Supply Chain Management Exam II
MRP Benefits
- low levels of in process inventory -ability to track material requirements -ability to evaluate capacity requirements -a means of allocating production time
reasons for diseconomies of scale
-distribution costs increase due to traffic congestion and shipping from a centralized facility rather than multiple smaller facilities -complexity increases costs -inflexibility can be an issue -additional levels of bureaucracy -overtime costs
ERP
-enables organization to deal directly with key suppliers -access to availability of key suppliers' resources -key costumers can access firms inventory info- manufacturing and delivery schedules -eliminates inconsistencies and incompatibility -automates business processes rapidly -minimize delivery lead times
reasons for economies of scales
-fixed costs are spread over a larger number of units -construction costs increase at a decreasing rate as facility size increases -processing costs decrease due to standardization
reasons to study decision analysis
-make better decisions -gather your thoughts -organize subjective ideas and judgements
service capacity challenges
-need to be near costumers -inability to store services -degree of demand volatility
Disadvantages of ERP
-requires substantial capital -time and money to evaluate, purchase, implement, train -very complex -difficult to implement -restructure firms processes to be compatible
binding constraints
-shade price values that are non-zero -have no slack or surplus -changing RHS will lead to change in optimal decision values and change the value of objective function
non-binding constraints
-shadow price values that are equal to zero -have slack or surplus -changing RHS will have no effect on optimal solution
Advantages of ERP
-uses single database and common software infrastructure to provide broader scope and up to date info -better management decisions -communicate operational changes fast -integrated with internet technology -VISIBILITY -increases productivity -communicate standardized method -integrate financial, production, supply and costumer order info
Aggregate Production Plan
APP
available to promise
ATP
increase
As one moves down the the BOM the numbers do what?
bill of materials
BOM
costumer relationship management
CRM
capacity requirements planning
CRP
annual ordering cost
D/Q * S
distribution requirement planning
DRP
electronic data interchange
EDI
Economic Order Quantity
EOQ
enterprise resource planning
ERP
failed
The lack of management commitment, resources, training, and communication in addition to an incompatible system environment leads to what type of implantation of ERP?
make to stock
The level production strategy works well with which type of manufacturing firm?
safety stock
The risk of stock out decreases as the amount of what increases?
one
The sum of all weights in a weighted score have to equal what?
work in process
WIP
computer support and accurate realistic inputs
What are the primary requirements for successfully implementing ERP?
dependent demand
What can be calculated once the demand of the final product is known?
inventory
What can be one of the most expensive assets of an organization?
annual $ usage
What is the most often used factor to prioritize items in the ABC system?
planned order release
What the most important output of the MRP?
continuous review
Which inventory system is costly to conduct bust requires less safety stock?
single period
Which model's goal is to identify the order quantity that will minimize long-run excess and shortage costs?
mixed production strategy
Which production strategy minimizes stock-outs and cycle time?
MRP
a computer based materials management system that calculates the exact quantities, need dates, and planned order releases for sub assemblies and materials required to manufacture a final product
make to order
a firm that generally produce one of a kind products based on costumer specifications
make to stock
a firm typically emphasize immediate delivery of off the shelf, standard goods at relatively low prices
APP
a hierarchical planning process that translates annuals business plans and demand forecasts into production plan for all products
RRP
a long range capacity planning module, checks whether aggregate resources are capable of satisfying the aggregate production. Resources considered include gross labor hours and machine hours
objective function
a mathematical statement of profit for a given solution of other metric of measurement
tracking capacity strategy
a moderate strategy that adjust capacity in smalls amounts in response to demand
lead capacity strategy
a proactive approach that adds of subtracts capacity in anticipation of future market conditions and demands
lag capacity strategy
a reactive approach that adjusts its capacity in response to demand
CRP
a short ranged capacity planning technique that is used to check the feasibility of the material requirements plan
system nervousness
a situation where a small change in the upper-level production plan causes a major change in the lower-level production plan- can create serious problems for manufacturing firms
MPS
a time phased detailed dis-aggregation of the aggregate production plan listing the exact end items to be produced
chase production strategy
adjusts capacity to match demand pattern, hire and layoff workers to match production rate to demand- workforce fluctuates but finished goods inventory remains constant
inventory policy
affects how efficiently a firm deploys its assets in producing goods and services
MRP Benefits
allows managers to: -determine with ease the quanitties of each component for a given order size -know when to release orders -alerted when items needs attention
shadow price
amount by which the value of the objective function would change with a one unit change in the RHS value of a constraint
decision variables
amounts of either inputs or outputs
BOM
an engineering document that shows an inclusive listing of all component parts and sub assemblies making up the end item
ERP
an umbrella system that ties together a variety of specialized systems by using a common, shared, centralized database.
D
annual demand
total annual costs
annual holding cost plus annual ordering cost
sensitivity analysis
assessing the impact of potential changes to the numerical values of an LP model
quantity discount total cost
carrying cost plus ordering cost plus purchasing cost
decision analysis environments
certainty, risk and uncertainty
make to order firm
chase production strategy works well because they cant rely on finished goods inventory to satisfy fluctuating demand
Production strategies of APP
chase, level, mixed
turnover ratio
cost of revenue divided by average inventory equals?
excess cost
cost per unit minus salvage value per unit
demand per period
d
independent demand
demand of a firm's end products and has a demand pattern affected by trends, seasonal patterns, and general market conditions
appropriate amount of safety stock
depends upon: 1. average demand rate and average lead time 2. demand and lead variability 3.desired service level
inventory costs
direct vs. indirect, fixed vs. variable, order vs. holding
risk
environment in which certain future events have probable outcomes- uses decision trees
uncertainty
environment in which it is impossible to asses the likelihood of various future events- uses payoff tables
certainty
environment in which relevant parameters have known values-uses linear programming models
laplace
find the average payoff for each alternative and then pick the one with the highest $
a items
highest amount of annual $ usage, monitored more frequently, higher safety stock to guard against stock outs
H
holding cost per unit
regret or opportunity loss
identify the worst regret for each alternative and then pick the one with the lowest $
Economies of Scale
if output rate is less than the optimal level, increasing the output rate results in decreasing average per unit costs
diseconomies of scale
if the output rate is more than the optimal level, increasing the output rate resulting in increasing average per unit costs
stochastic demand
incorporates uncertainty by using probability distribution
dependent demand
items are components and raw materials
independent demand
items that can NOT be derived using the materials requirements planning logic from the demand for other items
level production strategy
keeps constant output rate and capacity and is more suited for firms that require highly skilled labor
LT
lead time
capacity strategies
lead, lag, tracking
independent demand item
level 0 on BOM- final product
constraints
limitations that restrict the available alternatives
average
line above letter in a formula means to use the....
LP model assumptions
linearity, divisibility, certainty, nonnegativity
chase production strategy
major cost components= hiring, training, termination costs
level production strategy
major cost components= inventory carrying and stock-out costs
risk taker, go getter
maxi-max-find the best payoff for each alternative and then pick the one with highest $
pessimist
maxi-min- find worst payoff for each alternative and then pick the one with highest $
Uncertainty decision criteria
maximin, maximax, laplace, minimax regret
MPS
more detailed and shorter planning horizon than the APP, BUT must be longer than production lead time
independent demand
must be forecasted based on market conditions
chase production strategy
negative motivational impact on workers by assuming that workers can easily be acquired (replaced) to perform the job
non negativity
negative values of decision variables are unacceptable
divisibility
non-integer values of decision variables are acceptable
z
number of standard deviations
parameters
numerical constraints
LP model components
objective function, decision variables, constraints, parameters
Q*
optimum quantity
Q
order quantity
S
ordering cost
periodic system
physical count of items in inventory made at periodic intervals
ABC Inventory System
prioritizes inventory into groups, A, B and C
service level
probability that demand will not exceed supply during lead time- 100% minus stockout risk
MPS
production quantity required to meet demand from all sources and is basis for computing the requirements of all time-phased end items
inventory turnover ratio
ratio shows how many times a company sells all its inventory in an accounting period
level production strategy
relies on constant output rate and capacity while varying inventory and backlog levels to handle fluctuating demand pattern-keeps workforce constant, relies on fluctuating finished goods inventories and back logs to meet demand
static demand
stable demand
od
stddev, of demand
oLT
stddev, of lead time
c items
stock-outs may be allowed to save inventory space and carrying cost
mixed production strategy
strives to maintain stable core workforce while using other short term means such as overtime, additional shifts, sub-contracting of the hiring of part-time/temp workers to manage short term high demand.
perpetual inventory system
system that keeps track of removals from inventory continuously, thus monitoring current levels of each item
available to promise
the difference between confirmed costumer orders and the quantity the firm planned to produce
linearity
the impact of decision variables is linear in constraints and in the objective function
dependent demand
the internal demand for parts based on demand of the final product in which the parts are used
service capacity
the number of costumers per day that a firms service delivery systems are designed to serve-could be in terms of some other period of time (costumers per hour, costumers per shift)
dependent demand item
the requirements of all the items in level 1 on BOM and below
lead time
time interval between ordering and receiving the order
shortage cost
unrealized profit per unit revenue per unit minus cost per unit
RCCP
used to check feasibility of MPS. Converts MPS from production needed to capacity required, then compares it to capacity available.
ABC Inventory System
useful technique for determining which inventory should be counted more frequently and managed more closely and which ones should no
certainty
values of parameters are known and constant
dynamic demand
varies over time
deterministic demand
when uncertainty is not included in its characteristics
periodic
which inventory system reviews physical inventory at specific points in time but requires higher level of safety stock.
mixed production strategy
which production strategy is a viable option for firms with multiple products and costumers seeking both low-cost and make to order items
level production strategy
workforce more likely to be more effective with higher morale
service level
z is equal to the
net requirements
The dependent demand management system for MRP takes info to compute what?
ABC inventory matrix
1. classify inventories into A-C based on inventory $ usage 2. classify inventories into A-C based on current of on-hand inventory dollar value 3.combine both analysis to form matrix
categories of inventory
1. raw materials 2.WIP 3.Finished goods 4.MRO 5.goods-in tansit
functions of inventory
1.establish s system for tracking items in inventory 2.make ordering decisions
reorder determinants
1.rate of demand 2.lead time 3.extent of demand and/or lead time variability 4.degree of stock-out risk acceptance to management
approx 40% of items B
15% of annual $ usage
Approx 40% of items C
5% of annual $ usage
approx 20 % of items A
80% of annual $ usage
expected value
EV
scheduling
In the service industry MPS may just be what type of software?
inventory
In the service industry you can not store or use what later?
highest
In weighted scoring you chose the option with what score?
Linear programming
LP
Master Production Schedule
MPS
maintenance, repair and operating
MRO
Materials Requirement planning
MRP
what, how many, when
MRP designed to answer what three questions?
annual holding cost
Q/2 * H
rough cut capacity planning
RCCP
right hand side
RHS
resource requirements planning
RRP
MRP
Requires these to work effectively: 1. independent demand info 2.parent-component relationship from the BOM 3.inventory status of final product and components
effective inventory management
Requires: 1. a tracking system 2.reliable forecast of demand 3.knowledge of lead times and variability 4.reasonable estimates of costs 5. classification system
supplier relationship management
SRM