MGT333
Packaging is an easy category to buy because it has few disposal, environmental, and transportation implications.
False
A six sigma (6σ) approach to quality:
focuses on preventing defects by using data to reduce variation and waste.
Factors In Quantity Decisions
forecasts costs availability shortages price/volume relationship
Two effective logistics cost reduction strategies are partnering agreements with logistics services providers and long-term contracts.
true
Which of the following is not one of the outlined and recognized quality dimensions?
Affordability (the quality of being affordable)
Which of the following questions does not typically belong to a value-engineering checklist?
Can the product quality be lowered in order to reach an even lower price?
Operator action is not required when process output exceeds the upper control limit (UCL) or dips below the lower control limit (LCL).
False
Forms of inventory
Forms of Inventories •Raw materials, purchased parts and packaging •Work-in-process (WIP) •Finished goods •MRO items Resale items
Categories of Needs:Resale
SResellers - between producer/provider and buyer/user SRetailers, Wholesalers, Distributors, Brokers, Traders SIf it takes ownership of goods: SResell Goods - represent the Largest Cost SFinancial Management, Cash Flow, Logistics - are Critical SIf it takes no ownership: SCharge small fees SVulnerable to be bypassed
Need identification to consider
SThe alignment with corporate strategy SPareto - ABC classification (high financial impact; total spend) SRisk reduction (assurance of supply for critical items) SNew technology SFacilitates access to new markets
A transportation strategy should include consideration of:
Should include all of the above Answers: Safety on the ground, in the air and on water. Environmental factors. Consolidation of freight opportunities. Alternative transportation modes.
Corporate social responsibility
Srecognize social responsibilities in the countries in which they operate Sdeal with socially responsible suppliers to improve image and reputation and to develop resilient and sustainable supply chains Spromote opportunities for disadvantaged, minority, and small business suppliers
Total Cost of Ownership for Equipment*
TCO = A + NPV S Ci - NPV Sn i= 1 A = Acquisition cost (delivered, installed) NPV = Net Present Value Ci = total operating Costs incurred in year "i" (maintenance, parts, etc.) Sn = Salvage value in year n
forecasting
Techniques: Quantitative »Causal Models: -Identify principal determinants/ parameters -Develop linear (or multiple regression) models »Time Series Forecasting: -Assumes sales follow a repetitive pattern over time -Use just the past values of the predicted variable -Patterns: Constant/ Trend/ Seasonal; Cyclical and Random Variations as well as Turning Points.
A contract that specifies FOB Destination, freight prepaid means that:
The seller owns the goods while in transit up to the destination point, and will fill any claims in case of lost or damaged freight
Which of the following is/ are considered as common problems with the development of product specifications?
The use of unreasonable tolerances. The lack of clarity in describing the item/ service The potential to limit competition. A), B) and C)
Functions of inventory
Transit or pipeline inventories Cycle inventories Buffer or uncertainty inventories or safety stock Anticipation or certainty inventories Decoupling inventories
One of the main external failure costs is the warranty cost.
True
The process capability index (Cp) combines process spread and tolerance into one index that indicates whether process variation is satisfactory; and in practice, a value lower than "1" is considered unsatisfactory.
True
FOB
Using Free On Board terminology buyer and seller establish: ● 1.Who pays the carrier 2.When legal title to goods being shipped passes to the buyer 3.Who is responsible for preparing and pursuing claims with the carrier 4.Who routes the freight
Which of the following is not true about value?
Value is determined subjectively by design engineers.
The cost approach to pricing:
means prices are set to cover direct costs, contribute to indirect costs, and provide a profit.
quality
notions of function, suitability, reliability, and conformance to specifications function- action designed to perform suitability- ability for item to meet intended function reliability- will function over certain amount of time
Risk management 3 categories
operational: interruption in flow of goods/services financial: price or total cost of goods/services will change reputational: reputation adversely affected by method of acquisition or behavior of supplier
Anticipation inventories are carried:
to cover a well-defined future need.
Organizations operating under a just-in-time system, prefer to ship by:
truck
Holding extra inventory to protect against a supply disruption from a supplier strike is an example of buffer inventory.
true
In the long run, a firm must recover all costs or go out of business. In other words, facilities and machinery must be maintained, modernized, and replaced
true
Logistics costs can be divided into three categories: inventory carrying costs, administrative costs, and transportation (with transportation costs accounting for the bulk of the costs).
true
Logistics is responsible for the management of inventory in motion and at rest.
true
MRP
•Designed for "push" or forecast-driven systems ••Master production schedule: »How many and when do we need them •Inventory record: »What do we have and what do we need (consider lot size policy, lead times) •Bill of material (BOM): »What do we need to make one end product
problems with inspection
•Does not change nor adds value to the product •Does not correct revealed problems »product deficiencies »system deficiencies »Practically is just a Post Factum detection tool •Does add cost •Duplication of inspection activity can take place •Often a large number of items need to be inspected
Which statement is most accurate when deciding how much and when to buy?
Managers seldom make purchase decisions until they are absolutely sure of the volume required. Use the forecast future demand and lead times to determine optimal order volume. The costs of placing orders and holding inventory are so low they do not significantly affect the decision of how much to buy. Determine the price premium to attain the desired order quantity. **Balance price, volume, carrying cost, and the cost of stock-outs.**
The correct statement describing a general condition of economic competition is:
Mopoly is the condition when there is only one provider in the market, and he will be able to charge the price that will best fit his interest
A sampling technique in which every element in the population has an equal chance of being selected is called:
Random sampling
additional considerations
SFinancial - impact on revenue; financial parameters SRisk - all relevant categories of risk SInnovation - level or novelty & improvement SEnvironmental - overall SC impact SRegulations - conformity SCSR - Corporate Social Responsibility alignment SPolitical - support government initiatives
services
SProfessional and Technical: SAccounting, Audit, Architect, Law, Consultant SSoftware, Printing, R&D, Advertising SOperating: SJanitorial, Security, Telephone, Landscaping
The lowest price that ensures a continuous supply of the proper quality where and when needed and allows the supplier to make a reasonable profit, is commonly known as:
a fair price
economic value
a measure of the benefit provided to an economic agent The Highest VALUE is reached at the Lowest end Cost at which the Function can be Accomplished at the time and place and with the quality required
Decoupling inventories are used to:
accommodate different rates of manufacturing or patterns of demand.
standardization
agreement on definite sizes, design, quality, and the like. (technical and engineering)
transportation modes
air, water, road, rail, intermodel, pipeline, telecommunication
Capital assets:
are generally expensive.
The three main inputs of a material requirements planning (MRP) system are:
bill of material, a master production schedule, and the inventory record.
kaizen
continuous improvement
Cycle inventories are used to:
reduce the number of setups, as well as order costs.
simplification
reduction in the number of sizes, designs, and so forth
Analysis of each component
-Can any part be eliminated without impairing the operation of the complete unit? -Can the design of the part be simplified to reduce its basic cost? -Can less expensive but equally satisfactory materials be used in the part? -Can the design of the part be changed to permit the use of simplified or less costly production methods?
sample of value engineering checklist
1.Can the item/component be eliminated? 2.If the item is not standard, can a standard item be used? 3.If it is a standard item, does it completely fit the application, or is it a misfit? 4.Does the item have greater capacity than required? 5.Can the weight be reduced? 6.Can we substitute the item with a similar one that we already have in our inventory? Are the specified tolerances closer than necessary?
specification problems
1.Lack of clarity SPotential multiple problems on the road 2.Limiting the competition SImproper description that results in a reduced number of potential suppliers SHigher chances to develop supplier dependency 3.Unreasonable tolerances Potential cost increase without adding value
"A" items
70-80% of dollar value strategic sourcing to align supply strategy with corporate strategy
ISO
9001- quality 14001- environment
When a commercial janitorial service company predicts demand for its services using commercial building permits issued, office leasing and vacancy rates, this is an example of:
causal model
Process variation that are intrinsic to the process are:
common, non-assignable causes of variation.
Marine transport is best suited for products of low weight and high value; and items that are extremely perishable.
false
Ordering raw material from a supplier in full truck loads only is an example of decoupling inventory.
false
Compared to other modes of transportation, motor carriers provide the advantage of:
having the flexibility of delivering point-to-point service.
Lean is a management philosophy that focuses on:
maximizing customer value while eliminating waste.
FOB destination
the Seller owns the goods in transit and file claims
An advantage of buying by performance or function over other specification methods is that it provides:
the opportunity for the potential supplier to establish how to make the most suitable product/service.
The six sigma (6σ) approach to quality uses the five-step methodology of: define, measure, analyze, improve, and control (DMAIC).
true
When price are established using the market approach, prices may not be directly related to costs.
true
six sigma
»Master blackbelts provides training, consulting »At GE, blackbelts receive three weeks of training, with follow-up exams and continued learning through conferences and other forums »A Greenbelt at GE is the lowest commitment, which is training for a minimum of two weeks in Six Sigma »At GE, every management employee is required to at least become a Greenbelt in Six Sigma
six sigma
•A broad and comprehensive system for building and sustaining business performance, success, and leadership • •Measurement of both processes and products is critical to Six Sigma success »Statistical six sigma goal is near-perfection »3.4 defects per million opportunities (DPMO)
how prices are set
•Cost approach »Price is set greater than direct costs, allowing for sufficient contribution to cover indirect costs and overhead, and leaving a margin for profit •Market approach »Prices are set in the marketplace and may not be directly related to cost
inventory costs
•Storage Space Costs »Building, facility maintenance •Inventory Servicing Costs »IT, handling, RFID, inventory control •Capital Costs »Everything related to investment, interest, opportunity lost •Inventory Risk Costs »Lost of value, depreciation, obsolesce, fraud stock out costs
logistics costs
-Transportation (the bulk of the costs) -Inventory carrying costs -Administrative costs
Value analysis
-a method that aims at reducing all unnecessary costs out of an existing product
Value engineering
-a systematic study of every element of cost in a material, item of equipment, service or construction project to ensure that every element of cost fulfills a necessary function at the lowest possible total cost -Value engineering fits mainly with the design stage
seven wastes
1) overproduction 2) queues 3) transportation 4) inventory 5) motion 6) overprocessing 7) defective product
Categories of needs
1) resale 2) raw or semi-processed materials 3) parts, components, and packaging 4) maintenance, repair, and operating supplies (MRO) 5) capital assets 6) services 7) other (figure 6-1)
A company manufactures 420 cylinders per day, each requiring a pressure gauge. The purchase price of the pressure gauge is $3.20. The company controller estimated annual holding costs at 25 percent per year, while the cost of placing an order was estimated at $55.00. Assuming that the plant operates 45 weeks per year, the EOQ for the pressure gauge is:
2,725 units.
Which of the following lists reflect the characteristics of services:
Inseparability, Intangibility, Variability, Perishability and Non-Ownership
pricing service contracts
SFor smaller dollar amounts: STime & Materials, SLabor hours SIf you want to reward cost control: SFixed Price SFixed Price + Award Fee SIf there is significant uncertainty: SCost + Award Fee Always Negotiate
Capital assets
SLong term, high monetary value assets classified as capital (by accountants) SStrategic spending STangible - land, building, equipment (traditionally) SIntangible - patents, copyright ("recently") SAcquisition Price could be 30%÷50% of the TCO SDepreciation
Parts, Components and Packaging;MRO
SParts & Components SDesign SMake or buy SStandard vs. Custom SPackaging SProtection of goods SAppeal to customer SEnvironmental impact SMRO (maintenance repair and operating) and SVP SLarge number of items (SKU) Low monetary value (min acquisition costs) => "C" item from ABC
services
SPerishability SEmpty hotel room tonight cannot be "recovered" later on SInseparability SCould you take the hotel room with you to other location use? SNon-ownership SSecure the access to the service - but not the ownership SIntangibility SCould you see your hairstyle before the actual service? SVariability SConsistency of outcome subjected to the human factor
need identification
SQuality - fit, performance SQuantity - meet demand SDelivery - timing SPrice - deal maker/breaker SServices - what is included (transportation, warranty, storage, installation, repair, disposal, support, training etc.)
Raw & Semi-processed Materials
SRaw Materials; Commodities SIron, steel, gold, natural gas, crude oil, coffee SAgricultural products SAvailability issues SPrice fluctuations STraded on Commodity markets SSemi-processed Materials SBy Converters - "smaller" companies, more vulnerable
If the delivery date is some months or years away and if there is substantial chance of price escalation, a supplier may feel that there is far too much risk of loss to agree to sell under a:
firm-fixed-price (FFP)
Examples of prevention costs include:
employee training and awareness costs, and costs of pre-certifying and qualifying suppliers.
Canceling a contract for a technicality when market prices are falling is considered an acceptable and ethical practice.
false
Governments typically play no role in establishing prices or regulating how buyers and sellers are allowed to behave in agreeing on prices.
false
ISO 9000 Stands for International Supply Organization 9000
false
Rail is the most flexible mode of transportation and accounts for approximately 80 percent of transportation expenditures by U.S. firms.
false
The Delphi technique is a method of quantitative forecasting.
false
Items for which prices are comparatively low and the cost of price reduction efforts may exceed any price savings realized are:
maintenance, repair, and operating supplies.
Description by brand necessary when
manufacturing process is a secret or item is covered by patent specifications cannot be developed bc high degree of intangible labor quality quantity bought is low and cost of specifications is high end users have bias
Financial criteria
revenue enhancement, working capital and accounts receivable reduction, cash flow improvement, inventory reduction, improve ROA. Small-medium businesses- capital may be limited and cash flow is a major concern Supply can play a key part to ensure liquidity and maintain positive cash flow
A corporate travel department determines that employees have been staying in 15 different hotel chains. The director of corporate travel mandates that travelers may only stay in four designated hotel chains. This action is an example of:
simplification.
When a specification is widely known, commonly recognized and readily available to every buyer, it is called a:
standard specification.
FOB origin
the Buyer owns the goods in transit and file claims
The factors stemming from competition determine the exact price each firm will quote. That is, when faced with the realities of competition, the price any specific firm will quote will be governed largely by its need for business and by what it thinks its competitors will quote.
true
The selection of the FOB point is important to the purchaser, because it determines:
who pays the carrier, when legal title to goods being shipped passes to the buyer, who is responsible for preparing and pursuing loss or damage claims and who routes the freight.
political factors
willingness to support government priorities
Compeition
»Pure Competition (1) -Many competitors -Buyers show no preference between products or providers -Supply and demand determines prices »Imperfect Competition -Monopolistic Competition (product differentiation, many providers) (2) -Oligopoly (few competitors, products could be (automotive) or not be differentiated (Al, steel)) (3) »Monopoly (4) -One seller controls entire supply
When determining lot size
»the costs of carrying extra inventory versus »the costs of purchasing more frequently • •The overall Objective: »To minimize the Total Annual Costs
types of carriers
•Common carriers -Offer transportation service to all shippers (including general public) at published rates, in a nondiscriminatory basis, between designated points. •Contract carriers -For-hire carrier that provides service to a limited number of shippers and operate under specific contractual arrangements that specify rates and services (not serving general public). •Exempt carriers -For-hire carriers, but exempt from regulation of rates and services. Mainly for transporting seasonal agricultural commodities. •Private carriers -Provides transportation for its company's own products and the company owns (or leases) all related equipment and facilities.
JIT
•Few, nearby suppliers •Frequent deliveries in small lots •Steady supply rate •Buying firm schedules inbound freight •Buying firm helps suppliers meet quality •Long-term contract agreements
Four Basic MRP Lot Sizing Techniques
•Lot-for-lot (L4L) »Based on net requirement per time period •Economic order quantity (EOQ) »Based on annual demand and considers order and inventory costs •Least-total-cost (LTC) »A dynamic tool resulted in the least expensive lot •Least-unit-cost (LUC) »Dynamic tool that balances setup and inventory holding cost to determine the optimal cost per unit
inventory costs
•Ordering/ purchasing costs: »managerial, clerical, material, telephone, mailing, fax, e-mail, accounting, transportation, inspection, and receiving costs associated with a purchase order •Setup costs: all the purchaser and supplier's costs of setting up a production run
8 dimensions of quality
•Performance: Deliver the primary function of the product or service. •Conformance: The meeting of specifications. •Reliability: The probability of failure within a specified time period. •Durability: The life expectancy. •Serviceability: The maintainability and ease to fix. •Features: The bells and whistles. •Aesthetics: The look, smell, feel, and sound. •Perceived quality: Customer's perception.
Costs of Quality Categories
•Prevention costs »Costs encounter when preventing poor quality in products or services »Examples: preventive maintenance, process capability evaluations, quality improvement team meetings, quality education, training •Appraisal costs »Costs associated with assuring conformance; evaluation, measuring, auditing »Examples: inspections, tests, service audits •Failure costs »Result from products or services not conforming to requirements of customer »Two categories: internal and external »Internal examples: scrap, rework, redoing inspection, and downgrading »External examples: processing customer complaints, customer returns, warranty claims, and product recalls
leased equipment
①Operating Lease SFocus is on operating convenience and flexibility SFirm is usually not interested in ownership SMost operating leases are short term SMost often used when firm wants freedom/flexibility ②Financial Lease SPrimary motivation is financial (buyer needs financing) SUsually they are long‑term SLease length should be shorter than the life of the equipment SMany financial leases are non-cancelable