voice of the customers, gathering information about their wants, needs, and expectations, then translating these into the product or service design. Adheres to a "user based" definition of quality.

What is the term used to describe demand that can be accurately calculated to meet the need of a production schedule?

Dependent demand

If a process has a capability index of 1 and is running normally (centered on the mean), what percentage of the units would one expect to be defective?

Design limits are at ±3σ or 2.7 defects per thousand

What refers to the inherent value of the product in the marketplace and is a strategic decision for the firm?

Design quality

What relates to how the customer views quality dimensions of a product or service?

Fitness for use

What is the model most appropriate when a fixed amount must be purchased each time an order is placed?

Fixed-order quantity model

What is the model most appropriate when inventory is replenished only in fixed intervals of time, for example, on the first Monday of each month?

Fixed-time period model

Will warehouses be used in the future?

Logistics visionaries have talked for years about eliminating—or at least drastically reducing—the role of inventory in modern supply chains. The most efficient, slack-free supply chains, after all, wouldn't require any inventory buffer because supply and demand would be in perfect sync. Focus on: 1) Transportation costs against fulfillment speed 2) Inventory costs against the cost of stock outs 3) Customer satisfaction against the cost to serve 4) New capabilities against profitability Direct-to-store approach - keeps inventory moving from manufacturer to end customer by eliminating stops at warehouses along the way

What is a chart that depicts the manufacturer's and consumer's risks associated with a sampling plan?

Operating characteristic curve

Given the total annual cost formula presented in chapter 11 of the textbook. The cost expressed as D/Q*S is annual ___?

Order/setup cost

Video CPI, a "critical challenge" firms face in gaining and sustaining competitive advantage from their supply chain is that their relationships with their supply chain allies (suppliers and customers) must be ___ and not ___.

Positive; characterized by suspicion and hostility

Given the total annual cost formula presented in chapter 11 of the textbook. The cost expressed as DC is annual ___?

Purchase (procurement) costs

What is Quality?

Quality and Design: The design of the product must incorporate the basic quality requirements necessary to give the item the attributes (appearance, price, expected performance) identified through market research Quality and Manufacturing: The ability of the manufacturing process to achieve the precision necessary to meet the specification & tolerances established in the product design

Which is NOT one of the six basic concepts of TQM?

Senior management should not be involved in the initiation of TQM programs

Based on an EOQ-type ordering criterion, what cost must be taken to zero if the desire is to have an order quantity of a single unit?

Setup or ordering cost

What is the model most appropriate for making a one-time purchase of an item?

Single-period model

What is an alternative to viewing an item as simply good or bad due to it falling in or out of the tolerance range?

Taguchi loss function

Safety Stock

The amount of inventory carried in addition to the expected demand the amount of inventory carried in addition to the expected demand. In a normal distribution, this would be the mean. For example, if our average monthly demand is 100 units and we expect next month to be the same, if we carry 120 units, then we have 20 units of safety stock.

TQM: Performance Measures

The final concept of Total Quality Management - Plays an important part in the overall success or failure of a business organization - Performance measures quantitatively tell us something important about our products, services, and the processes that produce them. - They are a tool to help us understand, manage, and improve what our organizations do. - Performance measures let us know: 1) How well we are doing if we are meeting our goals 2) If our customers are satisfied if our processes are in statistical control 3) If and where improvements are necessary.

Process Variation

The natural fluctuations in process flow introduced by individuals, slight differences in execution, or instrument performance fluctuations. These are variations that can be addressed by process improvement and process control.

ISO 9000 & ISO 14000

The standards are designed to help companies document that they are maintaining an efficient quality system. ISO 9000 - an international reference for quality management requirements in business-to-business dealing. ISO 14000 - primarily concerned with environmental management.

What is a quality characteristic that is actually measured, such as the weight of an item?

Variable

What is the enemy of good quality?

Variation

For which of these should an "X-bar chart" be used to monitor process quality?

Vehicles passing emissions inspection

If we take advantage of a quantity discount, would you expect your average inventory to go up or down? Assume that the probability of stocking out criterion stays the same.

Will probably go up if the probability of stocking out stays the same

What is a quality chart suitable for when an item is either good or bad?

p-chart

Six Sigma Tools

1) Flowcharts 2) Run Charts 3) Pareto Charts

Inventory Costs

1) Holding (or carrying) costs Costs for storage facilities, handling, insurance, pilferage, breakage, obsolescence, depreciation, taxes, and the opportunity cost of capital. High holding costs tend to favor low inventory levels and frequent replenishment. 2) Setup (or production change) costs Making each different product w/ necessary materials, arranging specific equipment setups, filling out required papers, charging time, materials, and moving out the previous stock of material. 3) Ordering costs The managerial and clerical costs to prepare the purchase or production order. Ordering costs include all the details like counting items and calculating order quantities. The costs associated with maintaining the system needed to track orders are also included in ordering costs. 4) Shortage costs When the stock of an item is depleted, an order for that item must either wait until the stock is replenished or be canceled. When the demand is not met and the order is canceled, this is referred to as a stock out. There is a trade-off between carrying stock to satisfy demand and the costs resulting from stock outs and backorders. This balance is sometimes difficult to obtain because it may not be possible to estimate lost profits, the effects of lost customers, or lateness penalties.

Purposes of inventory

1) To maintain independence of operations A supply of materials at a work center allows that center flexibility in operations. For example: because there are costs for making each new production setup, this inventory allows management to reduce the number of setups. 2) Independence of workstations is desirable on assembly lines as well. The time it takes to do identical operations will naturally vary from one unit to the next. 3) To meet variation in product demand If the demand for the product is known precisely, it may be possible (though not necessarily economical) to produce the product to exactly meet the demand. Usually demand is not completely known, and a safety or buffer stock must be maintained to absorb variation. 4) To allow flexibility in production scheduling A stock of inventory relieves the pressure on the production system to get the goods out at a precise time. The trade-off is that lead time may be increased, but smoother flow and lower-cost through larger lot-sizes may be possible. High setup costs favor producing a larger number of units once the setup has been made. 5) To provide a safeguard for variation in raw material delivery time When material is ordered delays can occur for a variety of reasons: a normal variation in shipping time, a shortage of material at the vendor's plant causing backlogs, an unexpected strike at the vendor's plant or at one of the shipping companies, a lost order, or a shipment of incorrect or defective material. 6) To take advantage of economic purchase order size There are costs to place an order: labor, phone calls, typing, postage, and so on. Therefore, the larger each order is, the fewer the orders that need be written. Shipping costs favor larger orders—the larger the shipment, the lower the per-unit cost.

For the item described in question 8, if we expect to sell approximately 15,600 units next year, how many trips will we need to make to the supplier over the year?

13 trips

What is a Six Sigma process that is running at the center of its control limits would expect this defect rate?

2 parts per billion units

Consider an item for which we have 120 units currently in inventory. The average demand for the item is 60 units per week. The lead time for the item is exactly 2 weeks and we carry 16 units for safety stock. What is the probability of running out of the item if we order right now?

50 percent

We have an item that we stock in our store that has fairly steady demand. Our supplier insists that we buy 1,200 units at a time. The lead time is very short on the item, since the supplier is only a few blocks away and we can pick up another 1,200 units when we run out. How many units do you expect to have in inventory, on average?

600 units

If we decide to carry 10 units of safety stock for the item described in questions 8 and 9, and we implemented this by going to our supplier when we had 10 units left, how much inventory would you expect to have, on average, now?

610 units

Inventory Planning and Accuracy

ABC inventory classification scheme: - Divides inventory items into three groupings: high dollar volume (A), moderate dollar volume (B), and low dollar volume (C). Dollar volume is a measure of importance; an item low in cost but high in volume can be more important than a high-cost item with low volume. - The ABC approach divides this list into three groupings by value: A) items constitute roughly the top 15 percent of the items, B) items the next 35 percent C) items the last 50 percent. - The purpose of classifying items into groups is to establish the appropriate degree of control over each item. On a periodic basis (Example): Class A items may be more clearly controlled with weekly ordering, B items may be ordered biweekly, and C items may be ordered monthly or bimonthly.

According to the video CPI, which is not an important factor for achieving significant results from continuous process improvement (CPI) efforts?

According to the video, all of the above are important factors for achieving significant results from CPI

According to the video CPI, teamwork is important for achieving significant results from continuous process improvement (CPI) efforts because ___.

According to the video, all of the above are reasons teamwork is important for achieving significant results from CPI

What is are quality characteristics that are classified as either conforming or not conforming to specification?

Attributes

Acceptance Sampling

Concept: Acceptance sampling is performed on goods that already exist to determine what percentage of products conform to specifications. If the average percentage of defective items in a lot is 3 percent, the expected cost of faulty items is 0.03 × $10, or $0.30 each. Therefore, if the cost of inspecting each item is less than $0.30 The purpose of a sampling plan is to test the lot to either: 1) Find its quality 2) Ensure that the quality is what it is supposed to be

GE Six Sigma Supply Chain Processes

Concept: If you can measure how many "defects" you have in a process, you can systematically figure out how to eliminate them and get as close to "zero defects" as possible. To achieve Six Sigma Quality, a process must produce no more than 3.4 defects per million opportunities. (A chance for not meeting required specifications)

Statistical process control procedures

Concept: involves testing a random sample of output from a process to determine whether the process is producing items within a preselected range Attributes: Quality characteristics that are classified as either conforming or not conforming to specifications P-Charts: (Total # of defective units from all samples)/(Number of samples x Sample size)

Inventory Accuracy and Cycle Counting

Cycle Counting - Defined: a physical inventory-taking technique in which inventory is counted frequently rather than once or twice a year. The key to effective cycle counting and, therefore, to accurate records lies in deciding which items are to be counted, when, and by whom. - The computer can be programmed to produce a cycle count notice in the following cases: 1) When the record shows a low or zero balance on-hand. (It is easier to count fewer items.) 2) When the record shows a positive balance but a backorder was written (indicating a discrepancy). 3) After some specified level of activity. 4) To signal a review based on the importance of the item (as in the ABC system)

What is an inventory auditing technique where inventory levels are checked more frequently than one time a year?

Cycle counting

We are being evaluated based on the percentage of total demand met in a year (not the probability of stocking out as used in the chapter). Consider an item that we are managing using a fixed-order quantity model with safety stock. We decide to double the order quantity but leave the reorder point the same. Would you expect the percent of total demand met next year to go up or down? Why?

Go up (we are taking fewer chances of running out)

Inventory Position

IP = On hand + On order - Backorder

What is the series of international quality standards?

ISO 9000

What is the term used to describe demand that is uncertain and needs to be forecast?

Independent demand

Approaches for managing quality: Sampling inspections

Involves inspecting a relatively small number of items from a batch or lot and then using the results of this sample to either accept or reject the entire lot. The accept/reject criteria is the number of defective items found in the sample. -------------------------------------------------------- The first step is to find the sample size code letter. This is obtained from a separate table and is based on the lot size and the severity of the inspection required. A value for the AQL is also selected. Then, then used to find the sample accept/reject values. For example if the code letter were 'N' and the AQL was 0.15 then the sample size would be 500. (On chart given) The batch would be accepted if there were 1 defect or less, and rejected if there were two defects or more.

Quality Costs

Prevention Costs: 1) Product or service requirements: establishment of specifications for incoming materials, processes, finished products, and services 2) Quality planning: creation of plans for quality, reliability, operations, production, and inspection 3) Quality assurance: creation and maintenance of the quality system 4) Training: development, preparation, and maintenance of programs Appraisal Costs: 1) Verification: checking of incoming material, process setup, and products against agreed specifications 2) Quality audits: confirmation that the quality system is functioning correctly 3) Supplier rating: assessment and approval of suppliers of products and services Internal Failure Costs: 1) Waste: performance of unnecessary work or holding of stock as a result of errors, poor organization, or communication 2) Scrap: defective product or material that cannot be repaired, used, or sold 3) Rework or rectification: correction of defective material or errors 4) Failure analysis: activity required to establish the causes of internal product or service failure External Failure Costs: 1) Repairs and servicing: of both returned products and those in the field 2) Warranty claims: failed products that are replaced or services that are re-performed under a guarantee 3) Complaints: all work and costs associated with handling and servicing customers' complaints 4) Returns: handling and investigation of rejected or recalled products, including transport costs

Statistical Quality Control (SQC)

SQC can be applied to logistics, manufacturing, and service processes Example: How many paint defects are there in the finish of a car? Have we improved our painting process by installing a new sprayer? Processes that provide goods and services usually exhibit some variation in their output. This variation can be caused by many factors, some of which we can control and others that are inherent in the process. Assignable variation: Variation that is caused by factors that can be clearly identified and possibly even managed Common variation: Often referred to as random variation and may be the result of the type of equipment used to complete a process Upper-Lower Specification Limits: The range of values in a measure associated with a process that is allowable given the intended use of the product or service -- (This would tell the manufacturing department that, while it should aim for exactly 10 inches, anything between 9.98 and 10.02 inches is OK)

Inventory systems

Single Period Problem Answers the question of how much to order when an item is purchased only one time and it is expected that it will be used and then not reordered. Examples: 1) Overbooking of airline flights It is common for customers to cancel flight reservations for a variety of reasons. Here the cost of underestimating the number of cancellations is the revenue lost due to an empty seat on a flight. 2) Ordering of fashion items A problem for a retailer selling fashion items is that often only a single order can be placed for the entire season. This is often caused by long lead times and limited life of the merchandise. The cost of underestimating demand is the lost profit due to sales not made. 3) Any type of one-time order For example, ordering T-shirts for a sporting event or printing maps that become obsolete after a certain period of time. Fixed Order Quantities An inventory control model where the amount requisitioned is fixed and the actual ordering is triggered by inventory dropping to a specified level of inventory. - Fixed-time period model: Larger average inventory because it must also protect against stock out during the review period, T; the fixed-order quantity model has no review period. - The Fixed-order quantity model: Favored for more expensive items because average inventory is lower. The fixed-order quantity model is more appropriate for important items such as critical repair parts because there is closer monitoring and therefore quicker response to potential stock outs. The fixed-order quantity model requires more time to maintain because every addition or withdrawal is logged.

For which of these should an "R-chart" be used to monitor process quality?

Student test scores measure on a score 1 to 100

Understanding Inventory Management

The average cost of inventory in the United States is 30 to 35 percent of its value Make-to-Stock: most appropriate when demand is difficult to predict with great precision. In these models, we characterize demand by using a probability distribution and maintain stock so that the risk associated with stock out is managed. For these applications, the following three models are discussed: - The single-period model: Used when we are making a one-time purchase of an item. (Example): Purchasing T-shirts to sell at a one-time sporting event. - Fixed-order quantity model: This is used when we want to maintain an item "in stock," and when resupplied, a certain number of units must be ordered each time. Inventory for the item is monitored until it gets down to a level where the risk of stocking out is great enough that we are compelled to order. - Fixed-time period model: Used when the item should be in stock and ready to use. In this case, rather than monitoring the inventory level and ordering when the level gets down to a critical quantity, the item is ordered at certain intervals of time. (Example): Every Friday morning bread delivery to a grocery store.

Price Break Model

This model is useful for finding the order quantity of an item when the price of the item varies with the order size Step 1. Sort the prices from lowest to highest and then, beginning with the lowest price, calculate the economic order quantity for each price level until a feasible economic order quantity is found. By feasible, we mean that the quantity is in the correct corresponding range for that price. Step 2. If the first feasible economic order quantity is for the lowest price, this quantity is best and you are finished. Otherwise, calculate the total cost for the first feasible economic order quantity (you did these from lowest to highest price) and also calculate the total cost at each price break lower than the price associated with the first feasible economic order quantity. This is the lowest order quantity at which you can take advantage of the price break. The optimal Q is the one with the lowest cost.

What is a quality chart suitable for when a number of blemishes are expected on each unit, such as a spool of yarn?

c-chart