Management and Production Test 3

Reasons why productivity matters

High productivity is linked to higher standards of living As an economy replaces manufacturing jobs with lower productivity service jobs, it is more difficult to maintain high standards of living Higher productivity relative to the competition leads to competitive advantage in the marketplace Pricing and profit effects For an industry, high relative productivity makes it less likely it will be supplanted by _______ industry

Definition of correlation (r) and (r2)

Correlation (r) A measure of the strength and direction of relationship between two variables Ranges between -1.00 and +1.00 r2, square of the correlation coefficient A measure of the percentage of variability in the values of y that is "explained" by the independent variable Ranges between 0 and 1.00

Definition of Cost-Volume Analysis and how to calculate related outcomes

Cost-volume analysis Focuses on the relationship between cost, revenue, and volume of output Fixed Costs (FC) tend to remain constant regardless of output volume Variable Costs (VC) vary directly with volume of output VC = Quantity(Q) * variable cost per unit (v) = Q * v Total Cost TC = FC + VC Total Revenue (TR) TR = revenue per unit (R) * Q

Definition of Simple Linear Regression

Simple Linear Regression is a technique that fits a line to a set of data points to estimate the relationship between variables.

Definition of core competency

Core Competencies The special attributes or abilities that give an organization a competitive edge To be effective core competencies and strategies need to be aligned

6 Steps in improving productivity

1 Develop productivity measures for all operations 2 Determine critical (bottleneck) operations (adopting a systems approach) 3 Develop methods for productivity improvements 4 Establish reasonable goals 5 Make it clear that management supports and encourages productivity improvement 6 Measure and publicize improvements

8 Steps in Capacity Planning

1 Estimate future capacity requirements 2 Evaluate existing capacity and facilities; identify gaps 3 Identify alternatives for meeting requirements 4 Conduct financial analyses 5 Assess key qualitative issues 6 Select the best alternative for the long term 7 Implement alternative chosen 8 Monitor results

8 elements to strategic capacity decisions

1 impact the ability of the organization to meet future demands 2 affect operating costs 3 are a major determinant of initial cost 4 often involve long-term commitment of resources 5 can affect competitiveness 6 affect the ease of management 7have become more important and complex due to globalization 8 need to be planned for in advance due to their consumption of financial and other resources

Four sources of Process Variation

1.Variety of goods or services being offered-The greater the variety of goods and services offered, the greater the variation in production or service requirements 2.Structural variation in demand-These are generally predictable. They are important for capacity planning. 3.Random variation-Natural variation that is present in all processes. Generally, it cannot be influenced by managers. 4.Assignable variation-Variation that has identifiable sources. This type of variation can be reduced, or eliminated, by analysis and corrective action

Definition of Balanced Scorecard

A top-down management system that organizations can use to clarify their vision and strategy and transform them into action Develop objectives Develop metrics and targets for each objective Develop initiatives to achieve objectives Identify links among the various perspectives Finance Customer Internal business processes Learning and growth Monitor results

Usefulness of process yields

A useful measure related to productivity is process yield Where products are involved ratio of output of good product to the quantity of ____ material input. Where services are involved, process yield measurement is often dependent on the particular process: ratio of cars rented to cars available for a given day ratio of student acceptances to the total number of students approved for admission.

How to calculate an Exponential Smoothing Forecast

A weighted averaging method that is based on the previous forecast plus a percentage of the forecast error (smoothing constant α)

Definition of Agile Operations

Agile operations A strategic approach for competitive advantage that emphasizes the use of flexibility to adapt and prosper in an environment of change Involves the blending of several core competencies: Cost Quality Reliability Flexibility

Importance of decision making

All managers are decision makers Not all decision makers are managers Pervades all basic management functions —planning, organizing, leading, and controlling. Manager's decision process is key to success

Definition of Break Even Point and how to calculate it

BEP The volume of output at which total cost and total revenue are equal Profit (P) = TR - TC = R * Q - (FC +v * Q) = Q(R - v) - FC The required volume, Q, needed to generate a specified profit is Q = P + FC R - v A special case of this is the volume needed for total revenue to equal total cost known as the breakeven point (BEP):

How to calculate processing requirements

Calculating processing requirements requires reasonably accurate demand forecasts, standard processing times, and available work time formula on study guide

Definition of Capacity

Capacity The upper limit or ceiling on the load that an operating unit can handle Load might be in terms of physical units produced or service performed Capacity needs include Equipment Space Employee skills

Definition of Capacity Cushion

Capacity Cushion Extra capacity used to offset demand uncertainty Capacity cushion = Capacity - expected demand Capacity cushion strategy Organizations that have greater demand uncertainty typically have greater capacity cushion Organizations that have standard products and services generally have smaller capacity cushion

3 Conditions for Decisions

Certainty exists when you know the results of the decision Risk occurs if certain reliable but incomplete information is available; precise probabilities are unknown; can perform an expected value analysis to determine the expected payoff of each known alternative. Uncertainty exists when very little or NO reliable information is available to evaluate the possible outcomes; no probabilities known

Definition of cognitive bias

Cognitive biases are decision making errors that we are all prone to making & have been repeatedly verified in research. Managers with good information can still make bad decisions.

Definition of competitiveness

Competitiveness: How effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services Organizations compete through some combination of their marketing and operations functions What do customers want? How can these customer needs best be satisfied?

Difference between design capacity, effective capacity and actual output

Design capacity The maximum output rate or service capacity an operation, process, or facility is designed for Effective capacity Design capacity minus allowances such as personal time and maintenance and scrap Actual output Rate of output actually achieved--cannot exceed effective capacity.

Steps in the Forecasting Process

Determine the purpose of the forecast Establish a time horizon Obtain, clean, and analyze appropriate data Select a forecasting technique Make the forecast Monitor the forecast errors

Key issues for operations managers today

Economic conditions Innovating Quality problems Risk management Competing in a global economy

Difference between economies of scale and diseconomies of scale

Economies of Scale If output rate is less than the optimal level, increasing the output rate results in decreasing average per unit costs Diseconomies of Scale If the output rate is more than the optimal level, increasing the output rate results in increasing average per unit costs Reasons for economies of scale: Fixed costs are spread over a larger number of units Construction costs increase at a decreasing rate as facility size increases Processing costs decrease due to standardization Reasons for diseconomies of scale Distribution costs increase due to traffic congestion and shipping from a centralized facility rather than multiple smaller facilities Complexity increases costs Inflexibility can be an issue Additional levels of bureaucracy

Difference between productivity and efficiency

Efficiency is a narrower concept that looks at getting the most of a fixed set of resources....productivity is a broader concept that pertains to effective use of overall resources

Where does forecasting error come from?

Error = Actual - Forecast If errors fall beyond acceptable bounds, corrective action may be necessary Positive errors occur when a forecast is too low Negative errors occur when a forecast is too high

4 qualitative methods of judgmental forecasts

Executive opinions a small group of upper-level managers may meet and collectively develop a forecast Sales force opinions members of the sales or customer service staff can be good sources of information due to their direct contact with customers and may be aware of plans customers may be considering for the future Consumer surveys since consumers ultimately determine demand, it makes sense to solicit input from them consumer surveys typically represent a sample of consumer opinions Other approaches managers may solicit 0pinions from other managers or staff people or outside experts to help with developing a forecast. the Delphi method is an iterative process intended to achieve a consensus

2 Aspects of forecasts

Expected level of demand The level of demand may be a function of some structural variation such as trend or seasonal variation Accuracy Related to the potential size of forecast error Function of the ability of forecasters to correctly model demand, random variation and sometimes unforeseen events

Factors that influence outsourcing

Factors to consider: Available capacity Expertise Quality considerations The nature of demand (when high and steady—the organization is better off doing the work itself) Cost Risks (loss of control, information and service considerations; OR reputation—e.g., Nike)

Uses of Financial Analysis

Financial analysis allows managers to allocate scarce funds, commonly used to rank investment proposals, taking into account the time value of money.

Definition of forecast

Forecast - a statement about the future value of a variable of interest

Goal of Capacity Planning

Goal To achieve a match between the long-term supply capabilities of an organization and the predicted level of long-term demand Match is needed because of changes in demand, technology, environment, threats & opportunities A gap between current and desired capacity is "out of balance" Overcapacity operating costs that are too high Undercapacity strained resources and possible loss of customers

Differences between goods and services

Goods are physical items that include raw materials, parts, subassemblies, and final products. Automobile Computer Oven Shampoo Services are activities that provide some combination of time, location, form or psychological value. Air travel Education Haircut Legal counsel

Pitfalls of group decision making

Groupthink occurs in highly cohesive groups when group members feel intense pressure to agree with each other so that the group can approve a proposed solution Takes considerable time Strong willed members may dominate Satisficing may still occur Goal displacement can occur—group loses sight of its original goal & a new less important goal emerges

Conditions that cause Groupthink

Groupthink is most likely to occur under the following conditions: The group is insulated from others who might have different perspectives. The group leader begins by expressing a strong preference for a particular decision. The group has no established procedure for systematically defining problems and exploring alternatives. Group members have similar backgrounds and experiences.

Definition of Constraint

Something that limits the performance of a process or system in achieving its goals Categories Market—insufficient demand Resource—too little of one or more (e.g., workers, equipment, & space) Material—too little of one or more materials Financial—insufficient funds Supplier—unreliable, long lead times, substandard quality Knowledge or competency—needed knowledge or skills missing Policy—laws or regulations interfere

Decision Making Styles

IMPULSIVE: You give little thought or examination to the issues or possibilities. You tend to take the first alternative. Motto: Don't look, just leap! FATALISTIC: You let the environment decide. Leave it up to fate. Motto: It's out of my hands! or It's all in the cards! COMPLIANT: You allow someone else to decide. You follow someone else's plans. You offer no opinions. Motto: What ever you say, (sigh... ) or It doesn't matter to me. DELAYING: You tend to postpone thoughts and actions. You like to drag things out. Motto: I need more time/information/input, etc. or What's the rush? AGONIZING: You get lost in all data and overwhelmed with analyzing alternatives. Motto: I don't know what to do! or I am so confused! PLANNING: You use a procedure so that the chances of reaching a satisfying end result (decision) are increased. Motto: Let's examine the facts/possibilities/consequences. or Let's take a look at the big picture. PARALYSIS: You decide to accept responsibility but are unable to do anything about it. Motto: I can't face up to it. or I am throwing in the towel in this matter! INTUITIVE: You tend to go with your gut feelings. Decisions are based on intuition and feelings rather than facts. Motto: It just feels like the right thing to do, don't ask me why.

3 Types of Forecasts

Judgmental (qualitative) - uses subjective inputs Associative models (quantitative) - uses explanatory variables to predict the future Time series (quantitative) - uses historical data assuming the future will be like the past

Difference between Leading, Following & Tracking Capacity Strategies

Leading Build capacity in anticipation of future demand increases Following Build capacity when demand exceeds current capacity Tracking Similar to the following strategy, but adds capacity in relatively small increments to keep pace with increasing demand

Difference between long- and short-term forecasting capacity requirements

Long-term considerations relate to overall level of capacity requirements (e.g., facility size) Require forecasting demand over a time horizon and converting those needs into capacity requirements Short-term considerations relate to probable variations in capacity requirements (seasonal, random and irregular fluctuations in demand) Less concerned with cycles and trends than with seasonal variations and other variations from average

2 Tools for identifying forecast errors/biases

MAD MAD weights all errors evenly MSE MSE weights errors according to their squared values

Forecast Accuracy Metrics: MAD, MSE & MAPE

MAD (Mean Absolute Deviation) weights all errors evenly MSE (Mean Squared Error) weights errors according to their squared values MAPE (Mean Absolute Percent Error) weights errors according to relative error KNOW ALL EQUATIONS AND HOW TO USE THEM (actual eqn on test)

Programmed vs Non programmed decisions

Programmed decisions Problem is frequent, repetitive, routine with much certainty regarding cause & effect relationships Decision procedure depends on policies, rules, etc. Non programmed decisions Problem is novel, unstructured with much uncertainty regarding cause & effect Decision procedure needs creativity, intuition, tolerance for ambiguity, creative problem solving

Difference between qualitative and quantitative forecasting approaches

Qualitative Forecasting Qualitative techniques permit the inclusion of soft information such as: Human factors Personal opinions Hunches These factors are difficult, or impossible, to quantify Quantitative Forecasting These techniques rely on hard data Quantitative techniques involve either the projection of historical data or the development of associative methods that attempt to use causal variables to make a forecast

Definition of heuristics

Managers make decisions by rules of thumb or heuristics. Heuristics are short cuts in decision making that save mental activity.

Benefits of participation in decision making

Managers often must make critical decisions quickly, with incomplete information, and must also involve employees in the process. Group or Team Decision Making Better than single person Takes longer Superior for 2 reasons: Less responsible More "polar"

Characteristics that distinguish Manufacturing versus Service

Manufacturing and Service Organizations differ chiefly because manufacturing is goods-oriented and service is act-oriented. man 1st service 2nd Output- tangible, intangible customer contact- low, high uniformity of input-high, low labor content-low, high uniformity of output- high, low measurement of productivity-easy, difficult opportunity to correct quality issues-high, low

Difference between missions, goals & strategy

Mission The reason for an organization's existence Mission statements announce the purse of the organization It answers the question "What business are we in?" Goals Provide detail and the scope of the mission Goals can be viewed as organizational destinations Strategy A plan for achieving organizational goals Serves as a roadmap for reaching the organizational destinations The organizational strategy guides the organization by providing direction for, and alignment of, the goals and strategies of the functional units The organizational strategy is a major success/failure factor

Definition of a Model & Common features

Model - an abstraction of reality; a simplification of something. Common features of models: They are simplifications of real-life phenomena They omit unimportant details of the real-life systems they mimic so that attention can be focused on the most important aspects of the real-life system

Importance of using a common forecast

Most forecasts involve decisions that have consequences in other areas—thus, all affected areas need to agree on a common forecast.

How to calculate a naïve forecast

Naïve Forecast Uses a single previous value of a time series as the basis for a forecast The forecast for a time period is equal to the previous time period's value

Why some organizations fail

Neglecting operations strategy Failing to take advantage of strengths and opportunities and/or failing to recognize competitive threats Too much emphasis on short-term financial performance at the expense of R&D Too much emphasis in product and service design and not enough on process design and __________ Neglecting investments in capital and human resources Failing to establish good internal communications and cooperation Failing to consider customer wants and needs

6 Assumptions of a Cost-Volume Analysis

One product is involved Everything produced can be sold The variable cost per unit is the same regardless of volume Fixed costs do not change with volume changes, or they are step changes The revenue per unit is the same regardless of volume Revenue per unit exceeds variable cost per unit

Difference between order qualifiers and order winners

Order qualifiers Characteristics that customers perceive as minimum standards of acceptability for a product or service to be considered as a potential for purchase Order winners Characteristics of an organization's goods or services that cause it to be perceived as being better than the competition

3 Types of Models

Physical Models Look like their real-life counterparts Schematic Models Look less like their real-life counterparts than physical models Mathematical Models Do not look at all like their real-life counterparts

2 Uses of forecasts

Plan the system Generally involves long-range plans related to: Types of products and services to offer Facility and equipment levels Facility location Plan the use of the system Generally involves short- and medium-range plans related to: Inventory management Workforce levels Purchasing Production Budgeting Scheduling

Examples of cognitive biases

Prior hypothesis bias—prior beliefs about the relationship between 2 variables tends to make decisions based on those beliefs even when evidence suggests otherwise. Escalating commitment—committing even more resources to failing projects. Reasoning by analogy—oversimplifying a complex situation Representativeness—tendency to generalize from a small sample Illusion of control—overemphasize one's ability to control events. Confirmation bias--a tendency to search for or interpret information in a way that confirms one's preconceptions Framing bias—the way in which a problem or decision is presented can affect how it is perceived.

10 Operations Issues

Product and service design Cost Location Quality Quick response Flexibility Inventory management Supply chain management Service Managers and workers

Definition of Productivity

Productivity A measure of the effective use of resources, usually expressed as the ratio of output to input

Uses of Productivity Measures

Productivity measures are useful for Tracking an operating unit's performance over time Judging the performance of an entire industry or country

The 3 Behavioral Models of decision making

Rational Decision Making Rationality is a logical, step by step approach to decision making with a thorough analysis of alternatives and their consequences—comes from classic economic theory. Based on the following assumptions: The outcomes will be completely rational The decision makers uses a consistent system of preferences to choose the best alternative The decision maker is aware of all alternatives The decision maker can calculate the probability of success for each alternative Bounded Rationality Model Bounded rationality—a theory that suggests that there are limits upon how rational a decision maker can actually be. Managers tend to select the first satisfactory alternative that is presented. They satisfice—select the first alternative that is good enough because the costs in time & effort are too great to optimize. A satisfactory level of a particular performance variable is obtained instead of the theoretical maximum level. Garbage Can Model:This model illustrates the idea that not all organizational decisions are made in a step by step, systematic fashion—especially under conditions of high uncertainty, the decision process may be chaotic. Some decisions appear to happen out of sheer luck. This model cannot be used in effective strategic planning situations!

Reactive vs Proactive approaches to forecasts

Reactive approach View forecasts as probable future demand React to meet that demand Proactive approach Seeks to actively influence demand Advertising Pricing Product/service modifications Generally requires either an explanatory model or a subjective assessment of the influence on demand

Definition of supply chain

Supply Chain - a sequence of activities and organizations involved in producing and delivering a good or service

Definition of Sustainability

Sustainability Using resources in ways that do not harm ecological systems that support human existence Sustainability measures often go beyond traditional environmental and economic measures to include measures that incorporate social criteria in decision making All areas of business will be affected Product and service design Consumer education programs Disaster preparation and response Supply chain waste management Outsourcing decisions

Difference between system design & system operation decisions

System Design Capacity Facility location Facility layout Product and service planning Acquisition and placement of equipment These are typically strategic decisions that usually require long-term commitment of resources determine parameters of system operation System Operation These are generally tactical and operational decisions Management of personnel Inventory management and control Scheduling Project management Quality assurance Operations managers spend more time on system operation decision than any other decision area They still have a vital stake in system design

Definition of tactics and operations

Tactics The ______ and actions taken to accomplish strategies Are more specific and provide guidance and direction for carrying out actual operations. The "how to" part of the process Operations The actual "doing" part of the process

How to calculate a Moving Average Forecast

Technique that averages a number of the most recent actual values in generating a forecast

Features common to all forecasts

Techniques assume some underlying casual system that existed in the past will persist into the future Forecasts are not perfect Forecasts for groups of items are more accurate than those for individual items Forecast accuracy decreases as the forecasting horizon increases

Definition of operations management

The management of systems or processes that create goods and/or provide services

4 Sources of Forecast Errors

The model may be inadequate due to -omission of an important variable -a change or shift in the variable the model cannot handle -the appearance of a new variable Irregular variations may have occurred The forecasting technique has been incorrectly applied Random variation

How to calculate a Weighted Moving Average Forecast

The most recent values in a time series are given more weight in computing a forecast The choice of weights, w, is somewhat arbitrary and involves some trial and error For example, most recent may get a weight of .4, the next most .3 and the next a .2 etc. (Sum of all weights must equal 1.0).

3 Challenges to service capacity planning

The need to be near customers Convenience (e.g., hotel rooms have to be where people want them). The inability to store services Cannot store services for consumption later (e.g., an unused seat on a train cannot be saved for later). The degree of demand volatility Volume and timing of demand (e.g., bank services on certain days of the week) Time required to service individual customers

Issues in Supply Chains

The need to improve operations Increasing levels of outputs Increasing transportation costs Competitive pressures Increasing globalization Increasing importance of e-business The complexity of supply chains The need to manage inventory

Bottleneck Definition

The operation with the least capacity. Rule of Bottlenecks: Improving the time of any other operation in the process, other than the bottleneck, will NOT improve the efficiency of the system.

Systems Approach

The systems approach Emphasizes interrelationships among subsystems Main theme is that the whole is greater than the sum of its parts The output and objectives of the organization take precedence over those of any one subsystem

Definition of satisfice

They satisfice—select the first alternative that is good enough because the costs in time & effort are too great to optimize. A satisfactory level of a particular performance variable is obtained instead of the theoretical maximum level.

Definition of Time Series Forecasts

Time series forecasting is the use of a model to predict future values based on previously observed values.

Benefits of time based strategies

Time-based strategies Strategies that focus on the reduction of time needed to accomplish tasks It is believed that by reducing time, costs are lower, quality is higher, productivity is higher, time-to-market is faster, and customer service is improved Areas where organizations have achieved time reductions: Planning time Product/service design time Processing time Changeover time Delivery time Response time for complaints

5 Ways that Time Series behave

Trend A long-term upward or downward movement in data Population shifts Changing income Seasonality Short-term, fairly regular variations related to the calendar or time of day Restaurants, service call centers, and theaters all experience seasonal demand Cycle Wavelike variations lasting more than one year These are often related to a variety of economic, political, or even agricultural conditions Irregular variation Due to unusual circumstances that do not reflect typical behavior Labor strike ___________ event Random Variation Residual variation that remains after all other behaviors have been accounted for

How to calculate efficiency & utilization

efficiency= actual output/effective capacity utilization=actual output/design capacity

Factors that influence a quality based strategy

external- Economic conditions Political conditions Legal environment Technology Competition Markets internal- Human Resources Facilities and equipment Financial resources Customers Products and services Technology Suppliers Other

Factors that impact productivity

methods capital quality technology management

Lean Manufacturing

not on powerpoint but basically eliminating as much waste as possible during manufacturing process

Elements to a GOOD forecast

should be timely should be accurate should be reliable should be expressed in meaningful units should be in writing technique should be simple to understand and use should be cost-effective

Characteristics of SMART goals

specific, measurable, attainable, relevant, time based