Exam 2

Priorities in the Supply Chain

1. Reduce Operating Cost 2. Reduce Inventory Levels 3. Improve Quality 4. Improve Customer Service 5. Getting Product to Market Faster 6. Reducing Capital Costs 7. Reducing Risk

What characteristics does the perfect PM have?

The perfect PM is: Systemic Thinker Personal Integrity Proactive High Emotional Intelligence (EQ) General Business Perspective Effective Time Management Skillful Politician Optimist

Price-break model

The price-break model deals with the fact that, generally, the selling price of an item varies with the order size. -- This model is useful for finding the order quantity of an item when the price of the item varies with the order size. **need to look back at this (p. 535).

Characteristics of a Project + what are the "right" projects in the right project matrix?

A Project is a TEMPORARY ENDEAVOR undertaken to create a unique Product, Services, or Result to satisfy a Customer's need... WITH (1) An Established Objective (2) A Defined Life Span (beginning, middle, end) (3) A Team (4) An intention of doing something new, different, better (4)Specific Time, Cost, Performance Requirement The "right project" matrix: (1) creates value for the company, (2) is technically feasible

Free trade zone

A closed facility (under the supervision of government customs officials) into which foreign goods can be brought without being subject to the payment of normal import duties. (p. 382).

Challenges in Supply Chain

Challenges in Supply Chain - US 1. Volatility in Demand 2. Quality 3. Cost Pressures 4. Global Competition 5. Managing Risk 6. Regulatory Requirements 7. Environmental Concerns 8. Geopolitical Instability

inventory control systems (3 types)

inv control system = a method of developing and maintaining an adequate assortment of materials or products to meet a manufacturer's or a customer's demand Continuous Review Periodic Review Single Period Inventory model

INV management key concepts (3)

1. order quantity, 2. reorder point, 3. safety stock

Key Project Questions? (7)

(1) Are we working on the right problems / opportunities? (2) Do I know what "success" looks like? (3) Do I have a solid plan in place? (4) Do I have the right TEAM in place? (5) Do I have the right Project Manager? (6) Do I have the enough resources/funds? (7) Have I assumed the right level of risk?

(1) How to build the right team? (2) What would the perfect team look like?

A high performing team is one in which: - All have a common purpose - Individual talents are relevant / used - Roles are balanced - Problem solving occurs as a team - Risk-taking is encouraged, mistakes are treated as opportunities to learn - Team members have high personal standards of performance - Members identify with the team The perfect team: - 10 or fewer members (best is actually 6), who volunteer to be on the team because the project is compelling to them, that represent all functional areas needed - Who are full-time, serve from beginning to end, who are located within conversational distance, and - Who report solely to the PM

Pure Project (skunkworks) What are the advantages / disadvantages?

A structure for organizing a project where a self-contained team works full time on the project. *Advantages* ∙ The project manager has full authority over the project. ∙ Team members report to one boss. They do not have to worry about dividing loyalty with a functional-area manager. ∙ Lines of communication are shortened. Decisions are made quickly. ∙ Team pride, motivation, and commitment are high. *Disadvantages* ∙ Duplication of resources. Equipment and people are not shared across projects. ∙ Organizational goals and policies are ignored, as team members are often both physically and psychologically removed from headquarters. ∙ The organization falls behind in its knowledge of new technology due to weakened functional divisions. ∙ Because team members have no functional area home, they worry about life-after-project, and project termination is delayed. (p. 75).

Matrix Project What are the advantages / disadvantages?

A structure that blends the functional and pure project structures. Each project uses people from different functional areas. A dedicated project manager decides what tasks need to be performed and when, but the functional managers control which people to use. The classic specialized organizational form, the matrix project, attempts to blend properties of functional and pure project structures. Each project utilizes people from different functional areas. The project manager (PM) decides what tasks will be performed and when, but the functional managers control which people and technologies are used. If the matrix form is chosen, different projects (rows of the matrix) borrow resources from functional areas (columns). Senior management must then decide whether a weak, balanced, or strong form of a matrix is to be used. This establishes whether project managers have little, equal, or more authority than the functional managers with whom they negotiate for resources. Advantages ∙ Communication between functional divisions is enhanced. ∙ A project manager is held responsible for successful completion of the project. ∙ Duplication of resources is minimized. ∙ Team members have a functional "home" after project completion, so they are less worried about life-after-project than if they were a pure project organization. ∙ Policies of the parent organization are followed. This increases support for the project. Disadvantages ∙ There are two bosses. Often the functional manager will be listened to before the project manager. After all, who can promote you or give you a raise? ∙ It is doomed to failure unless the PM has strong negotiating skills. ∙ Suboptimization is a danger, because PMs hoard resources for their own project, thus harming other projects. (p. 76-77).

Organizing the Project Team

Before the project starts, senior management must decide which of three organizational structures will be used to tie the project to the parent firm: pure project, functional project, or matrix project. (p. 75).

Functional Project What are the advantages / disadvantages?

In this structure, team members are assigned from the functional units of the organization. The team members remain a part of their functional units and typically are not dedicated to the project. Advantages ∙ A team member can work on several projects. ∙ Technical expertise is maintained within the functional area even if individuals leave the project or organization. ∙ The functional area is a home after the project is completed. Functional specialists can advance vertically. ∙ A critical mass of specialized functional-area experts creates synergistic solutions to a project's technical problems. Disadvantages ∙ Aspects of the project that are not directly related to the functional area get shortchanged. ∙ Motivation of team members is often weak. ∙ Needs of the client are secondary and are responded to slowly. (p. 75-76).

Inventory Turn Calculation

Inventory turn - A measure of the expected number of times inventory is replaced over a year. (p. 534). Average inventory value = (Q/2 + SS)C The inventory turn for an individual item then is Inventory turn = DC / (Q/2 + SS)C = D / ((Q/2) + SS) (p. 535).

Project Risk: what can you do with it? (4) + Project risk matrix

Mitigating Risk Reduce the likelihood that the event will occur Reduce the impact that the adverse event will have on the project Testing & Prototyping Avoiding Risk (Risk vs. Reward) Transferring Risk Does not change the risk Manage the Risk Schedule Risk Plan for Risk Fund Risk

KPIs— Performance by historical standards is ____ Performance against improvement goal is _____ Performance against competitors is _____ Absolute performance is _____

Performance by historical standards is GOOD Performance against improvement goal is POOR Performance against competitors is GOOD Absolute performance is POOR

What is project management? How are projects categorized? What are the 4 major types of change?

Project management = Planning, directing, and controlling resources (people, equipment, material) to meet the technical, cost, and time constraints of a project. Although projects are often thought to be one-time occurrences, the fact is that many projects can be repeated or transferred to other settings or products. Projects can be categorized based on the type of change being planned. (Product / process) --The four major types of change are product change, process change, research and development, and alliance and partnership. Projects can also be categorized based on the amount of change that is planned. --The three categories based on the amount of change are derivative (incremental changes such as new packaging or no-frills versions), platform (fundamental improvements to existing products), and breakthrough (major changes that create entirely new markets). (p. 74). (My extra note) Professional project managers know: (1) technical aspects of calculating such things as early start and early finish time, (2) people skills related to motivation, (3) ability to resolve conflicts as key decision points occur in the proje

Organizing Project Tasks (5 sub-sections or categories)

SOW / Project Charter A project starts out as a statement of work (SOW). The SOW may be a written description of the: (a) reasons for the project (b) objectives, constraints, & risks of the project, (c) who the main stakeholders are (d) the benefits of the project with a brief statement of the work to be done and a proposed schedule and budget specifying the start and completion dates. It also could contain performance measures to be supplied. Task a further subdivision of a project. It is usually not longer than several months in duration and is performed by one group or organization. A subtask may be used if needed to further subdivide the project into more meaningful pieces. Work Package a group of activities combined to be assignable to a single organizational unit. It still falls into the format of all project management; the package provides a description of what is to be done, when it is to be started and completed, the budget, measures of performance, and specific events to be reached at points in time. These specific events are called project milestones. Typical milestones might be the completion of the design, the production of a prototype, the completed testing of the prototype, and the approval of a pilot run. Work Breakdown Structure (WBS) defines the hierarchy of project tasks, subtasks, and work packages. Completion of one or more work packages results in the completion of a subtask; completion of one or more subtasks results in the completion of a task; and, finally, the completion of all tasks is required to complete the project. -- breaks the project down into manageable pieces. --How much detail or how many levels to use depends on the following: (1) the level at which a single individual or organization can be assigned responsibility and accountability for accomplishing the work package, and (2) the level at which budget and cost data will be collected during the project. Activities Pieces of work within a project that consume time. The completion of all the activities of a project marks the end of the project. --activities do not necessarily require effort by people, though they often do. Ex: waiting for paint to dry

supply chain integration supply chain effectiveness

Supply Chain integration = (1) Share information among supply chain members, (2) Collaboarative planning, forecasting, replenishment, and design, FOR (3) reduced bullwhip effect, early problem detection & faster response, higher capacity utilization, improved customer service levels and trust Effective supply chain = agile, adaptable, aligned (incentivized), integrated

How can a firm keep accurate, up-to-date records?

Using bar codes and RFID tags is important to minimizing errors caused by inputting wrong numbers in the system. It is also important to keep the storeroom locked. If only storeroom personnel have access, and one of their measures of performance for personnel evaluation and merit increases is record accuracy, there is a strong motivation to comply. Every location of inventory storage, whether in a locked storeroom or on the production floor, should have a recordkeeping mechanism. Another way to ensure accuracy is to count inventory frequently and match this against records. A widely used method is called cycle counting. Cycle counting a physical inventory-taking technique in which inventory is counted frequently rather than once or twice a year. The key to effective cycle counting and, therefore, to accurate records lies in deciding which items are to be counted, when, and by whom. (p.540)

Total Quality Management (TQM)***

a management philosophy that focuses on satisfying customers through empowering employees to be an active part of continuous quality improvement

capacity cushion

capacity in excess of expected demand

ABC inventory classification

divides inventory into dollar volume categories that map into strategies appropriate for the category

Lean production requires: ___

lean production requires a stable schedule over a lengthy time horizon. This is accomplished by ( 1 )level scheduling, A level schedule is one that requires material to be pulled into final assembly in a pattern uniform enough to allow the various elements of production to respond to pull signals. It does not necessarily mean that the usage of every part on an assembly line is identified hour by hour for days on end; it does mean that a given production system equipped with flexible setups and a fixed amount of material in the pipelines can respond to the dynamic needs of the assembly line. ( 2 )freeze windows, and freeze window refers to that period of time during which the schedule is fixed and no further changes are possible. -An added benefit of the stable schedule is seen in how parts and components are accounted for in a pull system. Here, the concept of backflush is used where the parts that go into each unit of the product are periodically removed from inventory and accounted for based on the # of units produced. - Underutilization and overutilization of capacity are controversial features of lean production. Conventional approaches use safety stocks and early deliveries as a hedge against production problems like poor quality, machine failures, and unanticipated bottlenecks in traditional manufacturing. Under lean production, excess labor, machines, and overtime provide the hedge. The excess capacity in labor and equipment that results is much cheaper than carrying excess inventory. When demand is greater than expected, overtime must be used. Often, part-time labor is used when additional capacity is needed. During idle periods, personnel can be put to work on other activities such as special projects, work group activities, and workstation housekeeping. ( 3 )underutilization of capacity. Smoothing the production flow to dampen the reaction waves that normally occur in response to schedule variations is called uniform plant loading. - The cycle time figure is used to adjust resources to produce the precise quantity needed. The speed of equipment or of the production line is adjusted so only the needed quantity is produced each day. JIT strives to produce on schedule, on cost, and on quality. -Kanban Production Control Systems: flows. Kanban means "sign" or "instruction card" in Japanese. In a paperless control system, containers can be used instead of cards. The cards or containers make up the kanban pull system. The authority to produce or supply additional parts comes from downstream operations. The following are some other possible approaches: ---Kanban squares. Some companies use marked spaces on the floor or on a table to identify where material should be stored. When the square is empty, the supplying operations are authorized to produce; when the square is full, no parts are needed. ---Container system. Sometimes the container itself can be used as a signal device. In this case, an empty container on the factory floor visually signals the need to fill it. The amount of inventory is adjusted by simply adding or removing containers. ---Colored golf balls. At a Kawasaki engine plant, when a part used in a subassembly is down to its queue limit, the assembler rolls a colored golf ball down a pipe to the replenishment machine center. This tells the operator which part to make next. § The kanban pull approach can be used not only within a manufacturing facility but also between manufacturing facilities (pulling engines and transmissions into an automobile assembly operation, for example) and between manufacturers and external suppliers. (p. 359-61).

What is ideal capacity

§ Capacity that = demand ; however, this more often than not is not possible § As many as you can sell, and not one more!

Root Cause Analysis tools

§ Cause-and-effect diagrams § 5whys § Fishbone Diagrams

Kanban Production Control Systems

-Kanban Production Control Systems: Kanban means "sign" or "instruction card" in Japanese. In a paperless control system, containers can be used instead of cards. The cards or containers make up the kanban pull system. The authority to produce or supply additional parts comes from downstream operations. The following are some other possible approaches: ---Kanban squares. Some companies use marked spaces on the floor or on a table to identify where material should be stored. When the square is empty, the supplying operations are authorized to produce; when the square is full, no parts are needed. ---Container system. Sometimes the container itself can be used as a signal device. In this case, an empty container on the factory floor visually signals the need to fill it. The amount of inventory is adjusted by simply adding or removing containers. ---Colored golf balls. At a Kawasaki engine plant, when a part used in a subassembly is down to its queue limit, the assembler rolls a colored golf ball down a pipe to the replenishment machine center. This tells the operator which part to make next. § The kanban pull approach can be used not only within a manufacturing facility but also between manufacturing facilities (pulling engines and transmissions into an automobile assembly operation, for example) and between manufacturers and external suppliers. Determining the Number of Kanbans Needed The kanban cards represent the number of containers of material that flow back and forth between the supplier and the user areas. Each container represents the minimum production lot size to be supplied. The number of containers, therefore, directly controls the amount of work-in-process inventory in the system. -- Accurately estimating the lead time needed to produce a container of parts is the key to determining the number of containers. This lead time is a function of the processing time for the container, any waiting time during the production process, and the time required to transport the material to the user. -- Enough kanbans are needed to cover the expected demand during this lead time plus some additional amount for safety stock. (p. 362).

Determining Capacity Requirements

1. Use forecasting techniques (see Chapter 18) to predict sales for individual products within each product line. 2. Calculate equipment and labor requirements to meet product line forecasts. 3. Project labor and equipment availabilities over the planning horizon. Often, the firm then decides on some capacity cushion that will be maintained between the projected requirements and the actual capacity measured as a percentage in excess of the expected demand. --When a firm's design capacity is less than the capacity required to meet its demand, it is said to have a negative capacity cushion. (p. 115).

Kaizen

Japanese philosophy that focuses on continuous improvement. (p.356)

yield management Level Capacity means managing ___? Chase demand means managing ___ ?

Level Capacity means managing DEMAND Chase demand means managing CAPACITY

Dimensions of Product Quality

Performance - main characteristics of the product Aesthetics - appearance, feel, smell, taste Special features - extra characteristics "bells n' whistles" Conformance - how well the product conforms to design specifications Reliability - consistency of performance Durability - the useful life of the product Perceived quality - indirect evaluation of quality Serviceability - handling of complaints or repairs Consistency - quality doesn't vary

service queue analysis: (1) Types of Queue Configs (2) What makes waits feel longer, psychologically? (3) Terms to know in service queue analysis (4) Elements of service queues (2) (5) (picture) essential features of queuing systemes

( 1 ) Types of Queue Configs = (1) multiple queue, (2) single queue, (3) take a number ( 2 ) Unoccupied time feels longer than occupied time Pre- and post-process waits feel longer than in-process waits Anxiety makes waits feel longer Uncertain waits are longer than known, finite waits Unexplained waits feel longer Unfair waits feel longer The more valuable the service, the longer customers will wait Solo waits feel longer than group waits Uncomfortable waits feel longer Unfamiliar waits feel longer ( 3 ) Calling population = source of the customer Arrival rate = the freq at which customesr arrive at a waiting line Queue = order in which customers are served Service Time = the time required to serve the customer ( 4 ) Elements: Channels = no. of parallel servers for servicing customers Phases = no. servers in a sequence that a customer must go through ( 5 )

Inventory analysis methods

Techniques such as ABC analysis and cycle counting are essential to the actual management of the system because they focus attention on the high-value items and ensure the quality of the transactions that affect the tracking of inventory levels The basic purposes of inventory analysis, whether in mfg, distribution, retail, or servs, is to specify (1) when items should be ordered, and (2) how large the order should be. --Many firms are tending to enter into longer-term relationships with vendors to supply their needs for perhaps the entire year. This changes the "when" and "how many to order" to "when" and "how many to deliver." (p. 518).

Inventory Position

The amount on hand plus on-order minus backordered quantities. In the case where inventory has been allocated for special purposes, the inventory position is reduced by these allocated amounts. (p. 526).

Queueing Systems 3 major components of Queueing Systems

The queuing system consists essentially of three major components: ( 1 ) The Source Population and the way in which Customers Arrive at the System; —Source Population (a) Finite Population (limited-size customer pool that will use the service and, at times, form a line), or (b) Infinite Population (population is large enough in relation to the service system so that the population size caused by subtractions or additions to the population (a customer needing service or a serviced customer returning to the population) does not significantly affect the system probabilities. Finite populations can become infinite if there is inundation. —Distribution of Arrivals (I) Arrival rate = constant, or variable; (i) exponential (random) or (ii) poisson (exactly n arrivals w/in t time pd) distribution (II) Arrival patterns --> (it's own note) ...Size of Arrival Units --> single or batch ...Degree of Patience --> Balking (see long line, then leave) or Reneging (join long line for a bit, then leave); to avoid these, high-service companies typically try to keep target server utilization levels at not more than 70-80% ( 2 ) The Servicing System, and ...(a) -->length of line. -->Number of lines. -->Queue discipline. ...(b) Service time distribution; service rate = # of customers a server can handle during a time pd t ...(c) Line Structures --> Single channel, single phase --> Single channel, multiphase --> Multichannel, single phase --> Multichannel, multiphase --> Mixed ( 3 ) The Condition of the Customers Exiting the System. (back to source population or not?), as seen in Exhibit 10.2. --Once a customer is served, two exit fates are possible: (1) The customer may return to the source population and immediately become a competing candidate for service again or (2) there may be a low probability of re-service. ≤≥ It should be apparent that when the population source is finite, any change in the service performed on customers who return to the population modifies the arrival rate at the service facility. This, of course, alters the characteristics of the waiting line under study and necessitates a re-analysis of the problem. (p.223-30)

Value Stream

These are the value-adding and non-value-adding activities required to design, order, and provide a product from concept to launch, order to delivery, and raw materials to customers. (p. 353).

Dimensions of Service Quality

Time - Customer Wait Timeliness - Performed when Promised Completeness - include "all" items Courtesy - Customer interaction Consistency - Delivered the same way each time Accessibility/Convenience - Easy to Obtain Accuracy - Performed right the first time Responsiveness - Quickly resolve problems

How to begin ordering INV by ABC classification: INV ABC classifications -- what are the characteristics of each category?

To begin: Consider what you can have too much of that you won't care that you have too much of Non-perishable Doesn't expire Doesn't take up much space Class A - require very tight control, complete & accurate records; (best if fixed-order quantity model) 5 - 15 % of units 70 - 80 % of value Class B - require less attention than A items 30 % of units 15 % of value Class C - require simplest control, minimal records kept; (can be fixed time period models) 50 - 60 % of units 5 - 10 % of value

measuring sourcing performance

Two common measures to evaluate supply chain efficiency are (1) inventory turnover and (2) weeks of supply. --Good inventory turnover values vary by industry and the type of products being handled. INV turnover & Weeks of Supply measure essentially measure the same thing. -- Inventory Turnover = A measure of supply chain efficiency. -- Weeks of Supply = a measure of how many weeks' worth of inventory is in the system at a particular point in time. -- Weeks of supply is the inverse of inventory turnover times 52. --In many situations, particularly when distribution inventory is dominant, weeks of supply is the preferred measure. (p. 416-17).

What is quality? What are the types of quality (4)?

Types of Quality = (1) Customer Quality (2) Product Quality (3) Service Quality (4) Production Quality Quality is: -- A Management System / Philosophy -- Continual increase in Customer Satisfaction at a lower cost -- Part of a High-Level Strategy -- Works across Departments, involving all Employees, Top to Bottom -- Extends Backwards and Forwards along the customer and supply chain -- Continuous learning and adapting to continual change to drive organizational success

Problem with Expansionist strategy of Managing Capacity Change?

need to be careful here b/c youre gambling that demand will stay there as you rev up to meet the expanded capacity needs

The Bullwhip effect

the phenomenon of the variability of demand magnification as you move from the customer to the producer in the supply chain. § Even a slight change in consumer sales ripples backward in the form of magnified oscillations, upstream, resembling the result of a flick of a bullwhip handle. § Bc the supply patterns do not match the demand patterns, inv accumulates at various stages, and shortages and delays occur at others. § Bc of types of practices such as forward buying The bullwhip effect is created when supply chain members make ordering decisions based on distorted information or the lack of information and/or with an eye to their own self-interest. Stockpiling extra inventory to compensate for the uncertainty is frequently the answer and can occur at all stages of the supply chain, as information moves back upstream. Smoothing of bullwhip effect = continuous replenishment method

4 types of supply chain strategies

( 1 ) Efficient supply chains -- aimed at creating the highest levels of cost efficiency. -- For such efficiencies to be achieved, non-value added activities should be eliminated, scale economies should be pursued, optimization techniques should be deployed to get the best capacity utilization in production and distribution; information linkages should be established to ensure the most efficient, accurate, and cost-effective transmission of information across the supply chain. ( 2 ) Risk-hedging supply chains -- These are supply chains that utilize strategies aimed at pooling and sharing resources in a supply chain so that the risks in supply disruption can be shared. -- A company may, for example, increase the safety stock of its key component to hedge against the risk of supply disruption, and by sharing the safety stock with other locations that also need this key component, the cost of maintaining this safety stock can be shared. This type of strategy is common in retailing, where different retail stores or dealerships share inventory. Information technology is important for the success of these strategies because real-time information on inventory and demand allows the most cost-effective management and transshipment of goods between partners sharing the inventory. ( 3 ) Responsive Supply Chains These are supply chains that utilize strategies aimed at being responsive and flexible to the changing and diverse needs of the customers. To be responsive, companies use build-to-order and mass customization processes as a means to meet the specific requirements of customers. ( 4 ) Agile Supply Chains § These are supply chains that utilize strategies aimed at being responsive and flexible to customer needs, while the risks of supply shortages or disruptions are hedged by pooling inventory and other capacity resources. § These supply chains essentially have strategies in place that combine the strengths of "hedged" and "responsive" supply chains. § They are agile because they have the ability to be responsive to the changing, diverse, and unpredictable demands of customers on the front end, while minimizing the back-end risks of supply disruptions. (p. 407).

Lean Production Schedules

?? (p.359)

Forward buying

A term that refers to when a customer, responding to a promotion, buys far in advance of when an item will be used. (p. 404).

Quality process methodology

DMAIC Cycle § Define the problem and the objectives § Measure - what do we need to improve? Can we measure this? § Analyze - analyze the process, define factors of influence § Improve - Identify - Id and implement improvements § Control - Assure that improvements will sustain. TQM / BPR / Lean / Six Sigma

Simple EOQ inventory ordering model does not consider variations in ___, ____, or ____, and price per unit of product is ____, as is ____; further, no ____ are allowed. However, EOQ can be modified to include _____(3).

EOQ inventory ordering model does not consider: UNCERTAINTIES IN DEMAND RATE or UNCERTAINTIES IN REPLENISHMENT LEAD TIME or INV HOLDING COST. CONSTANT, as is ORDERING COSTS However, EOQ can be modified to include VARIABLE DEMAND, SHORTAGE DURING LEAD TIME, SAFETY STOCK.

Customer order decoupling point (in supply chains)

In practice, the idea of a single decoupling point in a supply chain is unrealistic. There may actually be multiple points where buffering takes place. § The techniques described in this chapter are suited for managing the inventory at these decoupling points. § Typically, there is a trade-off where quicker response to customer demand comes at the expense of greater inventory investment. This is because finished goods inventory is more expensive than raw material inventory. (517)

Productivity

§ Productivity is a common measure on how well resources are being used. (Outputs / Inputs) § Productivity is a relative measure. To be meaningful, it needs to be compared w/ some benchmarks or with itself over time.

Capacity Management in Ops and Supply Chain Mgmt (1) What is capacity? (2) What are the different levels of capacity? (3) What to do when demand exceeds the ultimate type of capacity temporarily? permanently? (3) How to view capacity planning?

( 1 ) § Capacity is most frequently viewed as the amount of output that a system is capable of achieving over a specific period of time. § Capacity is a relative term; in an operations management context, it may be defined as the amount of resource inputs available relative to output requirements over a particular period of time. § Capacity implies an attainable rate of output but says nothing about how long that rate can be sustained. --to avoid this problem, "Best Operating Level" is used; this means the level of capacity for which the process was designed and is thus the volume of input at which average unit cost is minimized. -- -- the capacity utilization rate reveals how close a firm is to its best operating level (Capacity util. rate = capacity used / best operating level) examples: --In a service setting, this might be the number of customers that can be handled between noon and 1:00 P.M. --In manufacturing, this might be the number of automobiles that can be produced in a single shift. ( 2 ) There's "effective capacity", and "physical capacity" ( 3 ) temporary exceeding: schedule overtime; permanent exceeding: outsource When looking at capacity, operations managers need to look at both resource inputs and product outputs. ( 4 ) --For planning purposes, real (or effective) capacity depends on what is to be produced. Capacity planning is generally viewed in three time durations: § Long range (**focus of this chapter**)—greater than one year. Where productive resources (such as buildings, equipment, or facilities) take a long time to acquire or dispose of, long-range capacity planning requires top management participation and approval. § Intermediate range—monthly or quarterly plans for the next 6 to 18 months. Here, capacity may be varied by such alternatives as hiring, layoffs, new tools, minor equipment purchases, and subcontracting. § Short range—less than one month. This is tied into the daily or weekly scheduling process and involves making adjustments to eliminate the variance between planned and actual output. This includes alternatives such as overtime, personnel transfers, and alternative production routings. (p. 111).

supply chain KPIs

- INV turnover = COGS /avg aggregate value of INV - Days of Supply = Avg agg value of INV / (COGS/365)

Demand and capacity limits

- If demand is under capacity = excess capacity, wasted resources; - If demand exceeds optimum (effective) capacity, quality will decline; - If demand exceeds physical capacity, business will be lost

Lean Concepts What does lean require?

- Lean requires the plant layout to be designed to ensure balanced workflow with a minimum of work-in-process inventory. Each workstation is part of a production line, whether or not a physical line actually exists. - Capacity is balanced using the same logic for an assembly line, and operations are linked through a pull system. In addition, the system designer must Lean Layouts - Group Technology - Quality at the source - JIT Production (p. 358).

Lean Layouts— - Quality at the Source - Group Technology - JIT Production role of preventive maintenance in Lean Layouts

- Lean requires the plant layout to be designed to ensure balanced workflow with a minimum of work-in-process inventory. Each workstation is part of a production line, whether or not a physical line actually exists. - Capacity is balanced using the same logic for an assembly line, and operations are linked through a pull system. In addition, the system designer must Lean Layouts - Group Technology - Quality at the source - JIT Production (p. 358). preventive maintenance - emphasized to ensure that flows are not interrupted by downtime or malfunctioning equipment. (p. 358).

Decisions Related to Logistics (3 major categories)

1. what transportation mode is best 2. how to design the system 3. where do I locate facilities --Major trade-offs exist related to the cost of transporting the product, speed of delivery, and flexibility to react to changes are involved. --Information systems play a major role in coordinating activities and include activities such as allocating resources, managing inventory levels, scheduling, and order tracking. TRANSPORTATION MODES -- Highway -- Water (ship); high capacity, low cost, slow transit times, large areas of the world not directly accessible -- Air; Fast, expensive -- Rail (trains); low-cost, long transit times. Less attractive now that infrastructure has declined in US over the past 50 years. -- Pipelines; only applies to liquids, solids, gasses in slurry forms. High initial cost, no packaging needed and per mile costs are low. -- Hand delivery; costly b/c of labor cost needed WAREHOUSE DESIGN -- Special consolidation warehouses are used when shipments from various sources are pulled together and combined into larger shipments with a common destination. This improves the efficiency of the entire system. **Cross-docking** - An approach used in consolidation warehouses where, rather than making larger shipments, large shipments are broken down into small shipments for local delivery in an area. **Hub-and-spoke systems** - Systems that combine the idea of consolidation and that of cross-docking. (p. 380-81). LOCATING LOGISTICS FACILITIES The problem of facility location is faced by both new and existing businesses, and its solution is critical to a company's eventual success. An important element in designing a company's supply chain is the location of its facilities. § Factor-Rating Systems, the Centroid Method, or the Transportation Linear Programming Method may help with selecting facility location Criteria that influence manufacturing plant & warehouse location planning: -- Proximity to customers -- Business climate -- Total costs -- Infrastructure -- Quality of labor -- Suppliers -- Other Facilities -- Free Trade Zones -- Political Risk -- Government Barriers -- Trading Blocs -- Environmental Regulation -- Host Community -- Competitive Advantage (p. 381-83).

What is a "Focused Factory"? + How can you achieve this in a large factory?

A Focused Factory is a facility designed around a limited set of production objectives. Typically, the focus would relate to a specific product or product group. § The capacity focus concept can be operationalized in a large facility through the mechanism of plant within a plant, or PWP. § PWP: An area in a larger facility that is dedicated to a specific production objective (for example, product group). This can be used to operationalize the focused factory concept. A focused factory (Exhibit 5.1) may have several PWPs, each of which may have separate suborganizations, equipment and process policies, workforce management policies, production control methods, and so forth, for different products—even if they are made under the same roof. This, in effect, permits finding the best operating level for each department of the organization and thereby carries the focus concept down to the operating level. (p. 113).

Third-party logistics company

A company that manages all or part of another company's product delivery operations. Today, a mfg company will often contract w/ one of those third-party logistics companies (ex: UPS, FedEx, DHL) to handle many of its logistics functions. Logistics companies can provide everything from mere moving of goods to addtl services like warehouse mgmt, inventory control, and other customer service functions. (p. 379).

How should a firm consider inventory?

A firm considers inventory an investment b/c the intent is for it to be used in the future. Inv ties up funds that could be used for other purposes, and a firm may have to borrow money to finance the INV investment. The objective is to have the proper amount of INV and to have it in the correct locations in the supply chain. Determining the correct amount of inventory to have in each position requires a thorough analysis of the supply chain coupled with the competitive priorities that define the market for the company's products.

Value Stream Mapping

A graphical way to analyze where value is or is not being added as material flows through a process. -§ a special type of flowcharting tool that is valuable for the development of lean processes. The technique is used to visualize product flows through various processing steps. The tool also illustrates information flows that result from the process, as well as information used to control flow through the process. - can be readily applied to service, logistics, mfg, distribution, or virtually any type of process. -§ Value stream mapping is a two-part process—first depicting the "current state" of the process and second a possible "future state." --§-§ tag with Kaizen bursts? [note: To study another example using value stream mapping (VSM), consider the Solved Problem 2 at the end of the chapter.] (p. 355-56).

Trading blocs

A group of neighboring countries that promote trade with each other and erect barriers to limit trade with other blocs. §-- Companies may locate in places affected by the agreement to take advantage of new market opportunities.

Evolving supply process

A process where the underlying technology changes rapidly. -- As a result, the supply base may be limited in both size and experience. -- prevalent. In an evolving supply process, the manufacturing process requires a lot of fine-tuning and is often subject to breakdowns and uncertain yields. The supply base may not be reliable, because the suppliers themselves are going through process innovations. (p. 406).

Stable supply process

A process where the underlying technology is stable. -- In a stable supply process, manufacturing complexity tends to be low or manageable. Stable manufacturing processes tend to be highly automated, and long-term supply contracts are prevalent. (p. 406).

Business Process Reengineering (BPR)

A radical redesign of a business process to achieve breakthrough improvements in products and services, and efficiency and effectiveness; often begins with a "clean sheet" (from scratch).

Purposes of inventory 5/6

All firms keep a supply of inventory for the following reasons: ( 1 ) To maintain independence of operations. -- A supply of materials at a work center allows that center flexibility in operations. For example, because there are costs for making each new production setup, this inventory allows management to reduce the number of setups. Independence of workstations is desirable on assembly lines as well. The time it takes to do identical operations will naturally vary from one unit to the next. Therefore, it is desirable to have a cushion of several parts within the workstation so that shorter performance times can compensate for longer performance times. This way, the average output can be fairly stable. ( 2 ) To meet variation in product demand. -- If the demand for the product is known precisely, it may be possible (though not necessarily economical) to produce the product to exactly meet the demand. Usually, however, demand is not completely known, and a safety or buffer stock must be maintained to absorb variation. ( 3 ) To allow flexibility in production scheduling. -- A stock of inventory relieves the pressure on the production system to get the goods out. This causes longer lead times, which permit production planning for smoother flow and lower-cost operation through larger lot-size production. High setup costs, for example, favor producing a larger number of units once the setup has been made. ( 4 ) To provide a safeguard for variation in raw material delivery time. -- When material is ordered from a vendor, delays can occur for a variety of reasons: a normal variation in shipping time, a shortage of material at the vendor's plant causing backlogs, an unexpected strike at the vendor's plant or at one of the shipping companies, a lost order, or a shipment of incorrect or defective material. ( 5 ) To take advantage of economic purchase order size. -- There are costs to place an order: labor, phone calls, typing, postage, and so on. Therefore, the larger each order is, the fewer the orders that need be written. Also, shipping costs favor larger orders—the larger the shipment, the lower the per-unit cost. ( 6 ) Many other domain-specific reasons. -- Depending on the situation, inventory may need to be carried. For example, in-transit inventory is material being moved from the suppliers to customers and depends on the order quantity and the transit lead time. Another example is inventory that is bought in anticipation of price changes, such as fuel for jets or semiconductors for computers. For each of the preceding reasons (especially for items 3, 4, and 5), be aware that inventory is costly and large amounts are generally undesirable. Long cycle times are caused by large amounts of inventory, which are undesirable as well. (p. 518-19).

outsourcing decisions / outsourcing decision framework

An activity can be evaluated using the following characteristics: § required coordination, -- refers to how difficult it is to ensure that the activity will integrate will with the overall process. Uncertain = don't outsource. § strategic control, and -- control refers to the degree of loss that would be incurred if the relationship with the partner were severed. There could be many types of losses that would be important to consider, including specialized facilities, knowledge of major customer relationships, and investment in research and development. § Potential loss of I.P. through the partnership (p. 409).

Lean Six Sigma

An approach to continuous improvement that integrates lean operation principles and six-sigma techniques. Lean Production//Focus = Speed & Cost w/out compromising Quality § Lean Production is an integrated set of activities designed to achieve production using minimal inventories of raw materials, work-in-process, and finished goods. § Based on the JIT logic: nothing is produced until it is needed (Item arrive at the next stage of production "just in time") § Major goal: Elimination of all wastes Six Sigma//Focus = Quality w/out compromising Speed & Cost § A philosophy and set of methods for eliminating defects in product/service production processes by reducing variation that leads to defects via continuous improvement § Common performance metric: Defects Per Million Opportunities (DPMO; defects per million opportunities) § Use of quantitative evidence to improve a process's design, capability, and control § Structured training and significant resources committed for improvement DMAIC structured improvement cycle

Independent vs Dependent demand

An important characteristic of demand relates to whether demand is derived from an end item or is related to the item itself. Independent demand -- The demands for these items are unrelated to each other, or to activities that can be predicted with certainty. Dependent demand -- The need for an item is a direct result of the need for some other item, usually an item of which it is a part. Also, when the demand for the item can be predicted with accuracy due to a schedule or specific activitity. For example, in independent demand, a workstation may produce many parts that are unrelated but that meet some external demand requirement. In dependent demand, the need for any one item is a direct result of the need for some other item, usually a higher-level item of which it is part. (p. 521).

Inventory Control Systems

An inventory system provides the organizational structure and the operating policies for maintaining and controlling goods to be stocked. The system is responsible for ordering and receipt of goods: timing the order placement and keeping track of what has been ordered, how much, and from whom. The system also must follow up to answer such questions as: Has the supplier received the order? Has it been shipped? Are the dates correct? Are the procedures established for reordering or returning undesirable merchandise? Single Period systems vs. Multiple-period systems: The classification is based on whether the decision is just a one-time purchasing decision (where the purchase is designed to cover a fixed period of time and the item will not be reordered), or the decision involves an item that will be purchased periodically where inventory should be kept in stock to be used on demand. Multiperiod Inventory Systems: There are two general types of multiperiod inventory systems: § fixed-order quantity models [event-triggered; event of reaching a specified reorder level occurs] (also called the economic order quantity, EOQ, and Q-model) and --§ favors more expensive items bc avg inv is lower. facors important items bc closer monitoring and t/f quicker response to potential stockout --§ requires more time to maintain bc every addition or withdrawal is logged § fixed-time period models [time-triggered; place orders at the end of a predetermined time pd] (also referred to variously as the periodic system, periodic review system, fixed-order interval system, and P-model). --§ has larger avg inv bc must protect agianst stockout during the review pd Multiperiod inventory systems are designed to ensure that an item will be available on an ongoing basis throughout the year. Usually, the item will be ordered multiple times throughout the year where the logic in the system dictates the actual quantity ordered and the timing of the order. (p. 521-25).

-§- Services typically have multiple sites to maintain close contact with customers. The location decision is closely tied to the market selection decision. --§ Market needs also affect the number of sites to be built and the size and characteristics of the sites. -§- Whereas manufacturing location decisions are often made by minimizing costs, many service location decision techniques maximize the profit potential of various sites. Because of the variety of service firms and the relatively low cost of establishing a service facility compared to one for manufacturing, new service facilities are far more common than new factories and warehouses. (p. 388-89).

Because of the variety of service firms and the relatively low cost of establishing a service facility compared to one for manufacturing, new service facilities are far more common than new factories and warehouses. -- Services typically have multiple sites to maintain close contact with customers. The location decision is closely tied to the market selection decision. -- Market needs also affect the number of sites to be built and the size and characteristics of the sites. -- Whereas manufacturing location decisions are often made by minimizing costs, many service location decision techniques maximize the profit potential of various sites. (p. 388-89).

types of supply chains

Build-to-stock, assemble-to-order, build-to-order, design-to-order Rail, Trucking, Air, Package Delivery, Water, Intermodal (containers), Pipeline

Capacity Flexibility + Flexibility is key to achieving Economies of ___ ? Avoiding ___ ? + What characterizes a flexible plant? a flexible process? flexible workers?

Capacity flexibility means having the ability to rapidly increase or decrease production levels, or to shift production capacity quickly from one product or service to another. Such flexibility is achieved through flexible plants, processes, and workers, as well as through strategies that use the capacity of other organizations. Flexibility is Key to achieving Economies of Scope— When multiple products can be produced at a lower cost in combination than they can separately. --§ Flexible Plants: The ultimate in plant flexibility is the zero-changeover-time plant. Using movable equipment, knock-down walls, and easily accessible and reroutable utilities, such a plant can quickly adapt to change. --§ Flexible processes: epitomized by flexible manufacturing systems on the one hand and simple, easily set up equipment on the other. --§ Flexible Workers: have multiple skills, are able to switch easily from one kind of task to another. They require broader training than specialized workers and need managers and staff support to facilitate quick changes in their work assignments.

Lean Supply Chains

Customer value when considered from the entire supply chain should center on the perspective of the end customer with the goal being to maximize what the customer is willing to pay for a firm's goods or services. The benefits of a lean supply chain are primarily in: (1) improved responsiveness to the customer. As business conditions change, the supply chain adapts to dynamic needs. (2) The reduced inventory inherent in a lean supply chain reduces obsolescence and reduces flow time through the value-added processes. The reduced cost along with improved customer service allows the firms using a lean supply chain a significant competitive advantage when competing in the global marketplace. -The different components of a supply chain and what would be expected using a lean focus: §§ Lean Suppliers §§ Lean suppliers are able to respond to changes. Their prices are generally lower due to the efficiency of lean processes, and their quality has improved to the point that incoming inspection at the next link is not needed. Lean suppliers deliver on time and their culture is one of continuous improvement. To develop lean suppliers, organizations should include them in their value stream planning. This will help them fix problems and share savings. §§ Lean Procurement §§ keys: automation, visibility. Suppliers must be able to "see" into the customers' operations, and customers must be able to "see" into their suppliers' operations. The overlap of these processes needs to be optimized to maximize value from the end-customer perspective. §§ Lean Mfg §§ Lean manufacturing systems produce what the customers want, in the quantity they want, when they want it, and with minimum resources. Applying lean concepts in manufacturing typically presents the greatest opportunities for cost reduction and quality improvement. §§ Lean Warehousing §§ This relates to eliminating non-value-added steps and waste in product storage processes. Typical functions include the following: receiving material; putting-away/storing; replenishing inventory; picking inventory; packing for shipment; and shipping. Waste can be found in many warehousing processes including shipping defects, which creates returns; overproduction or overshipment of products; excess inventory, which requires extra space and reduces warehouse efficiency; excess motion and handling; waiting for parts; and inadequate information systems. §§ Lean Logistics §§ Logistics move material through the system. Some of the key areas include: (1) selection and pooling orders; combined multistop truckloads; (2) optimized routing; cross docking; (3) import/export transportation processes; and (4) backhaul minimization. Just as with the other areas, these logistics functions need to be optimized by eliminating non-value-adding activities while improving the value-adding activities. §§ Lean Customers §§ Lean customers have a great understanding of their business needs and specify meaningful requirements. They value speed and flexibility and expect high levels of delivery performance. Lean customers are interested in establishing effective partnerships with their suppliers. Lean customers expect value from the products they purchase and provide value to their customers. (p. 353-54).

continuous replenishment -- what is the benefit for retailers? -- benefit for suppliers? -- benefit for customer?

For suppliers — A program for automatically supplying groups of items to a customer on a regular basis. -- meant to smooth the flow of materials through their supply chain. -- Using this system, a company can cut retailers' inventories. ex: under the old system retailers' required inventories averaged four weeks of supply, and under the Continuous Replenishment system they may only require about two weeks of supply. Retailers save money on INV costs, by make replenishment cycles quicker under this system (p. 404).

Capacity and Location

GUESS: b/c of capacity being driven by the bottleneck, the closer you are to your customers, the less likely that transportation will be the bottleneck and so the better you can make your full process.

Capacity and number of sites**

GUESS: no idea, but my guess is the more sites the better as you can transpo to more places

Green Sourcing

Green sourcing is not just about finding new environmentally friendly technologies or increasing the use of recyclable materials. It can also help drive cost reductions in a variety of ways, including product content substitution, waste reduction, and lower usage. In other cases, green sourcing can help establish entirely new lines of business to serve environmentally conscious customers. A comprehensive green sourcing effort should assess how a company uses items that are purchased internally, in its own operations, or in its products and services. As costs of commodity items like steel, electricity, and fossil fuels continue to increase, properly designed green sourcing efforts should find ways to significantly reduce and possibly eliminate the need for these types of commodities. (p. 411).

Fixed-time period models

In a fixed-time period system, inventory is counted only at particular times, such as every week or every month. § Counting inventory and placing orders periodically are desirable in situations such as when vendors make routine visits to customers and take orders for their complete line of products, or when buyers want to combine orders to save transportation costs. § Other firms operate on a fixed time period to facilitate planning their inventory count; Fixed-time period models generate order quantities that vary from period to period, depending on the usage rates. These generally require a higher level of safety stock than a fixed-order quantity system. The fixed-order quantity system assumes continual tracking of inventory on hand, with an order immediately placed when the reorder point is reached. In contrast, the standard fixed-time period models assume that inventory is counted only at the time specified for review. It is possible that some large demand will draw the stock down to zero right after an order is placed. This condition could go unnoticed until the next review period. Then, the new order, when placed, still takes time to arrive. Thus, it is possible to be out of stock throughout the entire review period, T, and order lead time, L. Safety stock, therefore, must protect against stock outs during the review period itself, as well as during the lead time from order placement to order receipt. (p. 532-33).

Inventory Costs

In making any decision that affects inventory size, the following costs must be considered: ( 1 ) Holding (or carrying) costs. -- This broad category includes the costs for storage facilities, handling, insurance, pilferage, breakage, obsolescence, depreciation, taxes, and the opportunity cost of capital. Obviously, high holding costs tend to favor low inventory levels and frequent replenishment. ( 2 ) Setup (or production change) costs. -- To make each different product involves obtaining the necessary materials, arranging specific equipment setups, filling out the required papers, appropriately charging time and materials, and moving out the previous stock of material. If there were no costs or loss of time in changing from one product to another, many small lots would be produced. This would reduce inventory levels, with a resulting savings in cost. One challenge today is to try to reduce these setup costs to permit smaller lot sizes. (This is the goal of a JIT system.) ( 3 ) Ordering costs. -- These costs refer to the managerial and clerical costs to prepare the purchase or production order. Ordering costs include all the details, such as counting items and calculating order quantities. The costs associated with maintaining the system needed to track orders are also included in ordering costs. ( 4 ) Shortage costs. -- When the stock of an item is depleted, an order for that item must either wait until the stock is replenished or be canceled. When the demand is not met and the order is canceled, this is referred to as a stock out. A backorder is when the order is held and filled at a later date when the inventory for the item is replenished. There is a trade-off between carrying stock to satisfy demand and the costs resulting from stock outs and backorders. This balance is sometimes difficult to obtain because it may not be possible to estimate lost profits, the effects of lost customers, or lateness penalties. Frequently, the assumed shortage cost is little more than a guess, although it is usually possible to specify a range of such costs. (p. 519-20).

Lean Production

In the context of supply chains, "lean production" refers to a focus on eliminating as much waste as possible. § Lean production may be one of the best tools for implementing green strategies in manufacturing and service processes. § Moves that are not needed, unnecessary processing steps, and excess inventory in the supply chain are targets for improvement during the leaning process. "Value chain" - Some consultants in industry have coined the phrase value chain to refer to the concept that each step in the supply chain processes that deliver products and services to customers should create value. If a step does not create value, it should be removed from the process. "Customer value" - in the context of lean production = something for which the customer is willing to pay. pay. Value-adding activities transform materials and information into something the customer wants. Non-value-adding activities consume resources and do not directly contribute to the end result desired by the customer. § "Waste", therefore, = anything that does not add value from the customer's perspective. Ex, process wastes: defective products, overproduction, inventories, excess motion, processing steps, transportation, waiting. Lean production is an integrated set of activities designed to achieve production using minimal inventories of raw materials, work-in-process, and finished goods. Parts arrive at the next workstation "just-in-time" and are completed and move through the process quickly. Lean is also based on the logic that nothing will be produced until it is needed. Exhibit 14.1 illustrates the process. Production need is created by actual demand for the product. When an item is sold, in theory the market pulls a replacement from the last position in the system— final assembly in this case. This triggers an order to the factory production line, where a worker then pulls another unit from an upstream station in the flow to replace the unit taken. This upstream station then pulls from the next station further upstream and so on back to the release of raw materials. To enable this pull process to work smoothly, lean production demands high levels of quality at each stage of the process, strong vendor relations, and a fairly predictable demand for the end product. (p.351-52)

JIT Production What kind of processes is JIT typically applied to? What can JIT mfg expose?

JIT (just-in-time) means producing what is needed when needed and no more. Anything over the minimum amount necessary is viewed as waste because effort and material expended for something not needed now cannot be utilized now. This is in contrast to relying on extra material just in case something goes wrong. JIT is typically applied to repetitive manufacturing, which is when the same or similar items are made one after another. JIT does not require large volumes and can be applied to any repetitive segments of a business regardless of where they appear. Under JIT, the ideal lot size or production batch is one. Although workstations may be geographically dispersed, it is important to minimize transit time and keep transfer quantities small—typically one-tenth of a day's production. Vendors even ship several times a day to their customers to keep lot sizes small and inventory low. The goal is to drive all inventory queues to zero, thus minimizing inventory investment and shortening lead times. When inventory levels are low, quality problems become very visible. JIT manufacturing exposes problems otherwise hidden by excess inventories and staff. (p. 359).

Factors that influence level of capacity Key factors: Driven by: Market side factors:

Key Factors: 1. economies of scale, 2. cost of increasing Capacity 3. Timeframe to increase Capacity 4. Flexibility of Capacity 5. Location of Capacity Driven by: the bottleneck! Market side factors: (a) demand, (b) uncertainty, (c ) forecast accuracy, (d) cost of being wrong

leading vs. lagging indicators

Lagging indicators are reactive in nature. They measure the effectiveness of a safety program after the facts. Typical lagging indicators include: No. of incidents, injuries, days away from work (DAFW), Profit, Revenue, % Growth, Cost In contrast, Leading indicators are proactive in nature, including things like: Productivity, Quality, Customer satisfaction, Emp'ee satisfaction, Sales, Response Time

Considerations in Changing Capacity

Many issues must be considered when adding or decreasing capacity. Three important ones are maintaining system balance, frequency of capacity additions or reductions, and use of external capacity. § Maintaining System Balance - exact input from state to stage; impossible and undesirable to achieve b/c of variable demand and best operating levels of different types of machinery -- dealing with imbalance: add capacity to bottlenecks; overtime, leasing addtl equipment, purchase addtl capacity thru subcontracting, use buffer inventories in front of bottleneck stage to ensure it always has something to work on, increase facilities of dependent dept. § Frequency of Capacity Additions -- two types of costs to consider when adding capacity: the cost of upgrading too frequently, and the cost of upgrading too infrequently. § External Sources of Operations and Supply Capacity -- Outsourcing -- Sharing capacity § Decreasing Capacity - shedding capacity in response to decreased demand can also create significant problems -- temporary solutions: scheduling fewer hrs, temporary shutdowns -- more permanent solutions: selling equipment or liquidation of facilities (p. 114).

Lean Services

Many lean techniques have been successfully applied by service firms. Just as in manufacturing, the suitability of each technique and the corresponding work steps depend on the characteristics of the firm's markets, production and equipment technology, skill sets, and corporate culture. Service firms are no different in this respect. § Here are 10 of the more successful techniques applied to service companies: ( 1 ) Organize Problem-Solving Groups ( 2 ) Upgrade Housekeeping ( 3 ) Upgrade Quality ( 4 ) Clarify Process Flows ( 5 ) Revise Equipment and Process technologies ( 6 ) Level the facility Load ( 7 ) Eliminate Unnecessary Activities ( 8 ) Reorganize Physical Configuration ( 9 ) Introduce Demand-Pull Scheduling ( 10 ) Develop Supplier Networks (p. 364).

Inventory Management objectives

Minimizing the sum of the inventory carrying, ordering (cost of replenishing inventory) and shortage costs (temporary or permanent loss of sales when demand cannot be met) by determining: 1. the type of inventory control system to use 2. how much to order 3. when to order (reorder point)

Outsourcing

Moving some of a firm's internal activities and decision responsibility to outside providers. Outsourcing allows a firm to focus on activities that represent its core competencies. Thus, the company can create a competitive advantage while reducing cost. An entire function may be outsourced, or some elements of an activity may be outsourced, with the rest kept in-house. § For example, some of the elements of information technology may be strategic, some may be critical, and some may be performed less expensively by a third party. § Identifying a function as a potential outsourcing target, and then breaking that function into its components, allows decision makers to determine which activities are strategic or critical and should remain in-house and which can be outsourced like commodities. For Example: Logistics Outsourcing (FedEx, DHL, UPS, etc.) (p. 408).

What does an omni-channel supply chain mean? If retailer doesn't have something a customer wants, where can they look? Where can customers order?

Omni-channel = multiple upstreams, multiple downstreams Don't have something? Look to: § other stores, to § warehouses, to § suppliers' warehouses, to § competitors' stores (willing to lose money or break even on a few purchases [can't be the norm tho] just so that the customer doesn't walk Where can I order? In store, mobile, online

The process required to narrow the decision down to a particular area can vary significantly depending on the type of business and the competitive pressures that must be considered. § Factor-rating system: (most widely used of general location selecting techniques) -- An approach for selecting a facility location by combining a diverse set of factors via a summed point scale score. -- A major problem with simple point-rating schemes is that they do not account for the wide range of costs that may occur within each factor. --§ Easy fix = assigning weights to factors depending on cost variability w/in factors § Transportation method of linear programming: -- useful for solving problems involving transporting products from several sources to several destinations. -- The two common objectives of such problems are to either: (1) minimize the cost of shipping "n" units to "m" destinations, or (2) maximize the profit of shipping "n" units to "m" destinations. § Centroid method: - A technique for locating single facilities that considers the existing facilities, the distances between them, and the volumes of goods to be shipped. - The centroid method begins by placing the existing locations on a coordinate grid system. Coordinates are usually based on longitude and latitude measures due to the rapid adoption of GPS systems for mapping locations. - often used to locate intermediate or distribution warehouses. (p. 383-87).

Plant Location methods (3)

Strategic Sourcing

Strategic sourcing is the development and management of supplier relationships to acquire goods and services in a way that aids in achieving the immediate needs of the business. -- Outsourcing is so sophisticated that even core functions such as engineering, research and development, manufacturing, information technology, and marketing can be moved outside the firm. -- Specificity: refers to how common the item is and, in a relative sense, how many substitutes might be available. -- Request for proposal (RFP) is commonly used for purchasing items that are more complex or expensive and where there may be a number of potential vendors. A detailed information packet describing what is to be purchased is prepared and distributed to potential vendors. The vendor then responds with a detailed proposal of how the company intends to meet the terms of the RFP. -- A Request for Bid (RFB) or reverse auction: similar in terms of the information packet needed. A major difference is how the bid price is negotiated. In the RFP, the bid is included in the proposal, whereas in a request for bid or reverse auction, vendors actually bid on the item in real time and often using Internet software. (p. 403).

logistics / international logistics

The art and science of obtaining, producing, and distributing material and product in the proper place and in the proper quantities. (p. 379). Int'l Logistics: All functions concerned with the movement of materials and finished goods on a global scale. (p. 379).

Utilization

The percentage of time spent actually working on the product or on performing the service. The utilization of an operation is calculated by dividing the operation cycle time by the process cycle time. Utilization = time activated / time available

Locating Logistics Facilities

The problem of facility location is faced by both new and existing businesses, and its solution is critical to a company's eventual success. An important element in designing a company's supply chain is the location of its facilities. Criteria that influence manufacturing plant & warehouse location planning: -- Proximity to customers -- Business climate -- Total costs -- Infrastructure -- Quality of labor -- Suppliers -- Other Facilities -- Free Trade Zones -- Political Risk -- Government Barriers -- Trading Blocs -- Environmental Regulation -- Host Community -- Competitive Advantage (p. 381-83).

Plant Location Methods

The process required to narrow the decision down to a particular area can vary significantly depending on the type of business and the competitive pressures that must be considered. § Factor-rating system: (most widely used of general location selecting techniques) -- An approach for selecting a facility location by combining a diverse set of factors. Point scales are developed for each criterion. Each potential site is then evaluated on each criterion and the points are combined to calculate a rating for the site. -- A major problem with simple point-rating schemes is that they do not account for the wide range of costs that may occur within each factor. Possible fix = assigning weights to factors. ex:, there may be only a few hundred dollars' difference between the best and worst locations on one factor and several thousands of dollars' difference between the best and the worst on another. § Transportation method of linear programming: -- useful for solving problems involving transporting products from several sources to several destinations. -- The two common objectives of such problems are to either (1) minimize the cost of shipping n units to m destinations or (2) maximize the profit of shipping n units to m destinations. § Centroid method: - A technique for locating single facilities that considers the existing facilities, the distances between them, and the volumes of goods to be shipped. - The centroid method begins by placing the existing locations on a coordinate grid system. Coordinates are usually based on longitude and latitude measures due to the rapid adoption of GPS systems for mapping locations. - often used to locate intermediate or distribution warehouses.

Different types of supply chain inventory replenishment models [that would exist in a make-to-stock environment] (typical of items directed at the consumer)

The techniques described here are most appropriate when demand is difficult to predict with great precision. In these models, we characterize demand by using a probability distribution and maintain stock so that the risk associated with stockout is managed. For these applications, the following three models are discussed: 1. The single-period model. This is used when we are making a one-time purchase of an item. An example might be purchasing T-shirts to sell at a one-time sporting event. 2. Fixed-order quantity model. This is used when we want to maintain an item "instock," and when we resupply the item, a certain number of units must be ordered each time. Inventory for the item is monitored until it gets down to a level where the risk of stocking out is great enough that we are compelled to order. 3. Fixed-time period model. This is similar to the fixed-order quantity model, and is used when the item should be in-stock and ready to use. In this case, rather than monitoring the inventory level and ordering when the level gets down to a critical quantity, the item is ordered at certain intervals of time, for example, every Friday morning. This is often convenient when a group of items is ordered together. An example is the delivery of different types of bread to a grocery store. The bakery supplier may have 10 or more products stocked in a store, and rather than delivering each product individually at different times, it is much (p. 517).

Connecting operations to profit***

Working capital Output/Total Assets = Utilization + Working Capital + Productivity

Lean Supply Chain: Design Principles

We divide our design principles into three major categories. § The first two sets of principles relate to internal production processes. --§These are the processes that actually create the goods and services within a firm. § The third category applies lean concepts to the entire supply chain. These principles include 1. Lean Layouts a. Group technology b. Quality at the source c. JIT production 2. Lean Production Schedules a. Uniform plant loading b. Kanban production control system c. Determination of number of Kanbans needed d. Minimized setup times 3. Lean Supply Chains a. Specialized plants b. Collaboration with suppliers c. Building a lean supply chain (p. 357-358).

Waste elimination

a reasonable goal in service operations, just as it is in manufacturing operations, BUT there is a difference in the sources of variation that cause the waste. § Manufacturing operations, compared to service operations, are far more controllable. -§Uncertainty does result from material and labor inputs, but those can be anticipated and controlled to a great extent. The workers, the design of the product, and the production tools are all under the control of operations to a very large extent. § Sources of variability/uncertainty for services: - task times - demand - customers' production roles Authors: "there is often a price to pay for being lean, and that price often is at the expense of customer service when unlikely events occur. Whether in a service or manufacturing business, potential trade-offs exist with lean production and must be dealt with. An expanded lean definition identifies seven prominent types of waste to be eliminated from the supply chain: (1) waste from overproduction, (2) waste of waiting time, (3) transportation waste, (4) inventory waste, (5) processing waste, (6) waste of motion, and (7) waste from product defects. (p. 351-53).

outsourcing decisions

good advice is to keep control of - or acquire - activities that are true competitive differentiators or have the potential to yield a competitive advantage, and to outsource the rest. It is important to make a distinction btwn "core" and "strategic" activities Core: key to biz, but do not confer a competitive advantage Strategic: key source of competitive advantage. Bc the competitive environment can change rapidly, companies need to monitor the situation constantly and adjust accordingly. As an example, Coca-Cola, which decided to stay out of the bottling business in the early 1900s, partnered instead with independent bottlers and quickly built market share. The company reversed itself in the 1980s when bottling became a key competitive element in the industry. (p. 411).

omni-channel supply chains used to be an ____ but now they are an ____

omni-channel supply chains used to be an ORDER WINNER but now they are an ORDER QUALIFIER

Capacity Strategy § Aspects of capacity mgmt § Ways of reconciling capacity with demand (5)

refers to several aspects of capacity management, including: the timing of expansion or contraction the amount of capacity cushion the size of facilities the linkage with marketing/business plans the linkage with competitive priorities Ways of reconciling capacity and demand: - Level capacity - Chase demand - Demand management - Expansionist Strategy - Wait and see strategy

Safety Stock / determination of how much safety stock is needed:

the amount of inventory carried in addition to the expected demand. Safety stock can be determined based on many different criteria. A common approach is for a company to simply state that a certain number of weeks of supply needs to be kept in safety stock. It is better, though, to use an approach that captures the variability in demand. For example, an objective may be something like "set the safety stock level so that there will only be a 5 percent chance of stocking out if demand exceeds 300 units." We call this approach to setting safety stock the probability approach. With the models described in this chapter, we assume that the demand over a period of time is normally distributed with a mean and a standard deviation. Again, remember that this approach considers only the probability of running out of stock, not how many units we are short. To determine the probability of stocking out over the time period, we can simply plot a normal distribution for the expected demand and note where the amount we have on hand lies on the curve. (p. 529).

Average aggregate inventory value

the average total value of all items held in inventory for the firm, valued at cost includes raw material, work-in-process, finished goods, and distribution inventory considered owned by the company

From lean Supply Chain to Lean Design problem with lean supply chain?

the just-in-time approach to manufacturing has resulted in major reductions in inventory in U.S. companies over the past two decades. As we can see in the more recent data, some companies think it has gone too far and that having a little extra inventory might be a healthier option. Although being lean helps companies hold down costs by keeping stockpiles of components and finished goods low, it can leave them high and dry if there is some disruption in the supply chain, such as an earthquake or some other natural disaster. Just-in-time makes sense, but it makes supply chains vulnerable to disruptions, so what we are seeing now is how these concepts are being adapted to meet the practical world. (p. 350).

Difference between: Fixed-order quantity model, & One where demand is uncertain

the key difference is in computing the reorder point; the uncertainty element is taken into account in the safety stock calculation. The order quantity calculation remains the same.

Planning Service Capacity

there are several important differences between planning mfg capacity and service capacity. § Service capacity is more time- and location-dependent, -- services cannot be stored for later use -- service capacity must be located near the customer (service cannot be delivered like goods (except internet servs.)) § it is subject to more volatile demand fluctuations, and -- b/c of this volatility, service capacity is often planned in increments as small as 10-30mins, as opposed to the one-week increments more common in mfg. § utilization directly impacts service quality. Capacity Operating Point, Utilization and Service Quality § arrival rate - refers to the average number of customers that come to a facility during a specific period of time. § service rate - average number of customers that can be processed over the same period of time when the facility is operating at maximum capacity. The best operating point is near 70 percent of the maximum capacity. This is enough to keep servers busy but allows enough time to serve customers individually and keep enough capacity in reserve so as not to create too many managerial headaches. § Optimal utilization rate -- very context specific. Low rates are appropriate when both the degree of uncertainty and the stakes are high. (ex: hospital emergency rooms and fire departments should aim for low utilization because of the high level of uncertainty and the life-or-death nature of their activities) High rates are appropriate for relatively predictable services such as commuter trains or service facilities without customer contact (ex: postal sorting operations). —— plus, a third group for which high utilization is desirable. Sports arenas, stage performances and bars. Want as many customers to be able to be served as possible so you can "pack the house" (p. 120-21).

Vendor-managed inventory

when a customer actually allows the supplier to manage the inventory policy of an item or group of items for them. In this case, the supplier is given the freedom to replenish the item as they see fit. Typically, there are some constraints related to the maximum that the customer is willing to carry, the required service levels, and other billing transaction processes. Selecting the proper process depends on minimizing the balance between the supplier's delivered costs of the item over a period of time, say a year, and the customer's costs of managing the inventory. (p. 404).

What is supply chain? What is logistics?

§ All facilities, functions, and activities associated with flow and transformation of goods and services from raw materials to customer, as well as the associated information flows § An integrated group of processes to "source," "make," and "deliver" products § All assets, information and processes that provide "supply", whether inside or outside the organization. logistics = the art and science of obtaining, producing, and distributing material and products in the proper place and in the proper quantities. (p. 379).

What does Inventory consist of? (5 parts)

§ Inventory is the stock of any item or resource used in an organization. In services, inventory generally refers to the tangible goods to be sold and the supplies necessary to administer the service. § Inventory system is the set of policies and controls that monitor levels of inventory and determine what levels should be maintained, when stock should be replenished, and how large orders should be. § Manufacturing inventory generally refers to items that contribute to or become part of a firm's product output. Manufacturing inventory is typically classified into (1) raw materials, (2) finished products, (3) component parts, (4) supplies, and (5) work-in-process. § In distribution, inventory is classified as in-transit, meaning that it is being moved in the system, and warehouse, which is inventory in a warehouse or distribution center. Retail sites carry inventory for immediate sale to customers. (p. 518).

Economies of Scale / Diseconomies of Scale + How to avoid diseconomies of scale?

§ The idea that as the plant gets larger and volume increases, the average cost per unit drops. At some point, the plant gets too large and cost per unit increases. HOWEVER, at some point, the size of a plant becomes too large and diseconomies of scale become a problem. These diseconomies may surface in many different ways. § How to avoid diseconomies of scale: Minimize equipment downtime, create capacity flexibility § For example, maintaining product demand required to keep the large facility busy may require significant discounting of the product.

Minimized Setup Times

§ reductions in setup and changeover times are necessary to achieve a smooth flow. § Under a traditional approach, setup cost is treated as a constant, and the optimal order quantity is shown as six. Under the kanban approach, setup cost is significantly reduced and the corresponding optimal order quantity is reduced. A simple idea used to achieve such setup time reductions involves dividing the setup time into internal and external activities. Internal activities must be done while a machine is stopped. External activities can be done while the machine is running. The setup process is then changed so that external activities are done while the machine is running in anticipation of the next setup. Other time-saving devices such as duplicate tool holders also are used to speed setups.

Balanced Scorecard

§ strategy implementation tool that harnesses multiple internal and external performance metrics in order to balance financial and strategic goals § measurement of organizational performance in four equally important areas: finances, customers, internal operations, and innovation and learning

Supply chain: Upstream Focus vs Downstream Focus

—Upstream Questions/Focuses What Partners do I "have" to have? Does my Partner "need" me to be successful? Which Partners make me better? How "exclusive" is my Partner Relationship? Can my Partner afford to lose me? How long is my Partner Relationship? Do I have the right relationship with my Partner? Can my Partner go "Direct"? Is my partner "Transparent"? How much "RISK" am I willing to carry? vs. —Downstream Questions/Focuses— Do I have the right relationship with my "Key" Customers? (Can I afford to lose them?) How embedded is my product into their solution? I'm I the only player in town to them? Do they know that? Are they the only player in town? Do they know that? Can I be easily replaced - speed, cost, quality? Can I go direct? How Transparent is my customer? In the end is it all about "Price"? I'm I involved in their Product Development? Are they involved in my Product Development?