Operations and Supply Chain
Capital Productivity
Another major component of production is capital, which includes all money invested in land, facilities, equipment, and working capital such as inventory. Capital productivity can increase when firms invest in new facilities and equipment that increase output. Capital productivity can also increase if a company can produce the same level of output as it previously had while reducing its inventory levels or other working capital requirements.
released for production
As time frames diminish, plans become more precise and detailed
Companies adopting continuous improvement as an organizational philosophy have found that the following key components are necessary:
Assign teams to identify areas for improvement. Teams of employees from different departments work together as cross-functional teams to understand the current conditions and prepare a method to improve the performance of an organizational activity. Use methods analysis and problem-solving tools. Continuous improvement efforts require a set of methods or problem-solving tools. The type and application of these tools depends upon the outcome measures that need to be enhanced. Use the Plan-Do-Check-Act cycle. For example, to improve the quality of an assembly, root-cause analysis and poka-yoke may be the tools. It allows the team to understand the problem and create a solution that should be error proof. Document improved procedures. The process for continuous improvement ends in the same place it begins with a documented process, so that future review for the purpose of process improvement commences again here.
Days of supply
A measure of the number of days of supply of an item. is the only metric in the table where an increase or a decrease may indicate performance improvement.
Operations Management
A specialized area in management that converts or transforms resources (including human resources) into goods and services that ultimately provide value to the end customer.
Exponential Smoothing
A weighted-moving-average forecasting technique in which data points are weighted by an exponential function.
Capacity utilization formula
Actual Output / Design Capacity
Efficiency formula
Actual Output / Effective Capacity
It is important that organizations be flexible in order to meet future as well as present capacity requirements. Flexibility can allow managers to:
Adjust production volume to respond to changes in customer demand. Produce different products on the same equipment (product mix) to respond to changing customer needs. Alter product technology and process technology to maintain or improve an organization's competitive position.
The purpose of an organization is to manufacture a good or provide a service, and operations play a key role. This begins with designing the production system, which includes:
Designing a product Determining where and how the product will be created (location and process) Setting the capacity of the organization
Systems Creation
Developing systems to produce the services and goods designed in the product development process requires firms to assemble resources—people, facilities and equipment, and material and energy.
Master Schedule File info
If the master schedule is at the subassembly level, then the material requirements plan will determine how many components are needed to build the subassemblies.
Delivery Dependability
Improved quality will mean that shipments to customers are not delayed because of quality problems in the product or because of delays caused by defective parts. Product and volume flexibility means that the company is better able to respond when customers suddenly change the size or product mix of their orders.
Final Assembly Schedule purpose
In addition to eliminating work-in-process inventory, it is important that any unnecessary finished-goods inventory be eliminated. However, this is hard to do when a company makes more than one finished product.
The First Revolution
Increases in farming productivity resulting from the development of better methods and machinery have caused farm labor in the United States to decline from 95% in the early 1800s to less than 3% today.
Managed Inventory can also be classified according to the type of demand it intends to serve
Independent demand is demand that is not controlled directly by the company, such as demand from customers. Independent demand items usually include finished products, such as the completed tricycle or replacement parts sold to customers. Ex. such as the completed tricycle or replacement parts sold to customers. Dependent demand is usually demand for an item that is generated by a company's production process. Ex. demand is usually demand for an item that is generated by a company's production process. One example would be the wheels for tricycles that a company produces. Each tricycle has three wheels; if the company plans to produce 200 tricycles in a given week, it will need 600 (200 × 3) wheels that week. Thus, the demand for wheels depends on the production of tricycles. To manage inventory for dependent demand items, companies often use material requirements planning (MRP).
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Long-term success requires that the outputs of the operation be worth more to the consumer than the total cost of the inputs. In this way, organizations create wealth for society.
What is the system's hourly throughput?
Look for the bottleneck in this problem. That will be the lowest output for the system.
Strategic alliances are formed for a number of reasons
Lowering investment by sharing the financial risk among partners. Leveraging a partner's brand image to improve growth of another partner. Speed to market with a partner that has an established network. Creating access to new markets through a partner's international network. Synergy of shared expertise by pooling resources of partners. Creating economies of scale by pooling resources of partners.
to attract new businesses
One incentive offered by state and local governments is a significant reduction in property taxes. They sometimes offer low-interest loans, provide free training to workers, and subsidize wages for a specified period of time.
run-out time
One method that can be used to determine which product should be produced next.
master schedule
One of three primary inputs in MRP; states which end items are to be produced, when these are needed, and in what quantities.
make-to-stock company
One that produces for inventory and meets customer orders from inventory, production orders are entered by the company based on the inventory level of each item in stock, and the expected future demand of that item.
backward vertical integration
One way to promote coordination is for a company to own its suppliers. refers to acquiring sources of supply
Organizational structure
Organizational structure is the infrastructure of formal relationships among different functions or subsystems, such as marketing, finance, and operations. Organizational structure defines the lines of communication.
vertical integration
Owning multiple assets in a supply chain. The more assets a company owns, the greater the degree of vertical integration.
Quality of Goods
Performance—primary operating characteristics of a product. Features—secondary characteristics that supplement the product's basic functioning. Reliability—length of time a product will function before it fails, or the probability it will function for a stated period of time. Conformance—degree to which a product's design and operating characteristics match pre-established standards. Durability—ability of a product to function when subjected to hard and frequent use. Serviceability—speed, courtesy, and competence of repair. Aesthetics—how a product looks, feels, sounds, tastes, or smells. Perceived Quality—image, advertising, or brand name of a product.
Total Preventive Maintenance (TPM)
Preventing defecting parts or equipment failure in the process; also known as total productive maintenance; relies on preventive maintenance, the allocation of time for maintenance, and operator responsibility for maintenance (as opposed to departmental responsibility).
Reducing Set-up Time
Set-up time is the time it takes to readjust a machine or group of machines after making one particular part until acceptable units of another part are produced. Set-up time may involve changing the tooling, adjusting the equipment, checking that the new part is being made to specifications, and then readjusting the equipment if it is not. Set-up time is an important consideration in JIT
Technology and Automation
This presents an opportunity to cut costs and to do more value-added work.
Order Fulfillment
This process involves all the steps required to satisfy a customer's order, from obtaining an order and entering it into the organization's information system, to delivering the order. The primary inputs are from the customer, marketing department, and the people responsible for designing the facility that will produce the service or good. The desired output is a satisfied customer, not the delivered product.
Facility location decision
Thus, many factors, both quantitative and qualitative, influence the location decision. Quantitative factors are easily measurable and are usually assigned a numerical value, while qualitative factors are more subjective and are usually not enumerated. The location decision usually involves committing a large capital investment; thus, location should be viewed as a long-term, strategic decision because it will have a major impact on the organization's ability to compete.
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Thus, when managers of service operations consider capacity, they should focus on maximum demand and variability in demand, not average demand. Managers of service processes do not have the option to use physical goods inventory to alleviate peak demand—including those peaks that occur from hour to hour.
When scheduling, two key questions are:
When should a given job, order, or product be processed? How many units should be processed at one time?
Quality means
consistently meeting or exceeding the customer's needs and expectations. Quality begins with an external process that identifies the customer's needs and expectations. Then, those needs and expectations are translated into an internal process to guarantee they are met or exceeded.
Strategy
consists of the organizational goals and the methods for implementing the goals, called key policies.
concurrent engineering
bringing engineering design and manufacturing personnel together early in the design phase
Decentralizing decision making
can result in fewer levels of hierarchy with more cross-functional teams.
Mass customization (2)
combines the pursuit of economies of scale and scope, quality improvement, and flexibility. Economies of scale and scope imply achieving high-volume operations and low costs. Advantage low cost, high quality and large-volume
Aggregate plans
combining of individual end items into groups or families of parts for planning purposes. are based on product families
scatter plot displays
data as a relationship between two variables. Usually, this is only used when one variable can be influenced in different quantities, degrees, or proportions, while the other variable can be monitored for effects resulting from the changes. The controlled variable is called the independent variable. As it is adjusted incrementally, the measured variable is the dependent variable. In this way, a scatter plot can assist in visualizing the relationship and correlation between two variables.
cross-functional
composed of employees from different functional areas of the organization
Service Location Factors
consider labor cost, taxes, real estate costs, construction costs, and government incentives as important elements in a location decision. On the other hand, material cost and transportation costs would be relevant for only some service providers, such as restaurants and retail operations that purchase, transport, and resell goods. Utility costs are not a significant factor for most service operations because consumption is generally low compared to manufacturing.
product design
consideration of the characteristics, features, and performance of the product.
Logistics (Transportation)
deciding how to best move information and materials
Final Assembly Schedule
defines the quantity and timing for assembling subassemblies and component parts into a final finished good. is an exact statement of the final products that are to be assembled. final assembly schedule is stated on a daily basis, but most often goes only about a week into the future.
Independent Demand Inventory
demand that is created by customers. include finished products, such as the completed tricycle or replacement parts sold to customers.
Process design
describes how a product is made.
Process
describes how to accomplish a task.
focal firm
designs and manages the supply chain by selecting suppliers.
The forecasting process consists of the following steps:
determining the objectives of the forecast developing and testing a model, (need historical sales information) applying the model, considering real-world constraints on the model's application, and revising and evaluating the forecast (human judgment).
Available to Promise
inventory that has not yet been sold. Used to determine whether new orders can be accepted within a given time period. This quantity represents the number of units that can be promised for completion any time before the next master schedule quantity.
Standardization
involves developing a preset procedure for performing an activity or job.
sustainability of operations
involves improving efficiency to reduce costs, utilize available capacity, and achieve business objectives.
Adjustable capacity
involves the ability to use only part of the facilities or available employees at any given time.
competitive advantage
is a capability that customers value, such as short delivery lead-time or high product quality that gives an organization an edge against its competition.
A plan
is a list of actions that management expects to take. A plan is the method for allocating the organization's resources in relation to opportunities and problems present in the environment.
Productivity (2)
is a mathematical calculation; it is the ratio of the outputs achieved divided by the inputs consumed to achieve those outputs.
Capacity
is a measure of an organization's ability to sustainably provide customers with the demanded services or goods in the amount requested and in a timely manner, given current resources. a company's maximum rate of production
Cycle Time (CT)
is a measure of how often a particular product is made. For example, automobile assembly lines usually have a cycle time of approximately one minute.
Capacity utilization
is a metric, or measure, used to determine how much capacity is actually being used on an average basis.
VIRAL as a framework for competitive advantage
it should be Inimitable (not easily imitated), Rare, and an organization must have the Aptitude (capability) and Lifespan (sustainability) to earn appropriate returns on the advantage.
supply chain management.
managing upstream and downstream value-added flows of materials, final goods, and related information among suppliers, the company, resellers, and final consumers
To automate the inventory function
many use bar codes, which are similar to the universal product codes (UPCs) you see on items at a grocery store; however, mistakes can be made despite automation. Cycle counting is a way to reconcile inventory records and correct errors, and many companies using MRP also employ cycle counting. Using this method, a physical count of each part is made at least once during its replenishment cycle, which is the period between orders to replenish inventory.
There are three primary constraints in a system:
market (demand), process (throughput), and product (supply). A constraint is any resource whose capacity is less than or equal to demand for that resource; a bottleneck is the most limiting constraint on the system.
Hedging
protecting against cost increases with contracts that allow a company to buy supplies in the future at designated prices
methods of forecasting
qualitative, time-series, and regression analysis
The Plan-Do-Check-Act Cycle
referred to as the Deming Wheel or Shewhart cycle. Plan—Before making any changes, be sure everything is documented and standardized. Use appropriate tools to identify problems or opportunities for improvement. Develop a plan to make changes. Do—Implement the plan and document any changes made. Check—Analyze the revised process to determine if goals have been achieved. Act—If the goals have been achieved, then standardize and document the changes. Communicate the results to others that could benefit from similar changes. If the goals have not been achieved, determine why not, and proceed accordingly.
Kanban System used in JIT Pull systems
refers strictly to a card that is used to signal the need for more materials, parts, or subassemblies at downstream operations.
Manufacturing cells
rely on group technology to build a family of parts with similar design and processing characteristics.
Pareto chart
represents data values in a descending order to visualize the most frequent occurrences. It is similar to a histogram because of the preset range of values, which might be qualitative or quantitative. But the difference from a histogram is that Pareto charts always reflect the data in descending order to emphasize the most common occurrences among the data points.
Capacity Planning
requires careful consideration of an organization's long-term objectives and the market demand. Facility location is the placement of a facility with regard to a company's customers, suppliers, and other facilities with which the company interacts. Capacity decisions must be consistent with both current and anticipated demand.
ABC analysis
the ranking of all items of inventory according to importance Annual Dollar Usage = Annual Demand*Unit Cost Uses Pareto Graph to rank by Annual dollar usage This principle leads to the ABC classification, which is based on focusing efforts where the payoff is highest. The next 30% of the items are classified as B items. These deserve less attention than A items. Finally, the last 50% of stocked items are C items. These have the lowest dollar usage and can be monitored loosely, with larger safety stocks maintained to avoid stock-outs.
A lean supply chain supports
the reduction of setup times to enable the economic production of small quantities. This enables the supply chain to keep inventory costs low and achieve manufacturing cost reductions, in part, by enabling operations to switch quickly among products.
Process selection
the strategic decision of selecting which kind of production processes to use to produce a product or provide a service
Cycle Time
the time needed to complete a process. is the amount of work assigned to the station with the most work and time. It determines the capacity of the assembly.
Once the data is collected on the check sheets, then it needs to be analyzed and interpreted.
The analysis tools are histograms, scatter diagrams, and Pareto charts. The raw data is graphically demonstrated by alternative means to visualize trends in the process.
reverse logistics.
The area of logistics that involves bringing goods back to the manufacturer because of defects or for recycling materials.
Product Flexibility
-Easily switch production from one item to another -Easily customize product/service to meet specific requirements of a customer
The Theory of Constraints 5-step thinking process: Dr. Eliyahu Goldratt's
1. Identify the system's constraint(s). 2. Exploit the system's constraint. 3. Subordinate everything else to the above decision. 4. Elevate the system's constraint. 5. If a constraint has been broken, go back to step 1. Do not allow inertia to cause a system's constraint.
bill of materials
A document that shows the quantity of each type of direct material required to make a product. Does not support the master schedule. identifies how much of each material is needed for a single item of the finished good.
Low profit margin items
Because drills have low profit margins maintaining high sales and production volumes is critical for profitability for all members in the supply chain.
Both Pull and Push systems
Both types of systems work with medium to high volumes of production and with customized or standard products.
Qualitative methods
Buildup method - adding together estimates from each element. Survey method - s a systematic effort to elicit information from specific groups Test markets a special kind of survey Panel of experts (Delphi Technique) - This group attempts to make a forecast by building consensus. Done through a questionnaire
Capacity Planning Strategies
Capacity planning is needed to support customer demand and maintain production capacity as demands for products change.
There are seven basic tools of SPC.
Cause-and-effect diagrams or fishbone diagrams or Ishikawa diagrams Check sheets Control charts Histograms Pareto charts Scatter diagrams Flow charts or run charts
The 5 activities explained
Companies engage in planning activities when determining whether a new or revised product is needed. Sourcing activities are related to finding suppliers for materials and equipment used to make the product. Production (make) activities are related to how a product will be made, in what quantities, in what location. Delivery activities are related to how a product will reach the next part of the supply chain, or the end customer. Finally, return activities are related to managing warranty costs, repairs, customer satisfaction, and product disposal.
The Second Revolution
During the late 1800's and the first half of the 1900's, improvements in manufacturing productivity freed resources for the rapid expansion of service operations. As manufacturers invested in equipment to automate production, less labor was needed to make the same amount of finished goods.
Capacity planning
Establishing the overall level of resources needed to meet customer demand or JIT
functional areas or disciplines
Ex. marketing, finance, accounting, personnel, and engineering, in addition to operations.
Consider the following three categories of the costs of quality:
Failure costs—can be internal to the organization or external involving the customer. Appraisal costs—investment in measuring quality and assessing customer satisfaction. Prevention costs—put a stop to the quality problem.
Days of supply formula (DoS)
Finished goods inventory / Average sales per day
This difference has two important consequences.
First, a service business cannot account for inventory of finished products because a service is intangible and is performed on demand. Most service organizations, however, do have supporting inventory in the form of supplies. Hospitals have linens, drugs, and food; banks have forms and paper; cellular telephone providers have equipment and spare parts. Second, because a good is tangible, the product designer must deal with physical characteristics (height, strength, durability, etc.). This requires engineering talent to ensure the finished good is the right shape, has enough power, and is strong enough to perform its intended function. For an intangible service, such as health care, other skills are needed, including knowledge of anatomy, physiology, and chemistry.
A bill of materials serves two purposes.
First, it lists all the components of a product and the quantities needed to make the product. Second, it shows the relationships among those components, which indicates product structure or how the items fit together.
TQM is an organization-wide philosophy that embodies the following components:
Focus on the customer Quality function deployment Responsibility for quality Team problem-solving Employee training Fact-based management
What factors influence the buying decision for most consumers?
For most services and goods, price, quality, product features and performance, product variety, and availability of the product are important.
Simple Moving Average formula
Ft = (At-1 + At-2 + ... + At-n) / n
electronic kanban
Is a digital signal or electronic authorization to move a container of parts or replenishment of materials. usually achieved by scanning barcodes with a mobile app or digital device to alert necessary parties of the materials needed.
Conveyance kanban (c-kanban)
Is an authorization to move a container of parts or materials. Without it, nothing can be moved.
Efficiency
Is often used to mean achieving an outcome with a minimum amount of effort; that is, mitigating waste.
Process technology
Is the application of knowledge to improve a process. Process technology affects how a product is produced but may have little, if any, impact on the product's features and function.
two particular problems unique to assembly-line scheduling
It is critical to assign the same amount of work to each station because assembly lines are usually a series of workstations with one worker assigned to each station. If the line is unbalanced, meaning that if one station has more work than the others, then one worker will be rushed and unable to complete the work while the others will have idle time thereby generating waste. Successful assembly-line balancing depends on having the optimal number of appropriate workstations and the correct amount of work per station so idle time is zero or close to zero. The right number of workstations is also important because it helps determine the cycle time.
Quick response
It is usually an advantage for customers to have products available immediately upon request.
Material Productivity
Materials and energy are often critical inputs to manufacturing processes, but they may be insignificant in most service operations. For manufacturing companies, materials often represent more than 50% of the input costs.
batch operation
Note that many batch operations use continuous flow or assembly-line processing. The difference is that a batch has a defined starting and ending time with a setup or changeover . From a cost perspective, it would be lower cost (lower set-up costs, less inventory, and higher equipment utilization) t
Info (4)
Productivity is calculated with any inputs that are constraints on the process. In this case, the decision to build in China is key to competitively priced products. The testing equipment is specialized for Ajax computers. These would be considered key inputs and would likely be used to determine the contract manufacturer's productivity.
Relative Advantage
Products produced at a low opportunity cost than another.
These six criteria may be used when evaluating possible schedules:
Provides the good or service when the customer wants it Length of time it takes to produce that good or service (flow time), which includes both processing and waiting time Level of work-in-process (WIP) inventories Amount of time that equipment is idle Amount of time that employees are idle Overall costs
Manufacturing Location Factors
Quantitative factors for manufacturers include: Labor costs Material costs Transportation Utilities, taxes, real estate costs, and construction costs Government incentives Qualitative factors include: Labor climate Quality of life Proximity to customers and markets Proximity to suppliers and resources Proximity to competition
Labor Productivity equation
Quantity or Value of Units Produced / Labor Hours or Labor Cost
When pursuing flexibility, there are three attributes to consider:
Range/variety—The number of viable states for the production system and the degree of difference in those states. From the perspective of range, the greatest variety is when a large number of very different products can be produced, such as when a single automobile service center can work on many different brands of cars. Mobility/responsiveness—The ability to change quickly from producing one product to producing another. High mobility minimizes the need for long production runs. How long does it take for the service center to shift from doing brake work on a Ford to doing exhaust work on a Chrysler? Uniformity—The ability to attain similar performance across the entire range of outputs. Will the quality on the brake job for the Ford be at the same high level as the quality of the exhaust system for the Chrysler?
Service Quality
Reliability—ability to perform the promised service dependably and accurately. Responsiveness—willingness to help customers and provide prompt service. Assurance—knowledge and courtesy of employees and their ability to convey trust and confidence. Empathy—provision of caring, individualized attention to customers. Tangibles—appearance of physical facilities, equipment, personnel, and communication materials, including access and effectiveness of Internet-based information.
run-out time formula
Run-out time = current inventory/usage rate
To determine an organization's competitive advantage
SWOT Analysis is used and participants need to generate meaningful information for each strength, weakness, opportunity, and threat and make the analysis discernible and effective.
Days of supply outcomes
Sales may be exactly as predicted, and the days of supply target is achieved. Sales may increase faster than expected, and inventory will be sold faster than it can be replenished. Days of supply will decrease. Sales may be slower than expected, leaving more inventory than expected in dealers' lots. Days of supply will increase.
Scheduling info
Scheduling addresses the very near future because it is the last step in production planning. The earlier planning stages determine what level of resources is needed to meet the production plan. Scheduling allocates those resources.
Lean Supply Chains
Specialized plants Work with suppliers Building a lean supply chain. Needed for products that are standard functional items, such as power drills or can openers. These products have long product life cycles, stable and predictable demand, and minimal innovation. They are also often characterized by low profit margins. Because of the low profit margins keep cost and inventory low is mandatory.
Strategy Development
Strategy should drive an organization toward its ultimate objective. A strategy considers the threats and opportunities in the environment, and it measures the strengths and weaknesses of the organization. SWOT
supply chain management
Taking actions to have all members of the supply chain work together coordinate their activities, and share information
design for operations (DFO)
Taking into account the ease of producing and delivering the service, or the fabrication and/or assembly in product design
Team Problem Solving
Team efforts to problem solve allow for different viewpoints and also enable the team members to split the workload and brainstorm possible solutions with one another. When an organization faces a complex problem, a team approach to decision-making may be more effective than relying on one individual to make the necessary decisions. One person may not have access to all the information, nor have the broad range of knowledge needed to understand the problem, design alternative solutions, and select the best approach. Group decision-making is also very useful when building commitment to the selected alternative.
schedule for peak demand.
That means that sufficient capacity will be available at any time to meet the peak expected demand. The advantage of this approach is that it allows for demand to be met at all times under normal conditions. Its greatest disadvantage is that a large portion of capacity may be idle a large percentage of the time.
inconsistency
The danger of differing service levels from one customer to another
Group Technology (GT)
The idea behind GT is that each part follows the same essential processing sequence. However, each part may require different tooling in the machines or a different machine setting. By keeping similar parts together, setup time is reduced, and the flow of materials is not interrupted.
Order Point System
The inventory method that places an order for a lot whenever the quantity on hand is reduced to a predetermined level known as the order point.
The Master Schedule for JIT
The master schedule is usually developed with a two- to three-month planning horizon instead of the 6- to 12-month horizon used for MRP. The master schedule in a JIT environment is only used when items with long lead times need to be ordered.
Design capacity
The maximum output rate or service capacity an operation, process, or facility is designed for. Occurs under ideal conditions for a short period of time. Under ideal conditions there are no equipment breakdowns, maintenance requirements, material problems, or worker errors.
The Third Revolution
The next wave of productivity improvements began in the 1950's with the development and commercial application of computers. This phase, which some call the post-industrial era, began with large, difficult to operate, mainframe computers used by governments and a few very large businesses. Improvements have progressed with the use of large scale databases, telecommunications technology, the personal computer, the internet, and smart devices.
time bucket
The smallest interval of time used in planning, such as hourly, daily, or weekly.
To understand operations and how it can contribute to the success of an organization, it is important to understand:
The value-added nature of operations. The impact that technology can have on performance. The importance of teamwork in achieving operating and organizational objectives.
Volume
The volume or scale decision involves applying the appropriate mix of technology to leverage the organization's workforce.
Exponential Smoothing (2)
There are no specific rules about choosing the value of A. If the forecaster wants to put more weight on the most recent time period, then A should be set closer to 1. If the manager desires a smoother forecast that will not react drastically to short-term change, A should be set closer to 0. Values between 0.1 and 0.3 are most commonly used.
Types of Bottlenecks
There are regulatory bottlenecks with respect to imports, exports, and U.S. Customs or pollutant emissions and the EPA. There are labor bottlenecks with respect to available skills or work shift availability. There are technology bottlenecks from different information exchange protocols. There are decision-making bottlenecks caused by procrastination or by not aligning management authority with management responsibility. There are also physical bottlenecks from under-investment, under-utilization, weather, road construction or accidents, or physical location or geographical limitations. There are process bottlenecks that occur when the production process itself - its capacity, flexibility, or activities - is its own biggest limitation.
Inspection:
This is an assessment of the quality of the good or service.
Product Design
This is how the product, either a good or a service, functions. It determines the features, functions, aesthetics, and performance of a product, which are essential parts of the product's quality.
Process Design:
This is how the product, either a good or a service, is produced. Process design includes the methods that the firm uses to transform the product ideas created in the product design into the good or service that the customer is purchasing.
Lag strategy.
This is the opposite of lead capacity strategy. This strategy entails adding capacity only after an organization is running at full capacity or is beyond due to increase in demand.
Work Execution:
This is the performance of the plan created in the product and process design
According to classifications used by the U.S. Department of Commerce, the service sector includes
Transportation, utilities, lodging, entertainment, health care, legal services, education, communications, wholesale and retail trade, banking and finance, public administration, insurance, and real estate.
Production Kanban (P-Kanban)
Used to authorize the production of parts.
Meeting specific customer needs
Value is created by precisely meeting specific customer needs.
forward vertical integration
a company can own the distribution systems and retail outlets that sell their products. These two factors, high brand recognition and sales volume are needed to be success at this.
market share
a company's product sales as a percentage of total sales for that industry. Sales divided by total sales for all organizations competing in a particular market.
Fixed cost
a cost that does not change, no matter how much of a good is produced
Variable cost
a cost that rises or falls depending on how much is produced. Includes placing an order.
Job Shop
a flexible process structure for products that require different inputs and have different flows through the process. Higher unit costs because they cater to the customer need for a specific product or service. does not produce large quantities of the same or even similar products, but is dominated by a large number of different products produced in small volumes. Ex. Fancy restaurants and hospital emergency rooms
Time Series
a forecasting technique that uses a series of past data points to make a forecast.
Differences Between Service Providers and Goods Producers
a good is tangible, and a service is not.
Value stream mapping
a graphical way to analyze where value is or is not being added as material flows through a process
With outsourcing
a larger portion of costs occur outside a company's internal processes and internal cost savings are harder to achieve.
process layout
a layout that organizes the transformation process into departments that has group related processes
Time Fences
a means for allowing a segment of the master schedule to be designated as "not to be rescheduled" points in time that separate phases of a master schedule planning horizon
match strategy.
a more moderate strategy that adds capacity in small amounts
Supply Chain Council (SCC),
a non-profit consortium of representatives from many different industries, developed the Supply Chain Operations Reference (SCOR) Model.
cycle counting
a physical inventory-taking technique in which inventory is counted on a frequent basis rather than once or twice a year
material requirements planning (MRP).
a planning system that schedules the precise quantity of materials needed to make the product. Supports the master schedule
inverse relationship
a relationship in which one variable decreases when another variable increases
Lead strategy
adds capacity with the anticipation of an increase in demand. This strategy is considered aggressive and is primarily used in an effort to obtain customers from competitors by reducing the amount of lead time and improving service levels. Using this strategy ensures adequate capacity is available to meet all demands during high growth periods.
supply chain encompasses
all activities associated with the flow and transfer of goods and services, from raw material extraction through use by the final consumer.
Reservations
allow an organization to determine the advance demand for its service while also limiting access to that service. commonly used by restaurants, hotels, and airlines.
Fishbone charts
also known as Cause and Effect or Ishikawa Diagrams show the impact of various inputs into the result of a process. They help organizations isolate the root causes of problems such as bottlenecks in their processes.
Vendor Managed Inventory (VMI)
an inventory strategy where the supplier monitors a vendor's inventory for a product or group of products and replenishes products when needed. To make this work, the suppliers receive daily point-of-sale (POS) data from the retail stores, and they also have access to retailer's inventory files.
Product Technology
application of knowledge to improve the product.
Run charts
are another form of control chart for processes that might have common features, a common scale, or some form of central tendency.
Control charts
are graphical depictions of process output where the raw data is plotted in real-time within upper (UCL) and lower control limits (LCL). As each data point is collected, it is recorded on the control chart in relation to the process mean and the UCL and LCL. In this way, the process operator can instantly determine whether the process is stable or trending toward instability and take corrective action BEFORE variations result in non-conforming products.
Appraisal Costs
are the costs incurred to measure quality, assess customer satisfaction, and inspect and test products. Activities that are designed to improve quality by better understanding the current performance level of a product are included in appraisal costs.
The three most important data requirements of MRP
are the master production schedule, bill of materials, and inventory records.
Check sheets
are the means used to record data points in real-time at the site where the data is generated. This is often the first tool used to assess a process and often the data is "raw" meaning it is straight from the source and without any interpretation. Check sheets are formatted to provide structure to the process of collecting data by different observers.
Planning and scheduling are easier with JIT
because requirements for parts and materials can be tied directly to each unit of the end item. If 50 units of the end item will be made during a given day, then enough parts and subassemblies must be ordered for that day to make the 50 units. Because JIT requires having only what is needed when it is needed, parts are usually not ordered in large batches. Instead, a steady stream of material in small batches is maintained at a rate that will match the production of end items.
Collecting the data needed for scheduling
begins with orders from the customer. These orders identify which product the customer wants, special features, and the product due date, among other things.
Techniques for developing an empowered workforce are:
developing supportive supervision and complementary workforce development programs, such as team projects, quality circles, or team performance evaluations building transparency through open communication and decision-making that involves employees at all levels of the organization enlarging jobs by moving responsibility and authority from managers and staff to the lowest level possible in the organization
bill of materials (BOM)
document that shows an inclusive listing of all component parts and assemblies making up the final product and the quantities of each. Does not support the master schedule
Continuous flow operation
does not usually identify individual units; rather, the ot is mixed and flows together in a continuous stream. Oil refining is a good example of a continuous flow process. Processing checks in a bank is another example. often a commodity in which one unit is not distinguishable from another
Order entry
drives the scheduling process. Orders may originate with the customer, but they may also be generated by internal or company orders that are given to create inventory.
Design for manufacture and assembly (DFMA)
emphasizes that products should be designed so they are simple and inexpensive to produce.
An organization should know its
external environment (threats and opportunities) and its internal environment (strengths and weaknesses), and have a clear understanding of the customers it is trying to serve.
economies of scale
factors that cause a producer's average cost per unit to fall as output rises
agile supply chain
focuses on an organization's ability to respond to changes in demand with respect to volume and variety that the customer is expecting
Flexible Manufacturing Systems
highly automated batch processes that can reduce the cost of making groups of similar products. Low cost high variety
Strategy defines
how the organization chooses to compete within the framework dictated by the external environment. Communicating and deciding how to implement a strategy typically occurs during the budgeting and planning process, which most organizations do annually.
bottleneck (or constraint)
in a supply chain occurs at the point in the process that requires the longest time or has the slowest rate
Time Bucket
is a period of time, usually one week, in which demand and requirements are grouped for master scheduling and material requirements planning. The time bucket may be as short as one hour or as long as one month depending on the firm's preference or on product characteristics.
Benchmarking
is a process by which a company compares its performance to the performance of other companies. the purpose of benchmarking is to set a standard based upon the company that is recognized as the best at a certain activity.
A business process
is a set of work activities with a preferred order, an identifiable beginning and end, inputs, and clearly defined outputs that add value to the customer. is cross-functional and leads to outcomes the customer desires, such as delivering quality products that meet specific customer needs in a timely manner.
Product Development
is a teamwork-oriented process that begins with the organization's strategy and analysis of the markets as inputs. Market research plays a key role in assessing market characteristics, which in turn drive product development strategy. The product development team uses the research findings to develop a product concept, generates a product design, and provides a process design for producing the service or good.
ISO 9000:2000
is a widely-used international quality standard. Documentation and standardization are especially important for companies that want to become registered under this ISO.
Total quality management (TQM)
is an approach to quality management that originated in Japan and was adopted successfully by many companies throughout the world.
mean absolute deviation (MAD)
is calculated by adding together the differences between the actual and forecasted value once the negative and positive signs are removed.
Product-oriented layout
is characterized by high demand for the same or similar products.
Process-oriented layout (Product mix)
is characterized by the production of many different products with the same equipment and low volume of any individual product. No single product has enough volume to support a dedicated set of machines. Each product has different production requirements that place different demands on the equipment.
economic order quantity (EOQ) 2
is concerned primarily with the cost of ordering and the cost of holding inventory, but the basic model can be expanded to address several issues. Only variable costs are considered because fixed costs are not affected by short-term variation in order quantity.
Sequencing an assembly
is determining the order for making different products.
Quality function deployment (QFD) often called the house of quality
is one method that can be used to make that transformation by relating customer needs and expectations to specific design characteristics through a series of grids or matrices.
One reason companies decide to outsource
is that the goods or services can often be obtained less expensively from outside suppliers. Outside suppliers may specialize in producing that good or service, enabling them to maintain high quality while keeping costs low. Suppliers may have proprietary technology that provides them a competitive advantage.
system capacity
is the ability of the organization to produce a sufficient number of goods and services to meet the demands of customers. To determine system capacity, an organization must understand its design capacity and its effective capacity.
Volume effectiveness
is the ability to produce goods and services in large enough quantities to meet overall demand.
Technology
is the application of knowledge, usually in the form of recently developed tools, processes, and procedures, to solve problems. Advances in technology make it possible to design and build better products using fewer resources. Product design is the determination of the characteristics, features, and performance of the product. Product technology is the application of knowledge to improve the product.
Dispatching
is the assignment of priorities and the selection of jobs for processing at a work center or facility.
mean squared error (MSE)
is the average of all the squared errors. The differences are squared and added together, and then that total is divided by the number of observations. Helps compensate for error made in forecasting
One major component of cost associated with inventory
is the cost of replenishing it, usually called ordering cost. If a part or raw material is ordered from outside suppliers, an ordering cost is incurred.
Productivity
is the is the control of resources to ensure the effective and efficient use of inputs to create the goods and services provided to this end user.
throughput
is the maximum rate of output in the current system, which is dependent on the system's bottleneck. The bottleneck sets the system's capacity.
Operations Management (2)
is the professional decision-making discipline that considers the many factors that affect operations. Decisions that need to be made can include which products to produce, how large a facility to build, and how many people to hire on first shift.
Master Schedule File
is what "drives" the system and generates material requirements. As mentioned earlier, this master schedule may be at the finished-products level for companies such as Maine Woods that manufacture standard products. However, for companies making customized products, the master schedule may be at the level of components or subassemblies.
holding costs (carrying costs)
may include costs paid for storage space, interest paid on borrowed money to finance the inventory, and any losses incurred due to damage or obsolescence.
eminent domain
means that an owner can be forced to sell his or her property to the government at fair market value if it will be used for the good of all. For instance, in some cases, eminent domain has been used to justify the sale of houses to acquire land to build a new highway. Once obtained, properties are sometimes converted to use for private development. Governments can acquire property more quickly and less expensively than private industry can. As soon as word gets out that private industry is interested in developing an area, the land prices are sure to increase significantly. With the power of eminent domain, the government can avoid being delayed by owners of key parcels.
Freezing the master schedule
means that no further changes can be made after a certain time
linear relationship
means that the costs move in the same direction; in other words, as the ordering cost increases, the holding cost also increases.
level assembly schedule
means that the number of units of each end product produced at a time is as small as possible, and that total production of each matches average demand during the scheduling horizon. This smoothing makes the pull system work better because demand for each part will be fairly uniform throughout the day, instead of occurring in batches, as if each finished product were made in large batches.
Push System used by MRP
moves materials through the processing operations, based on a schedule. An order to produce a part or product enters the system at a scheduled time and is pushed from one work center to another according to that schedule. Uses master schedule. MRP is an improved push system in the sense that each order release is based on requirements generated by the master schedule. Thus materials are pushed through the system in an effort to meet that schedule. With MRP, decisions are made to ensure the outcomes on the master schedule, which occur at some future time, are actually achieved.
Pull System used by JIT
moving parts and materials based on actual needs at successive work centers.
Supply Chain Operations Reference (SCOR) Model.
offers a framework of processes and metrics to help companies monitor and control the performance of their supply chains. This model divides all supply chain activities into 5 groups: plan, source, make, deliver, and return.
product facility strategy
one facility is responsible for producing one product or product line and shipping that product throughout the country and world. This approach is appropriate when the production process is complex and hard to control, such as making ceramic heat shields for spacecraft. Would benefit from economies of scale. The production of igniters for jet aircraft engines, for example, would benefit from a product facility strategy.
make-to-order company
one that produces only to customer orders or that provides services, this occurs when a customer places an order.
As productivity increases
organizations can do the same work with less effort or can do more work with the same effort. Increases in productivity reduce costs, lower prices, and provide a basis for competing in world markets.
Productivity equation
output/input
Simple Moving Average
predicts a value by averaging a fixed number of most recent actual values These values could be the previous months values.
Constraints include
process - ex. to produce a unit of output, all work must flow through the 4 departments. resources - ex. Employees work 8-hour days, and the firm uses one shift market demand - the firm has customer demand for 80 units per day but can only produce 60 units per day.
Sustainability can also relate to the so-called "triple bottom line"
profitability, employee wellness, and environmental viability.
regional facility strategy,
requires that each production facility has a defined marketing area and each facility produces a complete line of products for that area. Ships locally. This is often done when customer convenience and access are important, or when outbound transportation costs are very high. Fast-food restaurants, instant oil change operations, hospitals, and branch banks are examples of operations located to provide maximum customer convenience and access.
Prevention Costs
result from activities designed to prevent defects from occurring. Prevention costs can include activities such as employee training, quality control procedures, special efforts when designing products, or administrative systems to prevent defects.
adjustment strategy
s used to add or reduce capacity in small or large amounts.
Other methods for coping with uneven demand include
scheduling appointments or reservations for service, increasing consumer self-service, creating adjustable capacity, sharing capacity, and cross-training employees.
Capacity Decisions for Service Operations
service organizations must either (1) build enough capacity to meet maximum demand, or (2) manage demand so that people will use the services at off-peak times (allowing long waiting lines to occur is one way, albeit a poor way, to manage demand, and offering monetary incentives to use the service at off peak times is another way), or (3) choose not to satisfy all the demand.
assembly-line process
similar to continuous flow but instead of the products flowing continuously, the products are discrete, individual items, such as automobiles. The product flow a fix path limited number of products, Work-in-process inventory is also typically small.
Master Production Schedule
specifies how much of each product is to be produced during the planning period and when that production should occur. disaggregates the aggregate plan" because it is a specific statement of exactly what will be produced and a specific date for production. The master production schedule usually states individual end items or product models. The master schedule is, therefore, a detailed extension of the medium-range operations plan, or aggregate plan.
statistical process control (SPC)
statistical methods to determine when a process that produces a good or service is getting close to producing an unacceptable level of defects.
key processes that most organizations have
strategy development, product development, development of systems to produce services and goods, and order fulfillment. Ex. Apple's operations are impacted by four key processes including strategy development (focus on style), product development (distinctive products), development of systems (channel distribution), and order fulfillment (ensured by channel partners and its own retail efforts).
SWOT analysis
strengths, weaknesses, opportunities, and threats. A second T can be added for Trends
Quality function deployment
takes customer expectations and transforms them into specific actions designed to meet those expectations.
Sustainibility
the ability to meet humanities current needs without compromising the ability of future generations to meet their needs
volume flexibility
the ability to produce whatever volume the customer needs
economies of scope
the ability to use one resource to provide many different products and services
Documentation
the act of putting that procedure into writing.
Effective capacity
the capacity a firm can expect to achieve, given its product mix, methods of scheduling, maintenance, and standards of quality. is the maximum capacity given the product mix, equipment changeovers, and scheduled downtime of the production schedule.
Specialization
the concentration of the productive efforts of individuals and firms on a limited number of activities
wo types of kanban are generally used
the conveyance kanban and the production kanban.
set-up cost AKA ordering cost
the cost involved in changing over a machine or workspace to produce a different item
continuous flow process
the extreme end of high-volume standardized production and rigid line flows, with production not starting and stopping for long time intervals. one in which materials flow in a continuous, or nearly continuous, stream from beginning to end. A good example of a continuous flow process is an oil refinery. Such production processes are generally characterized by a few different finished products, only a few possible routings, and low work-in-process inventories.
Mass customization
the firm's ability to produce differentiated products with cost effectiveness, volume effectiveness, and responsiveness to customers' needs. This approach enables firms to design, produce, and quickly deliver products that meet specific customer needs at a price that rivals mass-production.
Aggregate Production Plan
the firm's strategy for meeting demand in the future, implemented through the master production schedule (MPS)
Process Redesign
the fundamental rethinking of business processes to bring about dramatic improvements in performance
Group technology
the grouping into part families of items with similar design or manufacturing characteristics
inseparability
the inability of the production and consumption of a service to be separated. Ex. The telephone company cannot provide services in anticipation of demand because it has no finished goods inventory. When the service is provided it is consumed immediately by the consumer.
capacity
the maximum amount that something can contain.
Theory of Contraints
the overall management system that strives to improve system performance by identifying, focusing on, and managing constraints
planning horizon
the period during which an operational plan will be in effect. The planning horizon is the length of time a company uses as the basis of developing a plan, forecast, or schedule.
Facility Layout
the physical arrangement of resources (including people) in the production process
Lead time
time interval between ordering and receiving the order
lead time
time interval between ordering and receiving the order. Long lead times force customers to commit to the purchase decision before they need the product. This situation can lead to mistakes because the circumstances may change during the lead time.
Goods are defined as articles of
trade, merchandise, or wares.
batch flow processes
used to describe a production process that aggregates similar products together to generate sufficient volume for efficient use in a facility. When this resource sharing exists, a transition time, or changeover time, is usually required to change the facility from being able to make one product to being able to make the next.
Assembly line operation
used to describe the assembly of low-variety discrete products. A washing machine is a good example of an assembly-line product and making a fast-food pizza on a busy night is another. Takes advantage of economies of scale
Dependant Demand Inventory
usually demand for an item that is generated by a company's production process. One example would be the wheels for tricycles that a company produces. Each tricycle has three wheels; if the company plans to produce 200 tricycles in a given week, it will need 600 (200 × 3) wheels that week. Thus, the demand for wheels depends on the production of tricycles.
There is a strong relationship among process selection and three critical elements in business:
volume, cost, and profit.
Operations Add Value
when consumers are willing to pay more for the finished good or service than the total cost of the inputs required to make the good or service.
Cost reductions can be achieved
when suppliers purchase large volumes of basic materials, such as steel for the gear manufacturer, or copper for the electric motor producer. Streamlining the flow of materials and information through the supply chain to drive out inventory and non-value-added steps can also reduce cost.
Failure costs are incurred
whenever any product or component of a product fails to meet requirements. Such costs can be divided into two categories: internal or external. Internal failure costs are those associated with defects found before the product reaches the customer. Examples of this include the costs of correcting errors in a customer's bank account, discarding food that was improperly cooked, scrapping defective parts, or reworking products that contain defects. In some cases internal failures can be dangerous to employees, such as when a building collapses while under construction because of defective materials. External failure External failure costs are incurred after a product has reached the customer. This can include the cost of warranty repair work, handling complaints, or replacing products. The costs of lost goodwill and possible liability if someone is injured or killed because of an external failure can be considerable.
histogram (or box chart)
will demonstrate the frequency of data observations within a preset range of values.
cycle time formula
working time per day/units required per day
exponential relationship
would mean that as one cost changes, the other cost will change by a specific exponent of that cost. For example, if ordering costs increased, the holding cost might increase twice as much or be cut in half.
