Ch 14 BUSINESS OPERATIONS

Question 1

According to Reck and Long, what are the four stages in development that a purchasing function passes through in becoming a ‘competitive
weapon’?

Answer 1

1. Passive
2. Independent
3. Supportive
4. Integrative

Question 2

List the benefits of E-sourcing.

Answer 2

 Ease of purchase
 Finding suppliers that offer more value, better quality or improved service

Question 3

List the benefits of E-purchasing.

Answer 3

 Saves time
 Saves cost
 Efficiency in processes
 Efficient delivery and ordering systems
 Just-in-time purchasing is possible

Question 4

List the benefits of E-payment.

Answer 4

 Reduces errors
 Reduces cost
 Saves time

Question 5

What are the major benefits of holding inventory?

Answer 5

 Stock-outs are avoided, and sales will not be lost to competitors.
 Avoidance of shortage of materials.
 Inventories are bought at a bulk purchase discount price.
 Reduces annual ordering costs.
 The risk of price increases is avoided

Question 6

List the assumptions in the basic EOQ model.

Answer 6

• There are no bulk purchase discounts for making orders in large sizes.
• Annual demand for the stock item is constant throughout the year.
• The order lead time (the time between placing an order and receiving delivery from the
  supplier) is predictable, so that the delivery of a new order is always timed to coincide with
  running out of stock.
• As a result, there are never any stock-outs.
• Also as a result, the minimum stock level at any time is 0, and the maximum stock level is the size of the order quantity.

Question 7

What is a 2 bin system?

Answer 7

Each item of stock is stored in 2 bins or large containers. Stock is taken from Bin 1 until it is empty, and a new order is placed
sufficient to fill Bin 1 again.
However, the delivery of more units of the item will take time, and since Bin 1 is empty, units are now taken from Bin 2. Stock is now taken from Bin 2 until it is empty, and a new order is placed sufficient to fill Bin 2 again. By this time, Bin 1 should be full again, and units will then be taken from Bin 1.

Question 8

Explain Periodic review system.

Answer 8

Inventory levels are checked periodically, say every one, two, three or four weeks. If the inventory level for any item has fallen below its reorder level, a new order for the reorder quantity is placed
immediately.

Question 9

What are the causes of waste?

Answer 9

 Over-production
 Waiting time
 Transport(movement) of material
 Waste in process
 Inventory
 Motion
 Defective goods

Question 10

List techniques of JIT.

Answer 10

1. Work flow and the layout of the factory floor
2. Reducing set-up time
3. Total productive maintenance (TPM)
4. ‘Kanban’ systems and visibility in the work place.

Question 11

What are the problems with JIT?

Answer 11

1. Zero inventories cannot be achieved in some industries, where customer demand cannot be predicted with certainty and the production cycle is quite long.
2. It might be difficult to arrange a reliable supply system with key suppliers.

Question 12

Benefits of MRP I.

Answer 12

• The MPS and MRP can be amended quickly when sales estimates change. This is because the system is computerized.
• An MRP I system gives early warning of possible problems with production.
• MRP I systems can be used with JIT

Question 13

Limitations of MRP I.

Answer 13

• MRP I is not appropriate when sales demand is difficult to estimate accurately in advance
• Can result in creating inventories
• Can lead to obsolescence of inventoried
  items

Question 14

What are the key concepts of OPT?

Answer 14

 A bottleneck or key constraint limits production capacity for the entire production system.
 Losing time in a bottleneck activity means time lost – and output lost,
 However, saving time in a non-bottleneck activity is a wasted effort, because it has no effect on output.
 There is no reason to produce items faster than a bottleneck activity can use it. Producing items at a faster rate than they can be used simply means that inventories will increase.
 Inventories are wasteful and expensive. They add no value.

Question 15

Define Kaizen (Continuous improvement).

Answer 15

It’s a Japanese business philosophy that aims for continuous improvement of processes, efficiency etc.

Question 16

What is Quality Circles?

Answer 16

A quality circle is a small group of employees, usually five to eight people, who meet regularly to
discuss work-related problems and possible solutions to them.

Question 17

Similarities b/w TQM & JIT.

Answer 17

1. zero inventory
2. pull system
3. uniform factory load and continual rate of production ( speed of manufacture = rate of demand)
4. quality that satisfies customers
5. Employees should be encouraged to participate
6. movement is waste

Question 18

what are the components of E procurement

Answer 18

E sourcing
E-Purchasing
E-Payment

Question 19

what is ABC method of inventory control

Answer 19

With the ABC method of inventory control, it is recognised that some items of inventory cost much more than others to hold. Inventory can perhaps be divided into three broad categories:

 Category A inventory items, for which inventory holding costs are high.

 Category B inventory items, for which inventory holding costs are fairly high, but not as high as for category A items.

 Category C inventory items, for which inventory holding costs are low and insignificant. Holding excessive amounts of these inventory items would not affect costs significantly.

Aproach to control the each category of inventory
 Category A items might be controlled by purchasing the EOQ as soon as the inventory level
falls to a set reorder level.
 Category B items might be controlled by a periodic review system, with orders placed to restore
the inventory level to a maximum level.
 Category C items might be purchased in large quantities, and controlled by means of a two-bin
system (perhaps with one bin much larger than the other.