SCMT 345 Exam 1 Review

smallest

Process capacity is the bottleneck's capacity whereas bottleneck is the resources with the (SMALLEST/LARGEST) capacity.

holding inventory

Reasons for INSERT (for having the inflow line differ from the outflow line): 1) The time a flow unit spends in the process 2) Seasonal demand 3) Economies of scale 4) Separation of steps in a process 5) Stochastic demand

false (downstream)

TRUE OR FALSE: -Buffers can absorb variations in flow rates by acting as a source of supply for an upstream process step.

true

TRUE OR FALSE: -Cycle inventory allows fixed costs to be spread across more units than what can be immediately sold, and results in inventory holding costs of those additional units

true

TRUE OR FALSE: -Decoupling inventory (a.k.a. buffers) are inventory between process steps and allow independent operations of process steps.

false (unpredictable)

TRUE OR FALSE: -Safety inventory help absorb predictable variations in flow rates

true

TRUE OR FALSE: -Safety inventory is important to retailers because stochastic demand is a significant problem for them

true

TRUE OR FALSE: -Seasonal imbalances in supply and demand result in seasonal inventory.

false

TRUE OR FALSE: -Seasonal inventory occurs when supply or capacity is flexible and demand is variable

false (creates an incentive)

TRUE OR FALSE: -The scale economics creates a disincentive for cycle inventory

true

TRUE OR FALSE: -Utilization never exceeds 100% (=1)

TRUE (Demand often varies & Supply is inflexible)

TRUE OR FALSE: -always achieving a perfect match is impossible

inventory holding cost

The INSERT is substantially higher than the mere financial holding cost for a number of reasons: o Inventory might become obsolete (think of the annual holding cost of a microprocessor). o Inventory might physically perish (you don't want to think of the cost of holding fresh roses for a year). o Inventory might disappear (also known as theft or shrinkage). o Inventory requires storage space and other overhead cost (insurance, security, real estate, etc.). o There are other less tangible costs of inventory that result from increased wait times (because of Little's Law) and lower quality

vertical

At any given moment in time, the (VERTICAL/HORIZONTAL) distance between the upper curve and the lower curve corresponds to the number of patients in the interventional radiology unit, or—abstractly speaking—the inventory level o We are able to keep track of the inventory level by comparing the cumulative inflow and outflow

process capacity

capacity of the process · Not only can capacity be measured at the level of the overall process, it also can be measured at the level of the individual resources that constitute the process. · Capacity of a resource is the maximum amount the resource can produce in a given time unit · Note that the "" capacity measures how much the process CAN produce, opposed to how much the process actually does produce. -For example, consider a day where—due to a breakdown or another external event—the process does not operate at all. Its capacity would be unaffected by this, yet the flow rate would reduce to zero. = Minimum {Capacity of resource 1, . . . , Capacity of resource n} · As with capacity, demand and the available input should be measured as rates, that is, as flow units per unit of time.

critical path

composed of all those activities that—if delayed—would lead to a delay in the overall completion time of the project, or—in this case—the time the patient has completed his or her stay in the radiology unit.

less

longer flow time has to stay the (LESS/MORE) time it has

seasonality

variations in predictable demand

inventory, flow time, flow rate

what are the 3 measures of process performance?

waiting

what is a symptom of supply and demand mismatch?

uneven utilizations

what is the downside of an imbalanced process?

to match supply and demand

what is the goal of a busn process?

Product-Process Matrix

"a framework depicting when the different production process types are typically used depending on product volume and how standardized the product is -commercial printer = job shop, low volume (unique) -apparel production = batch process, medium volume (high variety) -low-volume assembly = worker-paced line, high volume (lower/medium variety) -high-volume assembly = machine-paced line, high volume (lower variety) -oil refinery = continuous process, very high volume (standardized) -stipulates that over its life cycle, a product typically is initially produced in a job shop process. o As the production volume of the product increases, the production process for the product moves from the upper left of the matrix to the lower right o Note that the "off-diagonals" in the "" (the lower left and the upper right) are empty. -This reflects that it is neither economical to produce very high volumes in a job shop nor does it make sense to use an assembly line in order to produce only a handful of products a year

workload

"demand that could flow through a resource"

asset

"desirable thing to have"

liability

"something that works to one's disadvantage."

shorter

(SHORTER/LONGER) flow times reduce the time delay between the occurrence of demand and its fulfillment in the form of supply, which therefore also typically help to reduce demand-supply mismatches

smaller

(SMALLER/LARGER) days of supply is better

inventory turns

-# of times avg amt of inv exits the sys, how frequently you can turn over your inv -goal = higher turns and smaller days of supply -if this is LOW, inv will spend a lot of time on the shelves -a common benchmark in the retailing environment and other supply chain operations FORMULAS: ?? = inventory/flow time ?? = COGS/inventory ?? = 1 / (Flow Time) ?? = flow rate/inventory

product, different, similar, natural shift

-Successful processes match process characteristics with INSERT characteristics -Firms in the same industry may choose INSERT process types -A firm may choose different process types for various types of products -Similar process types tend to face INSERT challenges -The "INSERT" of industries towards the lower right of the Product-process Matrix helps predict how processes are likely to evolve

inventory

4 ways to measure INSERT: DIRECT 1) in terms of flow units 2) in terms of $ value INDIRECT 3) in terms of days of supply 4) in terms of turns

inventory

5 reasons to hold INSERT: -The time a flow unit spends in the process ❑ Pipeline inventory -Seasonal demand ❑ Seasonal inventory -Economies of scale ❑ Cycle inventory -Separation of steps in a process ❑ Decoupling inventory / buffers -Stochastic demand ❑ Safety inventory

process utilization

= Flow rate / process capacity

resource utilization

= Flow rate / resource capacity

per unit inventory costs

?? = (annual inv costs) / (annual inv turns) OR ?? = (annual inv costs) * (Flow Time)

process

A collection of activities that accepts inputs and produces outputs -can be defined at an aggregate level or a micro level -At the most aggregate level, can be thought of as a "black box" that uses resources (labor and capital) to transform inputs (undiagnosed patients, raw materials, unserved customers) into outputs (diagnosed patients, finished goods, served customers). -operates on flow units, which are the entities flowing through the process (e.g., patients in a hospital, cars in an auto plant, insurance claims at an insurance company).

supply constrained

A process for which the flow rate is limited by either capacity or the availability of input. -when demand EXCEEDS supply

slowly

A retailer can decide to specialize in products that turn very (SLOWLY/QUICKLY) to increase its margins. -For example, Radio Shack is known for its high margins, as they carry many products in their assortment that turn only once or twice a year. -In contrast, Best Buy is carrying largely very popular items, which exposes the company to stiffer competition and lower gross margins.

activity

ACTIVITY OR INV/BUFFER? -Both time and resources will be spent for a flow unit to go through -Associated with capacity (defined as the maximum number of flow units that can flow through within a time unit) -Add value

profit

Although utilization is commonly tracked, it is a performance measure that should be handled with some care. -Specifically, it should be emphasized that the objective of most businesses is to maximize INSERT, not to maximize utilization

Business

An organizational entity that deploys resources to provide customers with desired products or services -Desired products and services can be viewed as outputs of this -this transforms inputs into outputs -Every "" can be viewed as a process or network of processes

seasonal, cycle

Both INSERT inventory and INSERT inventory have cyclic patterns but are due to different causes.

decoupling, safety

Both INSERT inventory and INSERT inventory help absorb variations in flow rates but are done in different ways.

implied utilization

Captures the mismatch between what could flow through the resource and what the resource can provide -Demand is sometimes referred to as workload = demand / capacity

B) There is not enough information to predict how the average flow rate will change.

Consider a car dealership. If both average inventory and average flow time go down, which of the following statements is correct? A) The average flow rate must go down. B) There is not enough information to predict how the average flow rate will change. C) Little's Law does not apply any more. D) The average flow rate must go up.

demand, capacity

Define "one minute of work" as a flow unit -Motivation: this approach allows us to express all demands and capacities in the same flow unit regardless of settings -INSERT (workload) = total time needed -INSERT = total time available

no

Does the avg inventory always come out the same as avg flow time?

higher

From a profit perspective, a (LOWER/HIGHER) flow rate translates directly into more revenues (you can produce a unit faster and thus can produce more units), assuming your process is currently capacity-constrained, that is, there is sufficient demand that you could sell any additional output you make

highest

Given that the bottleneck is the resource with the lowest capacity and that the flow rate through all resources is identical, the bottleneck is the resource with the (LOWEST/HIGHEST) utilization.

output

INPUT OR OUTPUT? -goods and services

input

INPUT OR OUTPUT? -raw materials -customers

Utilization

INSERT can NEVER exceed 100 percent - "" only carries information about excess capacity, in which case "" is strictly less than 100 percent - We cannot infer from "" by how much demand exceeds the capacity of the process.

implied utilization

INSERT can exceed 100 percent o Any excess over 100 percent reflects that a resource does not have the capacity available to meet demand. o The fact that a resource has an "" above 100 percent does NOT make it the bottleneck o It is possible to have several resources with an "" above 100%; however, there is only one bottleneck in the process >>> This is the resource where the "" is the highest

gross margin

INSERT measures mark-up over wholesale price

demand constrained

If demand is LOWER than supply (i.e., there is sufficient input available and the process has enough capacity), the process would produce at the rate of demand, independent of the process capacity. -in this sys >> flow rate = demand rate. -A common measure of performance that quantifies this mismatch is utilization.

inventories

In contrast to a process step, INSERT do not add value; thus, a flow unit does not have to spend time in them.

utilization

In general, there are several reasons why a process might not produce at 100 percent INSERT: o If demand is less than supply, the process typically will not run at full capacity, but only produce at the rate of demand. o If there is insufficient supply of the input of a process, the process will not be able to operate at capacity. o If one or several process steps only have a limited availability (e.g., maintenance and breakdowns), the process might operate at full capacity while it is running, but then go into periods of not producing any output while it is not running

add capacity (once we add capacity to the current bottleneck, our new process (with a new bottleneck) could still be capacity-constrained, justifying additional capacity to other resources)

It is important to keep in mind that in the case of a capacity expansion of the process, it might be worthwhile to INSERT to these other resources as well, not just to the bottleneck.

Costco

Keys to INSERT COMPANY'S success: -The Membership model with a promise on low price and reliable quality, including developing its own Kirkland brand -Frequent shelf changes and promotions to extend customers' shopping times and basket sizes -Focusing on fast-selling items -Bottomline: its capability to turn over its inventory fast sets it apart from other big retail giants.

avg inventory

Little's Law: ?? = Avg Flow Rate * Avg Flow Time · When does Little's Law hold? ALWAYS · Little's Law does not depend on randomness: it does not matter if there is variability in the number of patients or in how long treatment takes for each patient; all that matters is the average flow rate of patients and the average flow time. · Little's Law is also underlying the computation of inventory costs as well as a concept known as inventory turns

seasonal & cycle

The major difference between cycle inventory and seasonal inventory is that INSERT inventory is due to temporary imbalances in supply and demand due to variable demand (soup) or variable supply (beets) while INSERT inventory is created due to a cost motivation

capacity

The maximum rate with which the process can generate supply -Increasing the maximum flow rate (capacity) avoids situations where we have insufficient supply to match demand

complications

The two most common INSERT are... 1) The flow of the unit moving through the process breaks up into multiple flows. -For example, in an assembly environment, following an inspection step, good units continue to the next processing step, while bad units require rework. 2) There are multiple types of flow units, representing, for example, different customer types. -In an emergency room, life-threatening cases follow a different flow than less complicated cases.

product-process matrix

The usefulness of the INSERT lies in two different points: o Similar processes have similar problems -Batch flow processes tend to be SLOW in responding to customer demand o The natural drift of industries enables you to predict how processes are likely to evolve in a particular industry -Ex: eye surgery >> These clinics achieve high volume and, because of the high volume and the lower variety of cases, can operate at much higher levels of efficiency

100 percent utilization

There are two reasons in the Circored case for why an individual resource might not achieve INSERT, thus exhibiting excess capacity. 1) First, given that no resource can achieve a higher utilization than the bottleneck, every process step other than the bottleneck will have a utilization gap relative to the bottleneck 2) given that the process might not always be capacity-constrained, but rather be input- or demand-constrained, even the bottleneck might not be 100 percent utilized. In this case, every resource in the process has a "base level" of excess capacity, corresponding to the difference between the flow rate and the bottleneck capacity -The second reason disappears if there is sufficient market demand and full resource availability -In this case, only the bottleneck achieves a 100 percent utilization level

horizontal

We also can look at the (VERTICAL/HORIZONTAL) distance between the two lines. o If the patients leave the unit in the same order they entered it, the "" gap would measure the exact amount of time each patient spent in the interventional radiology unit. o More generally, given that the length of stay might vary across patients and patients do not necessarily leave the unit in the exact same sequence in which they entered it, the average gap between the two lines provides the average length of stay

1

When the utilization of a resource is INSERT NUMBER, the resource may or may not be able to satisfy all the demand within its available time.

d) If turns are low, units spend a long time on the retailer's shelves

Which of the following best explains why slow turning items may not be profitable at a brick-and-mortar retailer? a) If turns are low, days-of-supply will be small b) If turns are low, the gross margin will be small c) If turns are low, the setup costs to stock the shelf will be high d) If turns are low, units spend a long time on the retailer's shelves

A) Cycle inventory helps mitigate the sting of fixed costs.

Which of the following statement is correct regarding different types of inventory? A) Cycle inventory helps mitigate the sting of fixed costs. B) Pipeline inventory serves as buffers between processing steps. C) Decoupling inventory is also seasonal inventory. D) Safety inventory is caused by predictable demand's seasonality.

B) Sugar refineries use continuous processes.

Which of the following statement is correct regarding the product-process matrix? A) Using job shops to produce high-volume and low-variety products is economical because there will be little waste of capacity. B) Sugar refineries use continuous processes. C) The "natural shift" of industries is toward the upper left of the product-process matrix. D) Commercial printers should be made in machine-paced assembly lines.

E) The available input, demand, and capacity are all upper bounds on a process' flow rate.

Which of the following statements is correct? A) Any increase in the capacity of a resource of a process results in an increase in the capacity of the process. B) Any increase in the capacity of a process results in an increase in the flow rate of the process. C) When a process faces an increasing demand, the flow rate of the process is going to increase. D) The more available input to a process, the higher the flow rate of the process. E) The available input, demand, and capacity are all upper bounds on a process' flow rate.

utilization

a measure of how much the process actually produces relative to how much it could produce if it were running at full speed (i.e., its capacity). -can be defined at the process level or the resource level. -For example, the "" of the process is the flow rate divided by the capacity of the process. -The "" of a particular resource is the flow rate divided by that resource's capacity = (Flow rate) / (Capacity)

inventory

a measure of process performance: -the number or value of flow units contained within the process, a.k.a. work-in-process (WIP) -the # of flow units contained within the process -Work in Process (WIP)- inventory is referred to this in a PRODUCTION setting -the most visible indication of a mismatch between supply and demand -should be viewed as a LIABILTY -Balance sheets itemize "" into three categories (raw materials, WIP, finished goods); -vertical distance between 2 graphs -ex: this for interventional radiology = a group of patients

flow rate

a measure of process performance: -the rate at which the process is delivering output (measured in [flow units / unit of time]) -Ex: "" of interventional radiology on December 2nd was 11 patients/day -the rate at which the flow units actually flow through the process -a.k.a. throughput rate -ESSENTIAL to the survival of a busn -slope of 2 graphs -appropriate measure for this is the cost of goods sold, or COGS what determines this: -Available input, for example raw materials -Demand (including external and internal demand, higher demand means you generate more) -Process capacity = Minimum {Available input, Demand, Process capacity} -The combination of available input, demand, and process capacity yields the rate at which our flow unit actually flows through the process

flow time

a measure of process performance: -the time it takes a flow unit to get through the process. -horizontal distance between 2 graphs -the time it takes a flow unit to get thru the process -Takes into account that the item (flow unit) may have to wait to be processed because there are other flow units (inventory) in the process potentially competing for the same resources. -an especially important performance metric in service environments or in other business situations that are sensitive to delays, such as make-to-order production, where the production of the process only begins upon the arrival of the customer order. -Includes processing time and (possibly) waiting time

pipeline inventory

a type of inventory: -basic inventory, reflects the time a flow unit has to spend in the process in order to be transformed from input to output. -Even with unlimited resources, patients still need to spend time in the interventional radiology unit; their flow time would be the length of the critical path -Little's Law implies that, for any process that generates outputs, "" inventory always exists in the presence of non-zero flow time. -BACKBONE -As long as it takes an operation even a minimum amount of time to work on a flow unit, the process will always exhibit "" inventory. -There can be no hospital without patients and no factory can operate without some work in process! -the only other way to reduce "" inventory is by reducing FLOW TIME

seasonal inventory

a type of inventory: -occurs when capacity is rigid and demand is variable -As long as it is costly to add and subtract capacity, firms will desire to smooth production relative to sales, thereby creating the need for "" inventory. -Ex: Agricultural and food processing sector

cycle inventory

a type of inventory: -reflects that the transportation process follows a certain shipment cycle (e.g., a shipment every week). -Ex: scale economics in transportation processes -Whether a truck is dispatched empty or full, the driver is paid a fixed amount and a sizeable portion of the wear and tear on the truck depends on the mileage driven, not on the load carried. -In other words, each truck shipment incurs a fixed cost that is independent of the amount shipped

cash cycle

a type of process: -flow unit = cash -input-output transformation: From the expenditure of funds (costs) to the collection of revenue

customer service

a type of process: -flow unit = customers -input-output transformation: From the arrival of a customer to the departure

order fulfillment

a type of process: -flow unit = orders -input-output transformation: From the receipt of an order to the delivery of the product

production

a type of process: -flow unit = products -input-output transformation: From the receipt of materials to the completion of the finished product

new product development

a type of process: -flow unit = projects -input-output transformation: From the recognition of a need to the launching of a product

supply cycle

a type of process: -flow unit = supplies -input-output transformation: From the issuing of a purchase order to the receipt of supplies

inventory buffer

allows management to operate steps independently from each other -Inventory between process steps can serve as this -Ex: can absorb variations in flow rates by acting as a source of supply for a downstream process step, even if the previous operation itself might not be able to create this supply at the given moment in time. -Ex: automotive assembly line >> a disruption at any one station would lead to a disruption of all the other stations, upstream and downstream

Gantt Diagram

allows us to see the process steps and their durations, which are also called activity times or processing times -Illustrates the dependence between the various process activities -Ex: the consultation with the doctor can only occur once the patient has arrived and been registered.

waiting times

arise when several patients are "competing" for the same limited resource -A second source of this lies in the unpredictable nature of many of the activities. -Uncertainty is undesirable for resources, as it leaves them "flooded" with work at some moments in the day and "starved" for work at other moments

increase

as you standardize you (INCREASE/DECREASE) process level

flow unit

flow through the process, starting as input and later leaving the process as output -what is tracked through the process and generally defines the process output of interest. -Choosing the "" is typically determined by the type of product or service the supply process is dealing with; for example, vehicles in an auto plant, travelers for an airline, or gallons of beer in a brewery. -The critical issue in choosing this is that you must be able to express all demands and capacities in terms of the chosen ""

process analysis

fundamental ideas of INSERT: 1) Mismatches between supply and demand from the patient's perspective mean having a unit of demand (i.e., the patient) wait for a unit of supply (a resource). 2) The view of the resources, which experience demand- supply mismatches when they are sometimes "flooded" with work, followed by periods of no work.

inventory buildup analysis

inventory refers to inputs (materials or customers) or WIP

process mgmt

is concerned with the completion of a SINGLE project

incremental

it's easy to make INSERT improvements -eventually radical improvement will grow

bottleneck

overall process capacity is determined by the resource with the smallest capacity -It provides the weakest link in the overall process chain, and, as we know, a chain is only as strong as its weakest link.

high

overcoming inefficiencies: -(LOW/HIGH) responsiveness represents more variety, high quality, and/or short wait

stochastic demand

refers to the fact that we need to distinguish between the predicted demand and the actually realized demand -Typically face variation in demand relative to our demand prediction -Can be present along with seasonal demand: January sales can be known to be higher than those for other months (seasonal demand) and there can be variation around that known forecast ("" demand) -Especially a problem in retailing environments or at FG level of manufacturers

demands

shifts in the INSERT requested from a process can alter which resource in the process is the bottleneck

process resources

the people and equipment necessary to deal with the patients -Given this repetitive nature of work, the nurse as well as the doctors, technicians, and hospital administrators think of interventional radiology as a process, not a project.

process flowcharting

the use of a diagram to present the major elements of a process -a graphical way to describe the process and it will help us to structure the information that we collect during the case analysis or process improvement project. -square = activities -triangle = inventory/buffers >> means inv is allowed -arrow = route the flow unit takes through the process

longer

· Lower inventory results in lower working capital requirements as well as many quality advantages · A higher inventory also is directly related to (SHORTER/LONGER) flow times · A reduction in inventory also yields a reduction in flow time.