Chapter 8: Operational Efficiency and Business Process Performance

Question 1

5Ps from Porter (5 FORCES) - SCEPI

“PÓRTER, SCEPIIII”

Answer 1

1. Supplier power
2. Customer power
3. Threat of new entrants (competitor)
4. Threat of substitute products (competitor)
5. Intensity of competition

Question 2

Value Chain:
Primary
vs
Support

Answer 2

Primary: Deal with the product directly (R&D, Product Design, Mkt, CS, manufacturing).
Support: Lend aid to primary activity functions. HR, IT , Contract mgmt, inventory mgmt, plant maintenance.

Question 3

TOC - Steps

Answer 3

1. Identify the constraint (where is work backing up or taking longer)
2. Exploit the constraint (maximization of contribution margin through the constraint : throughput margin = sales - DIRECT MATERIALS (ALSO KNOWN AS SUPERVARIABLE COSTING)
3. Maximize the flow through the constraint (DBR, drumb-buffer-rope)
4. Increase capacity at constraint
5. Redesign the manufacturing process for greater flexibility and speed (value engineering).

Question 4

Value Chain Definition

Answer 4

Value chain analysis is a strategic analysis tool that allows a firm to focus on those activities that are consistent with its overall strategy and then adding customer value or reducing costs.

Question 5

Value Engineering

Answer 5

It is a means of reaching targeted cost levels. Assess all aspects of the value chain cost build-up for a product. The purpose is to minimize costs without sacrificing customer satisfaction (price is given, you don’t want to increase). Focuses on controlling costs at the design stage before they are locked.

Question 6

Bullwhip or backlash effect.

Answer 6

Demand variability increases at each level of supply chain. In periods of rising demand, down-stream participants increase orders. In periods of falling demand, orders fall or stop, thereby not reducing inventory. The effect is that variations are amplified as one moves upstream in the supply chain (further from the customer).

Question 7

Tightness (definition in process analysis)

Answer 7

Degree of interdependence between processes. A TIGHT PROCESS means that a breakdown of a process brings the succeeding stages to a halt. Usually linked to CONTINUOUS PROCESSES with no buffer workin process inventories
A LOOSE PROCESS is the opposite, and is linked to BATCH processes and any others with extensive work-in-process inventories.

Question 8

What is the linkage between product costing and continuous improvement process?

Answer 8

ABM: Activity-based management identifies the key activities performed in an organization and focuses on understanding what causes costs to occur.

Question 9

CIP and KAIZEN

Answer 9

CIP or continuous improvement process is closely linked to the Japanese system called Kaizen.
KAIZEN:
1) Improvements are based on many small changes rather than the radical changes that might arise from research and development.
2) Ideas come from the workers themselves so they are less likely to be radically different.
3) Small improvements are less likely to require major capital investment.
4) The ideas come from the talent of the existing workforece, as opposed to using research, consultants, or equipment’s.
5) All employees should continually see ways to improve their own performance.
6) Workers are encouraged to take ownership of their work and can help reinforce teamwork, thereby improving worker motivation.

Question 10

Activity analysis

Answer 10

Activity analysis determines what is done by whom at what cost in time and other resources, and the value added by each activity.
 A value added is necessary to remain in business.
 A value added cost is incurred to perform a value added activity without waste.
 A non-value added activity is unnecessary and should be eliminated

Question 11

Business process reengineereing (BPR)

Answer 11

– finding new ways of doing things instead of improving individual processes. CONTRASTED WITH KAIZEN AND CIP.
1. One must access
 The cost to reengineer the process
 The expected saving

Question 12

4 categories of cost of qualities

Answer 12

• CONFORMANCE COSTS (FINANCIAL MEASURES OF INTERNAL PERFORMANCE):
1. Prevention – attempts to avoid defective output. Training for employees, and review of suppliers.
2. Appraisal – encompasses such activities as statistical quality control programs, inspection and testing.
• NON CONFORMANCE COSTS:
1. Internal FAILURE : defective costs are detected before shipment (scrap, rework, tooling changes, lost output, reinspection and reteesting
2. External FAILURE: defection at customers hand, and reduces market share by customer dissatisfaction (rejection, repair. Recall, warranty, liability claims). ENVIRONMENTAL COSTS ARE ASO EXTERNAL FAILURES.

Question 13

Steps from Porter for Capacity Expansion

Answer 13

1. The firm must identify the options in relation to their size , type , degree of vertical integration, and possible response from competitors.
2. The second step is to forecast demand, input costs, and technology developments.
3. The next step is analysis of competitors to determine when each will expand.
4. Using the foregoing information, the firm predicts total industry capacity and firms market shates. These estimates together with the expected demand, allow firms to find price and expected cashflow.
5. The final step is testing for inconsistencies.

Question 14

Goal of materials requirements planning (3 RIGHTS)

Answer 14

Right Material
Right Part
Right Time

Question 15

Excess of machine hours

Answer 15

The excess (deficiency) for machine hours in a given department is found by initially multiplying machine hours required per unit for that product by demand for that product. The next step is to subtract from machine hours available, 3,000.