C215 Operations Management

What is shifting demand?

A proactive marketing strategy that attempts to shift demand from peak periods to non-peak periods to smooth out the demand pattern Good for companies that have high fixed costs and low variable costs Examples: offering incentives such as movie matinees, early bird dinners, etc

What is load-distance model?

A procedure for evaluating location alternatives based on distance

What is a strategic business plan?

A statement of long-range strategy and revenue, cost, and profit objectives Usually updated annually

What is statistical process control (SPC)?

A statistical tool that involved inspecting a random sample of the output from a process and deciding whether the process is producing products with characteristics that fall within a predetermined range

What is expected value?

A weighted average of decision outcomes in which each future state of nature is assigned a probability of occurrence

List and describe the four different types of facility layouts

Process layout - groups resources based on similar processes or functions Product layout - arranges resources in sequence to allow for an efficient buildup of product Hybrid layout - combines characteristics of process and layout Fixed-position layout - product cannot be moved due to its size and all the resources have to come to the production site

What is make-to-order strategy?

Produces products to customer specification after an order has been recieved.

What is assemble-to-order strategy?

Produces standard components that can be combined to customer specifications

What is make-to-stock strategy?

Produces standard products/services for immediate sale or delivery

What are finished goods?

Products sold to customers

Shortage costs are incurred when

demand exceeds supply

What is the purpose of the ISO?

establish agreement on international quality standards, 164 countries

Scatter diagram?

graphs that show how two variables are related to each other

What is work measurement?

how long it should take to do a job

How does JIT fit within information systems?

information about quality, inventory levels, order status, and product returns is available to everyone in the organization

How does JIT fit within finance?

responsible for approving and evaluating financial investments (hiring consultants, training workers, purchasing or modifying equipment, etc)

In periodic review inventory system, how many units are ordered?

target inventory level - on hand balance

A safety stock increases,

the customer service level increases and inventory investment increases

What is range?

the difference between the largest and smallest observations in a set of data

What is standard time?

the length of time it should take a qualified worker using appropriate process and tools to complete a specific job, allowing time for personal fatigue and unavoidable delays

What is effective capacity?

the maximum output rate that can be sustained under normal conditions

What is break even analysis?

the process of studying the practices of companies considered "best-in-class' and comparing your company's performance to theirs

What is the relationship between JIT and lean systems?

they both focus on eliminating waste and affect the entire organization

Explain each of the two concepts: forward scheduling and backward scheduling.

Forward scheduling - schedule that determines the earliest possible completion date for a job, processing starts immediately when a job is received Backward scheduling - starts with the due date for an order and works backwards to determine the start date for each activity, begin scheduling the job's last activity so that the job is finished right on the due date

What is the JIT philosophy?

Getting the right quantity of goods at the right time (pull method) Waste is anything that doesnt add value Concept of eliminating waste

How does TQM impact information systems?

IS role is to make information accessible to teams throughout the organization

What are the different quality standards outlined in the text and what does each represent?

ISO 9000 - set of international a standards and a certification demonstrating that companies have met all the standards specified ISO 26000 - social responsibility ISO 14000 - environmental responsibility

What is the engineering plan?

Identifies new products or modifications to existing products that are needed to support the marketing plan

What is the role of the marketing plan in business planning?

Identifies the markets to be served, desired levels of customer service, product competitive advantage, profit margins, and the market share needed to achieve the objectives of the strategic business plan

What is a financial plan?

Identifies the sources and uses of funds; projects cash flows, profits, return on investment; and provides budgets in support of the strategic business plan

Describe the concepts of insourcing and outsourcing and provide examples of when an organization should use each

If the product is critical to your companies core competencies, you should provide the product in-house. If it is not, you can out-source.

What is the bullwhip effect?

Inaccurate or distorted demand information created in the supply chain

What is work system design?

Includes job design, work measurement, and worker compensation

What is MRO inventory?

Includes maintenance supplies, spare parts, lubricants, cleaning agents, and daily operating supplies. Facilities day-to-day operations.

What is an aggregate (production) plan?

Includes the budgeted levels of finished products, inventory, backlogs, workforce size, and aggregate production rate needed to support the marketing plan Updated monthly by the operations group

What are the different types of demand? Provide an example for each type of demand.

Independent - the demand for an item is unrelated to the demand for other items (ex. a finished product like a pizza, a car, a computer) Dependent - the demand for component parts is based on the number of end items being produced (ex. components of a finished product like cheese and sauce for a pizza or an engine and windows for a car)

Describe the differences between infinite and finite loading for scheduling work

Infinite - scheduling that calculates the capacity needed at work centers in the time period needed without regard to the capacity available to do the work Finite - scheduling that loads work centers up to a predetermined amount of capacity

What are the input/output measures of capacity for a hospital?

Input - available beds per month Output - number of patients per month

What are the input/output measures of capacity for a car manufacturer?

Input - labor hours Output - cars per shift

What are the input/output measures of capacity for a pizza parlor?

Input - worker hours per day Output - number of pizzas per day

What is the difference between intermittent processing systems and repetitive processing systems?

Intermittent - produces low volumes of many different products, uses process layout Repetitive - produces high volumes of a few standardized products, uses product layout

What are the quality failure costs?

Internal failure costs - costs associated with discovering poor product quality before the product reached the customer External failure costs - costs associated with quality problems that occur at the customer site

In reference to the Theory of Constraint (TOC), describe the three kinds of constraints: internal resources, market, and policy.

Internal resource constraint - a regular bottleneck Marker constraint - market demand is less than production capacity Policy constraint - a specific policy dictates the rate of production

What measurement does a company use for its minimum inventory investment?

Inventory turnover

What are the benefits of enterprise resource planning (ERP) systems?

It integrates the complete range of a company's operations in order to present a holistic view of the business function from a single information and IT architecture. An organization increases its ability to incorporate best practices that facilitate better managerial control, speedier decision making, and cost reductions throughout the organization

What are the costs of enterprise resource planning (ERP) software systems?

It is expensive and time consuming

What is anticipation inventory?

Items built in anticipation of future demand. Allows companies to maintain a level production strategy

What is transportation inventory?

Items in movement between locations.

What are work-in-process items?

Items in process throughout the plant

What are the differences between "push" and "pull" production systems?

JIT is based on a pull system rather than push. Making the right amount not just "pushing" product through in large amounts

How does JIT fit within accounting?

JIT relies on activity based costings to allocate overhead

What options can a company use for reducing worker boredom?

Job enlargement - horizontal expansion of the job through increasing the scope of the work designed Job enrichment - a vertical expansion of the job through increased work responsibility Job rotation - workers shift to different jobs to increase understanding of the total process

What is Enterprise Resource Planning (ERP)?

Large, sophisticated systems used for identifying and planning the enterprise-wide resources needed to coordinate all activities involved in producing and delivering products

What is the difference between a level aggregate plan and a chase aggregate plan?

Level - produced the same quantity each period (inventory and back orders are used to absorb demand fluctuations) used for make-to-stock products Chase - varies production to meet demand each period. used for make-to-order products

What is bill of material (BOM)?

Lists all the subassemblies, component parts, and raw materials that go into an end item and shows the usage quantity of each required

What are shortage costs?

Loss of customer goodwill, back-order handling, and lost sales

What technique is ordering the exact quantity that is needed?

Lot for lot

Hand tools, lubricants, and cleaning supplies are examples of what?

MRO inventory

How does inventory management differ for manufacturing, retail, and service industries?

Manufacturing - raw materials, finished and semi-finished products, inbound-outbound logistics from warehouse to seller Retail - Finished goods being sold to customers Service - no tangible products

What are the differences of quality between Manufacturing and Service organizations?

Manufacturing organizations produce tangible products and focus on product features. Service organizations produce a product that is intangible so they focus on the experience.

How does TQM impact marketing?

Marketings role is to understand the changing needs and wants of customers and communicate that info to operations

What is efficiency?

Measures performance relative to a standard Actual output/Standard output

What is a decision tree and what does it contain?

Modeling tool used to evaluate independent decisions that must be made in sequence 1. Decision points 2. Decision alternatives 3. Chance events 4. Outcomes

What is the two-bin system?

One bin with enough stock to satisfy demand during replenishment time is kept in the storeroom; the other bin is placed on the manufacturing floor

What is the difference between overtime and undertime?

Overtime - work beyond normal established operation hours that usually requires a 50% wage premium (should only be used as a short-term option) Undertime - a condition occurring when there are more people on the payroll than are needed to produce the planned output

What is backward integration?

Owning or controlling sources of raw materials and components

What is forward integration?

Owning or controlling the channels of distribution

What are components?

Parts or subassemblies used in final product

What is the total quality management philosophy?

Philosophy that seeks to improve quality by eliminating causes of product defects and by making quality the responsibility of everyone in the organization, solving the root cause of the problem

What is periodic counting?

Physical inventory is taken periodically, usually annually 1. count 2. verify 3. collect tickets 4. reconcile

How does TQM impact finance?

Plays a large role in evaluating and monitoring the financial impact of managing the quality process

What are product specifications?

Preset ranges of acceptable quality characteristics

What are the quality control costs?

Prevention costs - costs incurred in the process of preventing poor quality from occurring Appraisal costs - costs incurred in the process of uncovering defects

What is item cost?

Price paid per item plus any other direct costs associated with getting the item to the plant

What is methods analysis?

Process concerned with the detailed process for doing a particular job - used by companies when developing new products/services and for improving the efficiency of methods currently in use (SOPs and performance evaluations)

What is point of departure?

The percentage of normal capacity the company is current using

What is productivity?

A measure of how well a company uses its resources Output/Input

What is process velocity?

A measure of wasted time in the system Throughput time/Value-added time

What is ABC classification?

A method for determining level of control and frequency of review of inventory items

What are the five definitions of quality?

- Conformance to specifications - Fitness for use - Value for price paid - Support services - Psychological criteria

What are the concepts of TQM philosphy?`

- Customer focus - Continuous improvement - Employee empowerment - Use of quality tools - Product design - Process management - Managing supplier quality

What are the components of a supply chain?

- External suppliers - Internal functions - External distributors

What are the four basic categories of ERP?

- Finance and accounting - Sales and marketing - Production and materials management - Human resources

What are the characteristics of intermittent operations?

- Great product variety - Project process and batch process - Resources are grouped by function - More labor intensive, than capital intensive - Skilled and semi-skilled workers - Workers need to be flexible and be able to perform different task - Equipment is more general-purpose - Volume produced is based on number of customer orders

Describe the core elements of a just-in-time (JIT) system.

- Just in time manufacturing - total quality management - respect for people

What are the characteristics of repetitive operations?

- Low product variety - Line process and continuous process - Resources are arranged in sequence - More capital intensive - Often rely on automation and technology - Volume produced is based on a forecast of future demands - "mass production"

What are the objectives of material requirements planning?

- determine the quantity and timing of material requirements - maintain priorities

What are the factors involved in selecting an ideal location?

- proximity to sources of supply - proximity to customers - proximity to source of labor - community considerations - site considerations - quality-of-life issues

What are the benefits of a JIT system?

- reduction in inventory - improved quality - reduced space requirements - shorter lead times - lower production costs - increased machine utilization - greater flexibility

Characteristics of product layout:

- resources are specialized - facilities are capital intensive - processing rates are faster - material handling costs are lower - space requirements for inventor storage are lower - flexibility is low relative to the market

Characteristics of process layout:

- resources used are general purpose - facilities are less capital intensive and more labor intensive - resources have greater flexibility - processing rates are slower - material handling costs are higher - scheduling resources is challenging - space requirements are higher

What are the aspects of a just-in-time (JIT) system.

- simplicity - continuous improvement/kaizen - visibility - flexibility

What is acceptance sampling?

The process of randomly inspecting a sample of goods and deciding whether to accept the entire lot based on the results

What is the ABC inventory analysis procedure?

1. Calculate the annual dollar usage for each item 2. List the items in descending order based on annual dollar usage 3. Calculate the cumulative annual dollar volume 4. Classify the items into groups

What are the project life cycle phases?

1. Concept 2. Feasibility analysis or study 3. Planning 4. Execution 5. Termination

What are the capacity alternatives?

1. Do nothing 2. Expand large now 3. Expand small now, with option to add later

What are the steps in process layout?

1. Gather information 2. Develop a block plan or schematic of the layout 3. Develop a detailed layout

What are the steps involved in capacity planning and location analysis?

1. Identify capacity requirements 2. Develop capacity alternatives 3. Evaluate capacity alternatives

What is the procedure for making a location decision?

1. Identify dominant location factors 2. Develop location alternatives 3. Evaluate location alternative

What are the steps in developing an aggregate plan?

1. Identify the aggregate plan that matches your company's objectives (level, chase, or hybrid) 2. Based on the aggregate plan, determine the aggregate production rate 3. Calculate the size of the workforce 4. Test the aggregate plan 5. Evaluate the plans performance in terms of cost, customer service, human resources, and operations

What is the flow of business planning?

1. Strategic Business Plan 2. Sales and Operations Plan 3. Marketing Plan 4. Aggregate Plan

What is a Pareto analysis?

80/20 rule - about 20% of the inventory costs account for about 80% of the inventory value

What is the Deming Prize?

A Japanese award given to companies to recognize efforts in quality improvement

What is a process flowchart and what is it used for by an organization?

A chart showing the sequence of steps in producing the product or service. It is useful for seeing the totality of the operation and for identifying potential problem areas.

What is the Plan-Do-Study-Act cycle and what is it used for?

A diagram that describes the activities that need to be performed to incorporate continuous improvement into the operation

What is the Six sigma concept?

A high level of quality associated with approximately 3.4 defective parts per million Shows a process distribution with quality levels of + or - 3 sigma and + or - 6 sigma

What is the ABC classification of materials?

A items - account for 60.5% of value and 13.3% of the items A items should have a continuous review system (or EOQ) B items - account for 25% of the value and 26.7% of the items B items should have a periodic review system C items - account for 14.5% of the value and 60% of the items C items can have a two-bin system

What is Theory of Constraint (TOC)?

A management philosophy that extends the concepts of OPT.

What is vertical integration?

A measure of how much of the supply chain is actually owned by the manufacturing company

What is utilization?

The proportion of time a resource is actually used Time a resource is used/time a resource available

What is magnitude of change?

The relative size of the change needed

How does TQM impact accounting?

Accountings role is to determine exact costs

What are internal functions?

Activities performed by the final product company, such as processing, purchasing, production planning and control, quality assurance, and shipping

What is capacity cushion?

Additional capacity added to regular capacity requirements to provide greater flexibility

Cause-and-effect diagram?

Also known as fishbone, identifies potential causes of particular quality problems

What is a broad view of JIT?

Also known as lean production

When should a company consider using machine versus people to do a job?

Always consider the company's objectives first

What is the Supply Chain Operations Reference (SCOR)?

An effort to standardize measurement of supply chain performance

What is process capability index Cpk) used for?

An index used to measure process capabality Specification width/process width + or - 3 standard deviations (total of 6)

What is economic order quantity (EOQ)?

An optimizing method used for determining order quantity and reorder points. part of continuous review system, which tracks on-hand inventory each time a withdrawal is made

Total annual inventory cost?

Annual ordering cost + annual holding costs

What is a project buffer/storage area?

Appears in multi-stage process and allows two stages to operate independently of each other

What is throughput time?

Average amount of time product takes to move through the system

What is rectilinear distance?

The shortest distance between two points measured by using only north-south and east-west movements

What is lead time?

Time from order placement to order receipt

What do you call it when you delay delivery to the customer until the item becomes available?

Back order

What is the purpose of sales and operations planning?

Brings together all the function business plans (marketing, operations, engineering, and finance) into one integrated plan Usually updated monthly

How can both the JIT and EOQ inventory theories effectively be reconciled?

By considering the setup cost as a variable instead of a parameter

What are the two businesses processes of ERP and what do they include?

CORE processes - Production planning and control - Inventory management - Purchasing - Distribution ADMINISTRATIVE processes - Accounting - HR management

What is the role of capacity requirements planning (CRP)?

CRP enables a company to evaluate both the feasibility of the MRP system and how well the company is using its critical work centers

Describe the concept of capacity planning.

Capacity planning is the process of establishing the output rate that can be achieved by a facility

What are holding costs?

Capital, storage, and risk costs

Control charts?

Charts used to evaluate whether a process is operating within set expectations

Explain the two causes of variation.

Common/Random - random and unavoidable causes that cannot be identified Assignable - causes that can identified and eliminated

What is group technology /cell layouts?

Creates groups of products based on similar processing requirements

What are the three areas for inventory objectives?

Customer service, cost-efficient operations, and minimum inventory investment

List the five-step plan of Six sigma

DMAIC Define Measure Analyze Improve Control

What is cycle counting?

Daily counting of pre-specified items

What are the two groups of options a company can use when formulating an aggregate plan?

Demand Based Options - respond to demand fluctuations through the use of inventory or back orders, or by shifting the demand pattern Capacity Based Options - allow the firm to change its current operating capacity

What is SCM software?

Designed to improve decision making in the supply chain Helps answer questions like: - What is the best way to ship a product to a specific customer? - What is the optimal production plan? - How can outbound and inbound transportation costs be minimized?

What is supply chain intelligence (SCI)?

Enables strategic decision making by analyzing data along the entire supply chain

What is speculative inventory?

Extra inventory built up or purchased to protect against some future events. allows for continuous supply

What is distribution inventory?

Finished goods in the distribution system

What are ordering costs?

Fixed costs for placing an order with a supplier or setup costs for in-house production

What are the four types of product processes? Provide examples of each.

Project process: used to make one-at-a-time products exactly to customers specifications (ex. construction, custom tailoring) Batch process: used to produce a small quantity of products in groups based on customer orders or specifications (ex. education classes, bakery, printing shop) Line process: used to produce a large volume of a standardized product (ex. assembly lines, cafeteria) Continuous process: operates continually to produce a high volume of a fully standardized product (ex. oil refinery, water treatment plant)

What are the advantages and disadvantages of a chase aggregate plan?

Pros - minimizes finished goods holding costs Cons - constant changing capacity needs and the need for enough equipment to meet peak demand

What are the advantages and disadvantages of a level aggregate plan?

Pros - workforce stability (company sets labor and equipment capacity equal to average demand) Cons - buildup of inventory and/or possible poor customer service from extensive use of backorders

What is fluctuation inventory?

Protects against unexpected demand variations. Assures customer service levels

What are raw materials?

Purchased items or extracted materials to be transformed into components or products

What do we call purchased items or extracted materials that will be transformed into components or products?

Raw materials inventory

What is the difference between reactive and proactive options?

Reactive- operations dept uses inventories and back orders to react to demand fluctuations Proactive - marketing tries to shift the demand patterns to minimize demand fluctuations

What are the characteristics of Repetitive operations and Intermittent operations? Provide examples of each.

Repetitive - processes used to produce one or few standardized products in high volume (ex. assembly line, cafeteria, auto car wash) Intermittent - processes used to produce a variety of products with different processing requirements in lower volumes (ex. auto body shop, healthcare facility, tool and die shop)

What is a periodic review system?

Requires regular periodic reviews of the on-hand quantity to determine the size of the replenishment order

What is lot-size inventory?

Results from the actual quantity purchased. Allows for lower unit cost

How should service organization choose an ideal location? What about manufacturing organizations?

Service - close to customers Manufacturing - close to sources of transportation, suppliers, and labor

What is application service provider (ASP)?

Sets up and runs ERP system

What is job design?

Specifies the contents of the job

What is backwards scheduling?

Starts with the due date for an order and works backwards to determine the start date for each activity

What are descriptive statistics?

Statistics used to describe quality characteristics and relationships

How can a company increase output in periods of high demand?

Subcontracting

What is used to determine the order quantity in the periodic review system?

Target inventory level

What are the three factors in designing a job?

Technical feasibility - job must be physically and mentally doable Economic feasibility - cost of the job should be less than the value it adds Behavioral feasibility - degree to which the job is intrinsically satisfying to the employee

What is process capability?

The ability of a production process to meet or exceed preset expectations

What is the master production schedule?

The anticipated production schedule for the company expressed in specific configurations, quantities, and dates Updated weekly or even daily

What is duration of the change?

The expected length of time the different capacity level is needed.

What is statistical quality control (SQC)?

The general category of statistical tools used to evaluate organizational quality

What is design capacity?

The maximum output rate that can be achieved by a facility under ideal conditions.

Discuss the commonly used processes for setting standard times.

Time study - a technique for developing a standard time based on actual observations of the operator Performance rating factor - a subjective estimate of a workers pace relative to a normal work pace Frequency of occurrence - how often the work element must be done each cycle Normal time - the mean observed time multiplied by the performance rating factor by the frequency of occurrence Allowance factor - the amount of time the analyst allows for personal time, fatigue, and unavoidable delays

How does TQM impact human resources?

To hire employees with the skills necessary t work in a TQM environment

What are external distributors?

Transport product or service to appropriate locations for eventual sale to customers

What is a continuous review system?

Updates inventory balances after each inventory transaction

Who are the quality gurus and what were their contributions to the TQM concept?

Walter A Shewhart - contributed to understanding of process variability, developed concept of statistical control charts W Edwards Deming - stressed managements responsbility for quality, developed '14 points' Joseph M Juran - defined quality as 'fitness for use', developed concept of cost of quality Armand V Feigenbaum - introduced concept of total quality control Philip B Crosby - coined phrase 'quality is free', introduced concept of zero defects Kaoru Ishikawa - developed cause-and-effect diagrams Genichi Taguchi - focused on product design quality, developed Taguchi loss function

What does customer service mean in inventory management?

Whether or not the product is available

Histogram?

a chart that shows the frequency distribution of observed values of a variable

Checklist?

a list of common defects and the number of observed occurrences of these defects

What is manufacturing resource planning (MRP II)?

a method for the effective planning and integration of all internal resources

What is economic production quantity (EPQ)?

a model that allows for incremental product delivery

What is factor rating?

a procedure that can be used to evaluate multiple alternative locations based on a number of selected factors

Flowchart?

a schematic of the sequence of steps involved in an operation or process, visual tool, easy to understand

What is standard deviation?

a statistic that measures the amount of data dispersion around the mean

What is the mean?

a statistic that measures the central tendency of a set of data

What is material requirements planning (MRP)?

a system that uses the MPS, inventory record data, and bill of materials to calculate material requirements MRP uses backwards scheduling that enables companies to have the right materials in the right amounts at the right time.

Pareto analysis?

a technique used to identify quality problems based on their degree of importance

What are external suppliers?

all suppliers providing materials or services to manufacturing or service organizations (including the suppliers' suppliers)

What is closed-loop MRP?

an MRP system that includes production planning, master production scheduling, and capacity requirements planning

What is the Malcom Baldrige National Quality Award?

an award given annually to companies that demonstrate quality excellence and establish best practice standards in the industry

How does JIT fit within marketing?

marketing managers must understand customer needs and ensure that this info is passed onto operations

What are the types of waste?

material, energy, time, and space