MGT 301 Exam 2

Why is it so important to carefully manage inventory?

-Inventory is one of the most important assets it is the stock of any item or resource in an organization -Management must reduce inventory levels yet avoid stock-outs and other problem(try to match supply and demand) -It is one of the most expensive assets

Assignable Cause Variation

-Is due to events external to the usual functioning of the system -ex. driving to work, and construction starts on I-25 -change of operators, procedures, new type of raw materials and breakages

Capacity

-Is the maximum average rate of output of a process or system -the rate of output from an operations management system -a variable in the long term -a constraint in short term -capacity must be managed because it is a major determinant of cost and customer service

Forecasting

-Provides an estimate of the future demand -Goal is to minimize forecast error

The bullwhip effect can be minimized by:

-Sharing forecast and actual sales data broadly across the supply chain -Ordering in small batches and having frequent deliveries - Not pursuing new customers when your product is in short supply

Statistical Process Control

-The application of statistical techniques to determine whether the output of a process conforms to the product or service design(what the customer wants) -understanding and controlling defects -goal: build quality at the source

Running Sum of Forecast Error(RFSE)

-The closer to zero you are the less bias there is -Zero means no bias

Explain the limitations of smoothing models

-The forecast only uses 2 data points, values from the prior and actual/forecast values -Limits the amount of actual historical data used

Apply and interpret a linear trens forecasting model

-The linear trend forecasting model can be estimated using simple linear regression to fit a line to a time series -Tries to fit a line to time + sales of out product where time is independent and sales is dependent period=X demand=Y

Product layout

Continuous, repetitive, MTS, limited flexibility, fixed routing, low WIP, limited product offerings, short manufacturing cycle times, dedicated equipment, high volume manufacturing

Random variations

Due to unexpected or unpredictable events

How will the EMQ change if the set up costs (S) are reduced?

EMQ will decrease

EOQ is a 'robust'solution

EOQ allows for companies to buy the most product for the least cost within the range of the amount of product that they can hold EOQ-Carrying cost=ordering cost

When using the Quantity Discount Model to determine the optimal order quantity, the optimal order quantity will:

Either be a feasible EOQ or one of the price break points

Trend variations

Either increasing or decreasing

The bullwhip effect is most dramatic for the retailer and diminishes as you move upstream in the supply chain. The retailer sees the greatest swings in demand since they have the best view of real customer demand. Since retailers are typically more capital intensive than other tiers/nodes in the supply chain, the bullwhip effect impacts the least flexible part of the supply chain.

False

Bullwhip effect

Forecasts and their corresponding orders along the supply chain can become amplified and accumulate

If I desire the chance of a stock out decreases, then the statistical ROP will:

Increase

Process Layout

Intermittent, MTO, high WIP, long manufacturing cycle times, variable routings, multi-purpose equipment, high variety of products, high mix-low volume

You have been consistently under-forecasting. Which of the following is most likely FALSE?

Inventory holding costs may rise due to excess inventory

Lean

Is a systematic approach to identifying and eliminating waste or non-value added activity in business process

Common Cause Variation

Is due to the process itself. These errors are unassignable, chance, random, or common causes. -ex. driving to work, some days may take a little longer

Explain why its preferred to use a combination of qualitative and quantitative forecasts

It is generally recommended to use a combination of quantitative and qualitative techniques -Relying on one can cause bias into the models

You use the economic manufacturing quantity (EMQ) methodology to calculate the production lot sizes for a variety of parts that you build on machine A. You've just invented a new system that allows you to very quickly change over machine A from the production of one part to another. How will this impact the EMQ?

It will fall because set up costs (S) has declined

If Annual Order Costs exceed the Annual Holding Costs, then your order quantity Q is

Less than the EOQ

Apply and interpret an associative forecasting model

Linked some independent variable to sales of your product

Quantitative forecasting

Mathematical models and historical data -time series models are the most frequently used -associative (cause and effect) -during maturity

R chart

Measures output variability

The goal of forecasting is to:

Minimize forecast error

Poka yoke

Mistake proofing

Pipeline inventory

Moving from point to point in the supply chain

You run a Ford auto dealership and you just bought 10 new Ford Fiestas. The Fiestas are presently on a truck being shipped to you. This inventory is an example of:

Pipeline inventory

Cycle (or average) inventory

Portion of total inventory that varies with lot(or order) size

You sell bicycles and you want to create an associative forecast that predicts the sales level of bikes. Factor(s) affecting your demand is/are:

Potentially all the above

Which of the following is FALSE regarding Lean:

Problem solving and continuous improvement are the responsibility of management only

Where is inventory in the SC?

Raw materials Work in process Finished goods

The benefits of implementing a successful CPFR (Collaborative planning forecasting and replenishment) program include all the following EXCEPT:

Reduced costs of excess or shortage for the focal firm only

Avoid Holding Inventory

Requires additional space, opportunity cost of capital, spoilage and shrink, obsolesce, insurance, inventory can hide problems

Seasonal variations

Show peaks and valleys that repeat over a consistent interval such as hours, days, weeks, months, or seasons

You are the buyer for a part and believe the price of that part will increase in the future. Based on this you decided to buy a lot of inventory today at the current, low price. This inventory is being held for which of the following reasons:

Speculation

Check Sheets

Structured lists or frameworks of likely causes which can be worked through systematically. When new issues are found they are added to the list

Waste elimination

Stuff customers aren't willing to pay for

Safety Stock Inventory

Surplus held to protect against uncertainties(demand, lead time, supply)

Anticipation Inventory

Surplus used to absorb uneven rates of demand/supply

Six Sigma

TQM+SPC+Aggressive goals -six sigma quality=3.4 defects per million transactions -focuses on reducing spread and centering the process(process on target with low variability)

Mean Absolute Percentage Error (MAPE)

Tells us in percentage terms how wrong our forecasts

You use the statistical reorder point method to calculate safety stock and your re-order point. What will happen to the re-order point (ROP) if you want the chance of a stock-out to increase (i.e. - a lower service level) and what drives this change?

The ROP will decrease driven by a decrease in the Z score

You use the statistical reorder point method to calculate safety stock and your re-order point. What will happen to the re-order point (ROP) if the uncertainty of demand during lead time increases and you want the chance of a stock-out to remain the same?

The ROP will increase

Supply Integration

The effective coordination of supply chain processes through the seamless flow of info up and down the supply chain

When using the Quantity Discount Model, if the EOQ on the TAIC curve with the lowest price is feasible, it is the optimal order quantity.

True

X chart

Used to measure the mean of the process output

Muda

Waste

Cyclical variations

Wavelike movements that are longer than a year

Mean Squared Error (MSE)

-If there is a large forecast error the MSE will be huge -Smaller is better

Tracking Signal (TS)

+/ -4 then it is acceptable

Pareto Analysis

-80% of wealth is controlled by 20% of people

Collaborative, Planning, forecasting, and replenishment(CPFR)

-A nine-step process for supply chain integration that allows a supplier and its customers to collaborate on making the forecast by using the Internet -Business practice that combines the intelligence of multiple trading partners in the planning and fulfillment of customer demands -Links sales and marketing best practices, such as category management, to supply chain planning processes to increase availability while reducing inventory, transportation, and logistics costs -Real value comes from sharing of forecasts among firms rather than sophisticated algorithms from only 1 firm -Does away with shifting of inventories among trading partners that sub-optimizes the supply chain -Provides the supply chain with a plethora of benefits but requires a fundamental change in the way that buyers and sellers work together

Qualitative forecasting

-Based on opinion and intuition -Generally used when data are limited, unavailable , or not currently relevant -4 qualitative models used are:Jury of executive opinion, Delphi method, Sales force composite, Consumer survey

Deming

-Credited with leading Japanese quality revolution after being ignored by US companies -14 points and PDCA Cycle -focused on reduction of variation through tools and techniques such as Statistical Process Control -quality as an organization wide activity, rather than technical task for quality specialists -common variation is an inherent part of any process

Reasons to hold Inventory

-Decouple:To maintain independence of operations in a process -Hedge against uncertainty:Meet variation in demand and raw material -Flexibility:To allow flexibility in production scheduling -Costs:Take advantage of economic purchase-order size/economies of scale -Speculative:To take advantage of price fluctuations

DMAIC

-Define the problem or project based on customer needs and priorities -Measure the process, output, and defects (SPC) -Analyze the data collected to discover and verify causes of the problem (hypothesis testing, correlation, etc.) -Improve the process using quality tools -Control the process going forward to maintain progress

Crosby

-Defined quality as conformance to requirements, not goodness or elegance -quality is free -goal of quality improvement is 'zero defects'

New service/ product development

-Design -Analysis:service or product not profitable -Development;Need to rethink the new offering or production process -Full launch: post launch review

Supplier Relationship Process

-Design collaboration(early supplier involvement, sourcing, value analysis) -Negotiation(competitive orientation, cooperative orientation) -Information exchange (radio frequency identification (RFID),vendor managed inventory (VMI)) -material costs -freight costs -inventory costs -administrative costs

You would tend to use qualitative forecasting techniques when

-Introducing a new product to the market place -At the end of a product's life

Mean Absolute Deviation(MAD)

A MAD of 0 indicates the forecast was perfectly predicited

Bottleneck

A constrained resource where demand exceeds its capacity. Typically the bottleneck will determine the system capacity

Which one of the following is FALSE?

A kanban system eliminates the need for work in process inventory

Which of the following is true?

-If the tracking signal is between +/- 4 then we would conclude the model is a good fit for the data -The tracking signal and the RSFE indicate bias in the forecast and goodness of fit of the forecast model to the data

You use the economic order quantity (EOQ) methodology to determine your order quantity. You just calculated the EOQ for Part A and it is 940 units. The supplier packages the part in boxes holding 100 parts and does not want to split a box, so you either have to buy the part in multiples of 100 (i.e. 900 or 1000 will be your order quantity.) What will the impact be to total annual inventory cost (TAIC)?

-There will be minimal impact to TAIC because the EOQ methodology yields a robust solution -There will be minimal impact to TAIC because the TAIC curve is virtually flat near the minimum point -There will be minimal impact to TAIC because as you fluctuate the order quantity, holding costs and order costs will offset each other

Supply chain performance measures

-costs -time -quality -environmental impact

Order fulfillment

-customer demand planning -supply planning -production -logistics(ownership, facility location, mode selection, capacity, cross-docking)

Reducing the bullwhip

-demand forecast updating -monitor order batching(use frequent and smaller order sizes) -reduce price fluctuations through forward buying activities to take advantage of the low price offers between retailers, consumers, distributors, retailers, manufactures, and distribution -eliminate price discounting -rationing and shortgaming

Juran

-focused on the cost of quality -defines quality as 'fitness for use' not just conformance to specifications -categorize the costs of quality

Kanban

-helps control inventory -authorization for the supplier to produce more product

Time series forecasting(Quantitative)

-historical data is used to predict future demand -assumes that the future is an extension of the past

Internal disruptions

-internally generated shortages -engineering changes -order batching -new service or production introductions -service or product promotions -info errors

Waste

-inventory -overproduction -defects -waiting -over-processing -unnecessary movement -unnecessary transportation -underutilized people

Improved forecasts benefits all trading partners with

-lower inventories -smoother production plans -reduced costs -improved customer service

Factors the influence capacity

-product mix -skill level of workers -product change-overs -preventative maintenance -machine/tool breakdowns -quality problems -machine starvation and blockage

Associative forecasting (cause and effect) Quantitative

-regression analysis -one or more factors(independent variable) predict future demand

External disruptions

-volume changes -service and product mix changes -late deliveries -under filled shipments

CPFR Model

1.Collaboration arrangement 2. Joint Business Plan 3. Sales forecasting 4. Order planning/forecasting 5. Order generation 6. Order fulfillment 7. Exception management 8. Performance assesment

5S

1.Sort 2. straighten(orderliness) 3.shine(cleanliness) 4.standardize(create rules) 5. sustain(self discipline)

Various aspects of the Theory of Constraints

1.the focus is on balancing flow, not capacity 2. maximizing output and efficiency of every resource will not maximize the throughput of the entire system 3. an hour lost at a bottleneck or constrained resource is an hour lost for the whole system. An hour saved, does not necessarily make the whole system more productive 4. inventory is needed only in front of the bottlenecks to prevent them from sitting idle, and in front of assembly and shipping points to protect customer schedules. Building inventories should be avoided 5. work should be released into the system only as frequently as the bottlenecks need it. Bottleneck flows should be equal to the market demand. 6.activation of non-bottleneck resources can't increase throughput, nor promote better performance on financial measures

You use the economic order quantity (EOQ) methodology to determine your order quantity. You just calculated the EOQ for Part A and it is 3000 units. If you are buying Part A in lots of 3000, what can you conclude about the Annual Order Cost (AOC) and the Annual Holding Cost (AHC)?

AOC = AHC

Flow Charts

Allow team members to see the actual flow of a process, not perceived flow. Able to capture all steps rather than just what can be seen from one spot.

You expect demand for your product to increase in the future so you've decided to build up and hold inventory today. This inventory is an example of:

Anticipation inventory