Operations Final Exam
Run Chart
trend chart
Effciency
Actual output / Standard output
Chapter 15
Global Sourcing and Procurement
Throughput rate
1 / Cycle Time
Production Design Considerations
- Design for Manufacturing and Assembly [DFMA] - Design for Recycling [DFR] - Design for Disassembly [DFD] - Design for Logistics - Design for Robustness - Design for Reliability
Strategies are typically based on assumptions and predictions about
- LT demand patterns - technological change - competitor behavior
Customer Interaction in Quality
- Moment of Truth Analysis ** experience enhancers **standard expectations **experience detractors - Customer Relationship Management [CRM] -Recovery
Costs and Benefits of Inventory
- Order cost and carrying cost are INVERSELY related - large orders increase average inventory and carry cost, but the large the orders, the less frequently you have to order [thus less ordering cost]
Costs of Quality
- Prevention - Appraisal - Internal Failure - External Failure
Inventory Classifications
- Process Stage [Raw Materials, WIP, FG, Pipeline, Batch] - Number & Value [A, B, C] - Demand Type [Independent, Dependent] - Other [Maintenance, Operating]
Three Types of Service Designs
- Production line approach ** service is treated like manufacturing, standardized, focus on efficiency, employees should be trained to adhere to standards example: McDonald's - Self-service approach **Customer takes greater role in the production of the service, must be user friendly example: ATM machine, salad bars, gas stations, online portals -Personal attention approach ***focus is on customization, not efficiency, to meet individual requirements of customers so they will pay premium prices example: Ritz-Carlton Hotel, Nordstrom
Importance of Quality
- Quality and Value **Value: benefit and cost **Quality enhances benefit and can either increase or decrease overall cost need balance -- quality standards may vary across P/S offerings
Two-Bin System
- Visual system version of fixed quantity Q model - inventory is stored in two bins **inventory is withdrawn from bin 1 **when bin 1 empties, place order and provide supply from bin 2 **when replenishment arrives, bin 2 is restored to normal level or ROP, and rest in put in bin 1
Bill of Materials [BOM]
- a list of subassemblies, components, and raw materials and their respective quantities required to produce specific end items - aka product structure or product tree - low level coding --> a number that identifies items at the lowest level at which they occur, essential in MRP logic
Evaluating Alternatives
- alternatives should be evaluated from varying perspectives Economic = is it economically feasible? how much will it cost? how soon can we have it? what will operating and maintenance costs be? what will its useful life be? will it be compatible with present personnel and present operations? Non-economic public opinion
Green Sourcing
- being environmentally responsible has become a business imperative -many firms are looking to their SC to deliver green results -financial results can often be improved through going green -a comprehensive green sourcing effort should assess how a company uses items that are purchased internally -important to reduce waste
How to find EOQ w/ Q discount
- calculate basic EOQ - if the EOQ falls within the cheapest price range, EOQ = optimal order quantity - otherwise, all ranges with lower price ranges than the range EOQ falls in must be tested
Disadvantages of Inventory
- cost of storage - cost of insurance - reduction in flexibility - cost of lost opportunity [no return from excess inventory while money is invested to obtain inventory]
Advantages of Inventory
- decoupling = reduce the direct dependency of a process step on its predecessor - provide selection for customers - take advantage of quantity discounts - hedge against inflation and upward price changes
P2: System-level design
- definition of the product architecture, decomposition of the product into subsystems and components, final assembly scheme for the production system is usually defined Output: geometric layout of the product, functional specifications for each subsystem, preliminary process flow diagram
Assumptions of basic EOQ Model
- demand = constant and predicted with high accuracy - lead times are known with certainty - orders arrive exactly when inventory drops to zero and are received in single deliveries - shortages = not allowed - purchase price, ordering cost, and per-unit holding cost are independent of quantity ordered [NO Q DISCOUNTS] - items are ordered independently of each other
Distribution Network Configuration
- distribution network includes warehouses, production facilities, retailers, and inventory that flows between them to configure network: - location - where inventory should be kept - transporation design considerations - maximize value, minimize cost - consider current and future needs
Electronic Commerce
- electronic commerce contributes to time reduction - new business frontiers - Click-and-mortar corporation [minimum physical presence] - Online Auctions [Ebay] - Reverse Auctions [lower procurement cost through competitive online bidding]
Product Orientated [Flow Shop] Layouts
- equipment/operations are located according to the progressive steps required to make the product, repetitive focus, very efficient, no customization, high volume ex. cafeteria line
Capacity Cushion
- extra capacity used to offset demand uncertainty CC= 100% - Utilization organizations with higher CC, have greater demand uncertainty organizations with lower CC, have standard products and services
Global Perspectives in Facility Location
- government rules, attitudes, political risk, and incentives - culture and economy - market location and transportation cost - labor availability, attitudes, productivity, and cost - availability of supplies, communications, energy - exchange rates and currency risks
Steps in project crashing
- identify CP - identify costs of reducing each activity on path - crash the most cost effective activity first - look for critical path changes [beware of multiple CP, crash first the activities that are common to all CP, then crash other activities] - crash next activity - stop when one critical path may no longer be crashed
Resolving constraint issues
- identify most pressing constraint - change the operation to achieve maximum benefit, given the constraint - make sure other portions of the process are supportive of the constraint - explore and evaluate ways to overcome the constraint - repeat the process until the constraint levels are at acceptable levels
Capacity Decisions
- impact the ability of the organization to meet future needs - affect operating costs - are a major determinant of initial cost - often involve LT commitment of resources - can affect competitiveness - affect the ease of management - have become more important and complex due to globalization - need to be planned for in advance due to their consumption of financial and other resources
Solutions to Bullwhip Effect
- improve forecasting accuracy by sharing information across the SC - Allow vendors to manage their OWN inventories - encourage smaller order batches by reducing time and cost of placing an order - stabilize prices by instituting an EDLP strategy to eliminate forward buying behavior - keep customers updated about the supply situation - institute ordering policies when shortages occur to reduce phantom orders and order gaming
Yield Management
- increase revenue using differential pricing - works well in HIGH fixed cost and LOW variable cost environment -need to allocate resources [capacity] appropriately for each customer class examples: airlines, car rental
Regional Considerations in Facility Location
- location of raw materials - location of markets - labor factors - climate and taxes - environmental regulations - government incentives
P1: Concept development
- needs of the target market are identified, alternative product concepts are generated and evaluated, one or more concepts are selected for further development and testing
P0: Planning
- precedes with project approval, begins with corporate strategy, includes an assessment of technology developments and market objectives, OUTPUT is the project mission statement
Community Considerations in Facility Location
- quality of life - services - attitudes - taxes - environmental regulations - costs and availability of utilities - developer support - land/construction costs
Designing Service Products
- service products are very complex - direct customer involvement introduces significant divergence in the process Questions to be addressed: 1. How will this variability be addressed? 2. What are the implications for operational cost and the customer service experience?
Product Orientated [Job Shop] Layouts
- similar operations are performed in a common or functional area, regardless of the product in which the parts are used, able to handle customization and different products, low volume - can be difficult to schedule, not efficient at times
Site Related Considerations in Facility Location
- site size, availability of land, and cost - transporation systems [air, rail, highway, and waterway] - zoning restrictions - nearness of services/supplies needed - environmental impact issues - legal issues
benefits of 3PL
- specialists knowledge - their well-developed information system - their ability to obtain more favorable shipping rates
Impacts of Bullwhip Effect
- spiking demand = not good for productivity - high inventory = more carrying costs, longer time to get to market, long cash-to-cash cycles and diminishing financial returns - mismatch between demand and design capacity = increased cost per unit, problem with workforce management
Little's Law
- there is a LT relationship between inventory, throughput rate, and flow time inventory = throughput rate x flow time WIP = throughput time x throughput rate
Master Production Scheduling [MPS]
- time-phased plan for producing specific item [what, how many, and when] - disaggregates the aggregate plan [specific product as opposed to family of products in aggregate plan] -updated more frequently than aggregate plan aggregate plan --> disaggregation --> master schedule
Applications of Poka-Yokes
- warning methods [alarm on ATM to warn customer to take out card] -physical or visual contact methods [the height bar at Six Flags to restrict small children] -three T's
General Purpose Quality Tools
-Process Flow Chart -Run Chart -Cause and Effect Diagram -Pareto Chart -Histogram -Check Sheet -Scatter Diagram -Control Chart
ABC Analysis
-based on Pareto principle - approximately 80% of the effects are result of 20% of the causes - Categorization of inventory items by importance [demand and purchase cost OR dollar usage] as A, B, C items A: Approx. 20% of the items carrying 70-80% of dollar usage B: Approx. 30% of the items carrying 15-25% of dollar usage C: Approx. 50% of the items carrying 5% of dollar usage
P3: Design detail
-complete specifications of the geometry, materials, and tolerances for all parts, identification of all the standard parts to be purchased from suppliers, process plan is established, tooling is designed Output: drawings describing the geometry of each part and its tooling, specifications of purchased parts, process plan
P4: Testing and refinement
-construction and evaluation of multiple preproduction versions of product [same geometry and material as production version, not necessarily fabricated with the actual production processes] - prototypes tested to determine if the product will work as designed
Service-System Design Matrix
-enabling systematic integration of operations and marketing strategies -clarifying exactly which combination of service delivery the firm is providing -permitting comparison of how other firms deliver specific services -indicating life cycle changes as the firm grows
Six Sigma
-evolution of TQM movement -Goals of Six Sigma **reduce process variation to the point where only 3.4 defects in every million are produced by a process **provide a framework and methodologies to analyze and evaluate business processes and reduce waste
Benefits of Good Quality
-good reputation for quality -ability to command premium prices -increased market share -greater customer loyalty -lower liability costs -fewer production or service problems -lower production costs -higher profits
Cellular Layout/Hybrid Approach
-grouping parts into families that follow a common sequence of steps because of similar design or manufacturing characteristics -identifying dominant flow patterns of parts families as a basis for location or relocation of processes -physically grouping machines and processes into cells, higher utilization of machines, relatively less inventory examples: chip manufacturing and metal fabrication
Consequences of Poor Quality
-loss of business -liability -lower productivity -costs
Assemble-to-Order/Hybrid [ATO]
-partially manufactured and held in unfinished state -customer order dictates final configuration -quicker response than MTO and more flexible than MTS
Make-to-Order [MTO]
-process activated by in response to an actual order, standard or custom product -WIP and FG inventory kept to a minimum -tends to have a longer response time -suitable for items with LOW-MEDIUM and VARIABLE demand
Make-to-Stock [MTS]
-process activated to meet expected or forecast demand -customer orders are served from target stocking level, -shorter lead time for stocked items - much longer lead time for out of stock items - risk of obsolescence, shrink, etc. -suitable for items with HIGH and STABLE demand -required when customer lead time is LESS THAN manufacturing lead time
P5: Production ramp-up
-product is made using intended production system, want to train workers and resolve any remaining problems, products may be supplied to preferred customers for evaluation, transition to ongoing production is gradaul
Benchmarking
-selecting the best practices to use as a standard for performance, identifying an organization that excels at some process, then observing that organization in order to learn how to improve - determine what to benchmark - form a benchmark team - identify benchmarking partners - collect and analyze benchmarking information - take action to match or exceed the benchmark
Service Blueprinting
-standard tool for service process design -specialized flow chart with ***failure points ***wait points ***line of visibility
Variants of Product Development Process
-technology-push products -platform products -process-intensive products -customized products -quick-build products -complex systems
Phases of Quality Assurance
1. Acceptance Sampling: Inspection before/after production 2. Process Control: Inspection and corrective action during production 3. Continuous Improvement: Quality built into the process
Five Types of Customer-Introduced Variability
1. Arrival 2. Request 3. Capability 4. Effort 5. Subjective preference
Six Steps to Green Sourcing
1. Assess the opportunity 2. Engage sourcing agents 3. Assess the supply base 4. Develop the sourcing strategy 5. Implement the sourcing strategy 6. Institutionalize the sourcing strategy
Causes of Bullwhip Effect
1. Demand forecast updating 2. Order batching 3. Price Fluctuations 4. Rationing and shortage gaming
Lean Production
1980s, minimize waste!! Just-In-Time: carry less inventory, get it when you need it CAD, TQM
Kano Model
1st level = must be [credit card acceptance at stores] 2nd level = differentiator [quality merchandise at a cheap price] 3rd level = pleasant surprise [free merchandise on a sale day]
ROP for Q model
= Lead time + Safety Stock
Available to Promise [ATP]
= Production Amount in MPS - Outstanding Customer Orders [firm] ATP calculation using look-ahead procedure
How much to order in P model?
= expected demand during OT + safety stock - amount on hand at reorder time
Basic EOQ Model Total Annual Cost
=DC + [D/Q]S + [Q/2]H D = ANNUAL demand Q = Order Quantity C = Purchase cost per unit S = Cost of placing order H = ANNUAL holding cost or carrying cost / unit
Utilization
Actual Output / DESIGN Capacity
Efficiency
Actual Output / EFFECTIVE Capacity
Level Strategy
Aggregate Planning Strategy CONSTANT production rate level workforce by varying inventory high inventory carrying cost ADV. stable output rates and workforce DIS. higher inventory costs increased overtime and idle time resource utilizations vary over time
Chase Strategy
Aggregate Planning Strategy PRODUCTION = DEMAND Chase demand by varying workforce low employee moral ADV. investment in inventory is low labor utilization is high DIS. the cost of adjusting output rates and/or workforce levels
Chapter 12
Aggregate Planning and Master Scheduling
Inventory Turns
Annual COGS / Avg. Level of Inventory Investment can be improved by increasing sales, but this isn't usual interpretation
Average Inventory Investment
Average Level of Inventory x Unit cost of Inventory
Process Improvement Approaches
Business Process Analysis [BPA] - To optimize large processes crossing functional boundaries and better meet customer needs, particular attention paid to transitions between departments with incremental changes. Reengineering/ Business Process Design [BPD] - Clean slate approach to improvement, as opposed to incremental. Radical redesign and drastic improvement, often needed to product a new order winner.
Value Attributes: Consumer Customers vs. Business Customers
CC - Cost, Quality, Convenience, Timeliness, Personalization, Ethical Issues, Style/Fashion, Technology BC: Cost, Quality, Dependability, Flexibility, Response Time
Inventory Turn
COGS during past year / Average Inventory Investment during past year
Six Sigma Quality
Centered Process - 3 Sigma = defects 2700 parts per million - 6 Sigma = defects .002 parts per million Non- Centered Process - 3 Sigma = defects 67,000 parts per million - 6 Sigma = defects 3.4 parts per million
Excess Cost in Newsvendor Model
Cexcess = Cost/unit - Salvage value/unit difference between purchase cost and salvage value of items left over at the end of the period
Chapter 2
Competitiveness, Strategy, and Productivity
Techniques for Evaluating Alternatives
Cost-volume analysis financial analysis decision theory waiting-line theory simulation
Process Capability Ratio
Cp = specification width/ process width, ONLY can be used when process is centered, Cp should be >= 1
Service level in Newsvendor Model
Cs / [Cs+Ce]
Shortage Cost in Newsvendor Model
Cshortage = Revenue/unit - Cost/unit the unrealized profit / unit
Six Sigma Methodologies
Current P/S --> DMAIC [Design, Measure, Analyze, Improve, Control] New P/S --> DMADV [Define, Measure, Analyze, Design, Verify]
Chapter 3
Design of P/S
Four Types of SC Strategies
Efficient SC Risk-hedging SC Responsive SC Agile SC
Six Sigma Hierarchy
Executive Leader [CFO, CIO] Champion Master Black Belt Black Belt Green Belt
Reasons to Outsource & Resulting Benefits
Financially Driven Reasons - improve ROA by reducing inventory, and selling unnecessary assets - generate cash by selling low-return entities - gain access to new markets, particularly in developing countries - reduce costs through a lower cost structure - turn FC into VC Improvement Driven Reasons - improve quality and productivity - shorten cycle time - obtain expertise, skills, and technologies that are not otherwise available - improve risk management - improve credibility and image by associating with superior providers Organizationally Driven Reasons - improve effectiveness by focusing on what firm is good at - increase flexibility to meet changing demand for P/S - increase P/S value by improving response to customer needs
Competing on Response
Flexibility- ability to match changes in marketplace Example: HP responding to design and volume changes of PC Reliability- on time delivery Example: competitiveness of German machine firms despite higher labor costs Quickness Examples: lunch delivered in 15 minutes from Benny's, customized pager delivered in 3 days from Motorola
Two Types of Products
Functional and Innovative
Dimensions of Quality
Goods - Performance - Aesthetics - Features - Conformance - Reliability - Durability - Perceived Quality - Serviceability Services - Convenience - Reliability - Responsiveness - Time - Assurance - Courtesy - Tangibles - Consistency
Inventory Decisions
HOW much to order? WHEN to order?
Quality
How to measure: conformance - reliability in use, design - performance and customer satisfaction, yield - factory and field Impact on Competitiveness: reputation - customer loyalty, relative attractiveness to customers - market share, profitability - cost of ongoing service
Productivity
How to measure: engineering hours per project, cost of materials and tooling per project, actual versus plan Impact of Competitiveness: number of projects- freshness and breadth of line, frequency of projects - economics of development
Time to Market
How to measure: frequency of new product introductions, time from initial concept to market introduction, number started and number completed, actual versus plan, percentage of sales coming from new products Impact on Competitiveness: responsiveness to customers/competitors, quality of design - close to market, frequency of projects - model life
Quality Standards
Industrial Standard Z8101-1981: Specification for TQM in Japan. International Organization for Standardization (ISO) ISO 9000 Series: common quality standards for products sold internationally. ISO 14000 Series: Standards for Environmental Performance. ISO 24700 Series: Standards for office equipment containing reused components. ASQC Q90 Series: American society for quality control MILSTD: military
Chapter 13
Inventory Management
Chapter 18
Project Management
Time and Extent of Increment
Leading: build capacity in anticipation of future demand increases Following: build capacity when demand exceeds current capacity Tracking: similar to following, but add capacity in relatively small increments to keep pace with increasing demand
Chapter 16
Logistics, Distribution, and Transportation
Overview of Operational Planning Activities
Long-Range Planning: focuses on strategic issues relation to capacity, process, selection, and plant location Intermediate-Range Planning: focuses on tactical issues pertaining to aggregate workforce and material requirements for upcoming year Short-Range Planning: address day-to-day issues of scheduling workers on jobs at assigned work stations
Quality Awards
Malcolm Baldridge National Quality Award [MBNQA] European Quality Award [EQA] Deming Prize
Chapter 8
Management of Quality
Manufacturing vs. Service Capacity
Manufacturing - Capacity excess: possible to utilize in forms of WIP, FG inventory - Capacity shortage: lost sales, moderate customer reaction Service - Capacity excess: difficult to utilize excess capacity - Capacity shortage: lost sales, adverse customer reaction
Chapter 5
Manufacturing Processes
Constraint Management
Market, Resource, Material, Financial, Knowledge/Competency, Policy
Costs Associated with Inventory
Order Cost Changeover/Set Up Cost Carrying Cost Stock-Out Cost [lost sales] Purchasing Cost
Productivity
Output/Input
Order Loser
P/S characteristics that repel customers, below par
Six Phases of Generic Product Development Process
P0: Planning P1: Concept development P2: System-level design P3: Design detail P4: Testing and refinement P5: Production ramp-up
Chapter 4
Process Design and Analysis
comparison of products and services
Product tangible, can be stored, quality: later corrections CAN be made, less customer contact, process doesn't always affect customer, higher uniformity in outputs, ****easier to manage Service intangible, can NOT be stored, quality: later actions may not be possible, increased customer contact, process may affect customer, less uniformity in outputs
Variants of EOQ model
Production Order Quantity [POQ] / Economic Production Quantity [EPQ]
Chapter 9
Quality Control
Types of Operations Strategies
Quality-based Strategies: strategies that focus on quality in all phases of an organization Reasons to use QBS - trying to overcome a poor quality reputation -desire to maintain quality/image -a desire to catch up with the competition -a part of a cost reduction strategy Time-based Strategies: strategies that focus on the reduction of time needed to accomplish tasks -it is believed by reducing time, costs are lower, quality is higher, productivity is higher, time-to-market is faster, and customer service is improved Agile Operations: a strategic approach for competitive advantage that emphasizes the use of flexibility to adapt and prosper in an environment of change, involves blending core competencies/competitive priorities
Chapter 11
Strategic Capacity Planning for P/S
Sequential vs. Concurrent
Sequential: one process finished completely before next one begins Concurrent: happening all at once, while others are happening, allows to bring P/S to market faster, more preferred
Chapter 6
Service Processes
Operation time
Setup time + Run time
Types of Productivity
Single-Factor Productivity Output/[1 Input] Multi-factor Productivity Output/[Input+Input]
Organization's implement strategies through
Tactics: the methods and actions taken to accomplish strategies, the "how to" part of the process Operating Procedure: the actual "doing" part of the process
Three T's in Poka-Yokes
Task to be done Treatment according to the customer Tangible features of the service
Utilization
Time Activated / Time Available
Measuring Product Development Performance
Time to Market Productivity Quality
three categories of businesses processes
Upper-Management: these govern the operation of the entire organization Operational: these are core processes that make up the value stream Supporting: these support the core processes
Velocity
Value-added time/ Flow time
Types of data
Variable and Attribute
four sources of variation in process management
Variety of goods or services: greater the variety of goods/services offered, greater the variation in production/service requirements Structural variation in demand: these are generally predictable, they are important for capacity planning [travel agency] Random variation: natural variation that is present in all processes, generally can't be influenced by managers [economy] Assignable variation: variation that has identifiable sources, this type of variation can be reduced, or eliminated, by analysis and corrective action
Key Questions in Capacity Planning
What kind of capacity is needed? How much is needed to match demand? When is it needed?
Average level of Inventory
[beginning inventory + ending inventory] / 2
Lean Six Sigma
a balanced approach to process improvement that integrates principles from lean operation and statistical tools for variation reduction from six sigma to achieve speed and quality, can be applicable to P or S example: GE or Catepillar
Total Involvement
a commitment at all levels of the firm
Productivity
a measure of the effective use of resources, usually expressed as the ratio of output to input -OM job to increase productivity
Crashing Project
a methodical approach to reducing project duration, focuses on the time of activities in CRITICAL PATH, looking for the greatest improvement with LEAST COST - may need additional labor or machinery, overtime and temporary employees, premiums paid to outside contractors for early delivery - the project duration may be shortened by increasing direct expenses, thereby realizing savings in indirect project costs`
Capability Variability
a patient being unable to explain symptoms to a doctor
Strategy
a plan for achieving organizational goals, action plan, how you are going to get there
Statistic Process Control
a quantitative method for determining whether a process is in or out of control Process variations: Random and Assignable
supply chain
a sequence of activities and organizations involved in producing and delivering a good or service or both
project
a set of activities aimed at meeting a goal with a defined beginning and end - LIMITED time frame - NARROW focus, specific objectives - less bureaucratic [matrix organization headed by a project manager]
Buffering
a storage area between stages where the output of a stage is placed prior to being used in a downstream stage
Balanced Scorecard
a top-down management system that organizations can use to clarify their vision and strategy and transform them into action 1. develop objectives 2. develop metrics and targets for each objective 3. develop initiatives to achieve objectives 4. identify links among perspectives [finance, customer, internal business processes, learning and growth] 5. monitor results
Process Capability
ability of a process to meet design specifications
Capacity
ability to produce at a given volume in a specified amount of time, upper limit or ceiling on the load that an operating unit can handle
Cause and Effect Diagram
aka fishbone or Ishiwaka diagram,
Process Flow Chart
akin to process map exhibit
Total Cost Ownership
an estimate of the cost of an item that includes ALL the costs related to the procurement and use of the item, including any related costs in disposing of the item - can be applied to internal costs or more broadly to costs throughout SC
COGS
annual cost for a company to produce the goods or services provided to customers
Collaborative Planning, Forecasting, and Replenishment [CPFR]
approach to demand planning in which partners negotiate and agree on a plan for meeting demand
c-Chart
attribute chart, used to count defects in samples of constant size, center line is the grand mean, c bar, points are cj, number of samples is m
p-Chart
attribute chart, used to track a proportion [fraction] that is defective, center line is grand mean, p bar, points are pj, number of sample is m, size of sample is n use for number of faulty bills
Cycle Time
average time between completion of units
Flow time
average time for a unit to move through the system
When measuring capacity
avoid dollar amounts, measure in units that don't require updating
Alliance
balance between the commitment to low prices and commitment to the relationship
Formation of Operations Strategies
based on competitive priorities - cost, quality, dependability, reliability, flexibility, response time, etc. competitive priorities are not independent, i.e. quicker response time = more flexibility
Order Qualifier
basic characteristics of P/S to be considered as candidates for purchase by customers are necessary but may not be sufficient to win customer
Explicit Services
benefits that are observable by the senses examples: how green is the course, how frequent is the lift coming
Safety Stock for Q model
buffer against uncertainty, reduces risk of stock out z * SD of demand during lead time
platform products
built around a preexisting technological subsystem
Service Package
bundle of goods and services five features: 1. supporting facility 2. facilitating goods 3. information 4. explicit services 5. implicit services
Process Capability Index
can be used when process is NOT centered Cpk = minimum of [Upper specification - x bar / 3SD], x bar - lower specification/ 3SD] Should be >=1
Innovative Products
can enable a company to achieve higher profit margins, newness of innovative products makes demand for them unpredictable - product LC = a few months [imitators quickly erode the competitive advantage they have, companies are forced to introduce a steady stream of newer innovations] - short LC and greater variety typical of these products further increase unpredictability
Effective Capacity
capacity the firm expects to achieve under current operating decisions, design capacity minus allowances such as personal time and maintenance
Order Winner
characteristics of P/S that cause it to be perceived by customers as better than competition, must kept it up to date in regards to technology [cruise control]
Random Variations
common cause, natural variations in the output of a process, created by countless minor factors, difficult/impossible to control
Dependent Demand Inventories
components, demand is related to demand of another item
Continuous Process Improvement
constantly trying to eliminate variability`
Cross-docking
continuous shipment from suppliers to warehouses, where goods are redirected and delivered to retailers in continuous shipments - requires excellent communication links - requires very reliable transportation system - demand forecasts are critical - very cost effective, but typically used in high-volume supply chains that have sophisticated information systems Walmart
Sourcing/Purchasing Design Matrix
contract duration, transaction costs, and specificity
Purchasing Cost
cost of purchasing the actual inventory, sometimes quantity discounts lower this cost, but this comes at expense of raising carrying costs
Carrying Cost
costs associated with carrying inventory - insurance, storage, opportunity cost of money tied up in inventory
Uncompromised Reduction
create complementary demands to smooth arrivals without requiring customers to change their behavior, limit service breadth, target customers based on their requests and motivation and preferences example: Netflix
Nature of Services
customer is at the focal point of all decisions and actions
Arrival Variability
customers arrive at times when there are not enough service providers i.e. peak hours
Information
data provided by the customer examples: tee time, medical records, weather forecast
Attribute data
data that count items, discrete, number of defects in a sample
Variable data
data that measure of a particular product characteristic, continuous, i.e. length or width
External Failure Costs
defects that happen, already reached customers WORST one to have, $$$ i.e. recall on Mattel's toys when lead was found in paint, air bag recall
Materials Requirements Planning [MRP]
determines the number of subassemblies, components, and raw materials required and their build/order dates to complete a given number of end products by a specific end date
Capacity Requirements Planning [CRP]
determining capacity requirements at work centers - use the planned order releases from MRP ** timing of production is more accurate ** accounts for inventory [unlike RCP planning]** - make adjustments if capacity constraints are violated
Strategic Sourcing
development and management of supplier relationships to acquire goods and services to fulfill needs of the business, used to be another word for purchasing, as a result of globalization, sourcing implies a more complex process suitable for products that are strategically important
Direct Shipment
direct ship from supplier to retailers - eliminates warehousing costs - less likely to ship TL - each store requires high levels of safety stock
Differentiation
distinguish offerings of the organization that customers perceive as value add Apple
Mass Production
early 1900s, moving assembly times [Ford], large scale utilizes earlier concepts of interchangeable parts and division of labor
Key Issues for today's Business Operations
economic conditions, innovation, quality problems, risk management, and global competition environmental concerns - sustainability: using resources in ways that don't harm ecological systems that support human existence ethical issues: financial statements, worker safety, product safety, quality, the environment, the community, hiring/firing workers, closing facilities, worker's rights
Appraisal Costs
evaluating products, inspection, TESTING **destructive: crash testing vehicles **non-destructive: testing operating system [chips]
Independent Demand Inventories
finished goods, dictated by marketplace
technology-push products
firm begins with new technology and looks for a market
Pareto Chart
highest frequency to lowest, histogram
Low-Cost Accomodation
hiring low-cost labor, automated tasks, outsource customer service, create self-service options
Warehousing
holding inventory received from suppliers in warehouses until it is needed by retailers ADV. Risk Pooling = inventory held in one warehouse to service a large number of retailers requires less inventory than if held at individual retailers Consolidation = reduced inbound costs because all shipments are going to the same place, like to ship full truckloads [TL] inbound, but less than full truckloads [LTL] outbound
Days-of-Supply
how long inventory will last for On-hand Inventory / Daily Demand
Weeks of Supply
how many weeks worth of inventory is in the system at a particular point in time average aggregate inventory value/COGS x 52
Modes of Transportation
how material will be transported - truck = flexible - ship = high capacity, low cost, SLOW - plane = fast, EXPENSIVE - train = low cost but SLOW and VARIABLE - pipeline = high specialized and limited to liquids, gases, and solids and slurry form - hand delivery = last step in many SC **MULTIMODAL = NORM
SC response refers to
how quickly a customers order can be filled and how quickly a company can respond to a new competing product
Functional Products
include the staples that people buy in a wide range of retail outlets, i.e. grocery stores/gas stations - product LC = more than two years - CM of 5 - 20% - only 10 - 20 product variations - an average forecast error of only 10% - lead time for MTO products is 6 months - 1 year
Bullwhip Effect
increasing variability of orders up the SC, most downstream entities are consumer, upstream are suppliers of the manufacturing phenomenon that variability as we move from the customer to the produce in the SC, a slight change in consumer sales ripples backward as magnified oscillations upstream, like the result of a flick of a bullwhip handle
Aggregate Planning: Proactive Approach
influencing demand through price and promo, INFLUENCES demand backordering during high demand periods creating new demand counter-seasonal product mixing
Quality Function Deployment [QFD]
inter-functional design teams from marketing, design engineering, and manufacturing, translates customer requirements into P/S design, guides corresponding process design, begins with listening to customer [using market research, customer preferences are defined and broken down into customer requirements] QFD tool - House of Quality
Subjective Preference Variability
interpreting service action differently, wanting different levels of services
Pipeline inventory
inventory in transit, inventory in oil pipelines, on trucks, planes, etc. reducing transit times reduces pipeline inventory
Continuous Replenishment
inventory is replaced frequently, as a part of an ongoing process, helps mitigate BWE
WIP
inventory that has begun processing, but has not completed it
Measuring Sourcing Performance
inventory turnover = how often inventory is replaced during the year COGS / Average aggregate inventory value
Dependent demand inventories
inventory whose demand is determined by the production schedule for finished products, usually components and raw materials
Classic Accomodation
involves having additional employees on hand who are skilled and trained, adapt to customer needs, work for customer, and diagnose differences in customer expectations
Stock-Out Cost
lost sales, cost associated with not having inventory when a customer wants it
often effective capacity is
lower than design capacity
Operations Management
management of operations activities to generate value EFFICIENTLY and used to create P/S
three primary business functions
marketing, operations, and finance
Companies must consider when sourcing a product
material, production, outsourcing, and transportation costs
Design Capacity
maximum theoretical output in a given period, max output rate or service capacity an operation, process, or facility is designed for
How much to order? EOQ
minimize the TC
Optimal Operating Level
minimum cost per unit
Single Period [Newsvendor] Model
model for ordering of perishables and other items with limited useful lives
customized products
new products are slight variations of existing configurations
Mass Customization
not completely finishing a product, tweaking at end for customer's needs/preferences Dell
Blocking
occurs when the activities in a stage must stop because there is no place to deposit the item, S1 faster than S2
Starving
occurs when the activities in a stage must stop because there is no work, S2 faster than S1
process
one ore more actions that transform inputs into outputs
Single Stage vs. Multi-Stage Process
one stage until completion vs. more than one stage until completion
Fixed Interval Variable Quantity (P Model)
order at a fixed interval, variable order quantity inventory will not be reviewed until next period
Fixed Q Variable Interval [Q Model]
order the SAME Q every time, order when inventory falls below ROP, intervals between orders may vary most common case = Case 4, variable demand and variable lead time
Third-Party Logistics [3-PL]
outside company is used to handle logistics functions, the outsourcing of logistics management includes warehousing and distribution
Organizational strategies
overall strategies that relate to the entire organization, support the achievement of organizational goals and mission
Time Fence in MPS
periods of time having specified level of opportunity to make changes Frozen = no change to minor change allowed Moderately firm = moderate change allowed Flexible = almost any change allowed
An important strategy for localizing a product in the context of supply chain design is
postponing the task of differentiating a product until the last point in the supply network
Cost Leadership
price lower than competitors, provide the maximum value as perceived by customer, doesn't imply low value or quality Walmart
Poka-Yokes
procedures that block a mistake from becoming a service defect, common in factories
Internal Failure Costs
producing defective parts or services, hasn't left/made it to customer yet
process-intensive products
production process has an impact on the properties of product, and product design cannot be separated from process design
Implicit Services
psychological benefits the customer may sense only vaguely examples: reputation of golf course, safety of lift
quick-build products
rapid modeling and prototyping enables many design-build-test cycles
Prevention Costs
reducing to the potential for defects, PROACTIVE
Specificity in Strategic Sourcing
refers to how common the item is and, in a relative sense, how many substitutes are available, commonly available products can be purchased using a relatively simple process
extent of contact
refers to the percentage of time the customer must be in the system relative to service time
Classic Reduction
require reservations, use reward/penalties, persuade customers to adjust their expectations to match the value proposition, limit service breadth
High vs. Low Contact Systems
services with high degree of customer contact are harder to control
operations function
set of activities in business that generate value by transforming inputs into outputs using efficient processes
Process
set of activities that convert investment in resources to value for which customers pay, converting inputs to outputs objectives of a good process - should add as much value - keep costs as low as possible
Effort Variability
shoppers not putting back carts, some do
DFMA
simplification of the product, primarily reducing the number of separate parts - during manufacturing operation, does the part move relative to all other parts already assembled? - must the part be of a different material or be isolated from other parts already assembled? - must the part be separate from all other parts to allow the disassembly of the product for adjustment or maintenance?
Assignable Variations
special cause, variations whose source can be identified, easy to control/correct
Bottleneck
stage that limits the capacity of the process
Mission
states the rationale of organization's existence, vague, broad, includes goals and strategy
Statistical Quality Control
statistics to manage quality - issue of process CONTROL ** are the variations random? if nonrandom variation is present, the process is Unstable - issue of process CAPABILITY ** given a stable process, is the inherent variability of the process within a range that conforms to performance criteria?
System Design decisions
strategic decisions that deal with LT commitment of resources, and determine parameters of system operation examples: capacity, facility location, facility layout, product and service planning, acquisition and placement of equipment
Functional Strategies
strategies that relate to each of the functional areas and that support achievement of organizational strategy
Aggregate Planning: Reactive Approach
supply options, REACTS to demand varying work force size by: hiring/firing or using part time workers varying production capacity through: overtime or idle time and subcontracting using inventory
complex systems
systems must be decomposed into several subsystems and many components
System Operation decisions
tactical and operational decisions, day-to-day **operations managers generally spend the most time on SOD than any other decision area** examples: management of personnel, inventory management and control, scheduling, project management, quality assurance
Focus
target specific segment of the market, niche market
Outsourcing
the act of moving a firm's internal activities and decision responsibility to outside providers, allows a company to create a competitive advantage while reducing costs, an entire function may be outsourced, or just some elements of an activity, with the rest kept in-house
Logistics
the art and science of obtaining, producing, and distributing material and product in the proper place and in the proper quantities
Cycle Time
the average time between completions of successive units
Changeover/Set-Up Cost
the cost of changing equipment from producing one P/S to another, analogous to order cost
Customer Focus
the customer determines what the quality is, internal or external customer
Order Cost
the fixed cost associated with ordering inventory, processing fee
Facilitating Goods
the material purchased/used/consumed by the buyer or the items provided to the customers examples: golf clubs, medicine, medical supplies, skis
Supporting Facility
the physical infrastructure/ resources that must be in place before a service can be offered examples: golf course, hospital, skilift
customer contact
the physical presence of the customer in the system
Aggregate Planning
the process for determining the most cost effective way to match demand and supply over medium time horizon, time horizon = usually 3-18 months, planning for a group of products
Hub-and-Spoke systems
the purpose of the hub [warehouse] is sorting goods to consolidation areas, where each area is designed for shipment to a specific location
Transfer batch
the quantity produced at a work center before transferring the products to the next step in the process
Utilization
the ratio of the time that a resource is actually used/activated relative to the time that it is available for use
Core Competencies
the special attributes or abilities that give an organization a competitive edge i.e. Sony w/ miniaturization, Mayo Clinic w/ diagnostic services
creation of the service
the work process involved in providing the service itself
Total Quality Management [TQM]
three principles 1. Customer Focus 2. Continuous Process Improvement 3. Total Involvement
Lead time
time needed in order to respond to a customer's order
Average aggregate inventory value
total value of all items held in inventory
successfully implemented Six Sigma
training and selection of the work force, and impressive cost savings of program
Request Variability
travelers requesting a room with a view
SKUs [stock-keeping-units]
unique numbers that identify items in inventory
Process Flowcharting
use of a diagram to present the major elements of a process, an ideal methodology to be used to begin analyzing a process
Request for Proposal [RFP]
used for purchasing items that are more complex or expensive and where there may be a number of potential vendors
Rough-cut Capacity Planning [RCP]
used to check feasibility of tentative MPS relative to available capacity Input: tentative MPS Bill of Capacity [statement of time required on each resource needed to make on unit of product] Available Capacity Output: Approved [adjusted] MPS
Responsive SC
utilize strategies aimed at being responsive and flexible low/stable process, high/innovative product i.e. fashion apparel, computers, popular music
Agile SC
utilize strategies aimed at being responsive and flexible to customer needs high/evolving process, high/innovative product i.e. telecom, high end computers, semiconductor
Efficient SC
utilize strategies aimed at creating highest cost efficiency low/stable process, low/functional products i.e. grocery, basic apparel, food, oil and gas
Risk-hedging SC
utilize strategies aimed at pooling and sharing resources in a SC to share risk high/evolving process, low/functional product i.e. hydroelectric power, some food produce
Vendor Managed Inventory [VMI]
when a customer actually allows the supplier to manage an item or group or items for them
Customer order decoupling point
where inventory is positioned to allow entities in the SC to operate independently
Goals
where you are going