People, capital, material, money
These parts and materials are obtained from suppliers and are used in the production process.
These are partly finished parts, components, sub-assemblies, or modules.
Items are ready to ship to the customer. No more work is required.
These are maintained to replace other parts in machinery or equipment as those parts wear out
The portion of inventory that is in the process of being shipped through the distribution system.
o Peak
o Seasonal
o Unexpected
o Chase
Demand that occurs when a company has to adjust production by rates to match demand by varying the workforce and using overtime. Companies vary the workforce by adding or reducing the number of employees on duty at any given time. And they may choose to provide overtime by asking workers to stay on the job beyond their normally scheduled time.
Occurs when inventory is depleted.
Continuously monitors inventory levels and is also called a continuous review system. Requires human input (i.e. cashier) and the ordering of more inventory is triggered by reorder point.
o Requires an exact inventory balance at all times
o Best for big businesses, retail stores, or banks
o High value and high volume
o Expensive to implement and maintain
Has been developed to determine which inventory items should receive the highest level of control. By multiplying the dollar value of each item by its annual usage, a dollar usage value can be obtained. Dollar usage follows the Pareto Principle in that frequently, only 20% of all the items account for 80% of the total dollar usage, while the remaining items frequently account for only 20% of the dollar usage. This principle leads to the _____ classification, which is based on focusing efforts where the payoff is highest
Economic Production Quantity (EPQ)
The goal of firms using the EOQ & EPQ model
Minimize the total annual costs of ordering and holding inventory by varying the order quantity.
A discount offered in price for ordering above a specified amount
A discount offered on shipping cost for ordering above a specified amount
the degree to which a specific product conforms to its design characteristics or specifications
The amount of a specific, desired attribute
The capacity to satisfy customers’ needs
Consistently meeting or exceeding the customer’s needs and expectations
Is everyone’s responsibility in the organization
Internal orientation of quality
External orientation of quality
Fitness for use for the customer or the capacity to satisfy customer’s needs.
Quality Function Deployment (QFD)
Ability to perform the promised service dependably and accurately.
Willingness to help customers and provide prompt service.
Knowledge and courtesy of employees and their ability to convey trust and confidence.
Provision of caring, individualized attention to customers.
Primary operating characteristics of a product.
Secondary characteristics that supplement the product’s basic functioning.
Reliability (quality of goods)
Degree to which a product’s design and operating characteristics match pre-established standards.
Ability of a product to function when subjected to hard and frequent use.
Speed, courtesy, and competence of repair.
How a product looks, feels, sounds, tastes, or smells.
The image, advertising, or brand name of a product.
Process by which a company compares its performance to the performance of other companies.
Also referred to as the Deming Wheel or Shewhart Cycle.
o Plan – Make sure everything is documented and make a plan of action
o Do – Implement the plan and document changes
o Check – Analyze to see if goals have been achieved
o Act – Standardize the changes and communicate the results. This is a cycle, back to the beginning.
Statistical process control (SPC)
Cause-and-effect diagrams or fishbone diagrams or Ishikawa diagrams
Demonstrate the frequency of data observations within a preset range of values.
Displays data as a relationship to show the correlation between two variables.
Includes the scope of the project, the problem statement, time frame, boundaries, and team members.
Charts and diagrams are used to visualize the measurements and the frequency of problems or defects, including scatter plots, pareto charts, histograms, and run charts.
The main objective of the _________ phase is to determine the root causes of variation in the process that result in failures or defects.
Total Quality Management (TQM)
A company outsources their distribution, warehousing, and fulfillment services.
Owning multiple assets in a supply chain.
When a company owns the supplier or supply process in the supply chain.
When a company owns the retailer or retail process in the supply chain.
The goods and services are provided by the organization itself
The goods and services are obtained from outside suppliers
The vendor, or supplier, can better coordinate its own production with the replenishment of supplier inventory, thus reducing costs and improving delivery performance between the supplier and the retailer.
To make this work, the suppliers receive daily point-of-sale (POS) data from the retail stores, and they also have access to the retailer’s inventory files.
Traditional “factory” chain, which focuses on producing high volume at low cost.
The goal is to add value for customers by reducing the cost of goods and lowering waste or non-value added activities.
Most suitable for traditional products with minimal innovation such as curtain rods or can openers.
Focus: Eliminate waste and reduce costs.
For products with long life cycles and stable demand.
Any resource whose capacity is less than or equal to demand for that resource
The most limiting constraint on the system
Needed to support customer demand and maintain production capacity as demands for products change
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.
Adds capacity in small incremental amounts in response to changing demands in the market
Characterized by high demand for the same or similar products.
Also called Sequential Layout.
The maximum achievable output of a process or system.
Total amount produced during a given time period.
The maximum rate of output possible
The Theory of Constraints 5-step thinking process
1. Identify the system’s constraint(s): Determine the bottleneck of improvement opportunity
2. Exploit the system’s constraint: Ensure the bottleneck is at 100% capacity utilization or throughput.
3. Subordinate everything else to the above decision: Communicate the bottleneck
4. Elevate the system’s constraint: Determine how to increase the bottleneck’s capacity
5. If a constraint has been broken, go back to step 1. Do not allow inertia to cause a system’s constraint.
As indicated in the 5th step of the thinking process, TOC is about continuous improvement. Once one bottleneck has been identified and overcome, another constraint will become a bottleneck to the system.
The placement of a facility with regard to a company’s customers, suppliers, and other facilities with which the company interacts based on quantitative and qualitative factors.
Quantitative factors are easily measurable and are usually assigned a numerical value, while qualitative factors are more subjective and are usually not enumerated.
Are those which change and can be adjusted as business conditions change
The ability to produce more goods at a lower cost by better utilizing the same fixed costs.
Process of making predictions of the future based on past and present data and most commonly by analysis of trends.
Steps include:
o Determine the objectives of the forecast
o Develop and test model
o Applying the model – Consider real-world constraints on the model’s application
o Revising and evaluating the forecast
Usually demand for an item that is generated by a company’s production process.
Lists the materials needed and the quantities of each.
Using questionnaires, phone interviews, or the internet to solicit info to determine forecast
Conducting a trial run with the product in a market region to determine forecast
Panel of Experts (Delphi Technique)
Quantitative Methods (time series)
Applying a simple average based on a specific time period
Applying a simple average with based on a specific time period with assigned weights to each
Medium-range Forecasts (operations planning)
Forecasts and operations planning that typically extend 6 to 18 months into the future
Long-range operations planning
Planning for facility location, technologies, and capacity that typically extends 5 to 10 years
Combining of individual end items into groups or families of parts for planning purposes.
The master schedule or master production schedule (MPS)
Based on the “aggregated” plan. The master production schedule “disaggregates the aggregate plan” because it is a specific statement of exactly what will be produced and a specific date for production.
The master schedule planning horizon is as long as the cumulative lead time of the product or product with the longest lead time. The MPS is usually between 12 and 16 weeks.
o Demand Forecast
o Inventory Level
o Customer Orders
o Production Capacity
o Inventory/Production Costs
Boundaries between periods in the planning horizon.
Amount of time it takes to plan, produce, and deliver a product
Material Requirements Planning (MRP)
Acomputerized information system used for planning and managing inventory for dependent demand items.
Inputs include: Master schedule file, Bill of materials file, Inventory file.
Deals with getting the right amount of raw material to the right place at the right time to support production. Systematically designed to plan for production and deliver product.
MRP is widely considered to stop when materials are received
MRP II – Manufacturing Resource Planning
Often called manufacturing resource planning, builds on the foundation of MRP. Also includes production planning, machine capacity scheduling, demand forecasting and analysis and quality tracking tools into the mix.
Also features tools for tracking employee attendance, labor contribution and productivity, project management, inventory management, service and maintenance, and transportation
ERP (Enterprise Resource Planning)
Manufacturing methodology aimed primarily at reducing flow times within production systems as well as response times from suppliers and to customers by receiving ordering and receiving inventory when ready for use or just in time for use.
Fundamental Concepts include:
Allows materials to flow in an assembly process similar to a continuous flow process
Uses general-purpose machinery
Produces in small batches or small lot sizes
Uses a pull system
Uses process facility layout
Uses Kanban cards
Produces in smaller batches and shorter planning horizons ( 2-3 months instead of 6-12)
Simplifies the production process by:
o Reducing set-up times
o Having workers in close proximity
o Using total preventive maintenance (preventing machinery breakdowns)
Relationships with suppliers are further strengthened beyond vendor managed inventory in which the supplier places a representative on the customer’s site that is dedicated to the customer’s products only. Although an employee of the supplier, this person is authorized to purchase material for the customer.
Group technology (GT) production system
A Japanese word that can refer to a sign or a marker and means “visible record.”
Most often associated either with the movement of a container of parts or with the production of parts to fill an empty container.
Accordingly, two types of kanban are generally used, the conveyance kanban and the production kanban
Conveyance kanban, or C-kanban
A digital signal or electronic authorization to move a container of parts or replenishment of materials. E-kanban can also be used to authorize the production of parts or subassemblies. This is usually achieved by scanning barcodes with a mobile app or digital device to alert necessary parties of the materials needed.
The two-kanban system, which combines the C-kanban and the P-kanban, is known as a dual-card kanban system. Its major advantage over single-card kanban is that it allows greater control over production, as well as over inventory, because both production and withdrawal of inventory are directly connected to need.
Measure of how often a particular product is made.
Cycle time = working time per day/units
Output
represent the final good or service that is produced for the consumer.
are worth more to the consumer than the total cost of the inputs.
Inputs
People
Capital
Material
Energy
Outputs
Services
Goods
Ethics
a sense of what is right and wrong that guide behavior.
Unethical Business Practices
Anything related to fraud, wrong doing, dishonesty, etc., even if it is to protect the company, is considered .
Sustainability
defined as the ethical issues an organization faces to balance financial performance while maintaining social responsibility standards and a responsible environmental profile.
competitive advantage
a capability that customers value, such as short delivery lead-time or high product quality that gives an organization an edge against its competition.
VIRAL uses as a framework.
VIRAL
framework for competitive advantage.
Advantage must provide:
Value to consumers
Inimitable – not easily imitated
Rare
Aptitude – capability
Lifespan – sustainability to earn appropriate returns on the advantage.
SWOT analysis
strengths, weaknesses, opportunities, threats
can assist in future planning to achieve objectives.
Strengths
characteristics of the business or project that lend an advantage within the scope of the study.
Weaknesses
characteristics of a business or project that result in a disadvantage, relative to others.
opporunities
elements that the project could exploit to its advantage.
Threats
elements in the environment that could cause trouble for the business or project
Productivity
is a mathematical calculation; it is the ratio of the outputs achieved divided by the inputs consumed to achieve those outputs.
Inventory
the term for goods available for sale and raw materials used to produce goods available for sale.
Can help businesses meet demand and work more efficiently.
6 types of inventory
Raw Materials
Work-in-Process (WIP)
Finished Goods
Replacement Parts Inventory
Supplies
Transportation (Pipeline)
Raw Materials Inventory
these parts and materials are obtained from supplies and are used in the production process.
Work-in-process (WIP) inventory
these are partly finished parts, components, subassemblies, or modules.
finished goods inventory
items are ready to ship to the customer. No more work is required.
Replacement Parts Inventory
These are maintained to replace other parts in machinery or equipment as those parts wear out.
Supplies Inventory
Parts or materials are used to support the production process but not usually a component of the product. These Items, such as lubricant and cutting tools, are consumed in the production process.
Transportation (pipeline) inventory
the portion of inventory that is in the process of being shipped through the distribution system.
Peak Demand
occurs in response to planned events such as advertising, publicity, or promotion. Ex. release of a popular game franchise’s latest version.
Seasonal Demand
as shoppers adjust their purchase velocity in line with holidays, especially Christmas.
Unexpected Demand
occurs due to a usually-unexpected event.
Chase demand
occurs when a company has to adjust production by rates to match demand by varying the workforce and using overtime. Companies vary the workforce by adding or reducing the number of employees on duty at any given time. They may choose to provide overtime by asking workers to stay on the job beyond their normally scheduled time.
Safety Stock
cushion of inventory to protect against unexpected demand. in this way, they can continue to meet customer demand without delays.
Stock-out
occurs when inventory is depleted. An organization may underestimate demand, experience disruptions in its supply chain or delays in production that lead to late delivery of the product.
Perpetual and Periodic Inventory Systems
systems that companies use to track inventory. Although mostly used separately, they can also be used together.
perpetual inventory system
Continuously monitors inventory levels. AKA continuous review system. Requires human input (cashier) and the ordering of more inventory is triggered by reorder point.
periodic inventory system
randomly monitors inventory levels. AKA fixed order interval system. Not expensive to implement or maintain.
perpetual inventory system
-used for inventory that requires an exact inventory balance at all times.
-most suitable for big businesses, large retail stores, and/or banks.
-most appropriate for high value and high volume items.
-best for accurate financial statements
-expensive to implement and maintain.
periodic inventory system
-requires physical count to know exact inventory balances.
-used when a supplier will only deliver at specific time intervals (during open window)
-Most appropriate for low value and low value items
-most appropriate for small businesses
-inexpensive to implement and maintain.
ABC analysis
developed to determine which inventory items should receive the highest level of control.
by multiplying the dollar value of each item by its annual usage, a dollar usage value can be obtained.
Pareto Principle
Dollar usage follows this.
Frequently, only 20% of all the items account for 80% of the total dollar usage, while the remaining items frequently account for only 20% of the dollar usage.
ABC Classification
based on focusing efforts where the payoff is highest.
Economic Order Quantity (EOQ) and Economic Production Quantity (EPQ)
two models used to help companies control the cost of ordering, receiving, and holding inventory.
EOQ (Economic Order Quantity)
-For inventory that doesn’t require production.
-when demand is constant and known.
-when cost/unit does not depend on order quantity.
-most appropriate for retail stores or companies that order finished goods.
EPQ (economic production quantity)
-For inventory that will be used in production.
-when incremental ordering and depletion of inventory is allowed.
-also called production order quantity.
-most appropriate for manufacturing and production companies.
Holding Costs
the costs of holding or “carrying” inventory over time.
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.
Quantity Discount Model
a discount offered in price for ordering above a specified amount.
transportation discounts
a discount offered on shipping costs for ordering above a specified amount.
revenue sharing
when 2 or more companies partner and divide the profits received based on an agreement between all parties involved.
Reserve capacity
when a company stores, or pays another company to store, excess inventory to be used for unexpected demand.
Quality
-the degree to which a specific product conforms to its design characteristics or specifications.
-the amount of a specified, desired attribute.
-the capacity to satisfy customers’ needs.
-consistently meeting or exceeding the customer’s needs and expectations.
-is everyones responsibility in the organization.
Internal orientation of quality
directly measures characteristics of the product or service, such as the number of packages delivered on time or the thickness of an engine part based on manufactures specification.
external orientation of quality
fitness for use for the customer or the capacity to satisfy customer’s needs.
Service Quality
five dimensions of quality often used by customers to judge __ quality.
reliability (service quality)
ability to perform the promised service dependably and accurately
Five Dimensions of Service Quality
reliability, responsiveness, assurance, empathy, tangibles
Responsiveness
willingness to help customers and provide prompt service
Assurance
the knowledge of and courtesy by 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.
Quality of Goods (8)
performance, features, reliability, durability, conformance, serviceability, aesthetics, perceived quality
Quality of goods definition
the factors that comprise the quality of goods are quite different from the factors that comprise quality service.
Performance
primary operating characteristics of a product.
Features
secondary characteristics that supplement the product’s basic functioning.
Reliability (quality of goods)
length of time a product will function before it fails, or the probability it will function for a stated period of time.
Conformance
The degree to which a product’s design and operating characteristics meet 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, smells, or tastes
perceived quality
image, advertising, or brand name of a product.
Costs of Quality (3)
Failure costs, appraisal costs, and prevention costs.
Failure Costs
can be internal to the organization or external involving the customer.
appraisal costs
investment in measuring the quality and assessing customer satisfaction.
prevention costs
put a stop to the quality problem.
Crosby
-used the phrase “do it right the first time”
-Wrote a book in 1979, “Quality is Free” and concept of zero defects as a measurable object.
-Emphasized the importance of considering all costs of quality.
Juran
-focus was on the customer’s perception of quality
-quality must be built on three elements: quality planning, quality control, and quality improvement.
-focused on Fitness for use and Pareto Principle.
Taguchi
-Used Robust Design and Parabolic Quality Loss Function
-Perfecting of Experiments to create higher quality products and processes.
-argues that quality must be designed into a product.
Deming
-Had 14-point quality plan focused on Statistical Process Control (SPC)
-“system” caused defects, not employees and endorsed the elimination of fear in the organization.
-Modified Walter Shewart’s Plan-Do-Check-Act (PDCA) to Plan-Do-Study-Analyze (PDSA).
Ishikawa
-Developed Fishbone chart AKA cause and effect diagram.
-Teamwork is essential for quality leadership.
-Developed quality circles to solve problems lead by a champion (sr. manager) to oversee and approve.
Benchmarking
a process by which a company compares its performance to the performance of other companies.
Plan-Do-Check-Act Cycle
also referred to as the Deming Wheel or Shewart Cycle. The shape of a wheel embodies the philosophy of continuous improvement; the cycle is repeated over and over without end.
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. if the goals have not been achieved, determine why not, and proceed accordingly.
Statistical Process Control (SPC)
the use of statistical methods to determine when a process that produces a good or service is getting close to producing an unacceptable level of defects.
Statistical Process Control (SPC) (broader sense)
relates to the set of tips, techniques, and tools used to monitor variations in a process, determine the stability of a process, and reduce or eliminate variations that result in non-conforming products that are either defective or do not meet customer’s specifications.
Seven basic tools of Statistical Process Control (SPC)
- Cause and Effect Diagrams / Fishbone Diagrams / Ishikawa Diagrams
- Check sheets
- Control Charts
- Run Charts
- Histograms (Box Charts)
- Pareto Charts
- Scatter Plot (Diagrams)
Cause and Effect Diagrams
-AKA Fishbone Diagrams or Ishikawa Diagrams
-Show the impact of various inputs into the result of a -process.
-help organizations isolate the root cause of the problems such as bottlenecks in their processes.
Check Sheets
-the means used to record data points in real-time at the site where the data is generated.
-often first tool used to assess a process
-data is often “raw”, meaning it is straight from the source and without any interpretation.
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).
-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.
Run Charts
another form of control chart for processes that might have common features, a common scale, or some form of central tendency. (mean = average value; median = midpoint value; mode = most frequent value)
Histogram/Box Chart
Shows the frequency of data observations within a preset range of values.
Pareto Chart
represents data values in a descending order to visualize the most frequent occurrences.
always reflects the data in descending order (highest to lowest) to emphasize the most common occurrences among the data points.
Scatterplot
displays data as a relationship to show the correlation between two variables. The correlation will show a positive, negative, or no relationship at all.
Six Sigma
A continuous improvement strategy that relates to the firm’s ability to produce error free products.
Specifically 3.4 defects per 1 million units.
six sigma five step process
- Define
- Measure
- Analyze
- Improve
- Control
AKA DMAIC process
Define Stage Six Sigma
in this stage you define the problem or improvement opportunity. This stage includes: project charter, voice of the customer (VOC), Value Stream Mapping.
Project Charter
charter includes the scope of the project, the problem statement, time frame, boundaries, and team members.
Voice of the Customer (VOC)
includes feedback regarding characteristics that are critical for the satisfaction of the customer.
Value Stream Mapping
an overview of an entire process, from beginning to end, with regard to the VOC, and identifying what is required to meet the customer’s needs.
SIPOC diagram
an acronym for Suppliers, Inputs, Process, Outputs, and Customers.
Measure Stage Six Sigma
measuring current state or “as is” process performance is accomplished with a process map of the activities performed at each step of the process. Each step is assessed to determine the ability to meet customer specification in a capability analysis.
Analyze Stage Six Sigma
Charts and diagrams are used to visualize the measurements and the frequency of problems or defects, including scatter plots, pareto charts, histograms, and run charts.
Main objective is to determine the root causes of variation in the process that result in failures or defects.
Improve Stage Six Sigma
current process is changed by addressing the root causes identified to improve process performance through simulations, or in real-time through Design of Experiments (DOE). Improvements are often made through Kaizen teams.
Kaizen
an event to discuss process improvement opportunities from the people who are directly involved in the processes.
Control
Maintaining and standardizing the improved performance through a control plan to document the requirements to reduce process variation.
Also uses the 5S methodology (sort, straighten, shine, standardize, sustain)
5S Methodology
- Sort
- Straighten
- Shine
- Standardize
- Sustain
creates visual control of the workplace.
DMADV Process
-Secondary methodology of Six Sigma
-used specifically for new products or processes and is also known as Design for Six Sigma (DFSS).
- Define
- Measure
- Analyze
- Design
- Verify
Total Quality Management
pertains to: focus on the customer, quality function deployment, responsibility for quality, team problem solving, employee training, fact-based management.
Employee Empowerment
defined as involving employees in every step. Can improve employee morale, organizational efficiency, product and service quality, and ultimately lead to higher customer satisfaction.
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.
Supply Chain Management
taking actions to have all members of the supply chain work together to coordinate their activities and share information.
Logistics
managing the movement of materials, components, and information from point to point in the supply chain.
reverse logistics
the process of returning defective products to the manufacturer for repair or replacement, and/or efforts to reuse and recycle materials.
third party logistics
when a company uses a 3rd party to outsource their distribution, warehousing, and fulfillment services.
Vertical Integration
owning multiple assets in a supply chain
Backward vertical integration
when a company owns the supplier or supply process in the supply chain.
Forward vertical integration
when a company owns the retailer or retail process in the supply chain.
Insourcing
when goods and services are provided by the organization itself.
Outsourcing
when goods and services are obtained from outside suppliers.
Supply Chain Strategies
Vendor managed inventory
Agile
Lean
Constraint
Bottleneck
Strategic Alliance
vendor managed inventory
-the vendor, or supplier, can better coordinate its own production with the replenishment of supplier inventory, thus reducing costs and improving delivery performance between the supplier and the retailer.
- 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.
Agile
the use of responsiveness, competency, flexibility, and quickness to manage how well a supply chain entity operates on a daily basis.
Lean
traditional “factory” chain, which focuses on producing high volume at low cost. The goal is to add value for customers by reducing the cost of goods and lowering waste or non-value added activities.
Agile Characteristics
-most suitable for innovative products such as cell phones and computers.
-focus: speed and flexibility
-for products with short life cycles and unpredictable demand.
Lean Characteristics
-most suitable for traditional products with minimal innovation such as curtain rods or can openers.
-focus: eliminate waste and reduce cost.
-for products with long life cycles and stable demand.
Constraint
any resource whose capacity is less than or equal to demand for that resource.
Bottleneck
-the most limiting constraint on the system.
-determine the operational throughput performance of a supply chain.
Regulatory bottlenecks
with respect to imports, exports, and U.S. customs or pollutant emissions
Labor bottlenecks
with respect to available skills or work shift availability.
Technology bottlenecks
from different information exchange protocols.
decision-making bottlenecks
caused by procrastination or by not aligning management authority with management responsibility.
Physical bottlenecks
from under-investment, under-utilization, weather, road construction or accidents, or physical location or geographical limitations.
Process Bottleneck
Occurs when the production process’s capacity, flexibility, or activities is its own biggest limitation.
Financial bottlenecks
due to finite budgets or credit availability.
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.
-Also describes an organization’s maximum sustainable rate of production.
Capacity Planning
is needed to support customer demand and maintain production capacity as demands for products change.
Capacity Planning Strategies
Lead
Lag
Match
Adjustment
Lead
-adds capacity with the anticipation of an increase in demand.
-capacity planning strategy
-aggressive and is primarily used in an effort to obtain customers from competitors by reducing the amount of lead time and improving service levels.
-ensures adequate capacity is available to meet all demands during high growth periods.
-opposite of lag capacity strategy.
Lag
-adds capacity only after an organization is running at full capacity or is beyond due to increase in demand.
-capacity planning strategy.
-opposite of lead capacity strategy.
Match
-adds capacity in small incremental amounts in response to changing demands in the market.
-capacity planning strategy.
adjustment
-adds or reduce capacity in small or large amounts as consumer demand changes; triggered by major changes to process or system.
-capacity planning strategy.
Product-oriented layout
is characterized by high demand for the same or similar products. AKA sequential layout.
Process-oriented layout
is characterized by the production of many different products with the same equipment and low volume of any individual product. AKA functional layout.
Design capacity
the maximum achievable output of a process or system
effective capacity
-the maximum capacity given the product mix, equipment changeovers, and scheduled downtime of the production schedule.
-always less than the design capacity.
actual output
total amount produced during a given time period.
Capacity utilization
is a metric, or measure, used to determine how much capacity is actually being used on an average basis.
_ = Actual Output / Design Capacity
Efficiency Rate
is a metric, or measure, used to determine how much effective capacity is actually being used to achieve output.
_ = Actual Output / Effective Capacity
Theory of Constraints (TOC)
- 5-step thinking process which helps a firm achieve optimal throughput in the current system, by identifying the bottleneck and coordinating the system around the bottleneck’s capacity.
-Also helps identify ways of overcoming the bottleneck.
throughput
the maximum rate of output possible.
Theory of Constraints (TOC) 5-Step Thinking Process
- Identify the system’s constraint(s)
- Exploit the system’s constraint
- Subordinate everything else to the above decision
- Elevate the system’s constraint
- If a constraint has been broken, go back to step 1. Do not allow inertia to cause a system’s constraint.
Identify the systems constraint(s)
determine the bottleneck of improvement opportunity
Exploit the systems constraint
ensure the bottleneck is at 100% capacity utilization or throughput.
Subordinate everything else to the above decision
communicate the bottleneck
Elevate the system’s constraint
determine how to increase the bottleneck’s capacity
Facility location
is the placement of a facility with regard to a company’s customers, suppliers, and other facilities with which the company interacts based on quantitative and qualitative factors.
Quantitative Factors
easily measurable and usually assigned a numerical value.
Qualitative Factors
more subjective and are usually not enumerated.
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.
-usually done when customer convenience and access are important, or when outbound transportation costs are very high.
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.
Total Cost Equation
TC = VC(x) + FC
TC
Total cost
VC
Variable cost per unit
FC
fixed costs
Total Costs (TC)
consists of fixed costs and variable costs
variable costs (VC)
those which change and can be adjusted as business conditions change.
fixed costs (FC)
those which remain the same in all business conditions.
Process Selection
determining the most appropriate method of completing a task.
Assembly line
process selection most appropriate to produce high volume with little to no variation. Uses product facility layout (car manufacturer)
Continuous flow
process selection most appropriate to produce high volume with no variation. Uses product facility layout (oil refinery). AKA continuous inventory flow.
Batch flow
process selection most appropriate to produce high volume with some variation. Uses product facility layout: requires equipment or tool changes.
Job shop
process selection most appropriate to produce low volume with little to high variation. Uses process facility layout (customized furniture).
Economies of scale
the ability to produce more goods at a lower cost by better utilizing the same fixed costs.
Economies of scope
-can be expressed as “economies of scale through product line diversification.”
-It implies building the volume necessary to cover fixed costs by producing a variety of products on the same equipment.
-Requires flexibility within the organization.
Forecasting
the process of making predictions of the future based on past and present data and most commonly by analysis of trends.
Forecasting Steps
- Determine the objectives of the forecast.
- Develop and test model
- Applying the model – consider real world constraints on the model’s application.
- Revising and evaluating the forecast.
Independent demand
items usually include finished products, such as the completed tricycle or replacement parts sold to customers.
Dependent demand
Is usually demand for an item that is generated by a companies production process.
Bill of materials (BOM)
lists the materials needed and the quantities of each.
qualitative methods of forecasting
-forecasting techniques are subjective, based on the opinion and judgement of consumers and experts.
-appropriate when past data are not available.
-most suitable for new products or products without historical data.
-include:
*buildup method
*survey method
*test markets
*panel of experts (Delphi Technique)
Buildup method
-starting at the bottom of the organization and working to the top to solicit info to determine forecast.
-a qualitative method of forecasting.
Survey method
-using questionnaires, phone interviews, or the internet to solicit information to determine forecast.
-a qualitative method of forecasting.
Test markets
-conducting a trial run with the product in a market region to determine forecast.
-a qualitative method of forecasting.
panel of experts (Delphi Technique)
-soliciting information from people who are knowledgeable about the subject being considered to determine the forecast.
-a qualitative method of forecasting.
Quantitative Methods (time series)
-forecasting method using historical data to predict future.
-appropriate to use when past numerical data is available and when it is reasonable to assume that some of the patterns in the data are expected to continue into the future.
Simple moving average
-applying a simple average based on a specific time period.
-quantitative method of forecasting.
Weighted moving average
-applying a simple average based on a specific time period with assigned weights to each.
-quantitative method of forecasting.
medium range forecasting (operations planning)
forecasts and operations planning that typically extends 6 to 18 months into the future.
long-range operations planning
planning for facility location, technologies, and capacity that typically extends 5 to 10 years.
Aggregate planning
the combining of individual end items into groups or families of parts for planning purposes.
Master Production Schedule (MPS)
based on the “aggregated” Plan. This “disaggregates the aggregated plan” because it is a specific statement of exactly what will be produced and a specific date for production. Is usually between 12 to 16 weeks.
Time fences
boundaries between periods in the planning horizon.
Time-bucket
a period of time, usually one week, in which demand and requirements are grouped for master scheduling and material requirements planning.
lead time
the amount of time it takes to plan, produce, or deliver a product.
MPS Inputs
-demand forecast
-inventory levels
-customer orders
-production capacity
-inventory / production cost.
MPS Outputs
-quantity to be produced
-staffing needs
-ATP or available to promise
-Projected available balance.
ATP
Available to promise. This is the inventory that has not been sold and can be “promised” to customers if an order is placed.
Projected available balance
inventory levels after the production period.
Material Requirements Planning (MRP)
MRP is a computerized information system used for planning and managing inventory for dependent demand items.
Inputs include:
-master schedule file
-bill of materials file
-inventory file
MRP characteristics
-deals with getting the right amount of raw material to the right place at the right time to support production.
-systematically designed to plan for production and deliver product.
-includes master schedule file, bill of materials file, and inventory file.
-widely considered to stop when materials are received.
MRP II Characteristics
-often called “manufacturing resource planning”
-builds on the foundation of MRP
-Also includes production planning, machine capacity scheduling, demand forecasting and analysis, and quality tracking tools into the mix.
-also features tools for tracking employee attendance, labor contributions and productivity, project management, inventory management, service and maintenance, and transportation.
Enterprise Resource Planning (ERP)
-more robust data driven system that stems from MRP II
-used when all corporate data needs to accessible to all employees.
Just-in-time (JIT)
manufacturing methodology aimed primarily at reducing flow times within production systems as well as response times from suppliers and to customers by receiving ordering and receiving inventory when ready for use or just in time for use.
Fundamental concepts of JIT
-allows materials to flow in an assembly process similar to a continuous flow process.
-uses general purpose machinery
-produces in small batches or small lot sizes
-uses a pull system
-uses process facility layout
-simplifies the production process by: reducing set-up times, having workers in close proximity, using total preventative maintenance.
-uses Kanban cards
-produces in smaller batches and shorter planning horizons
-2-3 months instead of 6-12.
Just-in-Time 2 (JIT II)
relationships with suppliers are further strengthened beyond vendor managed inventory in which the suppliers places a rep on the customer’s site that is dedicated to the customers products only. Although an employee of the supplier, this person is authorized to purchase material for the customer.
Push system
moves materials through the processing operations based on a schedule.
Uses a master schedule to plan builds out in time, and parts (raw materials, subassemblies, etc.) are ordered based on this build plan.
Pull system
moves materials through a system to work-stations as they are needed. daily builds are scheduled only when there are orders for the products.
Value stream mapping
a technique used to analyze the flow of material, ideas, and information to understand how processes function. Each activity in the process is defined as value-added or non-value added.
Group Technology (GT) Production System
may be used to make several different, but related, parts. Each part follows the same essential processing sequence.
Kanban
A Japanese word that can refer to a sign or a marker and means “visible record”.
Most often associated either with the movement of a container of parts or with the production of parts to fill an empty container.
Two types are generally used.
Single Card Kanban
a kanban control arrangement consisting of conveyance kanban, production kanban, or electronic kanban.
In order for this to work, containers holding parts can be moved only when a card is attached and standard containers must always be used.
Conveyance kanban (c-kanban)
an authorization to move a container of parts or materials. Without it, nothing can be moved.
Production Kanban (P-Kanban)
is used to authorize the production of parts or subassemblies.
Electronic Kanban (E-Kanban)
-is a digital signal or electronic authorization to move a container of parts or replenishment of materials.
-can also be used to authorize the production of parts or subassemblies.
-Usually achieved by scanning barcodes with a mobile app or digital device to alert necessary parties of the materials needed.
dual card kanban
combines the c-kanban and the p-kanban.
it allows greater control over production, as well as inventory, because both production and withdrawal of inventory are directly connected to need.
Final assembly schedule (FAS)
is an exact statement of the final products that are to be assembled.
stated on a daily basis, but most often only goes about a week into the future.
Level Assembly Schedule
The number of units of each end product produced at a time is as small as possible, and the total production of each matches average demand during the scheduling horizon. For example, if the scheduling horizon is 20 days, and the demand during that period is expected to be 300 units, a level schedule work require 15 units (300/20) be produced per day. Makes demand for each part fairly uniform throughout the day.
cycle time
a measure of how often a particular product is made.
Quality Function Deployment (QFD)
taking customer expectations and transforming them into specific actions designed to meet those expectations.
Operations
The process used to acquire inputs, such as people, capital, and material, and transform them into outputs, such as products and services.
Operations Manager
They allocate resources.
Capital
Facilities and equipment
Competitive Advantage
Developing capabilities that customers value, can be sustained over the long-term, and competitors find difficult to replicate.
Inseparability
The process of separating production from consumption; cannot be done for services because they are produced and consumed simultaneously.
Technology
The application of knowledge, tools, processes, and procedures to solve problems.
Product Design
The characteristics, features, and performance of the product; how the product functions; does not fundamentally change the product. Example: changing Coca-Cola’s beverage containers from glass to aluminum.
Product Technology
The application of knowledge to improve the product.
Process
How to accomplish a task.
Process Design
How a product is made; can fundamentally alter the nature of the product. Example: changing the taste of Coca-Cola.
Process Technology
The application of knowledge to improve a process.
Cross-Functionality
When individuals with different expertise work towards a common goal; this is an essential business process.
Concurrent Engineering
Completing product design and process design simultaneously.
Functional Areas
Subsystems within an organization, such as marketing, finance, and accounting, that are linked together by a common organizational goal.
Strategy
Consists of the organizational goals and the methods of implementing the goals; every element of the SWOT analysis should be considered when developing strategies.
Key Policies
Main goals of an organization.
Organizational Structure
The formal relationships among different functional areas that aids in communication.
Relative Advantage
Where one entity has an advantage over another; will often trade their specialized products for those that they do not produce; companies with a relative advantage are able to produce products at a lower cost than their competitors.
North American Free Trade Agreement (NAFTA)
A free trade agreement between the United State, Mexico, and Canada to reduce tariffs and other trade restrictions.
General Agreement on Tariffs and Trade (GATT)
A trade agreement designed to reduce tariffs and other trade restrictions.
Sustainability
Balancing the interconnected obligations to economic viability, society, and the environment (the triple bottom line).
What is the percentage of businesses that operate within the service sector?
88 percent
Supporting Goods
Supplies and equipment that aid in the development of products and services.
Market Share
The percentage of sales in a particular market.
VIRAL
Value, Inimitable, rare, aptitude, and lifespan.
SWOT Analysis
Analyzing the internal (strengths and weaknesses) and external (opportunities and threats) environments.
Requirements for developing competitive advantage
SWOT, business process, competitive capabilities, and customer requirements.
Learning Curve
Continuously improving a product to make it better and cheaper.
Synergy
Teamwork where the whole is greater than the sum of its parts.
Key Processes
Strategy development, product development, system development, and order fulfillment.
System
The process of producing goods and system.
Matching
Matching strengths to opportunities.
Converting
Converting weaknesses or threats into strengths or opportunities.
Productivity
Output / Input; the goal is achieving more output given the amount of inputs, thus saving money and reducing production costs.
The First Revolution
Starting in the late 1800s, increases in manufacturing productivity reduced the need for physical labor and enabled a shift towards service-based jobs.
The Second Revolution
Productivity and efficiency improvements in manufacturing freed resources for the rapid expansion of the service industry.
The Third Revolution
Also known as the post-industrial era, this revolution began in the 1950s with the development of computers. This technology has allowed fewer people to do more work.
Reliability
The ability to perform dependably and accurately.
Assurance
Knowledge and courtesy of employees and their ability to convey trust and confidence.
Process Redesign
The complete overhaul of a process to improve performance.
Percent Change in Productivity
[(New Productivity – Old Productivity)/Old Productivity] * 100
Quality (internal)
How quality is defined by the business; often measured as the amount of a desired attribute; objective.
Quality (external)
How quality is defined by the customer and the product’s fitness for use; meets customer’s needs and expectations; subjective.
Questions for Customers when Improving Products
Ask what they value (not just what they want), how do they work, what makes them happy, and feedback on specific product attributes.
Costs of Quality
Failure costs, appraisal costs, and prevention costs.
Failure Costs
Costs accrued by the organization or customer as the result of a failure of the product.
Appraisal Costs
Investments in measuring quality and assessing customer satisfaction.
Prevention Costs
Investments designed to prevent defects from occurring.
Poka-yoke
Mistake proofing; an approach to prevent defects, such as color-coding parts so that customers assemble the product correctly.
Design for Manufacture and Assembly (DFMA)
Products should be designed so that they are simple and inexpensive to produce.
Design for Operations (DFO)
Services should be simple and inexpensive.
Statistical Process Control (SPC)
The use of statistical methods to determine when a process that produces goods is getting close to producing too many defects.
W. Edwards Deming
The most influential individual within the specialty of quality; After World War II, he went to Japan to help rebuild their economy, and he was heralded for his influence. He went on to lecture in the United States in the 1980s; he developed his 14 Points for the Transformation of Management.
Deming’s 14 Points for the Transformation of Management
The system, not employees, cause defects; management is responsible for changing the system, and they must take responsibility instead of blaming employees; Deming also stressed the use of Statistical Process Control (SPC) and encouraged training in its use. Other highlights include creating purpose, reduce fear, provide training and leadership, break down barriers between departments, and eliminate slogans, work standards, and quotas.
Joseph M. Juran
He defined quality as “fitness for use”, from the customer’s perspective; he emphasized the need for continuous improvement and stressed that quality must be built on quality planning, quality control, and quality improvement.
Quality Planning
The development of products that appeal to the changing wants and needs of customers.
Quality Control
Ensure that the product fits the customer’s perception of fitness for use.
Quality Improvement
Leadership ought to lead efforts to eliminate waste and errors.
Philip Crosby
Wrote Quality is Free; he emphasized the complete elimination of failures to save money, as most firms underestimate their failure costs and should evaluate all costs of quality; “Do it right the first time”.
Genichi Taguchi
He helped develop Japan’s telephone system post-World War II. He designed experiments to extract more data from each test. He argues for “robust design”, designs that guarantee high quality despite variations, such as employee errors, that may occur during the processes that produce the product; quality must, therefore, be built into the product.
Kaoru Ishikawa
He developed the Ishikawa/Fishbone diagram and quality circles.
Ishikawa/Fishbone Diagram
Helps establish cause-and-effect by identifying factors that contribute to outcomes or problems; the factors are categories as People, Machines, Methods, Measurements, Materials, and Environment and include intentional and unintentional consequences and influence quality performance.
Quality Circles
A team from all levels who meet to discuss, analyze, and eliminate quality issues using Deming’s 14 points; a senior manager overseas their progress and approves their changes.
Total Quality Management (TQM)
An organization-wide philosophy that calls for 1) focusing on the customer, 2) quality function deployment, 3) responsibility for quality, 4) team problem-solving, 5) employee training, and 6) fact-based management.
Voice of the Customer
Describes what customers want and what they like and dislike; can get to know customers, hold focus groups, and request improvement suggestions; the business can also use their knowledge of how the customer would benefit from a new technology that they are not familiar with to create a future need on behalf of the customer.
Quality Function Deployment (QFD)
Relating customer needs and expectations to specific design characteristics through a series of grids or matrices.
House of Quality
The matrix used in Quality Function Deployment (QFD); lists customer needs (WHATs), design characteristics related to these needs (HOWs), the nature of the relationship between each customer’s need and design characteristic (WHAT versus HOW), the reasons for WHATs (WHYs), and performance comparisons on design characteristics against competitors (HOW MUCH).
Quality Control Department
Where quality control obligations traditionally fell; now, it is up to everyone to ensure quality.
Standardization
Developing a preset procedure.
Documentation
The act of putting a procedure into writing.
ISO 9000
2000: An international quality standard.
Plan-Do-Check-Act Cycle/Deming Wheel/Shewhart Cycle
A cycle of continuous improvement that is repeated indefinitely. Planning involves using appropriate tools to identify problems or improvement opportunities. Doing involves acting upon the plan. Checking involves analyzing the actions performed to ensure that goals were achieved. Acting involves standardizing and documenting the changes, communicating changes to other, and determining why goals were not achieved.
Seven Tools of Statistical Process Control (SPC)
Fishbone diagrams, check sheets, control charts, histograms, Pareto charts, scatter diagrams, and control charts (classified as flow/run charts).
Check Sheets
Used to record data points in real-time at the site where the data is generated; raw data is collected without interpretation and then depicted using a different statistical tool.
Histogram/Box Chart
Shows the frequency of data observations within a preset range of values.
Scatter Plot
Displays data as a relationship between two variables; correlations can be drawn based upon the data. The controlled variable is the independent variable.
Pareto Chart
A bar chart that reflects data values in a descending order.
Control Chart
A graphical depiction of process outputs where the raw data is plotted in real-time within upper control limits (UCL) and lower control limits (LCL); this allows one to determine if a process is stable or trending towards instability and take corrective action before variations result in non-conforming products (see Page 30 for example).
Run Chart
Another form of a control chart for processes that have common features, a common scale, or a central tendency; an optimal line is drawn horizontally across the chart to gauge the central tendency (see Page 30 for example).
Six Sigma
Relates to the firm’s ability to produce error-free products; uses six standard deviations rather than three, which translates to 3.4 defects per 1 million units (99.99966% error-free). Uses the DMAIC (Define, Measure, Analyze, Improve, and Control) process; uses quantitative and qualitative techniques.
Project Charter
Used in the Six Sigma “define” stage to include all aspects of a project to ensure optimal success, including the project scope, problem statement, time frame, boundaries, and team members.
DMAIC
The “define, measure, analyze, improve, and control” process of Six Sigma.
Value Stream Mapping
Provides an overview of an entire process.
SIPOC Chart
Defines the supplier-input-process-output-customer relationships in a process.
Failure Modes and Effects Analysis (FMEA)
Used to identify potential causes of defects, errors, breakdowns, or failures.
Measurement System Analysis
Determines the accuracy and repeatability of the measurement methods and devices used to control variation in the process.
Design of Experiments (DOE)
Real-time solving of problems within complex systems with many different factors that are difficult to isolate.
Kaizen Teams
A team that can make rapid changes using ideas from those involved in the process.
5S Methodology
Sort, straighten, shine, standardize, and sustain; used to create visual control of the workplace.
DMADV/Design for Six Sigma (DFSS)
Define, measure, analyze, design, and verify; this method is like Six Sigma, but it is used specifically for new products and processes.
Black Belts/Green Belts
When using Six Sigma, these specialists are developed within an organization who are experts in specific methods.
Problem Statement
A concise verbal statement of the problem, based upon the organization’s expectations.
Supply Chain
Products throughout their development cycle, from raw material through the final consumer product.
Focal Firm
The organization that directs the flow of information, and has the most influence and control, across the supply chain; Apple doesn’t manufacturer, but the product design and marketing-focused firm is focal because it’s brand dominants the market; also, the companies that own the oil fields and refineries are the focal firms because they control the key resource in the supply chain.
Vertical Integration
Owning multiple assets in a supply chain.
Tier # Suppliers
A manufacturer purchases components from tier 1 suppliers. When they produce these components, they may purchase components from tier 2 suppliers, and so on.
Logistics
Managing the movement of materials, components, and information along the supply chain.
Supply Chain Management
Taking actions to have all members of the supply chain coordinate their activities and share information.
Reverse Logistics
The process of returning defective products and efforts to reuse and recycle materials.
Insourced
When goods are provided from within the organization.
Outsourced
When goods are obtained from outside suppliers.
Backward Vertical Integration
Owning its suppliers.
Forward Vertical Integration
Owning distribution systems and retail outlets.
Agile Supply Chains
Fast and reliable supply chains that can transmit information reliably, accurately, and quickly from the marketplace to supply chain members; can create flexible and responsive production processes that allow product differentiation.
Lean Supply Chains
Supply chains that can keep costs down and minimize inventory; perfect for functional items with long life cycles, stable demand, and minimal innovation that produce low profit margins; by keeping inventory low, it increases the chances of bottlenecks related to supply shortages.
Vendor Managed Inventory (VMI)
When the vendor/supplier coordinates its own inventory replenishment by receiving daily point-of-sale (POS) data from retail stores.
Just-in-Time II (JIT II)
Having outside suppliers work inside the firm and handle all purchases for the business, as they are more knowledgeable of the supplies, inventory levels, and future production plans.
Supply Chain Operations Reference (SCOR) Model
A model developed by the Supply Chain Council (SCC) to divide all supply chain activities into five groups: plan, source, make (how a product will be made, in what quantities, and where), deliver (through each supply chain stage), and return (such as warranty costs, repairs, customer satisfaction, disposal, etc.); SCOR is used as a framework in development supply chain performance management systems.
Cash-to-Cash Cycle
The time between when a company owes money to suppliers when it receives money from customers.
Days of Supply (DoS)
Finished Goods Inventory / Average Sales per Day; when there are more sales, DoS will decrease, and vice versa.
Virtual Corporation
Companies that exist as an administrative shell that outsources all other functions.
Primary Constraints in a System
Market (demand), process (throughput), and product (supply).
Constraint
When a resource’s capacity to less than or equal to demand for that resource.
Bottleneck
The most limiting constraint on the system, whereby requiring the longest time or slowest rate.
Process Bottleneck
Occurs when the production process’s capacity, flexibility, or activities is its own biggest limitation.
Physical Bottleneck
Caused by under-investment, under-utilization, weather, road construction, physical location, or geographical limits.
Product Bottleneck
When there are insufficient materials to make a product.
Throughout
The rate of flow; the process that allows the supply chain to flow.
Supplier Development
The practice of helping suppliers improve their production capabilities.
Strategic Alliances
A partnership with mutual benefits that can be realized through supply chain collaboration so that there is more time to focus on core competencies.
Cross-Docking
The logistical practice of unloading materials from one truck and loading them into another vehicle with minimal storage in between.
Third-Party Logistics (3PL)
Outsourcing logistics to third-parties.
Radio-Frequency Identification
Using electromagnetic fields to identify and track tags attached to objects.
Capacity
A measure of an organization’s ability to provide customers with goods in the amount requested and in a timely manner, given current resources; the maximum sustainable rate of production.
Capacity Planning
Planning an organization’s ability to deliver at capacity; significant capital is usually involved to build facilities and purchase equipment; require careful consideration of long-term objectives, current demand, and long-term demand.
Product Mix
Different products produced on the same equipment.
System Capacity
The ability of an organization to produce a sufficient number of goods to meet customer demands.
Department
A portion of the production system.
Product Layout
A process that is characterized by high demand for the same or similar products; for example, the process of continuously producing paper along the supply chain; this system often measures output as the number of items produced per day.
Process Layout
A process that is characterized by the production of many different products with the same equipment and low volume for each product; an example is a car repair shop that offer a variety of services; this system often measures output as completed orders per day.
Design Capacity
The maximum achievable output of a process under ideal conditions for a short period of time.
Effective Capacity
The maximum achievable output given the product mix, equipment changeovers, and downtime.
Capacity Utilization
Actual Output / Design Capacity; used to measure how much capacity is actually being used on an average basis.
Actual Output
The effective capacity minus additional factors that reduce production, such as a fuel stop.
Efficiency
Actual Output / Effective Capacity; used to measure how much effective capacity is being used to achieve output.
Eliyahu Goldratt
An Israeli physicist who developed the Theory of Constraints (TOC).
Theory of Constraints (TOC)
A five-step process that helps a firm optimal throughput by identifying and fixing bottlenecks; includes 1) finding constraints, 2) exploit the constraints (get at 100% capacity), 3) subordinate everything else to decision (communicate to everyone), 4) elevate the constraint (how to increase capacity), and 5) repeat (find a different bottleneck, for continuous improvement).
Throughput
The state where output is as close to the system capacity as possible.
Facility Location
The placement of a facility with regards to a company’s customers, suppliers, and other facilities; should be a long-term, strategic investment.
Regional Facility Strategy
Requires that each production facility has a defined marketing area that produces a complete line of products for that area; used when customer convenience is important, or when transportation costs are high.
Product Facility Strategy
One facility is responsible for producing one product or product line and shipping it throughout the world; good for expensive, small, specialized products that require many resources to produce.
Variable Costs
Costs which change and can be adjusted as business conditions change.
Total Costs
(Variable Costs per Unit)*(The Number of Units Produced) + Fixed Costs
Time Value of Money
One dollar received today is worth more than one dollar received at some future point, such as through investment.
Process Selection
Determining the most appropriate method of completing a task; volume, cost, and profit are three critical elements when selecting a process.
Volume
Applying the appropriate mix of technology to leverage the organization’s workforce.
Leverage
Making a workforce more productive using better tools.
Line Flow Processes
Low variety operations; have high fixed costs and low variable costs.
Continuous Flow
Where low-variety units are mixed and flow together in a high-volume continuous stream, such as oil refining or processing checks; the main scheduling dilemma stems from knowing the best time to switch from making one product to another.
Assembly Line
The assembly of low-variety discrete products, such as washing machines, at high volume; each output is trackable.
Batch Flow
A process that aggregates similar products together to generate sufficient volume for efficient use; transition/changeover time is required between batches; an example is the manufacturing of pain medications.
Job Shop
A general and flexible facility that has much higher unit costs but cater to individual customer demands; produces low quantities of any given item, but large amounts of quantity overall; low fixed costs and high unit-variable costs.
Project
All costs are variable; often a “fixed position”, such as a building or computer hardware; flexible and require expert teams to implement.
Flexible Manufacturing Systems (FMS)
Allow the production of low-cost products that need varying customer requirements; relies upon group technology to build a family of parts.
Group Technology
A set of methods that allow firms to classify parts based on size, shape, use, material, and production method.
Family of Parts
A collection of parts with similar characteristics.
Mass Customization
Producing products at low cost, high volumes, and high flexibility; meets the various needs of customers.
Economies of Scale
Reducing costs from increasing production for a single product type using existing resources.
Economies of Scope
Reducing costs by producing more types of products.
Forecasting
An attempt to predict the future by using past experience to gain insights into the future with mathematical models.
Forecasting Error
The difference between what actually happens and what is predicted.
Forecasting Process
Consists of determining forecast objectives, developing a model using historical data, applying the model, consider real-world constraints on the model, and revising and evaluating the forecast using human judgement.
Independent Demand
Demand that is not controlled by the company, such as finished products.
Dependent Demand
Demand generated by a company’s production process, such as components for a computer that a company is producing.
Master Schedule
Indicates which items and how many of each item to produce.
Bill of Materials (BOM)
Lists the needed materials and quantities of materials; it also provides information on how the materials come together; like a recipe.
Delphi Technique
Deciding based upon input from a panel of experts who deliver their input via surveys.
Build-Up Method
Adding together estimates from each element from an organization, from the bottom to the top; for example, sales representatives at the bottom of the organization can be asked for their estimates of the revenue that they generate; this data is then passed on to the next-higher level of the organization, and revised and refined during this process.
Test Market
When a new product in placed in an area that is representative of the overall market to measure its success; an expensive approach that usually reports accurate findings.
Regression Analysis
used to predict both cross-sectional and time series data.
Cross-Sectional Data
Collected by observing many subjects at the same point in time or without regard to differences in time.
Time Series Data
A series of values of a quantity obtained at successive times, often with equal intervals between them.
Simple Moving Average
An average that smooths out peaks in the data to provide a more reasonable prediction; calculated by taking the sum of each of the data points and dividing them by the number of data points; used to forecast future data.
Weighted Moving Average
An average that assigns different weights to each period; calculated by taking each value, multiplying them by their respective weights, and then summing each result.
Exponential Smoothing
A procedure for continually revising an estimate to include more recent data. Each data point is calculated separately, and each low and high weight is also shown separately. The overall formula is F = A(X) + [(1 – A) * (X)], where the “A” represents the low and high weights and “X” represents the previous data point. This calculation is performed twice for each period, once for the low and once for the high weight.
Propensity for Error
How much error is inherent in a model? Calculated by using the mean squared error (MSE) or mean absolute deviation (MAD).
Mean Squared Error (MSE)
The average of all the squared errors; square each of the error rates (the difference between the actual and the predicted results), add them together, and divide by the number of periods.
Mean Absolute Deviation (MAD)
Similar to mean squared error (MSE), excepted instead of squaring each of the error rates, one should simply drop the minus signs from the negative values, add them all together, and then divide by the number of periods.
Medium-Range Forecasts
Forecasts that range from six to 18 months; used in the aggregate plan.
Long-Range Operations Planning
A plan that usually lasts for around five years that addresses facilities, resources, and building.
Medium-Range Operations Planning
A plan that develops ways to utilizes resources to meet demand; usually span from six to 18 months.
Aggregate Planning
The combination of individual end items into groups or families of parts for planning purposes; for example, an appliance manufacturer may begin medium-range planning by determining production rates for each product family, such as fridges, stoves, and dishwashers.
Master Production Schedule
Based on the aggregate plan, this schedule provides more detail, such as identifying the cubic feet, energy efficiency, and layout of a fridge model; determines the exact product mix that a company will use; disaggregates the aggregate plan; for example, whereas the iPod may be the basis for the aggregate plan, the 5th Generation iPod Touch in Gray and Silver is reflected in the master production schedule.
Planning Horizon
The length of time a company uses as the basis for developing a plan, forecast, or schedule. Should be long enough to account for lead times of all products and their component parts, plus additional buffer time.
Time Bucket
A short period of time in which demand and requirements are grouped for master scheduling and material requirements planning.
Iteration
Revision/improvement
Available-to-Promise
Inventory that has not yet been sold. Take the on-hand inventory and subtract it from the customer orders booked.
Trials
Multiple versions of the master production schedule (MPS).
Rolling Through Time
The process of continuously updating master production schedules.
Freezing the Master Schedule
Preventing changes to the master product schedule (MPS) to avoid disruption.
Time Fences
Act as boundaries between periods in the planning horizon; corresponds to the cumulative lead time to make a product; events outside of the time fence are not captured in the master schedule.
Material Requirements Planning (MRP)
The process of managing inventory for dependent demand items; the three most important data requirements of MRP are the master production schedule (MPS), the bill of materials (BOM), and inventory records.
Cycle Counting
A way to reconcile inventory records and correct errors; a physical count of the inventory is made at least once per replenishment cycle.
Replenishment cycle
The period between orders to replenish inventory.
Exploding the BOM
Producing a material requirements planning (MRP) table for each item in a bill of materials (BOM); the BOM is exploded each time a company runs an MRP table.
Planned Order Release
The quantity that should be ordered, based upon an insufficient quantity reported in the master production planning (MRP) table.
Shop Order
Authorizes production to make certain components.
Purchase Order
Authorization for a vendor to supply materials.
Daily Dispatch List
Gives the order of priority for jobs to be completed.
Material Requirements Planning (MRP) II
Has a broader focus on the tools of production planning and tracking; improves MRP such as introducing automating planning/tracking with digital tools; extends the value stream beyond when the material is received so that it covers the entire manufacturing and shipping processes; includes finance, human resources, and shipping.
Enterprise Resource Planning (ERP)
An enterprise-wide view of data-driven productivity; it began with material requirements planning (MRP) to focus on materials, followed by the entire manufacturing system (MRP II), and then, finally, an enterprise-wide scope (ERP).
Sequencing Rules
Guidelines for the order in which of a set of procedures should take place.
Peak Demand
Occurs as the result of a planned event, such as a release date; a pro of planning for peak demand is that one can guarantee that capacity is available during peak demand, but a con is that capacity is often underutilized during non-peak times, whereby wasting money; sufficient capacity is available at all time to ensure that capacity is available during peak demand.
Chase Demand
The process of varying the workforce and using overtime to adjust production rates to match demand; this strategy requires a flexible workforce.
Uneven Demand
When demand is not even throughout the day.
Reservation Strategy
Allows organization to determine advance demand while also limiting access to this service. Airports and restaurants often do this.
Consumer Participation
Requiring customers to exert effort during transactions, such as pumping one’s own gas or serving themselves at a buffet; this process saves money.
Adjustable Capacity
The ability the use a portion of facilities or employees at any given time, such as closing off a section of a restaurant when demand is low so that some wait staff can prepare for peak demand.
Capacity Requirements Planning (CRP)
Used to determine capacity.
Make-to-Order Company
A company that only provides goods that are ordered.
Made-to-Stock Company
A company that produces for inventory and future demand.
Assembly-Line Balancing
Having the optimal number of appropriate workstations and the appropriate amount of work per station so that idle time is low, preferably zero.
Run-Out Time
Current Inventory / Usage Rate; used to calculate how long it will take for a company to run out of a product at current usage rates.
Safety Stock
A level of inventory to protect against unexpected demand or supplier delays as to keep overall production levels constant.
Work-in-Process (WIP)
Partly-finished parts or components.
Pipeline Inventory
Inventory from the time it leaves the warehouse until it is delivered to the customer.
Perpetual Inventory System
An inventory system that continuously monitors inventory levels, such as using barcode scanners at grocery stores. An advantage is that the company will always have a good inventory count. The disadvantage is the cost to maintain such a system.
Order Point
The least-acceptable level of inventory; ordered are often performed automatically based upon this data point.
Periodic Review System
Used when a company does not know their inventory level or if the supplier will only deliver at a specific interval during their order window. Ad advantage is that this system is low-cost. The downside is the inability to determine exact inventory balances without a physical count, whereby necessitating safety stocks.
Stock-Out
When the inventory runs out.
ABC Analysis
Used to determine which inventory items should receive the highest level of control, through multiplying the dollar value of each item by its annual usage. Items are ranked by dollar usage, from highest to lowest. Following the Pareto Principle, the first 20% of the items are assigned to Class A, characterized as having close control and monitoring through a perpetual inventory system. Class B items comprise the next 30%, and they deserve less attention. Class C items are the last 50% of stocked items, characterized by lowest dollar usage and can be monitored loosely through a periodic review system.
Pareto Principle
The principle that only 20% of all items account for 80% of total dollar usage.
Economic Order Quantity (EOQ)
A model that determines the per-order quantity at which annual variable costs for holding and ordering inventory are minimized; whenever ordering costs go up, holding costs go down, and vice-versa, so EOQ selects the point where both intersect on a graph; the model calculates whole inventory items that arrive complete.
Ordering Cost
The cost of ordering components or changing over equipment to produce it in-house (set-up costs).
Holding/Carrying Costs
The costs of holding inventory; includes costs for storage space and losses incurred due to damage or obsolescence.
Economic Order Quantity (EOQ) Assumptions
1) Constant known demand, 2) Cost per unit is not dependent on order quantity, 3) Entire order delivered at once, and 4) ordering and carrying costs are known and independent.
Lead Time
The time it takes for an order to reach a supplier’s office, to fill the order, and to ship the order.
Order Point (Formula)
Daily Demand (units/day) * Lead Time (days) + Safety Stock
Service Level
The percentage of replenishment orders that are received before a stock-out occurs; considers the probability of a stock-out vs the costs of inventory to find the right percentage.
Standard Deviation
Measures how far numbers spread apart. For example, if the average inventory is 10 units, and the inventory tends to run between six and 14 units, the standard deviation is four.
Economic Production Quantity (EPQ)
A model that helps companies control the cost of ordering, receiving, and holding inventory; this model allows for incomplete inventory to arrive, thus proving useful for businesses that produce their own parts; also known as Production Order Quantity.
Review Interval (Formula)
Economic Order Quantity (EOQ) / D
Order-Up-To Level (Formula and definition)
M = D(R + L); A formula used to calculate how much to increase inventory to a level sufficient to cover anticipated demand before the next order is received.
Just-in-Time (JIT)
Characterized by maximizing efficiency and eliminating waste; encompasses standardized processes with single-piece flow, allowing variety; focus on a smooth, even flow of high-volume production; often used synonymously with “lean systems”; minimizes work-in-process (WIP) inventory; transition to general-use machines; move workers closer together so they can hand-off material throughout the process; make blanket purchases; uses a pull system; often has shorter planning horizons with small batch sizes and less scheduling; low inventories help spot inefficiencies.
Toyota Production System (TPS)
Toyota’s version of Just-in-Time (JIT) and lean systems.
Push System
Moves materials through the process based upon a schedule.
Pull System
Moves materials through the process as needed.
Kanban
The Japanese word for “card” that is used to signal the need for more materials or parts at downstream operations; developed by Toyota; used in pull systems.
Conveyance Kanban (C-Kanban)
An authorization to move a container of parts or materials; nothing can move without it.
Single-Card Kanban System
Inventory at a work center can only be replenished when a container is emptied, whereby preventing the hoarding of extra parts.
Production Kanban (P-Kanban)
Used to authorize the production of parts.
Dual-Card Kanban System
Combines Conveyance Kanban (C-Kanban) and Production Kanban (P-Kanban); allows greater control over production and inventory.
Total Preventive Maintenance (TPM)
Preventing defecting parks 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).
Level Assembly Schedule
The number of units of each end product produced at a time is as small as possible, and the total production of each matches average demand during the scheduling horizon. For example, if the scheduling horizon is 20 days, and the demand during that period is expected to be 300 units, a level schedule work require 15 units (300/20) be produced per day. Makes demand for each part fairly uniform throughout the day.
Cycle Time (Definition and Formula)
Work Time per Day / Units Required per Day; a measure of how often a product is made.
Operations Management
The multidisciplinary science that organizations use to acquire inputs (people, capital, material, or energy and transform them into outputs (products and/or services) that ultimately provide value to the end customer
Biggest difference between Service Providers and Goods Producers
A good is tangible and a service is not
Resources
People, Capital, and Materials
Product Design
The determination of the characteristics, features, and performance of the product
Product Technology
The application of knowledge to improve the product
Process
Describes how to accomplish a task
Process Design
Describes how a product is made
Process Technology
The application of knowledge to improve a process
Teamwork Approach
In managing operation can help solve quality and productivity problems
Strategy
Consists of the organizational goals and the methods for implementing the goals, called key procedures
Business Process
A set of work activities with a preferred order, and identifiable beginning and end, inputs, and clearly defined outputs that add value to the customer
Plan
List of actions that management expects to take
Organizational Structure
The infrastructure of formal relationships among different functions or subsystems, such as marketing, finance, and operations
Relative Advantage
The difference between the lowest cost producer and the next lower cost producer
Ethics
A sense of what is right and what is wrong that guide behavior
Sustainability
Reflects the efforts organizations are expected to make to balance their interconnected obligations to economic viability, the societies in which they operate, and the natural environment
Competitive Advantage
A capability that customers value, such as short delivery lead-time or high product quality that gives an organization an edge against its competition
Market Share
A company’s sales divided by the sales of all companies in its industry
Product Development
A teamwork oriented process that begins with the organization’s strategy and analysis of the markets as inputs
Supply Chain
Commonly used to refer to the network of organizations that participate in producing goods or producing services
Focal Firm
Directs the flow of information much like a conductor coordinates the activities of an orchestra
Vertical Intergration
Owning multiple assets in a supply chain
Logistics
Managing the movement of materials, components, and information from point to point in the supply chain
Supply Chain Management
Taking actions to have all members of the supply chain work together to coordinate their activities and share information
Reverse Logistics
When it is necessary to return defective products to the manufacturer for repair or replacement
Insourcing
Goods and services that are provided by the organization
Outsource
Goods and services obtained by outside suppliers
Backward Vertical Integration
When a company owns its suppliers
SCOR Model
Offers framework of processes and metrics to help companies monitor and control the performance of their supply chains
Lean Supply Chain
The company would plan to decrease days of supply
Constraint
Any resource whose capacity is less than or equal to demand for that resource
Bottleneck
Most limiting constraint on the system
Most likely bottleneck to impact a lean supply chain
Product
Operations Management
The transformation of customer expectations into products or services
Quality
The capacity to satisfy customers’ needs
Quality Function Deployment
Takes customer expectations and transforms them into specific actions designed to meet those expectations
5 Dimensions of Service Quality
Reliability, Responsiveness, Assurance, Empathy, Tangibles
Competitive Advantage
A capability that customers value, such as short delivery lead-time or high product quality that gives an organization an edge against its competition
Product Development
A teamwork-oriented process that begins with the organization’s strategy and analysis of the markets as inputs
Order Fulfillment
Obtains customers’ orders, enters them into the organization’s information system, and finally delivers the order to satisfy customers
SWOT Analysis
A simple but useful technique for analyzing an organization’s strengths and weaknesses and the opportunities and threats that it faces
Strengths
These are the characteristics of a business or project that lend an advantage within the scope of the study
Weaknesses
These characteristics of a business or project result in a disadvantage, relative to others
Opportunities
These are elements that the project could exploit to its advantage
Threats
These elements in the competitive environment could create trouble for the business or project
Failure Costs
Incurred whenever any product or component of a product fails to meet requirements
Internal Failure Costs
Associated with defects found before the product reaches the customer
External Failure Costs
Incurred after a product has reached the customer
Appraisal Costs
Incurred to measure quality, asses customer satisfaction, and inspect the test products
Prevention Costs
Result from activities designed to prevent defects from occurring
Product Design
This is how the product, either good or a service, functions.
Process Design
This is how the product, either good or a service, is produced
Work Execution
This is the performance of the plan created in the product and process design
Inspection
This is an assessment of the quality of the good or service
W. Edwards Deming and Joseph M Juran
Credited with major influence on the approach to quality in Japanese organizations
Quality Planning
The development of products and services that appeal to the ever changing customer wants and needs
Quality Control
Inspection and control functions revolve around understanding the customer’s perception of fitness of use
Quality Improvement
The elimination of waste and errors is something that must be led by leadership of a firm
Ishikawa Diagram
Also known as the Fishbone Diagram
Quality Management Expert that used the phrase, “Do it right the first time”
Phillip Crosby
W Edwards Deming
System caused defects, not employees
Joseph Juran
believed in ‘fitness for use’
Genichi Taguchi
Responsible for the concept of “robust design”
Kaoru Ishikawa
Believed in the idea that teamwork is essential for quality leadership
Total Quality Management (TQM)
An approach to quality management that originated in Japan and was adopted successfully by many companies throughout the world
Voice of the Customer
Describes what customers want and what they like and do not like
Focus Group
Used when a firm wants to gather customers together and get feedback on ideas and products to better meet customer needs
The House of Quality can help a company evaluate
Design Characteristics
Standardization
Developing a preset procedure for performing an activity or job
Documentation
The act of putting that procedure into writing
Plan-Do-Check-Act cycle
Referred to as the Deming Wheel or Shewhart cycle
Do
Implement the plan and document any changes made
Check
Analyze the revised process to determine if goals have been achieved
Act
Communicate the results to others that could benefit from similar changes
Capacity
A measure if an organization’s ability to sustainably provide customers with the demand services or goods in the amount requested and in a timely manner, given current resources.