CPIM

Question 1

 Inventory

Answer 1

those stocks or items used to support production, supporting activities, and customer service. Demand for inventory may be dependent and independent. Inventory fluctuations are anticipation, hedge, cycle, fluctuation, transportation and service parts. Inventory represents 20-60% of all assets on an organization’s books

Question 2

 Inventory management

Answer 2

the branch of business management concerned with planning and controlling inventories. Takes place at two levels: aggregate and item.  Aggregate inventory management is part of long-term planning
 Item inventory management translates aggregate inventory policies into specific inventory control decisions at specific inventory locations. Includes determining desired levels of cycle stock and safety stock, and how and when to replenish inventory, such as push or pull replenishment

Question 3

Decoupling inventory

Answer 3

an amount of inventory maintained between entities in a manufacturing or distribution network to create independence between processes or entities. The objective is to disconnect the rate of use from the rate of supply of the item. occurs with end units in MTS environments, with components or subassemblies in ATO environments, and perhaps with raw materials in MTO or ETO environments. Purpose is to reduce supply lead times or lead time uncertainty

Question 4

Types of inventory

Answer 4

Raw materials. WIP. Finished goods. Distribution inventory. Maintenance and repair. Service parts

Question 5

 Lot-size inventory

Answer 5

inventory that results whenever quantity price discounts, shipping costs, setup costs, or similar considerations make it more economical to purchase or produce in larger lots than are needed for immediate purposes

Question 6

 Hedge inventory

Answer 6

a form of inventory buildup to buffer against some event that may not happen. Potential labor strike, price increases, unsettled governments, and events that could severely impair a company’s strategic initiatives

Question 7

Classifications of inventory

Answer 7

 Excess inventory,  Distressed goods, obsolete, scrap, rework

Question 8

inventory in service industries

Answer 8

 The form of goods that facilitate the delivery of the service to customers. Ex with airplane, seat, food and beverages, maintenance parts
You can have excess inventory. Movie theater with unsold seats

Question 9

 Wall-to-wall inventory

Answer 9

an inventory management technique in which material enters a plant and is processed through the plant into finished goods without ever having entered a formal stock area

Question 10

o Understand tradeoffs in stocking levels, customer service, environmental impact, and inventory accuracy targets

Answer 10

Customer service wants more inventory. Operations wants long production runs and less changeovers to be most efficient- need to have good inventory accuracy to help customer service. Finance wants least amount of inventory costs

Question 11

sourcing risks on inventory planning decisions

Answer 11

 Sourcing risks can have a strong impact on an organization’s inventory planning, and, especially considering global sourcing, can include the full PESTEL range of risks- political, economic, social, technological, environmental, legal

Question 12

 ABC classification

Answer 12

the classification of a group of items in decreasing order of annual dollar volume or other criteria. The A group usually represent 10-20% by number of items and 50-70% by projected dollar volume. Group B usually represents about 20% of the items and 20% of the dollar volume. Group C contains 60-70% of the items and represents about 10-30% of the dollar volume
* 80/20 rule- 20% of volume is 80% of revenue

Question 13

o Determine item segmentation for special inventory

Answer 13

Bulk, odd-sized, temperature, value, variety, cross-contamination, hazardous goods

Question 14

 Item cost

Answer 14

the purchase price plus other direct costs required to get the units to where they need to be. Include transportation, customers, and insurance. If produced in-house, include the direct materials, direct labor, and portion of factory overhead

Question 15

 Carrying costs

Answer 15

cost of holding inventory, usually defined as a percentage of the dollar value of inventory per unit of time. Depends mainly on the cost of capital invested as well as costs of maintain the inventory such as taxes and insurance, obsolescence, spoilage, and space occupied. Normally vary from 10-35% annually
sum of capital, storage, and risks costs / total value of the inventory for the period

Question 16

 Ordering costs

Answer 16

the costs that increase as the number of orders placed increases. Used in calculating order quantities. Includes costs related to the clerical work of preparing, releasing, monitoring, and receiving orders; the physical handling of goods; inspections; and setup costs. Related to the number of orders per period, not the volume
* Average ordering cost per order = (fixed cost/number of order) + variable cost

Question 17

 Capacity-related costs-

Answer 17

when there is sustained shift in demand that requires production plans (OT, hiring and layoffs, costs for unused capacity, etc)

Question 18

 Risk pooling

Answer 18

a method often associated with the management of inventory risk. Manufacturers and retailers that experience high variability in demand for their products can pool together common inventory components associated with a broad family of products to buffer the overall burden of having to deploy inventory for each discrete product. Assumption is that when demand is unexpectedly high in one location, it will rarely be high in the other locations as well. Balances out the area of higher demand, resulting in lower overall variability

Question 19

o Differentiate managerial accounting from financial accounting

Answer 19

 Financial accounting- concerned with providing information outside the organization
 Managerial account- used to provide information to internal users, those who need to plan, make investment decisions, and assess financial key performance indicators. A branch of accounting that used techniques such as break-even analysis, cost-volume-profit analysis, make-buy analysis, and others to provide information used in day-to-day decision making

Question 20

 Balance sheet

Answer 20

a financial statement showing the resources owned, debt owed, and the owner’s share of a company at a given point in time

Question 21

 Liabilities

Answer 21

represents debts or obligations owed by a company to credits

Question 22

 Owners’ equity

Answer 22

represents the residual claim by the company’s owners or shareholders, or both, to the company’s assets less its liabilities
=assets – liabilities

Question 23

 Assets=

Answer 23

liabilities + owners’ equity

Question 24

 Income statement

Answer 24

a financial statement showing the net income for a business over a given period of time

Question 25

 Cost of goods sold (COGS)

Answer 25

determines the amount of direct materials, direct labor, and allocated overhead associated with the products sold during a given period of time

Question 26

 Gross margin

Answer 26

difference between total revenue and COGS

Question 27

 Profit margin

Answer 27

difference between the sales and COGS, sometimes expressed as a % of sales

Question 28

inventory metrics related to operating efficiency, financial effectiveness, and customer service

Answer 28

 Unit cost- total labor, material, and overhead cost for one unit of production
 Velocity- indicated the relative speed of all transactions, collectivity, within a supply chain community. Maximum velocity is most desirable
 Inventory turnover- average amount of time an organization holds inventory before the inventory generates income. High turnover levels are desired

Question 29

 Inventory turnover formulas

Answer 29

• Average inventory = (inventory at period start + inventory at period end)/2- in dollars
• Inventory turnover = Annual COGS/average inventory in dollars
   Average age of inventory = 365/inventory turnover
• Days of supply = inventory on hand/average daily usage

Question 30

 Inventory accounting

Answer 30

the branch of accounting dealing with valuing inventory. Inventory may be valued or recorded using either a perpetual or periodic system. A perpetual inventory record is updated frequently or in real time while a periodic inventory record is counted or measured at fixed time intervals (every two weeks or monthly). Both recording systems use the LIFO, FIFO, or average costs inventory valuation method

Question 31

Standard cost accounting system

Answer 31

a cost accounting system that uses cost units determined before production for estimating the cost of an order or product. For management control purposes, the standards are compared to actual costs and variance are computed
 Standard costs- the target costs of an operations, process, or product including direct material, direct labor, and overhead charges
* Negative variance- amount above the projected cost

Question 32

 Actual cost system

Answer 32

a cost system that collects costs historically as they are applied to production and allocates indirect costs to products based on the specific costs and achieved volume of the products. Costs are tacked by lot, batch, or order. Advantage when costs may fluctuate greatly. Disadvantage is that actual cost may not be known for some time

Question 33

 Product vs period costs

Answer 33

product costs are manufacturing costs that are recognized only when the associated units are sold. Period costs are non-manufacturing costs that are expensed immediately because they cannot be directly matched to units sold

Question 34

 Differential, sunk, and opportunity costs

Answer 34

differential costs differ between alternatives. Sunk costs are funds already spent and should not factor into future spending decision. An opportunity cost is the cost of an opportunity foregone

Question 35

 Absorption costing

Answer 35

an approach to inventory valuation in which variable costs and a portion of fixed costs are assigned to each unit of production. The fixed costs are usually allocated to units of output on the basis of direct labor hours, machine hours, or material costs
* Fixed overhead = direct costs X (fixed overhead rate/quantity of units produced)

Question 36

 Variable costing

Answer 36

an inventory valuation method in which only variable product costs are applied to the product; fixed factory overhead is not assigned to the product. Variable production costs are direct labor, direct material, and variable overhead costs. Can be helpful for internal management analysis but is not widely accepted for external financial reporting
* For make-or-buy decisions, variable costing should be used rather than full absorption costing

Question 37

 Throughput costing

Answer 37

• Includes only direct materials as product costs
• Treats all other costs as period costs

Question 38

 Life cycle posting

Answer 38

• Includes all production-related costs plus upstream and downstream costs and product costs

Question 39

 Job-order costing

Answer 39

used when products are produced in lots or batches or as an order manufactured to a customer’s specifications. Direct costs are assigned to the job. Indirect costs are assigned according to a set overhead rate

Question 40

• Overhead rate=

Answer 40

= budgeted annual overhead / budgeted annual activity units
o T-shirt company has $100,000 in annual overhead and budgets for 50,000 machine hours
 $100,000 / 50,000 = $2
o Direct costs are $1,000 and 80 hours. What’s the job cost?
 $1,000 + (80 x $2) = $1,160

Question 41

 Process costing

Answer 41

costs are collected by time period and averaged over all the units produced during the period. Can be used with either actual or standard costs in the manufacture of a large number of identical units. Used when product is continuously mass produced

Question 42

 Operating costing

Answer 42

a method of costing used in batch manufacturing environments when the products produced have both common and distinguishing characteristics; for example, suits. The products are identified and costed by batches or by production runs, based on the variations

Question 43

 Activity-based cost accounting

Answer 43

the use of activity-based costing information about cost pools and drivers, activity analysis, and business processes to identify business strategies; improve product design, manufacturing, and distribution; and remove waster from operations

Question 44

 Inventory ordering system

Answer 44

inventory models for the replenishment of inventory. Independent demand inventory ordering models include fixed reorder cycle, fixed reorder quantity, optional replenishment, and hybrid models, among others. Dependent demand inventory ordering models include material requirements planning, kanban, and drum-buffer-rope

Question 45

• Average inventory =

Answer 45

= (order quantity / lead time) + safety stock

Question 46

o Periodic replenishment

Answer 46

 Order is placed at a defined date, not defined inventory amount. This is the opposite of order point system
 Makes sense to do this where there are thousands of inventory items to reorder, specially if those items can be reordered using a common shipment and can be added as line items to a single order. Will save money on shipments

Question 47

o Target level of inventory=

Answer 47

= demand X (review period duration + lead-time) + SS
ex; * 50 units demand x (7 days + 2 days) + 100 units ss = 550 units target level

Question 48

 Order point

Answer 48

a set inventory level where, if the total stock on hand plus on order falls to or below that point, action is taken to replenish the stock. The order point is normally calculated as forecasted usage during the replenishment lead time plus safety stock

Question 49

 3 methods can be used to determine when the order point is reached

Answer 49

 Perpetual inventory record- a computer record or manual document on which each inventory transaction is posted so that a current record of the inventory is maintained
 Visual review system- a simple inventory control system where the inventory reordering is based on actually looking at the inventory on hand.
 Kanbans are visual signals of when and how much to reorder, so it is similar to two-bin systems. Could be many things, such as a card, a light, empty floor space, or an empty container Usually used for low-value items such as nuts and bolts

Question 50

 Economic order quantity (EOQ)

Answer 50

a type of fixed order quantity model that determines the amount of an item to be purchased or manufactured at one time. The intent is to minimize the combined costs of acquiring and carrying inventory
 Finds the lot size with the lowest possible total cost, which is a sum of ordering and carrying costs.
Demand and supply should be relatively stable- not useful in ETO or MTO, or with short shelf life inventory

Question 51

 EOQ process

Answer 51

• Starts by calculating the annual ordering cost and the annual inventory carrying cost. These costs are summed to find the total annual cost. Trial and error can then be used to evaluate alternative order quantities until the lowest total is found. The EOQ formula was developed to avoid trial and error, so this will be presented after showing the trial-and-error method
• The EOQ is defined as the point where the annual ordering cost equals the annual carrying cost. You will need to try different order quantities until this happens

Question 52

 EOQ formula

Answer 52

• First calculate annual ordering cost.
  o Annual ordering cost = (number of orders X cost per order)/ lot-size quantity (size of each order)
• Then calculate average inventory
  o Average inventory =lot size quantity/2
• Then calculate annual carrying cost in dollars
  o Annual carry cost = Average inventory x cost per unit x carrying cost rate
• Last is calculating total inventory cost
  o Total inventory cost = annual ordering cost + annual carrying cost

Question 53

 Lot size

Answer 53

the amount of a particular item that is ordered from the plant or a supplier or issued as a standard quantity to the production process

Question 54

 Lot-for-lot (L4L)

Answer 54

a lot sizing technique that generates planned orders in quantities in equal to the net requirements in each period
* Prevents inventory build-ups because inventory is always replenished to the exact level desired, no more and no less.
 Order quantities for dependent demand items are calculated using MRP. MRP uses lot-for-lot

Question 55

• L4L is used in various situation:

Answer 55

o In planning and fulfilling time-phased requirements for dependent demand items, as in MRP and for independent items in master scheduling
o In lean environments, where inventory is considered waste
o When ordering or making expensive or infrequently used items
o When ordering perishable items
o When ordering items that consume significant warehouse space due to their size or handling requirements
o When ordering perishable items where there is the risk of loss due to expired shelf life

Question 56

 Fixed order quantity

Answer 56

a lot sizing technique in MRP or inventory management that will always cause planned or actual orders to be generated for a predetermined fixed quantity, or multiples thereof, if net requirements for the period exceed the fixed order quantity

Question 57

 Period order quantity (order n period of supply method)

Answer 57

a lot sizing technique under which the lot size is equal to the net requirements for a given number of periods (ex: weeks into the future). The number of periods to order is variable, each order size equalizing the holding costs and the ordering costs for the interval

Question 58

 Statistical methods for determining safety stock levels

Answer 58

• First step is to calculate the degree to which demand can be expected to fluctuate. Can by done by:
  o Mean absolute deviation (MAD) of actual demand from forecast demand
  o Standard deviation (SD) of actual demand from average demand
  o Root mean squared error (RMSE) of actual demand from forecast demand
  o Once you determine what method to use and you have the data, you need to determine what service level you want.

Question 59

 Time period safety stock approach

Answer 59

used with dependent demand subject to fluctuating demand; this approach allows the safety stock level to change with demand. Can also be used with independent demand items that have seasonal sales patterns
* Time period safety stock = forecast monthly usage x safety stock time period (how often the item is review)

Question 60

 Fixed order safety stock

Answer 60

• Used to plan safety stock quantities for parts that require special oversight- for example, when parts are being transitioned in or out of use as part of an engineering change
• There is no demand history, so the planner sets a fixed safety stock level

Question 61

 Safety lead time

Answer 61

an element of time added to normal lead time to protect against fluctuations in lead time so that an order can be completed before its real need date. When used, the MRP system, in offsetting for lead time, will plan both order release and order completion for earlier dates than it would otherwise. Works best for lead time uncertainty, not as well for quantity uncertainty

Question 62

o Manage special inventory to comply with regulations, environmental standards, and protocols of material handling, personal protective equipment, and safety

Answer 62

 Valuable or dangerous materials need to have special security areas and related policies and procedures for storage, materials handling, and processing
 Perishable goods require special considerations. May need to be stored in a correct environment (more humidity, fridge, freezer, etc)
* Cold chain- a term referring to the storage, transfer, and supply chain of temperature-controlled products. Industries typically are agriculture, pharmaceuticals, and chemicals
 Hazardous materials- any material that a country’s relevant government agency has classified as a risk to human, animal, or environmental health or to property. May allow transportation only when proper permits and safety precautions are implemented
* Safety data sheet (SDS)- a document that is part of the materials information sheet and accompanies the product. The documents if prepared by the manufacturer and provides information regarding the safety and chemical properties to downstream users and the long-term storage, handling, and disposal of the product

Question 63

 Maintenance, repair, and overhaul (MRO)

Answer 63

supplies as items for reprocessing in the remanufacturing industry
 Not to be confused with Maintenance, repair and operating supplies

Question 64

purpose of transaction management in inventory management

Answer 64

 Accurate inventory records can help in lowering inventory costs and supporting production goals
 Audits can detect mistakes, but these mistakes can be prevented by focusing on improving the quality of transaction management

Question 65

 Storage plans

Answer 65

• Fixed location- a SKU is assigned to a specific spot and no other item can be there. Can be inefficient if inventory is low or gone
• Random or floating location- item is assigned to the nearest spot with the necessary space and characteristic. SKU location is tracked by an information system- which has the risk of errors
• Zoned storage- combines aspects of fixed and random plans. Zones are designated for similar items and then stored randomly

Question 66

 Inventory accuracy

Answer 66

when the on-hand quantity is within an allowed tolerance of the recorded balance. Target values usually are 95-99%, depending on the value of the item, it’s critical nature of the item’s demand, or the difficulty in measuring or counting

Question 67

 Obsolescence

Answer 67

condition of being out of date. A loss of value occasioned by new developments that lace the older property at a competitive disadvantage. A factor in depreciation

Question 68

 Shrinkage

Answer 68

reductions of actual quantities in stock, in process, or in transit. The loss may be caused by scrap, theft, deterioration, evaporation, and so forth

Question 69

 Cutoff control

Answer 69

a procedure for synchronizing cycle counting and transaction processing. Process of restricting or controlling the movement of inventory between locations before and during an inventory audit

Question 70

 Periodic inventory

Answer 70

a physical inventory taken at some recurring interval (monthly, quarterly, annually)

Question 71

 Cycle counting

Answer 71

an inventory accuracy audit technique where inventory is counted on a cyclic schedule rather than once a year. Usually taken on a regular, defined basis. Most effective cycle counting systems require the counting of a certain number of items every workday with each item counted at a prescribed frequency. Key purpose is to identify error, thus triggering research, identification, and elimination of the cause of errors

Question 72

 Traceability

Answer 72

the attribute allowing the ongoing location of a shipment to be determined. The registering and tracking of parts, processes, and materials used in production, by lot or serial number
 Traceability identifies who, what, where, when and why
 Another reason for traceability is to manage recalls

Question 73

 Free on Board (FOB)

Answer 73

In North America, the terms of sale that identify where title passes to the buyer

Question 74

 Incoterms

Answer 74

internationally, a set of rules established by the International Chamber of Commerce that provides internationally recognized rules for the interpretation of the most commonly used trade terms in foreign trade and is routinely incorporated in the contracts for the sale of goods worldwide to provide guidance to all parties involved in the transaction

Question 75

o Understand how to adhere to product recall guidelines

Answer 75

 Traceability enables targeted product recalls. Rather than recalling all of a call of items, the recall can be by batch or lot. Requires chain-of-customer information on the downstream history of those products, al the way down to specific end customers when known (drugs, implanted medical devices, automobiles)

Question 76

 Shipper’s export declaration

Answer 76

an export/import document prepared by the shipper before a shipment can be exported and presented to a government authority of the country in which the shipper resides. Specifies details on the goods to be shipped, including their value, weight, and destination

Question 77

 Distribution

Answer 77

the activities associated with the movement of material, usually finished goods or service parts, from the manufacturer to the customer. These activities encompass the functions of transportation, warehousing, inventory control, material handling, order administration, site and location analysis, industrial packaging, data processing, and the communications network necessary for effective management. It includes all activities related to physical distribution, as well as the return of goods to the manufacturer. In many cases, this movement is made through one or more levels of field warehouses

Question 78

 Distribution requirements planning (DRP)

Answer 78

the function of determining the need to replenish inventory at branch warehouses. A time-phased order point approach is used where the planned orders at the branch warehouse level are “exploded” via MRP logic to become gross requirements of the supplying source. Demand of the supplying sources is recognized as dependent and standard MRP logic applies
* DRP is not the only method for planning network inventory. Other planning philosophies and techniques can be used: push/pull, optimization techniques, vendor-managed inventory, demand-driven DRP, and so on.

Question 79

Where is DRP useful

Answer 79

• DRP is useful in environments where the distribution network is complex, involving numerous product families and products. Usually requires that the organization have the ability to generate a forecast for each SKU that is to be planned using DRP

Question 80

• Transportation considerations and modes

Answer 80

air, road, rail, water, pipeline

Question 81

o Describe various distribution channel strategies

Answer 81

• Direct/internal channel: the manufacturer performs all marketing, distribution, and sales functions internally. The manufacturer sells and delivers product directly to end users. Often associated with MTO products. Ex: sale of jet engines directly to airplane manufacturers
• Exclusive and select channel- the manufacturer relies on a limited number of distributor and retailers, such as automobile dealers and branded high-end apparel stores, for customer sales and support
• Complex channel- the manufacturer relies on its own internal distribution functions, such as regional warehousing, in combination with external institutional channels. External channels might include regional, national, and global distributors and retailers, such as mass merchandisers. This option is especially feasible when selling a high volume of products to a broad market and customer base

Question 82

 Distribution network structure

Answer 82

the planned channels of inventory disbursement from one or more sources to field warehouses and ultimately to the customer. There may be one or more levels in the disbursement system
 Important tradeoff in network configuration is cost vs customer service. Network costs include the initial and ongoing costs of the DCs as well as the ongoing costs of the inventory in the network
 More locations increase the total level of inventory, but improves customer service by reducing lead times. More locations may also reduce transportation costs

Question 83

 Terminal

Answer 83

in transportation, locations where carriers load and unload goods to and from vehicles. Also used to make connections between local pickup and delivery service and line-haul service. Functions performed in terminals include weighing connections with other routes and carriers, vehicle routing, dispatching, maintenance, paperwork, and administration. Terminals may be owned and operated by the carrier or the public

Question 84

 Line-haul costs

Answer 84

basic costs of carrier operation to move a container of freight, including drivers’ wages and usage depreciation. These vary with the cost per mile, the distance shipped, and the weight moved
* Costs for the main portion of the transportation journey. Usage depreciation refers to charges for vehicle wear and tear.
* Total-line haul costs vary with the distance shipped and the cost per mile. Do not depend primarily on weight

Question 85

 Pickup and delivery costs

Answer 85

carrier charges for each shipment pickup and the weight of that shipment. Costs can be reduced if several small shipments are consolidated and picked up in one trip
* These are costs for local pickup at the shipper for delivery to the terminal or for pickup from a terminal for delivery to a consignee
* The costs depend primarily on the weight of the pickup and number of pickups, rather than the distance

Question 86

 Terminal-handling charges

Answer 86

carrier charges dependent on the number of times a shipment must be loaded, handled, and unloaded. Cost can be reduced by consolidating shipments into fewer parcels or by shipping in truckload quantities

Question 87

 Demurrage fees

Answer 87

the carrier charges and fees applied when rail freight cars and ships are retained beyond a specified loading or unloading time

Question 88

o List factors that influence shipping rates

Answer 88

• LTL rates are much higher due to additional pickup and delivery, terminal handling, other materials handling, and billing and collection costs
• One tradeoff of using TL shipping is that it creates lot-size inventory, and this will increase overall carrying costs
   In additional to rates charged based on TL and LTL, carriers charged different rates based on what is being shipped and how it is packaged
   DCs can reduce shipping costs. Instead of doing LTLs to customers, you can do a FTL to a DC, and then local shipment to customers

Question 89

o Describe how inventory levels and distribution center locations are determined

Answer 89

 Having more DCs reduces delivery lead time and transportation cost, but increase fixed costs and overall inventory levels, so organizations want the fewest DCs that will still provide the targeted levels of availability and/or delivery lead time
 Simulation method uses trial and error. The fixed plus variable costs of serving each customer demand point are plotted for a single DC selected at random. Then 2 DCs are selected and the total cost is plotted, and so on. The analysis can be repeated for other combinations of locations and number of DCs

Question 90

Methods for determining where to put DCs

Answer 90

 The factor-rating method evaluates potential DC locations using a combination of qualitative and quantitative factors that are each given a priority weighting. - Each site is assigned a score for each criterion. The weighting time the score is used to produce a weighted score, and the weighted scores for all criteria are summed. Sites with the highest weighted score in total are the best locations
 Center of gravity approach- a methodology for locating distribution centers at approximately the location representing the minimum transportation costs between the plants, the DCs, and the markets, in order to maximize revenue- plots each customer on a map or grid, and then there is a formula
 Location Break-even analysis can be used for determining DC location. After determining the fixed and variable costs for each location, this analysis determines the shipping volume that would be needed for a given location to become the lowest total cost option
 The least-cost-per-land method is used to determine with DC to draw inventory from based on which shipping lane can satisfy store demand at the least cost

Question 91

o Describe the possible designs for supply chain networks

Answer 91

 Producer storage with direct delivery- producer to consumer. primarily ETO or MTO, but some MTS use this model. Delivery of the product is made either by the organization’s fleet or third-party carrier. Complete delivery for the distribution channel lies with the organization
 Producer storage with drop ship- product is shipped directly from the manufacturer to the end customer, bypassing the retailer (who takes the order and initiates the delivery request)
 Producer with extended channel networks- the producer may us one or more geographically placed DCs to fulfill the needs of the retailers. Most used for mass-produced, inexpensive items
 Distributor with extended channel network- independent distributor collects a wide range of products to meet the needs of multiple retailers.
 Aggregator with e-business network

Question 92

Channel selection process- 4 steps

Answer 92

• Facility selection issues- identify and quantify all issues that could potentially affect the selection at each facility
  o Macro issues- Corporate objectives, Customer service level goals, Global economic conditions
  o Micro issues- community, site
• Modeling choices- select the modeling technique it will perform
• Assembling the network- assemble the actual network. Organization answers the question of where to build or lease DCs. Goal is to optimize tradeoffs
• Confirming the network- organization links facilities to markets and determines the capacity resource allocation for each facility

Question 93

• Break-bulk

Answer 93

refers to end user’s ability to buy the desired number of units of a product or service even though it may be originally produced in a large batch-production lot sizes. Customers carry less inventory. However, the cost per unit is usually higher.

Question 94

Implications of lot sizing

Answer 94

o End users of highly specialized MTO and ETO items purchase in small lot sizes
o End users of MTS products also purchase in small lot sizes but in high variety, which is the purpose of retailers
o For purchases by distributors and retailers, smaller lot sizes lead to better customer value and service through lower accounts payable, less storage required, and less risk from damage and obsolescence
o Distributors and retailers also add value to the chain by breaking large bulk loads into small shipments for retailers and retail customers

Question 95

 Warehousing (also called distribution centers)

Answer 95

the activities related to receiving, storing, and shipping materials to and from production or distribution locations. objectives include reducing total costs compared to transportation without warehousing, reducing delivery lead times to customers, improving delivery reliability, or providing other value-added services such as final assembly, break-bulking, freight consolidation, and cross-docking

Question 96

Warehouse process

Answer 96

• Enterprise resource planning (ERP) system may include an order management system, a warehouse management system (WMS), and a transportation management system (TMS)
• WMS managed and controls materials handling within a warehouse
• TMS helps schedule transportation and control transportation costs

Question 97

Warehouse activities

Answer 97

 Receiving- the function encompassing the physical receipt of material, the inspection of the shipment for conformance with the PO, the identification and delivery to destination, and preparation of receiving reports
 Put-away- involves moving goods to picking or storage areas
 Storage- include physical security, inventory accuracy auditing such as cycle counting, and authorized relocations
 Order picking- selecting or picking the required quantity of specified products for movement to a packaging area and documenting that the material was moved from one location to shipping
 Packaging- includes adding industrial packaging to protect shipments from damaging
 Post-manufacturing services- may require light manufacturing for ATO or other delayed differentiation
 Staging (marshalling)- assembling individual orders, rearranging pallets or other units into load, checking completeness, etc
 Shipping- verifying orders, preparing bills of lading and other documents, and loading outgoing vehicles

Question 98

o Differentiate fixed-location, random-location, and zone storage strategies

Answer 98

 Fixed-location storage- a relatively permanent location is assigned for the storage of each item in a storeroom or warehouse. More space needed, but locations become familiar
 Random-location storage- parts are placed in any space that is empty. Requires the use of a locator file to identify part locations, but requires less space
 Zone- includes some characteristics of fixed and random location methods. Zone locations hold certain kinds of items

Question 99

Advantages and disadvantages of private warehouse

Answer 99

 Advantages
 Direct control
 Less expensive
 Tax advantage
 Simplify communication
 Can use for other purposes
 Disadvantages
 Inability to adjust to market-size demands
 Fixed location
 Structural limitations
 Capital investment

Question 100

Advantages and disadvantages of public warehouse

Answer 100

 Advantages
 No fixed capital investment
 Variable costs in proportion to services
 Can adjust with marketplace demands
 Access to technology without the investment
 Ability to purchase additional services as needed
 Disadvantages
 Lack of timely and accurate communication
 Limited availability of specialized services
 Limited availability of warehouse space where needed (globally, regionally)

Question 101

 Transportation management

Answer 101

executing requirements for the planning, scheduling, and budgeting of the transportation assets, services, and related systems of the shipping process through delivery

Question 102

 Transportation management process

Answer 102

o Logistics strategy
o Costs, rates, and prices- Determine private fleet and for-hire carrier costs
o Transport mode and carrier
o Scheduling and routing
o Documentation, audit, and claims
o Performance

Question 103

 Vehicle profitability

Answer 103

one of the key factors that impacts profitability is vehicle return. If the return trip does not have any cargo, it is called deadheading. Ideal situation is to achieve two-way or balance movement of loads

Question 104

o Explain the pros and cons of each of the water transportation modes

Answer 104

 Pros
 Low cost (fixed cost spread over many units)
 Best for dense, low-value cargo
 Cons
 Slow
 Fees for terminals, locks and dams
 High carry cost
 Greater forecast reliance
 Less production flexibility

Question 105

o Explain the pros and cons of each of the rail transportation modes

Answer 105

 Pros
 Low cost (very low variable cost per unit)
 Good long-distance speed
 Best for durable, dense, low-value cargo
 Cons
 High fixed cost for lines; unused line are discontinued
 Rough ride
 Pickup and delivery feed

Question 106

o Explain the pros and cons of each of the road transportation modes

Answer 106

 Pros
 Fast and moderately priced
 Flexible; direct end-to-end transport
 Roadways are government expense
 Best for small volumes to diverse destination
 Cons
 LTL more expensive
 If distance is long, more expensive
 Terminal fees

Question 107

o Explain the pros and cons of each of the air transportation modes

Answer 107

 Pros
 Very fast
 Minimizes carrying cost and need for safety stock
 Best for light, high-value goods; emergencies
 Airports are government expense
 Gentle ride
 Cons
 Most expensive
 Cargo and weight limits
 Requires suitable airprts

Question 108

o Explain the pros and cons of each of the pipeline transportation modes

Answer 108

 Pros
 Very low operating cost
 Far less expensive than rail
 Unaffected by weather
 Continuous operation
 Cons
 Good for only one type of material (ex: crude oil)
 Slow
 Environmental and terrorist risk

Question 109

o Explain the pros and cons of each of the Intermodal (2 or more transportation modes) transportation modes

Answer 109

 Pros
 Flexible alternative to single-mode options
 Can avoid lock and dam fees
 Materials handling limited by containers
 Cons
 Requires special logistics

Question 110

o Describe the difference between different carrier types

Answer 110

 Private carrier- group that provides transportation exclusively within an organization
 For hire (public) carriers-
* Common carrier- available to the public that does not provide special treatment to any one party and is regulated as to the rates charged, the liability assumed, and the service provided
* Contract carrier- does not serve the general public, but provides transportation for hire for one or a limited numbers of shippers under a specific contract

Question 111

 Decentralized (pull) inventory control (warehouse)

Answer 111

inventory decision making exercised at each stocking location for SKUs at that location
* Goods move up through the network by fulfilling customer orders. DC demand pull inventory from suppliers
* However, this is usually just orders that are pulling inventory, not ultimate customer demand. Thus, decentralized pull systems use independent demand ordering systems
* Use an order point system. The orders will be for fixed amounts but the timing will vary
* Result in lumpy demand at the central supply and even more so at the factory because of large fixed orders followed by no orders
* Advantages:
o Performance measurement
o Cost reductions
* Disadvantages
o Requires trained staff
o Bullwhip effect/lack of upstream visibility of requirements
o Inventory accuracy
o Distribution inventory location
o Timeliness of transaction recording

Question 112

 Centralized (push) inventory control (warehouse)

Answer 112

inventory decision making for all SKUs exercised from one office or department for an entire company
* sends goods down through the network. Inventory is pushed out to the central DC and from there to the regional DCs
* Many decision points- how much should be purchased? How often?
* Generally has lower costs because shipments are planned globally and stored centrally
* Works best for goods that are in demand and that may need to be rationed out because capacity is difficult to increase
* Only works when the organization owns the DCs
* Advantages:
o Central planning
o Planning simplicity
o Turnover
o Overhead cost reduction
o Use of reorder point and DRP ordering techniques
* Disadvantages:
o Inventory carrying costs
o Deficiencies in information flow
o Bullwhip effect/lack of downstream visibility requirements
o Requires DCs to surrender ordering control, so often only for owned DCs

Question 113

 Time-phased order point (TPOP)

Answer 113

MRP-like time planning logic technique for independent demand items, where gross requirements come from a forecast, not via explosion. Can be used to plan DC inventories as well as to plan for service (repair) parts. Uses time periods, thus allowing for lumpy withdrawals instead of average demand

Question 114

o Explain how distribution requirements planning (DRP) monitors inventory levels and locations required within the distribution channel to support supply and demand plans

Answer 114

 Ideally combines the service levels of pull with the efficiency of push. The regional DCs determine their own planned orders and so can respond to local customer information on demand, but because they enter planned orders in advance of release, central supply and the factory receive immediate information on future demand so they can better level production
 Production planners will have good information on inventory levels. They can suggest different planned order sizes at various locations; this way all locations get sufficient inventory rather than the first to order getting what is available and the others having stockouts
 Success depends on accurate forecasts and stable processes to be successful

Question 115

 Reorder point/ economic order quantity (ROP/EOQ)

Answer 115

an order matching the economic quantity can be placed. Decentralized*
Advantages:
o Demand data used to determine replenishment may be more timely and accurate
o Local DCs are closer to the source of demand
* Disadvantages:
o Upstream stocking locations, regional DCs, and central supply may not have access to local DC inventory levels or their forecasts
o Demand arrives unpredictably and in a lumpy patten
o Orders released are not coordinated with regional DCs’ replenishment schedules or factory production schedules
Not complex

Question 116

 Base stock system

Answer 116

a method of inventory control that includes most of the systems in practice as special cases. When an order is received, it is used as a picking ticket, and duplicate copies, called replenishment orders, are sent back to all stages of production to initiate replenishment of stocks
* Demand is refilled basically as lot-for-lot to replenish the base stock level. If one item is sold, one additional item is ordered in the next shipment
* Warehouse base stock quantities are established to include the maximum expected demand during the lead time to replenish the inventory sold.
* Most beneficial for supply chains with short replenishment lead times and a wide variety of items to replenish, such as hardware stores
* Advantages:
o Decentralized, automated orders with central decision making
o Better coordination of central inventory resources
o Decisions made on data without amplification
* Disadvantages:
o Increased information handling
o Volume of inventory held
o Inventory no longer in demand may still be help
o Backorders
o Stockout

Question 117

 DRP’s Time-Phased Order Point (TPOP)

Answer 117

best when you have a complex distribution network. Provides key data to match customer demand with inventories at different stages in the physical distribution system and with the products being manufactured
* Forecasting is used to predict demand. Goal is to time replenishment to mirror demand
* Fully visible by manufacturing so they can plan their orders with more stability
* Uses time-phased projected future usage. The decision of when to ship an order is based on projected inventory position and so can be proactive

Question 118

 Demand-driven MRP system

Answer 118

DDMRP is part of a large process called demand-driven planning (DRP). These systems use a demand-driven operating model (DDOM) and its DDMRP system to generate and manage supply orders. Can be used for dependent and independent demand
* Strategically positions inventory to create decoupling points. Reduces lead time to customers, mitigate the bullwhip effect, and reduces overall inventory while simultaneously increasing customer service KPIs related to service delivery
* Dynamically adjusts the size of the buffer inventories based on the combination of individual inventory item traits and assigned buffer profiles
* Buffers are segmented into 3 color zones (green, yellow, red)

Question 119

 Bucketed system

Answer 119

An MRP, DRP, or other time-phased system in which all time-phased data is accumulated into time periods called buckets

Question 120

 Bucketless system

Answer 120

An MRP, DRP, or other time-phased system in which all time-phased data is processed, stored, and usually displayed using dated records rather than defined time periods

Question 121

 Bills of distribution

Answer 121

specifies replenishment planning parameters. It facilitates the transfer of demand from the point of customer demand at the lowest-level warehouse or DC, upward through the distribution channel, to the central supply source
 The bills of distribution (BOD) provides the location and flow of information that supports the main distribution planning functions
 With BOD in place, the organization knows where the inventory is flowing to and from. The choice of pull, push, or DRP system then determines when to replenish the inventory

Question 122

o DRP inputs

Answer 122

• Planning horizon length
• planning bucket size
• item forecast by due date
• Open customer orders by item
• Beginning on-hand quantities by item
• Open POs, interbranch orders, and postponement orders by item by due date
• Replenishment lead times by item
• Finishing lead times by item
• Safety stock by item
• Order policy code by item
• Supply sources based on the BOD

Question 123

DRP outputs

Answer 123

 Outputs:
* Exception reporting- the results of DRP can be viewed by planner in online displays, reports, or dashboards
* Planned orders
* Action messages
* Pegged requirements- gives the planner the ability to trace items’ resupply orders back to the source

Question 124

DRP calculation

Answer 124

• DRP for 2 DCs are rolled up into a DRP for Central Supply. Planned orders releases from the DC move to ‘Gross Requirements’ for central supply, which then gets rolled up the master schedule

Question 125

o Explain technology used to track inventory

Answer 125

 Bar codes
 Global trade identification number (GTIN)- an identification number that uniquely identifies all products that are sold, delivered, and invoices at any point in the supply chain. Typically found at points of sale and on cases and pallets in a distribution or warehouse environment
 Radio frequency identification (RFID)- similar to barcodes. more durable than printed labels. read by radio. used to track expensive or critical inventory
 Satellite tracking- can provide location through GPS
 Internet of things- basically involves assigning unique ID to an object and then enabling internet communications with it. Can track things such as shipping containers
 Blockchain- a distributed ledger system in which it is nearly impossible to alter information once it has been entered

Question 126

o Describe the order cycle stages in the order fulfillment process

Answer 126

 Order transmittal
* Customer request information and price is quoted
* Customer places order
 Order processing
* Order is received and entered into system
* Reserve inventory and identify delivery date
* Consolidate orders for freight and warehouse picking
* Plan and build loads
* Route shipments
* Use routing guide to select carriers and rates
 Order picking and packing
* pick reserved products at depot/DC
* load vehicle and create shipping documents
 Order delivery
* Receive and verify product order at customer site
* Install product if required
* Invoice and receive payment

Question 127

 Waste hierarchy

Answer 127

a tool that ranks waste management options according to what is most environmentally sounds. It gives top priority to preventing waste in the first place and can be applied to various applications.
Avoid
Reduce
Reuse
Recycle
Recover
Dispose

Question 128

o Understand how a circular economy works toward reduce, reuse, and recover

Answer 128

 Environmental minister from the G8 countries issued Kobe 3R Action plan in 2008, which aimed to decouple resource consumption and environmental degradation associated with economic activites. The result would be a new type of economic model: circular rather than linear
* In linear: make, use, dispose
* In circular: reduce, reuse, recycle (the 3 R’s)

Question 129

o Develop policies around the waste hierarchy of avoid, reduce, reuse, recycle, recover, and dispose

Answer 129

Policies should be internal and also set for its upstream and downstream supply chain partners

Question 130

 Total quality management (TQM)

Answer 130

Japanese style management approaches to quality improvement. Is a management approach to long-term success through customer satisfaction. Based on the participation of all members of an organization in improving processes, goods, services, and the culture in which they work.

Question 131

 Quality

Answer 131

conformance to requirements or fitness for use
* Quality of conformance- quality is defined by the absence of defects
* Quality of design- quality is measured by the degree of customer satisfaction with a product’s characteristics and features

Question 132

• Transcendent quality

Answer 132

this is what most people think of when asked to define quality, but it is actually very difficult to define precisely and involves opinions

Question 133

• Product-based quality

Answer 133

this relates to the grade of the product, for example, a low-cost item or a luxury version with many features. The design should fit the targeted customer segment and organizational strategy for sales volumes. Even low-grade items can be high quality by the other definitions

Question 134

• User-based quality

Answer 134

this is the user’s expectations of how a product should perform, its features, its aesthetics, its conformance to specifications, and its services. Also based on other elements such as warranty, price, and perceive quality
o Reliability- performance consistency and how long the unit lasts
o Durability- resistance to wear and tear
o Maintainability- the ability to repair the unit if it fails

Question 135

• Value-based quality

Answer 135

value for the money and is relative to the competition and perceptions. Perceptions can be influenced by marketing and branding

Question 136

• Manufacturing-based quality

Answer 136

conformance to requirements and quality of conformance and is a manufacturing responsibility

Question 137

 Core concepts of TQM

Answer 137

• Management champions-Needs to be part of organizational culture. should have vision and mission statements
• Performance Measurement- Poor quality can be difficult to measure. Estimates need to be made of how much of the change in customer loyalty and customer satisfaction can be attributed to quality
• Involvement and empowerment- TQM is everyone’s responsibility
• Focus on the customer
• Making quality a source of competitive advantage

Question 138

 Juran’s trilogy (quality trilogy)

Answer 138

a three-pronged approach to managing quality proposed by Joseph Juran. The three legs are quality planning (developing the products and processes required to meet customer needs), quality control (meeting product and process goals), and quality improvement (achieving unprecedented levels of performance)
 Reduces intangible costs by planning quality into the process/product as opposed to it being an afterthought

Question 139

o Explain the purpose of appraisal and prevention costs in reducing failures

Answer 139

 Appraisal and prevention costs are the costs of quality initiatives and related training. Are proactive investments. Considered the ‘good’ kinds of quality costs
 Appraisal costs include costs for inspections, calibration of equipment, product testing, and quality audits
 Prevention costs- costs caused by improvement activities that focus on the reduction of failure and appraisal costs. Include education, quality training, and supplier certification
* Also includes preventative maintenance

Question 140

o List types of internal and external failure costs associated with design specifications

Answer 140

 External failure costs- the costs related to problems found after the product reaches the customer.
* Usually includes such costs as warranty, returns and reverse supply chain costs, product recall costs, lost customers, and field service costs
* The most significant and expensive. Can impact customer perceptions and loyalty
* Field service-installing and maintaining a product for a customer after the sale or during the lease
 Internal failure costs- the cost of things that go wrong before the product reaches the customer.
* Internal failure costs usually include rework, scrap, downgrades, reinspection, retesting, and process losses
* Can be sporadic and chronic
o Sporadic is dramatic and must receive immediate attention
o Chronic is longstanding and may have a difficult-to-detect root cause

Question 141

 Cause-and-effect diagram

Answer 141

a tool for analyzing process dispersion. Also called the fishbone diagram (looks like a fishbone). The diagram illustrates main causes and sub-causes leading to an effect
* Organizes the elements of a problem to aid in the determination of the causes of the problem or situation
* Purpose of the diagram is to brainstorm possible root causes of a symptom
* Can use the ‘five whys’ approach with this

Question 142

 Check sheet (quality)

Answer 142

a simple data-recording device. The check sheet is designed by the user facilitate the user’s interpretation of the results. Often confused with data sheets and checklists
* Used to record the number of times a particular type of event occurs in real time. The row and columns can be summed and categorized. The results are simply data to be interpreted

Question 143

 Flowchart

Answer 143

the output of a flowcharting process; a chart that shows the operations, transportation, storages, delays, inspections, and so on related to a process. Are drawn to be better understood
* Depict complex processes, identifying interdependencies that can cause potential bottlenecks or opportunities for efficiency

Question 144

Histogram- (quality)

Answer 144

a graph of contiguous vertical bars representing a frequency distribution in which the groups or classes of items are marked on the x axis and the number of items in each class is indicated on the y axis. The pictorial nature of the histogram lets people see patterns that are difficult to see in a simple table of numbers
* Used to sort data and support rapid comparison of categories of data
* Can include a target value or a range of values. Can show negative values. Can be designed to show comparisons over time

Question 145

 Pareto chart

Answer 145

a bar graph that displays the results of a Pareto analysis. It may or may not display that 80-20 variation, but it does show a distinct variation from the few compared to the many
* Pareto’s law- states that a small percentage of a group accounts for the largest fraction of its impact or value
* Categories of data are ranked, usually from left to right along the x axis, from most significant to least. The y axis shows reference ranges
* Distinguishes between the vital few categories that contribute most of the issues and the trivial many categories of infrequent occurrence. The idea is to support more-focused and therefore cost-effective quality improvement

Question 146

 Control chart

Answer 146

based on a series of samples taken through time and assumes that all samples are taken from the same process. The control chart for a process should have nearly all of its data points within the statistical control limits, and, if not, there are quality issues

Question 147

 Scatter diagram

Answer 147

a graphical technique to analyze the relationship between two variables. 2 sets of data are plotted on a graph, with the y axis used for the variable to be predicted and the x axis used to the variable to make the prediction
* Can be used to test possible causal relationships and narrow focus on subsequent tests

Question 148

• Affinity diagram

Answer 148

a tool for employees striving to solve a particular issue to help them in organizing a large number of brainstormed ideas. Participants provide anonymous ideas, and, based on the number of them that relate to each topic, the group can get a sense of the seriousness of the issue

Question 149

• Tree diagram

Answer 149

delineates tasks and activities in increasingly finer detail in order to meet a specific goal. The goal is on the left-hand side and the main branches of the tree “bloom” off of that

Question 150

• Matrix diagram

Answer 150

shows the relationship between two or more groups of information, the strengths of those relationships, and how the variables interact and respond to each other

Question 151

• Process decision program chart

Answer 151

visually captures things that might go wrong in a plan being developed. Visually maps out step by step and what would happen with each step

Question 152

• Relationship diagram

Answer 152

illustrates cause-and-effects relationships and is particularly useful for evaluating the links between different aspects of a complicated issue

Question 153

• Matrix data analysis chart

Answer 153

shows the relationship between groups of information. Can be useful when trying to differentiate marketing messages and compare seemingly similar products

Question 154

• Activity network diagram

Answer 154

helpful when an improvement team wants to identify the required order of tasks in a manufacturing process or project. Its primary benefit is to convey dependencies and simultaneous activities via a simple visual

Question 155

 Information system architecture

Answer 155

a model of how the organization operates regarding information. The model consists of four factors
* Organizational functions
* Communication of coordination requirements
* Data modeling needs
* Management and control structures

Question 156

 Gap analysis-

Answer 156

a tool designed to assess the difference that exists between a service that is offered and customer expectations
* Starts by determining the current state of capabilities related to technology and then gathers and analyzes the requirements of internal and external customers to envision a future or ideal state for those capabilities. Will further refine technology requirements
 The analysis can also show that other limitations should be addressed before new technology

Question 157

o List factors that affect the decision to acquire new technology

Answer 157

 Competitive advantage:
* Scarce- first-of-its-kind technology and proprietary technology are scarce.
* Difficult to move- the advantages created by the technology can be captured by competitors only by acquiring the organization and its technology
* Difficult to copy-
* Difficult to substitute-
 Risk- risk must be identified and analyzed for impact and probability
* The technology project could be poorly managed and cost far more than planned for, consumed for too much time, or fail entirely
* Could fail to provide the envisioned level of benefits due to misrepresentation on the part of the seller, misunderstanding of actual requirements on the part of the buyer or seller, or poor project implementation
* A change in market needs could wipe out the benefits of the technology
* The introduction of even newer technology could negate the competitive advantages
* A change in the external environment could make implementation impossible or costly
* Unintended consequences could be created by the technology.
o Technology could cause harm to workers (hazardous materials
o Could change the workers jobs in unintended consequences

Question 158

 Master data

Answer 158

refers to the core data of an organization that contains the basic information required for that organization to do business. May include information regarding suppliers, customers, products, and materials as well as account data
* IT needs to ensure the data is accurate
* Usually kept in a central database

Question 159

 Data governance

Answer 159

the overall management of data’s accessibility, usability, reliability, and security; used to ensure data record accuracy
* Maintaining the integrity of the data used for manufacturing planning and control is often considered the difference between a successful and failed ERP implementation
* Also includes securing sensitive data and ensuring that access is restricted to role-appropriate views of the information

Question 160

 Enterprise resource planning (ERP)

Answer 160

framework for organizing, defining, and standardizing the business processes necessary to effectively plan and control an organization so the organization can use its internal knowledge to seek external advantage
* Provides extensive databanks of information including master file records, repositories of cost and sales, financial detail, analysis of product and customer hierarchies, and historic and current transactional data
* Not just software but a set of business processes for leveraging internal knowledge. Helps the organization collect all of its data in one place so that it can leverage this information to run every aspect of the business. Centralized storage location is key
* Reflects the impact of transactions from every functional area of the organization in real time and avoid problems like having multiple redundant records that are out of sync
* There was an evolution from MRP to ERP. Manufacturers above a certain size generally require ERP

Question 161

Advantages of Enterprise resource planning (ERP)

Answer 161

o Improve awareness of how the organization’s pieces fit together, how performance in one area affects other functions
o They increase the adoption of business planning processes, which increases the organization’s and operation’s performance
o Support the concept of continuous improvement by providing managers with access to performance data and analytical tools
o Improve the quality of communication with stakeholders, since more accurate and timely information can be used in discussions
o Can provide ways to integrate supply chain partners and support more efficient and flexible operations

Question 162

• ERP Functionality in Supply Chain

Answer 162

o Plan the schedules and routing of products through work centers
o Plan schedule releases for MTS made on high-volume assembly lines
o Recommend the release of authorizations such as work orders or schedule to begin operations at work centers
o Facilitate reporting at each stage of production

Question 163

 Advanced planning and scheduling

Answer 163

techniques that deal with analysis and planning of logistics and manufacturing during short, intermediate, and long-term time periods. APS describes any computer program that uses advanced mathematical algorithms or logic to perform optimization or simulation on finite capacity scheduling, sourcing, capital planning, resource planning, forecasting, demand management, and others. These techniques simultaneously consider a range of constraints and business rules to provide real-time planning and scheduling, decision support, available-to-promise, and capable-to-promise capabilities
* Often generates and evaluates multiple scenarios. Management then selects one scenario

Question 164

 Differences between RCCP and APS:

Answer 164

• Capacity planning
• RCCP
• Uses load data
• Plans work center capacity
• Does not address logistics capacity
• APS
• Uses both transactional and operational data
• Plans multiple sites
• Integrates production and logistics capacity analysis

Question 165

 Cloud computing

Answer 165

an emerging way of computing where data is stored in massive data centers that can be accessed from any connected computers over the internet

Question 166

 Artificial intelligence (AI)

Answer 166

is advanced software capable of self-improvement. Mimics human decision-making. Relies on preset logic, policies, and controls

Question 167

 Internet of things (IoT)

Answer 167

an environment in which objects, animals or people are provided with unique identifiers and the ability to transfer data over a network without requiring human-to-human or human-to-computer interaction. Describes the networking of non-computer devices such as equipment, drones, automated storage and retrieval systems, shipping containers, electronic shelving, printers, and other devices using internet communications

Question 168

 3D printing

Answer 168

printing on demand of 3D objects based on 3D digital models, typically by adding a material such as plastic or metal one layer at a time. Can be used for on-demand manufacturing. Most popular in aerospace, medical devices, defense, automotive, and consumer products

Question 169

 Robotic Process Automation (RPA)

Answer 169

does not refer to actual robots such as those used in a plan but instead to the use of software “bots” to automate repetitive interactions with customers or with other automated systems
* Ex- FAQ or service inquiries. Automated emails and texts

Question 170

Objective of continuous improvement

Answer 170

 Objective is to make the product or process more effective and/or efficient. End results can include
* Better quality and thus higher customer satisfaction and perhaps greater market share
* Reducing cost and thus increasing profits
* Removing waste in the form of unneeded products features, services, or process steps, thus getting more done with existing resources and avoiding the need for additional capital investments

Question 171

 Continuous improvement steps

Answer 171

• Determine the process to be improved
• Gather and compile data on the as-is state
• Analyze the data and produce a to-be state
• Select the best method among alternatives
• Implement
• Sustain the new method

Question 172

 Knowledge management

Answer 172

an integrated approach used by organizations to capture, share, develop, and use organizational knowledge. This information is used to more effectively produce product, interface with customers, and navigate through competitive markets
* Key is to convert “tacit” knowledge (something you know) into “explicit” knowledge (something you can show others)

Question 173

 House of lean (or house of Toyota)

Answer 173

is a framework that uses the metaphor of a house with a foundation, two pillars, and a room forming a space within culture. Philosophy is that organizations and individuals wanting the benefits of lean must see its big picture and fully integrate all of its components in order to be successful

Question 174

House of lean parts of the house

Answer 174

 The roof of the house of lean lists the goals that lean should achieve: focus on the customer to produce only what is wanted in the best quality, at the lowest cost, and using the shortest lead time possible by eliminating waste in all of its forms
 House of Lean Center: culture of involvement and continuous improvement
 House of lean foundation: standardization and operation stability
 House of lean pillars: Just in time and Jidoka

Question 175

The 5 S’s

Answer 175

o Sort
o Simplify
o Scrub
o Standardize
o Sustain

Question 176

• Just in time (JIT)

Answer 176

primary elements are to only have the required inventory when needed; to improve defects; to reduce lead times by reducing setup times, queue lengths, and lot sizes; to incrementally revise the operations themselves; and to accomplish these activities at minimum cost

Question 177

• Jidoka

Answer 177

is all about empowering shop floor workers to take ownership of the quality of their processes and to help the organization to improve
o Workers are encouraged to stop the production line at the first sign of trouble. Identify root cause before producing defected products

Question 178

 Poka-yoke (mistake proof) in Lean

Answer 178

mistake-proofing techniques, such as manufacturing or setup activity, designed in a way to prevent an error from resulting in a product defect
* Ex: sensing device that detects when a part was unused and shuts down the operation

Question 179

 Kaizen blitz

Answer 179

a rapid improvement of a limited process area

Question 180

Flow and pull in Lean

Answer 180

 Lean systems use flow and pull to reduce WIP inventory. Normally a key area for continuous improvement. Flow seeks to eliminate queues and thus inventory between workstations. Items are pulled from the prior workstation as needed rather than being pushed without regard to need. Pull reduces the build-up of WIP

Question 181

 Value steam mapping

Answer 181

a lean production tool to visually understand the flow of materials from supplier to customer that includes the current process and flow as well as the value-added and non-value-added time of all the process steps. Used to lead to reduction of waste, decrease flow time, and make the process flow more efficient and effective
* Can be used for WIP and lead-time reduction but can also be applied to many types of continuous improvements
* Best prepared by working backward from the finished product or service. Map includes changeover time, cycle time, and inventory at each stage

Question 182

 Pull system

Answer 182

demand is matched to supply. The factory only produces what is customers use. Using a kanban system, each workstation only produces enough to supply what the next workstation needs
* Supermarket approach- make all parts easy to take off a shelf, much like the shelves of a supermarket

Question 183

Five steps to reduce setup time

Answer 183

• Classify internal and external changeover tasks. Internal tasks must be performed while a machine is stopped, external tasks can be performed while the machine is still running
• Convert internal setup tasks to external tasks. Ex: organize tools for setup while machine is still running
• Streamline internal setup. Find ways to reduce the time it takes to fasten equipment in place
• Eliminate adjustments. Documents the proper adjustments for different materials helps eliminate wasteful trial and error as adjustments are repeated until the machine produces an in spec product
• Minimize external time, since small batch processes may not provide enough time to prepare for the changeover

Question 184

• Total productive maintenance (TPM)

Answer 184

is proactive and focuses on opportunities as well as threats. It does not wait until a machine breaks down or quality problems occur.
o 3 main benefits:
 Extends the life of equipment and protects the organization’s capital investments
 Improves worker safety
 Makes the system more resilient
o Machine operators are trained in routine service and PM on their machines. They may also observe or assist when a more-skilled technician is required to make repairs

Question 185

o Overall equipment effectiveness (OEE)

Answer 185

measures the effectiveness of all of the equipment of a company based on usage, performance, and production quality
 Consists of 3 fundamental components:
* Availability
* Performance
* Quality
 OEE = available % x performance % x quality %

Question 186

 Worker self-control

Answer 186

a methodology from quality management and lean production systems that breaks down the required elements for successful worker empowerment. Helps properly prepare workers, the environment, and the organization’s responsibility and accountability structure to be effective in an empowered worker culture
* For workers to be in a state of self-control, they must have the knowledge of what they are supposed to achieve, knowledge of performance against goals, and means of regulating performance
* Workers tasks should be adequately planned, work should be standardized, process variation is under control, and workers have access to tools to maintain self-control

Question 187

 Job enlargement and enrichment

Answer 187

 Job enlargement and enrichment builds towards continuous improvement. Enlargement means expanding the number of tasks a worker performs. Enrichment means having more control over how tasks are performed. Allows works not to get bored and enhances their knowledge and skills

Question 188

 Training- beneficial to do job rotation and cross functional training. Benefits are:

Answer 188

• Cost savings
• Replacement workers
• Employee motivation
• Training programs fail because
  o Timeliness
  o Wrong things or wrong participants
  o Wrong method of delivery
  o Over-complication

Question 189

 Performance appraisal

Answer 189

supervisory or peer analysis of work performance. May be made in connection with wage and salary review, promotion, transfer, or employee training. Useful in measuring:
* Ideas
* Teamwork
* Flexibility
* Quantity
* Quality

Question 190

 A3 thinking and problem solving

Answer 190

 A3 thinking and problem solving brings structure and discipline to the PDCA cycle. A3 thinking is thinking about how to express a problem and a solution in the form of a short story that is easy to digest

Question 191

 Quality function deployment (QFD)

Answer 191

a methodology designed to ensure that all the major requirements of the customer are identified and subsequently met or exceeded through the resulting product design process and the design and operation of the supporting production management system
* Market research > customer needs > product features > process features > process control features

Question 192

 Voice of the customer (VOC)

Answer 192

actual customer descriptions in works for the functions and features customers desire for goods and services

Question 193

 House of quality

Answer 193

a structured process that relates customer-defined attributes to the product’s technical features needed to support and generate these attributes. This technique achieves this mapping by means of six-step process
* Identification of customer attributes
* Identification of support technical features
* Correlation of the customer attributes with the support technical features
* Assignment of priorities to the customer requirements and technical features
* Evaluation of competitive stances and competitive products
* identification of those technical features to be used in the final design of the product

Question 194

SIPOC analysis

Answer 194

 Supplier partnership needs continuous improvement. Supplier and customer feedback can also be used to improve the business process flows between partners. This can be done using a SIPOC analysis
* Suppliers- the entities that provide inputs to a process
* Inputs- all that is used to produce one or more outputs from a process
* Processes- steps or activities carried out to convert inputs to one or more outputs
* Outputs- one or more outcomes or physical products emerging from a process
* Customers- the entities that use the outputs of a process

Question 195

 Six sigma

Answer 195

a methodology that furnishes tools for the improvement of business processes
* Objectives are to provide high customer satisfaction and to achieve low product return rates by systematically reducing variation in all manufacturing and business processes to very low levels
* Evidence based, meaning that organizations need to develop more precise ways of measurement to align with their much higher goals for process improvement
* Major concepts:
o Begin with the customer’s needs in mind
o Variation is the cause of defects
o The output of any process is a function of its inputs

Question 196

• Lean six sigma

Answer 196

a methodology that combines the improvement concepts of lean and six sigma. It uses the seven wastes of lean and the DMAIC process from six sigma, and awards recognition of competence through judo-style belts

Question 197

• Six sigma quality

Answer 197

important elements are (1) producing only 3.4 defects for every one million opportunities or operations and (2) process improvement initiative striving for six sigma-level performance
o May not be able to achieve the 3.4 defects in every industry

Question 198

 Define, measure, analyze, improve, control (DMAIC) process

Answer 198

a six sigma improvement process composed of five stages:
* Determine the nature of the problem
* Measure existing performance and commence recording data and facts that offer information about the underlying causes of the problem
* Study the information to determine the root causes of the problem
* Improve the process by effecting solutions to the problem
* Monitor the process until the solutions become ingrained

Question 199

 Plan-do-check-action (PDCA)

Answer 199

• Plan- identify your problems
• Do- test potential solutions
• Check- study results
• Action- implement the best solution
  o Effective for:
   Helping to implement total quality management or six sigma initiatives and generally helping to improve processes
   Exploring a range of solutions to a problem and piloting them in a controlled way before selecting one from implementation
   Avoiding wasted resources from rolling out an ineffective solution on an enterprise-wide scale

Question 200

 Root cause analysis

Answer 200

an analytical method to determine the core problems of an organization, process, product, market, and so forth

Question 201

 Fault tree analysis

Answer 201

a logical approach to identify the probabilities and frequencies of events in a system that are most critical to uninterrupted and safe operations

Question 202

 Benchmarking

Answer 202

comparing products, processes, and services to those of another organization thought to have superior performance. Benchmark target can be a competitor or in the same industry
* Purpose is to develop stretch goals. By identifying best in the industry performance, operations can focus on improving key activities by setting benchmark measures
* Key tasks:
o Determine critical performance
o Define the metric
o Identify leading or benchmark targets
o Gather the organization’s own performance data
o Identify and analyze performance gaps
o Plan a path forward
o Allocate resources

Question 203

 Standardized work

Answer 203

 Standardized work is critical to any manufacturing but especially to lean manufacturing. Standards include:
* Takt time for the manufacturing of products based on the rate of customer demand
* Work sequence of the process designed for particular products
* WIP
* The manager uses charts to develop standardized work and define the work area
based on the principles of economy of motion and ergonomics. For this reason, workplace design needs to address:
* The flow of work through choice and improvement of tool, equipment, and workplace layout design
* Optimizing coupling and connectivity

Question 204

common workplace layouts:

Answer 204

• Islands- workers in each island produce at their own pace
• Connected islands- islands are connected by conveyors, but there is no control over the rate of flow
• Connected island with full work control- islands are connected by conveyors. There is visual control over the rate of flow between the processes
• Cells- machines are next to each other. One piece is made at a time and move when completed to the next machine

Question 205

 Statistical process control (SPC)

Answer 205

the application of statistical techniques to monitor and adjust an operation. Often used interchangeably with statistical quality control, although statistical quality control includes acceptance sampling as well as statistical process control

Question 206

 Process capability

Answer 206

the ability of the process to produce parts that conform to specifications. Relates to the inherent variability of a process that is in a state of statistical control
* All processes have some variation. With processes that are said to be in control, the amount of variation will be small

Question 207

 Control chart

Answer 207

a graphic comparison of process performance data with predetermined computed control limits. The process performance data usually consists of measurements selected in the regular sequence of production that preserve the order. Used to detect assignable causes of variation in the process as opposed to random variations

Question 208

 Statistical quality control

Answer 208

the application of statistical techniques to control quality. Includes acceptance sampling as well as statistical process control, but is often used interchangeably with statistical process control

Question 209

Difference of statistical process control vs statistical quality control

Answer 209

• Statistical process control is the application of statistical analysis tools to control process inputs (independent variables) while statistical quality control is the application of the statistical analysis tools to monitor process outputs (dependent variables). Statistical quality control is therefore a broader concept that encompasses both statistical process control and acceptance sampling

Question 210

 Process capability analysis

Answer 210

processes need to be both capable and acceptable. Compares the variation in product characteristics to the allowable variation determined from engineering tolerances. It then determines whether the existing variance of the process will result in the process consistently producing parts within the design specification or tolerance

Question 211

• Supply chain

Answer 211

the global network used to deliver products and services from raw materials to end customers through an engineered flow of information, physical distribution, and cash

Question 212

• Upstream

Answer 212

indicates moving in the direction of the raw material supplier

Question 213

• Downstream

Answer 213

indicates moving in the direction of the end customer

Question 214

• Echelon

Answer 214

Certain supply chain distinct functions, such as supply, consolidation, manufacturing, distribution, wholesale and retail

Question 215

manufacturing planning and control (MPC)

Answer 215

a closed-loop information system that includes the planning functions of production planning (S&OP), master production scheduling, material requirements planning, and capacity requirements planning. Once the plan has been accepted as realistic, execution begins. The execution functions include input-output control, detailed scheduling, dispatching, anticipated delay reports (department and supplier) and supplier scheduling
* It’s closed loop, meaning capacity constraints are considered when planning.
* Strategic and business planning is long range and strategic. S&OP is medium ranged and tactical. Master scheduling is medium to short ranged and is still a form of tactical planning. It acts as a bridge to operational level. Material requirements planning is short range and operational

Question 216

• S&OP

Answer 216

 Sales and operations planning (S&OP)- a process to develop tactical plans that provide management the ability to strategically direct its businesses to achieve competitive advantage on a continuous basis by integrating customer-focused marketing plans for new and existing products with the management of the supply chain. The process brings together all the plans for the business (sales, marketing, development, manufacturing, sourcing and financial) into one integrated set of plants. Performed at least once a month and is reviewed by management at an aggregate (product family) level. Reconciles all supply, demand and new product plans. It is the company’s plan for the near to intermediate term
*S&OP is the highest level of priority planning. It proceeds from strategic planning but is a form of tactical planning. A key input is aggregated demand (product family level) and they do capacity checks
* Key output of S&OP is a production plan- a consensus set of numbers that supply commits to produce that demand agrees to set as sales goals

Question 217

Capacity planning activities in order

Answer 217

• Resource planning is the first of several capacity management activities that grow more detailed and shorter in time horizon. Can be conducted at several levels
• Rough-Cut Capacity Planning (RCCP) is the second level of capacity planning. Takes place at the master schedule level. Checks for bottlenecks, raw materials, staffing, etc.
• Capacity Requirements Planning (CRP) is the next level of capacity planning. Done at the MRP level. The MRP is sent to CRP to confirm capacity. Once confirmed, it’s sent to execution

Question 218

• SCOR- Supply-chain operations reference

Answer 218

the standard cross-industry diagnostic tool for supply chain management. Describes the business activities with satisfying a customer’s demand, which include plan, source, make, deliver, return, and enable. Analyzes current processes, goals, and performance
* Priorities- dependability and speed, flexibility, cost and speed, quality

Question 219

 Explain the role of the company vision, mission and values

Answer 219

• Mission- the overall goal for an organization set within the parameters of the business scop. The company statement of purpose
• Vision- The shared perception of the organization’s future- what the organization will achieve and a supporting philosophy. This shared vision must be supported by strategic objectives, strategies, and action plans to move it in the desired direction. An organization’s statement of its vision.
• Core Values- Describes the core values of an org, defining principles that support the vision, culture, and beliefs of the org. It may also be referred to as a code of ethics and often lays out the expectations for the actions and behavior of company personnel, partners, and suppliers

Question 220

 Describe how to conduct a competitive analysis

Answer 220

• First step in planning how to succeed in the industry is to understand the conditions in that industry
• Environment scanning- the process of analyzing an industry. Process used to expose an organization’s potential strengths, weaknesses, opportunities, and threats.
• PESTEL Analysis- often used to describe the focus of an analysis of an organization’s external, or macro, environment.

Question 221

 Describe the information gathered through using the five forces framework

Answer 221

• Threats of new entrants
• Bargaining power of buyers
• Bargaining power of suppliers
• Threat of new substitutes
• Competitive rivalry

Question 222

• Emergent strategy

Answer 222

a continual response to a dynamic environment
* Strategies flow downwards and upwards

Question 223

• 4 hierarchies of strategy-

Answer 223

o Corporate- improve competitiveness of the org as a whole
o Business- improve competitiveness of individual line of business
o functional area- implement and support corporate and business strategy at functional level
o operations- plan how the function will perform its work in a manner consistent with the direction and priorities described at corporate, business and functional area levels

Question 224

• Resource and capability analysis

Answer 224

assesses competitive power
o Tangible and intangible
o Next step in analyzing resources and capabilities is to submit them to a VRIN test for sustainable competitive advantage. Valuable, rare, inimitable, and non-substitutable

Question 225

• SWOT Analysis

Answer 225

• SWOT Analysis- examines an organization’s strengths and weaknesses, opportunities, and threats
  o Strengths include an organization’s core process and its core competencies

Question 226

 Core process

Answer 226

unique capability that is central to a company’s competitive strategy

Question 227

 Core competencies

Answer 227

bundles of skills or knowledge sets that enable a firm to provide the greatest level of value to its customers in a way that is difficult for competitors to emulate and that provides for future growth

Question 228

• Value chain analysis

Answer 228

maps the alignment of the organization’s activities to the creation of value. Way of understanding where costs occur in an organization or a supply chain and how one activity in the chain can affect the costs of another. Can help find ways to lower costs and improve competitive power without damaging quality and long term profitability
o 2 types of activities
 Primary- create value and will vary in different organizations
 Support- make the primary activities possible (IT, HR, accounting, etc.)
o An organization’s value chain is only one part of a larger value chain system that includes the organization’s trading partners (supplier and channel partners)

Question 229

• Product Life Phases

Answer 229

o Intro: Order qualifiers include quality and flexibility. Winners will be related to design or brand image
o Growth: Qualifies: cost and flexibility. Winners: dependability
o Maturity- Qualifies: cost and flexibility (range of products). Winners: cost, dependability, or after-market service
o Decline- Qualifies: dependability. Winners: Cost

Question 230

• Functional Product

Answer 230

In maturity phase. Steady sales for a long period. Low profit margin and a predictable demand

Question 231

• Scope

Answer 231

the range of activities that a firm performs internally, the breadth of its product mix and service offerings, the extent of its geographic market presence, and its mix of businesses

Question 232

• Diversification

Answer 232

moves the organization into new products or service markets. Expansion of the scope of the product line to exploit new markets

Question 233

• Integration

Answer 233

either expands the scope of the supply chain that is owned or expands market share in a given part of the supply chain

Question 234

• Globalization

Answer 234

directs growth into new regions

Question 235

 Provide factors promoting diversification

Answer 235

• Orgs pursue diversification when their original market is saturated or declining or when evolving macro-environment conditions are eroding market size and profitability
• Diversification can decrease overall risk, because one market downturn in one industry might not affect the other

Question 236

risks of diversification strategies

Answer 236

o Unfamiliar industry
o Other risks depend on how closely the purchaser intends to integrate the acquisition into the existing org. Global or brand synergy? If integration is required, ability to fold the acquisition into its existing structure and culture will affect the success

Question 237

 Contrast related and unrelated diversification strategies

Answer 237

• Related- focuses on industries with value chain activities similar to the organization’s own, which is called strategic fit.
  o Exists when there is a potential for sharing expertise or assets, assets can be shared to lower cost, or brand identity can be transferred to support customer recognition
• Unrelated- Involves organizations with different value chain and/or different types of resources. Can be seen as a form of corporate investment

Question 238

 List reasons why an organization would pursue a globalization strategy

Answer 238

• Industry attractiveness- analysts can use the five forces framework to assess the intensity of competitive forces and market growth trends
• Cost of entry- will the potential profit outweigh the investment?
• Better-off test- assesses whether diversifying the organization creates synergy
• Can provide access to new customers. It can lower costs and improve competitive position. It can be a response to negative conditions in the home country
  o More revenue with same production lower cost. Large operations have more bargaining power with suppliers.
• Profit sanctuary is created when an organization expands into a foreign market and enjoys a strong and protected competitive position, which then supports competitive activities in the organization’s domestic and foreign markets

Question 239

• Global/Multinational

Answer 239

out-compete rivals on opportunities to achieve cross-business and cross-country coordination, thereby enabling economies of scope and an improved competitive position with regard to reducing costs, cross-country subsidization, and so on
o High global integration, low local responsiveness. Think global, act global

Question 240

• Transnational

Answer 240

aims at achieving some degree of both standardization and local responsiveness. Think global, act local. Products and services will be more competitive in local markets if they appeal distinctively to local needs

Question 241

• Multidomestic/Multicountry

Answer 241

Each country market is self-contained. Customers have unique product expectations that are addressed by local production capabilities. Think local, act local. Highly decentralized. Divisions operate independently, products vary from one market to the next

Question 242

• Horizontal integration

Answer 242

produces or sells similar products in various geographical locations
o Horizontal scope- the range of product and service segments that the firm serves within its products or service market

Question 243

• Vertical integration

Answer 243

the degree to which a firm has decided to directly produce multiple value-adding stages from raw materials to the sale of the product to the ultimate consumer. The more steps in the sequence, the greater the vertical integration
o As with horizontal integration, an organization can build its own capabilities in these new value chain areas or it can merge with or acquire a business that performs these capabilities- perhaps an existing supplier
o Can provide more control over the value chain and opportunities to lower costs
o Increases investment in the industry and therefore, exposure to changes or negative trends

Question 244

• Backward Integration and forward integration

Answer 244

• • Backward Integration- the process of buying or owning elements of the production cycle and channel of distribution back toward raw material suppliers
• Forward Integration- process of buying or owning elements of the production cycle; the channel of distribution forward toward the final customer

Question 245

Outsourcing and subcontracting

Answer 245

• Outsourcing- process of having suppliers provide goods and services that were previously internally
• Subcontracting- sending production work outside to another manufacturer

Question 246

• Market segmentation

Answer 246

a marketing strategy in which the total market is disaggregated into submarkets, or segments, that share some measurable characteristic based on demographics, psychographics, lifestyle, geography, benefits, and so forth
Market segmentation is used more at the business strategy level

Question 247

• Customer segmentation

Answer 247

the practice of dividing a customer base into groups of individuals who are similar in specific ways relevant to marketing. Traditional segmentation focuses on identifying customer groups based on demographics and attributes such as attitude and psychological profiles
customer segmentation is used more at the functional strategy level such as for setting a marketing strategy

Question 248

• The Pareto principle

Answer 248

applies to customers: about 80% of profits tend to come from just 20% of the customer base
o A customer lifetime value analysis is one way to determine which customer segments contribute most to profits. Maintaining customer loyalty is far cheaper than trying to acquire new customers

Question 249

 Describe the different ways an organization can enact an international strategy

Answer 249

• Global- design principles affecting the organization’s relationship to the physical environment and society, including local communities, the workforce, and sustainability
• Network- design principles guiding collaborative interactions with upstream and downstream supplies and customers
• Local- design principles shaping the internal activities of organizations

Question 250

• Integrated measurement model

Answer 250

tool that can help ensure that strategic goals are carried down into the strategies and tactics of the organization. Starts with the goals of organizational strategy. Strategy directs all of the remaining priorities for each part of the organization.
o Organizational to divisional to functional to individual
o It’s an example of a KPI tree

Question 251

the five generic performance objectives, also called competitive priorities

Answer 251

• Speed- time to market, short lead times, high output per time period, and/or fast delivery
• Dependability (resilience)- promise fulfillment, on-time delivery, and/or products that can take a certain level of wear and tear
• Flexibility (agility)- ability to ramp up or down in volume quickly or change what is being produced without significant disruption
• Quality- fitness for use
• Cost- ability to provide goods at lowest price versus the competition

Question 252

SMART goals

Answer 252

• Specific in term of desired outcomes, measurable, attainable, relevant, and time-bound
• Specific, measurable, attainable, relevant, time-bound
• Determine if an objective is SMART by performing a what-if analysis

Question 253

• Order qualifiers

Answer 253

minimum customer expectations for lead times of other specifics. Competitive characteristics that a firm must exhibit to be a viable competitor. Ex: minimum level of quality

Question 254

• Order winners

Answer 254

value beyond the basic expectations. Competitive characteristics that cause a firm’s customer to choose that firm’s good and services over competition. Can be considered competitive advantages. Usually focus on one (rarely more than 2): price/cost, quality, delivery speed, delivery reliability, product design, flexibility, after-market service, and image

Question 255

• Product profiling

Answer 255

a graphical device used to ascertain the level of fit between a manufacturing process and the order-winning criteria of its products. Can be used at the process or company level to compare the manufacturing capabilities with the market requirements to determine areas of mismatch and identify steps needed for realignment

Question 256

 List the 5 generic business strategies

Answer 256

• low-cost provider- proposes competing with rivals by offering equal value at lower price
  o Risks- tight profit margin. Easily imitated. May be surprised by a sudden shift in customer preferences
• differentiation- distinctive features or capabilities
  o Good profit margins and brand identity
  o Risks- Work bests when it is difficult or expensive to copy, which means significant investment in research and development. Sudden change in customer needs can be costly. Don’t overestimate interest and make price too high.
• Focus- narrows its market and focuses on a particular segment, then applies a low-cost or differentiation focus to competing in that segment
  o Market niche exists but needs to be large enough to generate sufficient sales and profit. Especially attractive if large competitors don’t compete in this segment
• best-cost provider- Value strategy. Desirable features at an attractive cost. ‘Relatively’ low cost solution. Mid range
  o Need to create a good product but more efficiently
  o Appeals to value minded customers
  o Risks- competitive attacks from both sides

Question 257

• Horizontal structure

Answer 257

how will the organization structure its internal value chain (the way its components produce products/services) and the upstream and downstream parts of its supply chain

Question 258

• Vertical structure

Answer 258

how will the organization structure its decision-making and control? Will it centralize decision making or empower its business units and its employees to make decisions?

Question 259

• Dual operating system

Answer 259

retains the current organization structure but deliberately adds a second one that operates in concert with the existing one

Question 260

 Functional strategy

Answer 260

a strategy that is built from the business strategy for various business functions such as finance, marketing, and production

Question 261

 Operations strategy

Answer 261

the total pattern of decisions that shape the long-term capabilities of an operation and their contribution to overall strategy. Operations strategy should be consistent with overall strategy

Question 262

o Understand the forces acting upon operations strategy

Answer 262

 Technology analysis
 Capacity requirements analysis
 Capacity strategy
 Marketing strategy
 Supply network
 Manufacturing environment and push-pull boundaries

Question 263

 Process technology strategy

Answer 263

The set of decisions that define the strategic role that direct and indirect process technology can play in the overall operations strategy of the organization and sets out the general characteristics that help to evaluate alternative technologies
 Need to be able to assess both benefits of the technology and downside or costs and risks. Needs to be evidence based, not gut feeling or desire

Question 264

The 4 different manufacturing environments

Answer 264

 ETO- Need speed and quality. Costs is important since contract is upfront. Technology should be numerous and specialized
 MTO- customer service and dependability are important
 ATO- Cost performance becomes important, dependability and quality become difficult
 MTS- Costs is most important

Question 265

 Cost-volume-profit (CVP)-

Answer 265

the study of how profits change with various levels of output and selling price. The selling price of a product or service impacts demand to a lesser or greater degree, depending on the item in question. The level of demand then affects volume. If lowering a price increases volume sufficiently, it will make up for the lower profit per unit, and vice versa

Question 266

• Total cost curve

Answer 266

composed of total fixed and variable costs per unit multiplied by the number of units provided. Breakeven quantity occurs where the total cost curve and total sales revenue curve intersect. In inventory theory, the total cost curve for an inventory item is the sum of the costs of acquiring and carrying the item

Question 267

• Contribution margin

Answer 267

amount equal to the difference between sales revenue and variable costs
o CM Ratio= CM/Sales

Question 268

 Break-even analysis

Answer 268

a study of the number of units, or amount of time, required to recoup an investment. Identifies the point at which fixed costs equal contribution margin. Determines if a product’s demand will be sufficient to cover manufacturing costs
* BE = Fixed costs/Unit CM
* BE in units = Fixed Costs/(Price per unit – variable cost per unit)

Question 269

 Target income volume

Answer 269

also considers contributions to the general and administrative costs of the organization and the return on investment for the facility and equipment that is producing the units. Helps translate sales into production requirements
* Target income sales volume = Fixed costs + target income/unit CM

Question 270

 Sales mix analysis

Answer 270

the proportion of individual product-type sales volumes that make up the total sales volume

Question 271

 Capacity strategy

Answer 271

one of the strategic choices a firm must make as part of its manufacturing strategy. There are 3 commonly recognized capacity strategies: lead, lag, tracking. Time horizon is 1-3 years. Sometimes the time required to build more capacity might extend beyond the time horizon of a business plan and require the decision to be made at the strategic level

Question 272

Surge capacity

Answer 272

the ability to meet sudden, unexpected increases in demand by expanding production with existing personnel and equipment

Question 273

 Lead (capacity planning)

Answer 273

adding capacity to a resource in anticipation of increased future demand. This is done to ensure the ability to satisfy market demand when increase occurs. Often used in the hotel/entertainment industry, since capacity is hard to change later

Question 274

 Lag (capacity planning)

Answer 274

not adding capacity until the firm is operating at or beyond full capacity. This keeps unit costs minimized by working at full capacity, but does not satisfy total demand. Low cost providers of things like commodities often use the lag strategy because efficiency is necessary when margins are low

Question 275

 Tracking (capacity planning)

Answer 275

adding capacity in small amounts to attempt to respond to changing demand in real time in the marketplace. This approach may satisfy total demand and help minimize unit costs, but it can be difficult in some situations to add incremental amounts of capacity, especially if the facility has no more space available. Often used when there is supply flexibility, such as if there is readily available contract manufacturing (machine shops)

Question 276

 Four Ps

Answer 276

 Four Ps- a set of marketing tools to direct the business offering to the customer
Product
Price
o Could decide to use market penetration pricing, accepting a loss or low margins to gain market share
o Could use price skimming, which is setting a higher price when you are the only game in town and then dropping the price when competitors enter the market

Place
Promotion

Question 277

information contained in functional and operations strategies

Answer 277

 Logistics-
 Disintermediation- eliminating an intermediate stage or echelon in a supply chain
 Functionally oriented organizations- organized into departments that don’t work hand in hand and communicate well
 Cross-functional organizations- apply the concepts of supply chain management to the internal organizational structures, incentives and metrics. Includes all departments of the company to make decisions and perform day to day
 Operational plan- the set of short-range plans and schedules detailing specific actions. Operational plans are more detailed than strategic and tactical plans and cover a shorter time horizon. Will translate the strategy into specifics on how to carry out everyday work

Question 278

o Describe the criteria considered in the make-or-buy decision

Answer 278

 When to make it- activity has strategic importance. Requires specialized knowledge/skills that only operations possesses. Could increase operations’ core competencies
 When to buy- the supplier has unique expertise, capabilities, or economies of scale that operations does not possess. The supplier can support improved operations performance

Question 279

advantages and disadvantages of different approaches to planning the number and size of operations sites

Answer 279

 Production advantages- the lower production costs from cheaper labor, cheaper land, and/or lower energy costs may outweigh the increased costs of transporting goods further. Another country may offer a larger skilled labor pool
 Economies of scale- a few very large production centers will provide greater economies of scale than many smaller facilities
 Learning curve effects- it may be best to focus sales or activities in one or a few locations, gain experience, and then disperse
 Better coordination with suppliers and customers- some processes benefit from proximity to suppliers for a more rapid response and greater supplier involvement.
 Other value chain activities-customer service or product research- may be best in areas with growing customer bases

Question 280

o Describe how organizations can enter foreign markets

Answer 280

 Export- common and relatively inexpensive way to enter a marker while maintain full control. Requires little investment and internal change to the organization. Primary risk is the ability to be competitive with foreign rivals. Need to keep costs low even with transportation costs. Could impose tariffs/trade barriers
 Licensing- paying a fee for permission to manufacture and sell a product created by another. Receives royalties from the licensee, and the licensee assumes the expenses of using or producing the property and all market risks. Risk is licensee could steal intellectual property
 Franchising- similar to licensing but is more appropriate for service and retail businesses
 Creation of subsidiaries- a company that is at least majority owned by a parent company. Allows the organization to maintain full control over its investment, but that investment will be larger. Could be by acquiring an existing business or creating a new one. Investment risk and potential reward are higher
 Creation of local strategic alliances or joint ventures- forging a strategic alliance or joint venture with an organization operating in the house country. Each share some risk and reward

Question 281

 Push

Answer 281

forecast driven. In production, the production of items at required times based on a given schedule planned in advance. In material control, the issuing of material according to a given schedule or issuing material to a job order at its start time. In distribution, a system for replenishing field warehouse inventories where replenishment decision making is centralized, usually at the manufacturing site or central supply facility
* Everything is pushed downstream
* Subject to bullwhip effect, which involves the variability at each supply chain stage being magnified at each stage back up the chain due to lack of info on why the variability is coming

Question 282

 Demand-driven material requirements planning (DDMRP)

Answer 282

a method for planning material needs that enables a company to build more closely to actual market requirements

Question 283

 Demand driven supply network

Answer 283

situation in which a customer purchase initiates real time information flows through the supply chain that consequently cause movement of product through the network. Type of pull system

Question 284

 Pull

Answer 284

in production, the production of items only as demanded for use or to replace those taken for use. In material control, the withdrawal of inventory as demanded by the using operations. Material is not issued until a signal comes from the user. In distribution, a system for replenishing field warehouse inventories where replenishment decisions are made at the field warehouse itself, not at the central warehouse or plan
* Lean, and Just-in-time (JIT) are important examples of pull
* No fixed production schedule
* Challenge with going from push to pull is reducing inventory without lowering customer satisfaction. If managed properly, can reduce costs and enhance satisfaction

Question 285

Risks of push and pull forecast process

Answer 285

 Forecast-push process, the risk is related to the build-up of inventory. Costs money while it sits, could become obsolete, or need to sell for cheap
 Demand-pull model, the risk is that orders will begin to come in over capacity and all along the supply chain there will be expensive activity to run the plant overtime, expedite more and faster transportation, or convince customers to wait or accept a substitute product

Question 286

 Decoupling points

Answer 286

the locations in the product structure or distribution network where inventory is placed to create independence between processes or entities
* The manufacturing environments can be classified according to the decoupling points

Question 287

 Mass customization

Answer 287

creation of high-volume product with large variety whose manufacturing cost is low due to the large volume, allowing customers to specify an exact model out of a large volume of possible end items

Question 288

 Gantt Chart

Answer 288

the earliest and best-known type of planning and control chart, especially designed to show graphically the relationship between planned performance and actual performance over time

Question 289

 Intermittent production

Answer 289

a form of manufacturing in which the jobs pass through the functional departments in lots, and each lot may have a different routing
* Useful when there are many product design variants that have different process requirements and therefore have unbalanced workflows between work centers. Time from when an order stars work to when it is complete is very long

Question 290

• Work center

Answer 290

organized around similar processes and usually involved smaller lots or batches. Work centers are production areas grouped by function

Question 291

• Batch

Answer 291

version of intermittent production for higher production volume. Lots or batches are larger, and the flow is optimized

Question 292

 Flow processing

Answer 292

work flows from one workstation to another at a nearly constant rate and with no delays. Repetitive manufacturing or continuous manufacturing
 Flow manufacturing has standardized products. Flow processes include line and continuous
* Repetitive manufacturing, assembly or production line

Question 293

 Line manufacturing process

Answer 293

discrete parts move through the same sequence of operations at a controlled rate for a narrow range of standard or highly similar items. Production volumes are high and equipment is specialized (discrete units)

Question 294

 Continuous manufacturing

Answer 294

involve few parts, high volume, low to medium variety, and a high rate of production of non-discrete make-to-stock units. Used more in forecast driven production (non-discreate units)

Question 295

• Fixed position layout

Answer 295

a factory layout that plans for the product to be in a set place; people machines and tools are brought to and from the product

Question 296

• Functional layout

Answer 296

operations of a similar nature or function are grouped together, based of departmental specialty

Question 297

• Cellular layout

Answer 297

produces families of parts within a single line or cell of machines controlled by operators who work only with line or cell
o Cell- manufacturing unit consisting of a number of workstations and the materials transport mechanisms and storage buffers that interconnect them
o Use ‘U-Lines’

Question 298

• Product based layout

Answer 298

resources are arranged sequentially according to the steps required to make a particular complex product. Another name for flow process layout

Question 299

 Service design matrix

Answer 299

High degree in customer contact, means high sales opportunity, but low production efficiency. And vice versa

Question 300

 Service Gap analysis

Answer 300

determine the most important areas for redesign based on what it or needs to be a value added service while also identifying areas that are not perceived to be valued added and could be eliminated to save cost without impacting customer satisfaction much
* Could take data from surveys, complaints, etc

Question 301

 KPI

Answer 301

financial or nonfinancial measure that is used to define and assess progress toward goals and typically is tied to organization’s strategy. Should not be contradictory to other departments
 KPI Tree- goes from organization KPIs to individual

Question 302

 Balanced scorecard

Answer 302

a list of financial and operational measurements used to evaluate organizational or supply chain performance. The dimensions of the balanced scorecard might include customer perspective, business process perspective, financial perspective, and innovation and learning perspective

Question 303

 Liquidity

Answer 303

measures an organization’s ability to liquidate short-term assets and therefore satisfy its short-term debts and obligations
* Net operating cash flow- the difference between cash inflow and cash outflow for a given period. Taking the change in net operating profit after taxes and adding the change in depreciation then subtracting the increase in net working capital requirements. It’s the difference between current assets and current liabilities
* Current ratio- current assets divided by current liabilities
* Quick asset ratio- current assets minus inventory divided by current liabilities

Question 304

 Activity (financial ratio)

Answer 304

Show the efficiency with which the organization has used its assets to produce value
* Inventory turnover- the number of times that an inventory cycles, or ‘turns over’, during the year. A frequently used method to compute inventory turnover is to divide the annual cost of sales by the average inventory level
o Higher ratio indicates that inventory is sold and replenished more quickly
o Inventory turnover = costs of goods sold/average inventory

Question 305

 Leverage

Answer 305

a force multiplier. 2 levers that can be used to multiply the effectiveness of owner investments are debt and fixed costs. Debt creates financial leverage because it increases financial resources without diluting owner investment. Fixed costs can similarly be leveraged to create more output, which is called operating leverage
* Also measure an organization’s solvency: its ability to satisfy its long-term debt
* Debt ratio = total liabilities/total assets

Question 306

 Profitability

Answer 306

generally seen as a sign of a healthy organization and sound management. Higher number means more profit is being generated
* Profit margin = net income/net sales

Question 307

 Market Value

Answer 307

used to analyze the attractiveness of an organization’s stock to actual or potential investors. Use earning per share (EPS)
* EPS = net income – preferred dividends/common stock outstanding

Question 308

 Cash conversion cycle

Answer 308

the length of time from the purchase of raw materials to the collection of accounts receivable from customers for the sale of products or services

Question 309

 Cash to cash cycle time

Answer 309

an indicator of how efficiently a company manages its assets to improve cash flow. Calculated as inventory days plus accounts receivable days minus accounts payable days

Question 310

 Risk management

Answer 310

the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities
 The organization’s governance function should consider the amount of risk to which the organization is exposed, the level of risk it can tolerate, and the amount of investment it is willing to make to manage its risk
 Risk can be positive or negative

Question 311

 Risk tolerance

Answer 311

an organization’s or stakeholder’s readiness to accept a threat or potential negative outcome in order to achieve its objectives

Question 312

 Risk management process:

Answer 312

• Identify risk: external environment, internal processes, supply chain, workforce
• Analyze risk: impact, probability
• Develop appropriate response: risk avoidance, risk acceptance, risk transfer, risk mitigation
• Implement and monitor plan: test and audits, action debriefs

Question 313

failure mode and effects analysis (FMEA) method

Answer 313

 Used to evaluate a design process to identify and rank potential failures. Evaluate a process for possible failures and proactively prevent them rather than waiting for them to occur
 FMEA looks at products failures and rates them for probability of failure, degree of severity, and likelihood of escaping detection
* The 3 rating, typically on a 1 to 5 or 1 to 10 scale, are multiplied to achieve a risk priority number
* High probability, high severity, and low chance of detection would have most impact and highest RPB

Question 314

 Responses to risk

Answer 314

• Acceptance- take no action
• Avoidance- change plan to eliminate or to protect plan from risk
• Mitigation- reducing expose to risk in terms of likelihood or its impact
• Transfer- transfer all or some of the risk to a third party

Question 315

 Business plan

Answer 315

a statement of long-term strategy and revenue cost, and profit objectives usually accompanied by budgets, a projected balance sheet, and a cash flow statement. Usually stated in terms of dollars and grouped by product family. The business plan is then translated into synchronized tactical functional plans through the production planning process
* The stage where goals become projected revenue, against which the organization must allocate is financial resources

Question 316

 Capital budgeting

Answer 316

actions related to the planning and financing of capital outlays for such purposes as the purchase of new equipment, the introduction of new product lines, and the modernization of plant facilities. The investment in resources

Question 317

 Return on investment (ROI)

Answer 317

Gain from investment – cost of investment/cost of investment. ROI above one is seen as positive

Question 318

 Residual income

Answer 318

net operating income that an investment center earns above the minimum required return on its operating income

Question 319

 Payback period=

Answer 319

=Cost of investment/annual cash savings (cash inflows/year)

Question 320

 Net present value (NPV)

Answer 320

the present (discounted) value of future earnings (for which operating expenses have been deducted from net operating revenues) for a given number of time periods

Question 321

 Internal rate of return (IRR)

Answer 321

the rate of compound interest at which the company’s outstanding investment is repaid by proceeds from the project
* A way to convert NPV into a project yield rate

Question 322

 Profitability index

Answer 322

the present value of a projected stream of income from a project (potential investment) divided by the investment in the project
* = Present value of the investment / initial value of the project
* Profitability index greater than 1 is preferable

Question 323

o Understand how to comply with health, safety, and environment requirements and regulations

Answer 323

 Use of PPE
 Use of safety procedures and hazardous material procedures
 Lockout/tagout
 Air quality measuring
 Noise level measuring
 Air, water, and waste emissions measurement and control

Question 324

 Sustainability

Answer 324

an organizational focus on activities that provide present benefit without compromising the needs of future generations
 An action that does not include consideration of all stakeholders- shareholders, employees, customers, suppliers, communities, future generations- is not sustainable

Question 325

 Social responsibility

Answer 325

commitment by top management to behave ethically and to contribute to community development. This may also entail improving the workforce’s quality of life

Question 326

 Triple bottom line

Answer 326

an approach that measures the economic, social, and environmental impact of an organization’s activities with the intent of creating value for both its shareholders and society

Question 327

o Describe the forces driving an interest in sustainability

Answer 327

 Organizational ethics and values
* Efforts to establish, promote, monitor, and maintain fair and honest standards throughout all interactions with every company stakeholder
* May require to go above and beyond local laws or the ethics of the local culture, especially in the realms of human rights and diversity
* Ethical behavior can be challenging for global organizations
 Regulations
* Governments enforcing various laws and regulations has grown
 Community relations
* Good relations with one’s neighbors is critical to issues such as obtaining local permits for construction or operations requirements, attracting and retaining local workers, and maintaining facility security
 Economic value
* Some sustainable actions make economic sense. Ex: energy efficient power

Question 328

 Macroenvironment

Answer 328

identify political attitudes and governmental regulations, economic conditions, social conditions and norms, technology, environmental vulnerabilities, and legal vulnerabilities

Question 329

 ISO 1400 Series Standards

Answer 329

series of generic environmental management standards that provide structure and systems for managing environmental compliance with legislative and regulatory requirements and affect every aspect of a company’s environmental operations

Question 330

 ISO 2600

Answer 330

an international standard to assist organizations in contributing to sustainable development beyond legal compliance through a common understanding of social responsibility. Not a management system standard and is not intended for certification purposes or regulatory or contractual use

Question 331

 SA8000

Answer 331

Human right advocacy organization. Certification standard was developed in collaboration with trade unions, businesses, nongovernmental organizations, and academic and professional organizations

Question 332

 Global Reporting Initiative (GRI)

Answer 332

network-based organization that pioneered the world’s most widely used sustainability reporting framework. Sets out the principles and performance indicators organizations can use to measure and report their human rights, labor, environment, and anticorruption practices and outcomes

Question 333

Key Principles of S&OP

Answer 333

• Guided by good decision making
• Requires the hands-on participation of executive management, up to and including the leader of the organization
• Involves individuals and departments from across the organization
• Done on a monthly basis
• Aggregate planning tool that focuses on product family volume. Ensures long term capacity
• Able to function using multiple units of measure
• Generates disagreement and provides the platform to resolve those differences by bringing to light any conflicts in supply, demand, forecasting, or scheduling
• Holds departments accountable for creating and executing the plans they create

Question 334

o Explain the linkages between the functional plans and the organization’s strategic plan and direction

Answer 334

 Links the business plan to production and coordinates the planning efforts for marketing, finance, operations, procurement, human resources, logistics, and so on

Question 335

o Identify the participants, roles, and meetings in the S&OP process

Answer 335

 Executive champion/sponsor
 S&OP process owner
 Demand planning team
 Supply planning team
 Pre-S&OP team- all function department managers/heads as well as the process owner
 Executive S&OP team- should include president, VP of sales, VP of marketing, VP of operations, ETC

Question 336

o Explain the steps of the S&OP process

Answer 336

 Review performance (product review)- data on demand (sales, backorders, supply (backlogs, inventory levels), marketing, finance, and external events are gathered
 Evaluating demand levels (demand planning)
 Evaluating supply capability (supply planning)
 Reconciling demand, supply, and financial plans. Three steps:
* Financial review meeting
* Pre S&OP meeting- issues that do not require executive attention to balance supply and demand are resolved, and an agenda of exception is created
* Executive meeting- ensure overall plan can still meet objectives

Question 337

 Aggregate forecast

Answer 337

 Aggregate forecast- an estimate of sales, often time-phased, for a grouping of products or product families produced by a facility or firm. Stated in terms of units, dollars, or both, the aggregate forecast is used for sales and product planning
* Product group forecast- similar to the aggregate forecast. A forecast for a number of similar products
* Need to review all sources of demand

Question 338

 Major supply issues to be addressed to meet customer demand during S&OP:

Answer 338

• Directing the flow of raw materials from suppliers, to work in process, through production, and to finished product and delivery channels to customers
• Identifying the delivery lead time customers are willing to accept
• Deploying and using production resources: labor, equipment, technology
• Having the right design and process to support the transformation process and/or service being offered
• Identifying appropriate relations with other parties in the supply chain

Question 339

 Level production plan

Answer 339

maintains a stable production rate while varying inventory levels to meet demand
* Sets production at a fixed rate and uses inventory to absorb the variations in demand
* Cost of this strategy is the cost of holding inventory
* Prioritizes stability. Works and equipment can be optimized and stable. No need for excess or idle capacity. Less changeover
* Producers of high seasonal demand pursue this strategy, because the inventory holding costs are less than the costs of having to vary production levels

Question 340

 Chase production plan

Answer 340

maintains a stable inventory level while varying production to meet demand. Companies may combine chase and level production schedule methods
* Attempts to match production level to demand to avoid the need for inventory, but at cost of high production variability. Absorbs variations in demand by hiring and laying off workers
* Inventory costs are low, but you will have lots of changeovers. Might be used with lean manufacturing
* Use this if you can stockpile inventory (perishable goods)
* Capacity related costs- costs generally related to increasing or decreasing capacity in the medium to long term horizon. Personnel costs are high

Question 341

 Production planning

Answer 341

process to develop tactical plans based on setting the overall level of manufacturing output and other activities to best satisfy the current planned level of sales, while meeting general business objectives of profitability, productivity, competitive customer lead times, etc
* Output from S&OP
* Sets manufacturing output over a horizon of 15 to 18 months

Question 342

 Hybrid production plan

Answer 342

combines the aspects of both chase and level production planning methods
* Run at or close to full capacity during part of the planning period and at a lower level during the other part. Uses the best of the level and chase production strategies
* Seek to match demand to some extent and to smooth out production to some extent
* May use subcontracting in certain periods

Question 343

 Resource planning

Answer 343

capacity planning conducted at the business plan level. The process of establishing, measuring, and adjusting limits or levels of long-range capacity. Normally based on the production plan but may be driven by higher-level plans beyond the time horizon of the production plan
 Resources are anything that adds value to a product or service in its creation

Question 344

 Bill of resources

Answer 344

list of the required capacity and key resources needed to manufacture one unit of a selected item or family

Question 345

 Six steps to resource planning:

Answer 345

• Determine bill of key resources for each product family in production plan
• Determine UOM for each key resource
• Determine key resource capacity availability for each resource by period
• Calculate load on each key resource by time period
• Compare load to available capacity in each time period for each resource
• Revise production plan or adjust capacity as necessary

Question 346

 Load=

Answer 346

 Load= planned production X bill of resources category
 Load percent= Total load/capacity available

Question 347

 Net flow position (inventory) =

Answer 347

current on-hand inventory + inventory on order – qualified sales order demand

Question 348

o Understand that demand can be prioritized when there is a mismatch between demand and supply

Answer 348

 Goal is to convince customers to purchase the organization’s products and services so that the organization’s business objectives are met or exceeded. Prioritizing demand is the process of resequencing demand priorities or convincing customers to accept substitutes when supply and demand are out of balance in terms of volume, timing, or sales mix

Question 349

o Understand that tradeoffs exist in part to accommodate the needs of internal and external parties

Answer 349

 Each functional area has its own objectives that it needs to achieve in order to be successful. They don’t always align. S&OP works to align objectives so one department is not succeeding at the expense of another or of the overall plan
 To be successful, collaboration must involve communication and negotiation between sales, marketing, purchasing, distribution, manufacturing, and senior management

Question 350

o Risk to avoid during S&OP:

Answer 350

 Indecision by senior management
 Lack of participation by key players
 Lack of alignment between corporate strategy and S&OP
 Focusing on one goal: determining a single number plan while forgetting other key aspects of S&OP
 Lack of regularly held S&OP meetings
 Lack of proper S&OP meeting protocol, strategic and tactical discussions, and decisions
 Short term view of S&OP
 Lack of objectivity because the S&OP process leaders is also responsible for supply and/or demand planning
 Leadership focused on last month’s sales rather than looking forward
 Product life cycle stages not factored in or managed as part of S&OP
 External business trends not factored in
 Lack of regular measurements and consistent metrics
 Competition and politics between functions that slows or derails success

Question 351

o Desired outcome of S&OP

Answer 351

 No changes are made to near-term plans
 There is a clear process for making changes in the sales/production/inventory backlog plans so it is the best plan for the business
 Policies regarding volume/mix are continuously improved so that future S&OP iterations become smoother
 The process is customized to the given manufacturing environment

Question 352

 Demand management

Answer 352

the function of recognizing all demands for goods and services to support the marketplace. It involves prioritizing demand when supply is lacking. Proper demand management facilitates the planning and use of resources for profitable business results
 Weighs both customer demand and supply side capabilities and tries to balance the two
 Demand activities influence S&OP, MPS, and MRP which influence capacity planning

Question 353

 Trend forecasting models

Answer 353

method for forecasting sales data when a definite upward or downward pattern exists. Include double exponential smoothing, regression, and triple smoothing

Question 354

 Steps of demand management

Answer 354

• Planning demand includes forecasting as well as aggregation of actual orders
• Communicating demand is basically the demand side’s portion of the S&OP process
• Influencing demand includes marketing and sales activities with customers. It also includes influencing product and brand management and the supply side of the organization to recognize and support actual customer expectations and requirements
• Managing and prioritizing involve rebalancing supply and demand
   Need to identify demand from new and existing customers, new items, requests for discontinued items. Need to monitor phase-in, phase-out. Need to forecast difficult-to-forecast products

Question 355

o Explain each of the “rights” needed to provide excellent customer service

Answer 355

 The right customers- understand who are the right customers for the organization’s capabilities
 The right goods and services
 The right price
 The right quality
 The right quantity
 The right time- speed, flexibility, quality, and dependability of production
 The right place- distribution channel

Question 356

 Customer relationship management (CRM)

Answer 356

a marketing philosophy based on putting the customer first. It involves the collection and analysis of information designed for sales and marketing decisions support to understand and support existing and potential customer needs. Includes account management, catalog and order entry, payment processing, credits and adjustments, and other functions
 It’s more profitable to maintain a customer than acquire a new one. Main focus of CRM is the formation of relationships with customers with the intention of improving customer satisfaction and maximizing profits

Question 357

 Customer service life cycle

Answer 357

a model that describes the customer relationship as having four phases: requirements, acquisition, ownership, and retirement

Question 358

 Available-to-promise (ATP)

Answer 358

a way to provide a response to customer order inquires
* Number of ways to calculate when order will be delivered. Depends if the organization is MTS or MTO

Question 359

 Capable-to-promise (CTP)

Answer 359

alternative to ATP. Used when the master production schedule for a product is not able to accommodate a customer order from current or future inventory
 ATP considers existing material on hand for both purchased and manufactured items, CTP also accounts for inbound purchase receipts, supplier lead times, raw material, production, and labor availability, and alternative sourcing options

Question 360

o Describe metrics for measuring customer value and service

Answer 360

 Satisfaction rankings- surveys or customer loyalty
 lifetime customer value- lifetime customers decrease total cost of marketing, make it easier to know and satisfy their needs over time, and supplying opportunities for increased revenue and profit
 service levels by segment- measure of delivery performance of finished goods or other cargo, usually expressed as a percentage

Question 361

o Identify the techniques for measuring order delivery performance

Answer 361

 Reliability- =number of perfect orders/total number or orders
 Responsiveness- = sum of actual cycle times for all orders delivered/total number of orders delivered
 Agility- ability of supply chain to deal reliably with demand variation in the near and long term
 Cost- supply chain management cost and cost of goods sold

Question 362

 Objectives of concurrent engineering:

Answer 362

• Ensuring that internal and external customer needs are met
• Consideration of all inputs simultaneously to reduce the number of product and process design changes
• Compressing time from product concept to market introduction
• Prevention of quality and reliability problems
• Cost reduction
• Two techniques that support concurrent engineering include early manufacturer involvement and early supplier involvement
   Design for manufacturability- simplification of parts, products, and processes to improve quality and reduce manufacturing costs
   Design for maintainability (or service)- simplification of parts and processes to improve the after-sale service of a product
   Modular designs are more expensive but diagnosis and repair are easier

Question 363

 Design for manufacturability

Answer 363

simplification of parts, products, and processes to improve quality and reduce manufacturing costs

Question 364

 Design for maintainability (or service)

Answer 364

simplification of parts and processes to improve the after-sale service of a product

Question 365

 B2B commerce

Answer 365

business to business over the internet. Connectivity will cause businesses to transform themselves via supply chain to become virtual organizations

Question 366

 B2C sales

Answer 366

business being conducted between business and final customer, largely over the internet. Includes brick and mortar that also offer products online

Question 367

 Distribution channels

Answer 367

the distribution route, from raw materials through consumption, along which products travel

Question 368

 Transaction channel

Answer 368

a distribution network that deals with change of ownership of goods and services including the activities of negotiation, selling and contracting

Question 369

 Direct/internal

Answer 369

often used for transfers to other plants or business units or for B2B sales. Demand could be for inventory or for ETO or MTO goods. B2C sales typically rely on a network of distribution centers rather than directly shipping from the manufacturer. Demand is directly from the customer (manufacturer to customer)

Question 370

 Exclusive and select channel

Answer 370

a distributor is shown placing the orders (manufacturer, to distributor, to retailer, to customer)

Question 371

 Complex channel

Answer 371

demand is from an internally owned distribution center, which is likely directly connected to the manufacturer’s master production schedule through a distribution requirements planning module (manufacturer, to manufacturer DC, to distributor, to retailer, to end customer)

Question 372

 Independent demand

Answer 372

the demand for an item that is unrelated to the demand for other items

Question 373

 Dependent demand

Answer 373

demand that is directly related to or derived from the BOM structure for other items or end products

Question 374

 Demand can be aggregated in one of three ways:

Answer 374

• Similar products, geographic areas, across time

Question 375

o Select the right forecast horizon and interval for the forecast purpose

Answer 375

 Weekly- for master scheduling and can be achieved by dividing monthly forecasts into weekly buckets
 Monthly- not too detailed, gives an adequate level of precision
 Quarterly- appropriate in a few industries with long production lead times

Question 376

o Explain the types of demand patterns

Answer 376

 Seasonality- predictable repetitive pattern of demand measured within a year where demand grows and declines
 Trend- general upward or downward movement of a variable over time
 Cycle- wavelike patterns observed in the growth and recession trends of the economy over years
 Random variation- any variation left over after seasonality and trends have been accounted for

Question 377

o List the steps in the forecasting process

Answer 377

 Determine purpose
 Set level of aggregation and UOM
 Select horizon and planning bucket
 Gather and visualize the data
 Choose the forecasting technique
 Prepare the data for the technique
 Test the forecast using historical data
 Forecast
 Achieve consensus on the forecast
 Continuously improve

Question 378

o Describe types of information needed to create a forecast for each of the manufacturing environments

Answer 378

 MTS- demand forecast for S&OP. actual demand for the MPS. Next inventory replenishment for customers
 ATO- demand forecast, product family mix for S&OP; mix forecasts and actual demand for the MPS; configuration issues, delivery date for customers
 MTO- demand forecasts, engineering detail for S&OP; final configuration for the MPS; design status, delivery date for customers
 ETO- demand forecasts based on similar products previously created, with the focus on engineering hours

Question 379

 Qualitative forecasting

Answer 379

an approach to forecasting that is based on intuitive or judgmental evaluation. It is used generally when data is scarce, not available, or no longer relevant

Question 380

 Quantitative forecasting

Answer 380

an approach to forecasting where historical demand data is used to project future demand

Question 381

 Historical analogy

Answer 381

qualitative forecasting technique where the opinions of experts are combined in a series of iterations

Question 382

 Pyramid forecasting

Answer 382

a forecasting technique that enables management to review and adjust forecasts made at an aggregate level and to keep lower level forecasts in balance
 Provides a means of coordinating and integrating multiple forecast sources in an organization and ensuring consistency among the organization’s strategic direction, goals, or constraints, marketing and sales efforts, and use of manufacturing efforts

Question 383

 Extrinsic forecasting method

Answer 383

 Extrinsic forecasting method- forecast method using a correlated leading indicator, for example, estimating furniture sales based on housing starts. Tend to be more useful for large aggregations than for individual product sales
* Least squares method- method of curve fitting that selects a line of best fit through a plot of data to minimize the sum of squares of the deviations of the given points from the line
o Y = mx+b

Question 384

 Intrinsic forecasting method

Answer 384

a forecast based on internal factors, such as an average of past sales
* Time series forecasting- projects historical data patterns into the future

Question 385

o Naïve forecasting

Answer 385

simply assumes last period’s demand will be this period’s demand (every June is the same)

Question 386

o Exponential smoothing

Answer 386

type of weighted moving average forecasting technique in which observations are geometrically discounted according to their age

Question 387

o Decomposition

Answer 387

time series data is separated into up to three components- trend, seasonal, and cyclical

Question 388

• Seasonal index

Answer 388

• Seasonal index- Period average demand/average demand for all period
• Deseasonalized demand- period raw demand/seasonal index

Question 389

 Extrapolation

Answer 389

estimation of the future value of some data series based on past observations. Stat forecasting is a common example

Question 390

 Forecast error=

Answer 390

= Actual demand – Forecast demand

Question 391

 Absolute percent error=

Answer 391

= Actual demand - forecast demand/actual demand

Question 392

 Forecast accuracy=

Answer 392

1- Absolute percent error

Question 393

 Bias

Answer 393

a consistent deviation from the mean in one direction

Question 394

 Random variation

Answer 394

variance around the average that results in no bias. Each month you may under or over forecast a little, but over time there is no bias. It’s a good forecast

Question 395

 Mean absolute deviation (MAD) (forecast)

Answer 395

the average of the absolute values of the deviations of observed values from some expected value. MAD can be calculated based on observations and the arithmetic mean of those observations
* Shows how far away you are from the mean over a certain period
* MAD formula- (sum of the absolute of actual – forecast)/ number of periods

Question 396

 Mean squared error (MSE) (forecast)

Answer 396

magnified the errors by squaring each one before adding them and dividing by the number of forecast periods
* MSE- Sum of (errors for each period)squared/number of forecast periods

Question 397

 Mean absolute percent error (MAPE) (forecast)

Answer 397

shows the ratio, or percentage, of the absolute errors to the actual demand for a given number of periods

Question 398

 Standard deviation (forecast)

Answer 398

shows the ratio, or percentage, of the absolute errors to the actual demand for a given number of periods
 Standard deviation- measures the difference between period actual demand and average demand- doesn’t do anything with the forecast. computed by finding the differences between the average and actual observations, squaring each difference, adding the squared differences, dividing by n -1 and taking the square root.

Question 399

 Tracking signal

Answer 399

the ratio of the cumulative algebraic sum of the deviations between the forecasts and the actual values to the mean absolute deviation. Used to signal when the validity of the forecasting model might be in doubt
* = Sum of the forecast deviations (not absolute)/MAD
 If the tracking signal is beyond the threshold set, they should review the forecast method

Question 400

 Bullwhip effect

Answer 400

an extreme change in the supply position upstream in a supply chain generated by a small change in demand downstream in the supply chain. Inventory can quickly move from being backordered to being excess. Caused by the serial nature of communicating orders up the chain with the inherent transportation delays of moving product down the chain
 The impact will ripple through the supply chain tiers, and more variation will occur at each tier

Question 401

 collaborative planning, forecasting, and replenishment (CPFR)

Answer 401

a collaboration process whereby supply chain trading partners can jointly plan key supply chain activities from production and delivery of raw materials to production and delivery of final products to end customers
* Retailers and suppliers should have joint forecasts. Share significant events such as promotions, inventory policy changes, store openings and closings, and product introductions
 Enhances communication with suppliers and customers to better forecast demand
Will improve FCA

Question 402

 Master scheduling

Answer 402

the process where the master schedule is generated and reviewed and adjustments are made to the master production schedule to ensure consistency with the production plan. Primary input to the material requirements plan
* Requires a consistent periodic review (weekly or daily) and update cycle and timely transaction processing
* Driven by S&OP and demand management

Question 403

 Master schedule

Answer 403

a format that includes time periods (dates), the forecast, customer orders, projected available balance, available to promise, and the master production schedule. It takes into account the forecast, product plan, and other important considerations such as backlog, availability of material, availability of capacity, and management policies and goals
 Also includes lot size, safety stock, and time fence policies

Question 404

o Describe the linkages between master scheduling and other planning processes

Answer 404

 S&OP and production plan- the production plan produced by the S&OP process provides the aggregate production requirement that needs to be reflected in the master production schedule. MPS is disaggregated and stated in production units at the end-item or product-mix level
 Demand management- forecast is passed down S&OP, then production plan, then MPS
 Distribution requirements planning (DRP)- provides the rolled-up forecast and customer order information from inventory stocking locations. This information is used to develop the aggregate demand forecast at the S&OP level and ultimately makes its way to the MPS, where it is disaggregated to the end-item level
 Logistics planning- along with rough-cut capacity planning, logistics capacity planning determines if key distribution resources are available or are in short supply
 Rough-cut capacity planning- RCCP analyzes that MPS for potential production resource constraints. Shortages of key labor, materials, equipment and plant capacity need to be discovered and resolved in the master scheduling process
 Material requirements planning (MRP)- the validated MPS provides the gross requirements of end-item units for the MRP system, which executes the detailed scheduling and planning activities that plan materials and suggest order release dates

Question 405

Manufacturing environment with MTS

Answer 405

 MTS- a number of standardized products are assembled from many components
* The range of finished goods is smaller than the range of raw materials needed to create the finished goods
* The MPS supports the building of finished items to forecast
* The decoupling point is at finished goods inventory

Question 406

Manufacturing environment with ATO

Answer 406

 ATO- focused on customization. This approach is called two-level master scheduling
* The range of finished goods is larger than the range of raw materials needed to created the finished goods. However, the range of raw materials needed to the components and subassemblies which are produced prior to a customer order
* The MPS supports the building of options from raw materials. The final assembly schedule (FAS) supports the productions of end products from options after the receipt of orders
* The decoupling point is at standardized options

Question 407

Manufacturing environment with MTO

Answer 407

process focused. More customized than MTS products.
* The range of finished goods is much larger than the narrow range of raw materials needed to create the finished goods
* The MPS supports the planning of raw materials and components; the FAS supports the building of the final product to match the customer order
* The decoupling point is at raw materials and components. The FAS awaits receipt of a customer order

Question 408

Manufacturing environment with ETO

Answer 408

• Wait until order has been received before any components can be ordered or prepared. The forecast of capacity requirements, which included number of workers by type, specialty equipment needed, and very long lead time components that are commonly used, is accomplished through MPS. The MPS and FAS planned items are the same. Similar to MTS, the MPS is based on forecasts of customer demand. The FAS is based on actual orders, and it may experience shortages if lead times are not confirmed prior to providing the customer with a promise date

Question 409

 Planning BOM

Answer 409

an artificial grouping of items or events in BOM format used to facilitate master scheduling and material planning. May include the historical average of demand expressed as a percentage of total demand for all options within a feature or for a specific end item within a product family. Used as the quantity per in the planning BOM. Not completed end-item BOM. Purpose is to simplify planning.
* Constructed at the feature level- possible features that will be assembled to make end product

Question 410

 Common parts BOM

Answer 410

type of planning bill that groups common components for a product or family of products into one BOM, structured to a pseudo parent item number

Question 411

 Modular BOMs

Answer 411

a type of planning bill that is arranged in product modules or options. It is often used in companies where the product has many optional features

Question 412

 Super BOMs

Answer 412

a type of planning bill, located at the top level in the structure, that ties together various modular bills to define an entire product or product family. The quantity per relationship of the super bill to is modules represents the forecasted percentage of demand of each module

Question 413

 Master scheduler is responsible for:

Answer 413

• Disaggregating the production plan to create the MPS or reconciling the MPS with the product family plan
• Maintaining and making changes to the MPS records
• Resolving tradeoffs, working with top management to reach solutions that are consistent with the organization’s customer service and strategic objectives
• Monitoring execution of the production schedule against the MPS and the production plan
• Reconciling the MPS to the aggregate production plan and ensuring that a process is in place for this task, resulting in
  o Reduction in the quantity of the MPS to match the production plan
  o Authorization from top management to raise/increase the production plan
  o A combination of these
• Launching the final assembly schedule
• Reviewing and managing change requests from customers, plants, and suppliers and rescheduling in accordance with the master schedule policy
• Working with top management when:
  o Expedited requests for customers
  o New orders from customers
  o Last-minute revisions to an order
  o Serious supply disruptions requiring top management involvement in handling both suppliers and key customers

Question 414

 Ending projected available balance (PAB) =

Answer 414

= beginning PAB + scheduled MPS receipt – demand (orders or forecast)

Question 415

 Rough-cut capacity planning (RCCP)

Answer 415

the process of converting the master production schedule into requirements for key resources often including labor, machinery, warehouse space, suppliers’ capabilities, and in some cases, money. Comparison to available or demonstrated capacity is usually done for each key resource. This comparison assists the master scheduler in establishing a feasible master production schedule. Three approaches to performing RCCP are the bill of labor (resources, capacity) approach, the capacity planning using overall factors approach, and the resource profile approach
 First step is combining schedules for products that share the same resources over time
 Maintenance scheduled need to be factored into capacity planning

Question 416

 RCCP process

Answer 416

• Identify critical resources and their capacity
  o Only critical resources are included. More detailed information on all the other centers is considered at the material requirements planning level
• Develop resource profiles for each work center for items being master-scheduled
  o Key inputs are the MPS item quantities and the bill of resources (such as labor) and the standard hours (machine or labor) needed to produce one unit of an item
  o The resource profile is developed by multiplying the end item quantity by the standard hours required per unit to obtain the weekly and total load on the work center in question in standard hours
• Calculate the total load on the work centers
  o Aggregate the adjusted loads on work center capacity for end items that share the same work center to determine the total required capacity each week
• Compare load to available capacity
  o Goal is to find overloads or underloads
• Balance required capacity and planned available capacity
  o Goal is to fix overloads or underloads

Question 417

 Capacity planning using overall factors (CPOF)

Answer 417

RCCP technique. The master schedule items and quantities are multiplied by the total time required to build each item to provide the total number of hours to produce the schedule. Historical work center percentages are then applied to the total number of hours to provide an estimate of the hours per work center to support the master schedule. Eliminates the need for engineered standard times

Question 418

 Bill of labor approach

Answer 418

RCCP. structured listing of all labor requirements for the fabrication, assembly, and testing of a parent item. Uses the bill of labor (also called a bill of capacity), routing data, BOM, and the master production schedule. It requires data on standard hours in direct labor hours or machine hours per operation. The BOM is broken down into the portions worked on at a given work center, and the standard times for each BOM element produced there are multiplied by the number of units needed for one final product. The total standard hours per unit are then used in the capacity requirements calculations for a given product mix being run
 When there are shifts in product mix at work centers but there is a relatively constant work pattern, a bill of labor approach might be used

Question 419

 Resource profile approach

Answer 419

RCCP. the standard hours of load placed on a resource by a time period. Production lead-time data is taken into account to provide time-phased projections of the capacity requirements for individual production facilities
* Similar to bill of resources approach, however, it considers lead-time offsets. Also requires data on production lead times for end units and components
 If there are variations in product mix and the pattern of work varies considerably from period to period, use resource profile approach. There will be time-phased capacity requirements generated

Question 420

 Work center

Answer 420

a specific production area, consisting of one or more people and/or machines with similar capabilities, that can be considered as one unit for purposes of capacity requirements planning and detailed scheduling

Question 421

o Describe the master schedule process flow

Answer 421

 Aggregate production plan > master production schedule > material requirements plan > detail capacity plan > realistic? > execute capacity plans > execute material plans
* If the next step is not possible or realistic, go back to the last step and fix it

Question 422

 Cumulative lead time

Answer 422

summing the lead times of each possible combination of sequential activities, and the highest cumulative total is then the basis for the planning horizon

Question 423

 Time fences

Answer 423

a policy or guideline established to note where various restrictions or changes in operating procedures take place. For example, changes to the MPS can be accomplished easily beyond the cumulative lead time, while changes inside the cumulative lead time become increasingly more difficult to a point where changes should be restricted. Time fences can be used to define these points
 Between the PTF and DTF is the slushy zone. Changes here can be made by the master scheduler

Question 424

 Demand time fence (DTF)

Answer 424

that point in time of which the forecast is no longer included in total demand and projected available inventory calculations; inside this point, only customer orders are considered

Question 425

 Planning time fence (PTF)

Answer 425

a point in time denoted in the planning horizon of the master scheduling process that marks a boundary inside of which changes to the schedule may adversely affect component schedules, capacity plans, customer deliveries, and cost. Almost always set as the longest cumulative lead time of the product

Question 426

 The 3 zones fences create:

Answer 426

• Frozen zone and DTF- creates a frozen zone were all capacity and materials are committed to specific orders. Changes to the MPS cannot or should not be made. Senior management approval is required
  o Only customer orders are used in calculating the projected available balance (PAB). Forecasts are ignored
• Slushy zone and PTF- creates a middle zone that is called slushy zone because the master scheduler has the authority to make changes. All implications should be analyzed before making any changes.
  o Changes to correct errors or make sales or customer changes can be relatively easy if the right components are available
• Liquid zone- in the liquid zone outside the PTF, the scheduling software might automatically make changes without requiring input for the master scheduler, and manual changes can also be made
  o the horizon for this zone is usually the added time beyond the cumulative lead time of the product. This zone allows changes in mix and volume, the only constraint is the limits set in the production plan

Question 427

 Projected available balance (PAB)

Answer 427

Prior period PAB or on-hand balance + MPS – greater of production forecast or customer orders
 Ending PAB within demand time fence- prior period PAB + scheduled MPS receipt – customer orders
 Ending PAB outside demand time fence- prior period PAB + scheduled MPS receipt – greater of customer orders or forecast

Question 428

 Discrete available-to-promise (ATP)

Answer 428

a calculation based on the ATP figure in the master schedule. For the first period, ATP is the sum of the beginning inventory plus the MPS quantity minus the backlog for all periods until the item is master scheduled again. For all other periods, if a quantity has been scheduled for that time period, then the ATP is this quantity minus all customer commitments for this and other period until another quantity is scheduled in the MPS. For those periods where the quantity scheduled is zero, the ATP is zero (even if deliveries have been promised)
* Discrete ATP Periods with MPS = MPS – Sum of (customer orders before next MPS)

Question 428

 Cumulative ATP

Answer 428

 Cumulative ATP- a calculation based on the ATP figure in the master schedule. 2 methods of computing the cumulative ATP are used, with and with-out look-ahead calculation.
* Look ahead- ATP equals the ATP from the previous period plus the MPS of the period minus the backlog of the period minus the sum of the differences between the backlogs and MPSs of all future periods until, but not to include, the period where point production exceeds the backlogs
* Without look ahead- equals the ATP from the previous period plus the MPS, minus the backlog in the period being considered
 ATP Period 1 (same for all methods) = on-hand inventory + MPS – sum of (customer orders before next MPS)

Question 429

• Cumulative ATP with look ahead next MPS Period=

Answer 429

= Previous cumulative ATP + MPS – Sum of (customer orders before next MPS)

Question 430

• Cumulative ATP without look ahead next MPS period=

Answer 430

= previous cumulative ATP + MPS – customer orders current period only

Question 431

o Maintain the master schedule by adjusting inventory or backlog levels

Answer 431

 Adjusting inventory levels
* Use safety stock/safety time
o Improves customer service but increases cost. Doesn’t affect flexibility and speed
* Shorten throughput time
o Reduces cycle time. Shorten replenishment lead time. Reduced inventory costs and increases flexibility
* Change stocking strategy
o Converts low-volume, low margin products to ATO or MTO. Standardizes offering. Reduces inventory costs
* Improve quality
o Increases process reliability. Shortens throughput time and reduced safety stock requirements
 Adjusting backlog levels
* Use optimum production planning method to achieve cost, revenue, and backlog goals
o Simulates optimal blend of chase, level and hybrid strategies
* Use synchronous flow and cellular manufacturing
o Shifts from job shop to cellular process choice. Shortens throughput time and decreases WIP
* Standardize product offering where possible
o Especially in ATO, reduces module options and increases number of common parts. Reduces number of master-scheduled products
* Improve quality
o Increased process reliability. Shorten throughput time, reduces backlog

Question 432

o Measure master scheduling performance using key performance indicators, indicators of problems, and policies/controls

Answer 432

 KPIs:
* MPS aggregate performance
o Variance of rough-cut capacity planning from the resource plan at the S&OP level. Compares how it did to the financial plan or budget
* MPS stability
o Percentage of MPS orders that change
o Percentage of orders past due
* MPS lead time
o Percentage of planned orders that violate time fence rules
o Reduction in customer lead times over a period of time
* MPS execution
o Percentage of perfect orders
o Line-item fill-rate
 Problem indicators:
* Unreliable delivery promises. Persistent past due orders. Excess inventory. High rate of schedule changes. Top management intervention

Question 433

 Master requirements planning (MRP)

Answer 433

a set of techniques that uses BOM data, inventory data, and the MPS to calculate requirements for materials. It makes recommendations to release replenishment orders for material. Further, because it is time-phased, it makes recommendations to reschedule open orders when due data and need date are not in phase
* Basic function is to transform independent (forecasted) demand into dependent (calculate) demand
* Determines material requirements of what, how much and when. Needs to be able to adapt to priorities (quantity changes, date changes, errors, etc)
* Final step in priority planning
 MRP is the most detailed level of planning. It is a transaction-intensive method that schedules work center operations and sequences using work orders

Question 434

o Describe the treatment of service parts in MRP systems

Answer 434

 MRP needs to schedule and consider all dependent demand, such as spare or replacement parts
 Primary purpose of MRP is to calculate dependent demand, but when there is independent demand for the same components already being scheduled, this is also handled by MRP

Question 435

o Describe the manufacturing environment conditions under which MRP is favored for material planning

Answer 435

 MRP is more common in push rather than pull systems and with dependent demand rather than independent demand
 From a material control standpoint, a push system is defined as when material is issued “according to a given schedule or issued to a job at its start time”
 MRP no longer would schedule dependent demand in a pull system (lean), however, MRP is still necessary in a pull system to provide forward visibility to suppliers and for internal planning purposes
 Lean manufacturing (often a pull system) still relies on MRP to plan longer-term elements such as capacity
 In pull, MRP can be used to provide sufficient notice to suppliers to ensure that they have sufficient capacity to make the required components when the demand signal occurs. The MRP system then is used to translate the master schedule into longer-term demand for various components that will likely be needed

Question 436

MRP planning horizons

Answer 436

 When an item is scheduled in the MPS, it is placed in a time bucket that is as far out into the future as the cumulative lead time for the end item. This enables MRP to plan the release and receipt of all purchased and assembled components in time for the final assembly to be completed by the required planned order receipt date
* Planners like to see planned orders just beyond the planning time fence to monitor future requirements

Question 437

MRP time buckets or use of bucket-less systems

Answer 437

 Time buckets- MRP summarizes a number of days of data in time buckers (normally days or weeks). There may be a mix of different lengths to permit both short and long-term planning. Could be daily for the first few weeks, weekly for the next few months, monthly for the final months of the planning horizon
 Bucketless MRP systems are more common than bucketed. In bucketless, the planning bucket is one day and only days with associated events are displayed

Question 438

MRP inputs

Answer 438

inventory data
MPS
planning factors- static inventory data:
* Lot size
* Lead time
* Yield and scrap factors
* Safety stock level
BOM

Question 439

o Describe the use of where-used and pegging reports in the MRP process

Answer 439

 The where-used report is useful for locating all the parent items (the parent item in a BOM is constructed from multiple components at lower levels in the BOM) that may be affected by a change in engineering data or material supply or cost
 Similar to the where-used report is the pegging report, which focuses on only those parents that have current demand requirements. It helps show the location, quantity, and timing of an item’s requirements. A pegging report can show what parents orders will be affected by a problem with a component order

Question 440

 Single-level BOM

Answer 440

a display of components that are directly used in a parent item. It shows only the relationships one level down
* A series of single-level bills will need to be stored in the system to fully define a product

Question 441

 Multilevel BOM

Answer 441

a display of all the components directly or indirectly used in a parent, together with the quantity required of each component. If a component is a subassembly, blend, intermediate, etc., all its components and all their components also will be exhibited, down to purchased parts and raw materials
* The multiple levels generally are used to help break down what is needed for each operation

Question 442

 Indented BOM

Answer 442

a form of multilevel BOM. It exhibits the highest-level parents closest to the left margin, and all components going into these parents are shown indented toward the right

Question 443

 Summarized BOM

Answer 443

a form of multilevel BOM that lists all the parts and their quantities required in a given product structure. Does not list the levels of manufacture and lists a component only once for the total quantity used

Question 444

 Phantom BOM

Answer 444

a BOM coding and structural technique used primarily for transient (non-stocked) subassemblies. Lead time is set to zero and the order quantity to lot-for-lot. Represents an item that is physically built but rarely stocked before being used in the next step or level of manufacturing
* Used to simplify complex production orders by reducing the number of levels in the BOM

Question 445

 Significant (or intelligent) numbering systems

Answer 445

convey some information about a part other than its identification number (each letter or number represents something about the part)
* Has an advantage in that it is more memorable; it describes the item to some extent
* Advantage is it can save workers time, disadvantage is that it is long, complex, and vulnerable to errors

Question 446

 A non-significant numbering system

Answer 446

contains randomly generated letters and/or numbers that serve only to identify, not describe

Question 447

MRP outputs

Answer 447

planned order releases
action messages

Question 448

 Firmed planned order

Answer 448

a planned orders that can be frozen in quantity and time. The computer is not allowed to change it automatically; this is the responsibility of the planner in charge of the item that is being planned. Can aid planners working with MRP systems to respond to material and capacity problems by firming up selected planned orders

Question 449

 Action message (or exception report) (MRP)

Answer 449

is an output of a system that identifies the need for, and the type of actions to be taken to correct, a current or potential problem. Examples: release order, reschedule in, reschedule out, and cancel

Question 450

regeneration MRP system

Answer 450

all of the existing planned orders are removed (excluding firm planned orders) and the orders are replanned, starting with the end items and working through the BOM structure

Question 451

o Define the elements of the MRP grid (gross requirements, scheduled receipts, projected available, net requirements, planned order receipts, planned order releases)

Answer 451

 Gross requirements- the total independent and dependent demand before netting out inventory on hand and scheduled receipts
 Scheduled receipts- orders that were placed with a supplier or factory work center but not received before this planning period starts
 Projected available- the running sum of on-hand inventory minus requirements plus scheduled receipts and planned orders
 Net requirements- gross requirements less scheduled receipts and projected available. After being lot-sized and offset for lead time, net requirements become planned orders
 Planned order receipts- the quantity planned to be received at a future date as a result of a planned order release
 Planned order releases- a quantity of an item that will be released to fill an order

Question 452

 BOM explosion

Answer 452

the process of determining components identities, quantities per assembly, and other parent-component relationship data for a parent item
* The process of calculating the demand for the components of a parent item by multiplying the parent item requirements by the component usage quantity specified in the BOM

Question 453

low-level coding

Answer 453

 The simplest way to avoid missing a requirement for an item and having to recalculate is to count that item starting at its lowest level of usage, with is called low-level coding

Question 454

• Net requirements=

Answer 454

= gross requirements – scheduled receipts – prior projected available

Question 455

 Projected available MRP =

Answer 455

= prior period projected available + scheduled receipts + planned order receipts – gross requirements

Question 456

o Provide examples of metrics used to evaluate MRP performance

Answer 456

 Manufacturing orders released on time
 Purchase orders released on time
 Downtime caused by shortages
 Excess inventory
 Number of changes to purchase orders
 Orders released to manufacturing with material shortages
 Due dates of orders met
 Trends in action messages

Question 457

 Capacity Requirements Planning (CRP)

Answer 457

the function of establishing, measuring, and adjusting limits or levels of capacity. In this context, the term reflects to the process of determining in detail the amount of labor and machine resources required to accomplish the tasks of production
 The planning input to CRP is MRP. CRP helps validate that all resources have sufficient capacity for the MRP
 Capacity in CRP is usually considered to be infinite, or capable of expanding to fulfill priority plans, because MRP due dates have a high priority and are not very flexible while capacity is assumed to be able to accommodate due date priorities
 CRP is the counterpart to MRP. CRP is the first of the capacity checks that validates every detail of production, but it does rely on some general assumptions to simplify analysis, such as rounding up certain estimates to the nearest day

Question 458

o List the process steps used in the CRP model

Answer 458

 Determine load on resources over a period of time
 Using backward scheduling, simulate scheduling of load at work centers by period, assuming infinite capacity
 Create work center load reports
 Resolve load capacity imbalances
 Prepare operating plan for execution

Question 459

advantages of CRP

Answer 459

• Since CRP provides time-phased visibility of load and capacity imbalances for over the entire planning horizon, it can reveal underloads and overloads and allows planners to act before problems becomes crises
• Can be used as a simulation tool during the planning process to evaluate proposed changes in planning factors, such as lot sizes and routings, before they are put in place
• Uses more detailed lead-time data than material requirements planning, providing a scheduled start date for each operation
• Helps reduce erratic lead times by providing data the planner can use to level work center loads

Question 460

limitations of CRP

Answer 460

• Requires manual input to resolve actions items
• Requires an extensive amount of accurate input data
• Ultimately provides approximations in scheduling load. The data input into CRP are often detailed, but CRP is still an approximation of load separated into time periods
• When the MPS needs to be revised because of capacity imbalances, the MPS and the MRP and CRP processes must be executed again to see if the changes have the desired results
• Does not handle resource contention and the effects of secondary constraints as well as finite scheduling techniques do

Question 461

MRP-based scheduling outputs

Answer 461

• Status information that includes operation completions, quantity verifications, order closeout and disposition, and accounting data
• Warning signals that include inadequacies in material and capacity plans that might affect achievement of the MPS

Question 462

MRP-based scheduling inputs

Answer 462

• CRP and MRP are communicated to the scheduling and control activities. These then go to purchasing, vendor scheduling, production activity control order release, and shop floor scheduling and control
• CRP is critical to shop floor scheduling and control. If the schedule is not supported by available capacity, shop floor control will not be able to
  o Maintain appropriate backlog levels
  o Improve delivery performance
  o Achieve output targets
  o Achieve the material requirements plans that drive the delivery schedules for end items and components to achieve the MPS

Question 463

MRP-based scheduling process

Answer 463

• MRP passes scheduling updates and authorization to release planned orders to PAC (Production activity control)
• PAC converts planned orders into detailed work center operations schedules and load profiles
• PAC requests that CRP validate capacity availability to meet the planned load
• CRP validates the load profile, if it has not done so previously
• PAC adjusts capacity or the schedule if CRP deems it necessary
• PAC informs MRP as necessary
• PAC releases the work orders to the work centers

Question 464

MRP-based scheduling Dispatching process

Answer 464

• Release dispatch orders to work center of production
• Gather data on performance of work orders compared to planned schedules
• Feedback to MRP
• Gather work-in-process, lead time, and queue data
• Feeback to MRP
• Gather work center efficiency, operation times, order quantities, and scrap data
• Feedback to MRP

Question 465

 Infinite loading

Answer 465

calculation of the capacity required at work centers in the time periods regardless of the capacity available to perform this work
* Priority rules are appropriate for use under the infinite loading approach. Jobs are loaded at work centers according to the chose priority rule

Question 466

 Finite loading

Answer 466

assigning no more work to a work center than the work center can be expected to execute in a given time period
* If an organization has limited ability to increase capacity, finite loading would be appropriate
* Each work center would be fully loaded. This would mean higher-priority jobs would then have to wait to be processed if the work center is already busy
* There may be gaps in the schedule for a given work center

Question 467

 Time per work order =

Answer 467

= setup time + run time

Question 468

 Run time =

Answer 468

= quantity x standard time per unit

Question 469

 Final assembly scheduling

Answer 469

used in ATO and MTO manufacturing environments as a way to shorten lead times. It configures previously master-scheduled parts and subassemblies into final products when customer orders arrives. Eliminates the need for high levels of finished goods inventory to meet customer lead time

Question 470

 Maintenance on equipment

Answer 470

• Preventative maintenance
• Predictive maintenance- tries to predict when a machine will break down and do maintenance before
• Remedial - unscheduled maintenance performed after a machine breaks

Question 471

 Final assembly schedule (FAS)

Answer 471

a schedule of end items to finish the product for specific customers’ orders in a MTO or ATO environment. Is prepared after receipt of a customer order as constrained by the availability of material and capacity, and it schedules the operations required to complete the product from the level where it is stocked to the end-item level

Question 472

FAS Steps

Answer 472

• Customer order- FAS schedules only things that are actually ordered. No forecasting is involved
• Capacity check- usually occurs at the rough-cut capacity planning level
• Step 3
  o MTO- involves determining raw material availability. Since customers have considerable influence over the final design, MTO production has higher risks of production disruption than ATO
  o ATO- involves determining module or component availability. Since customer orders have no influence to customize the modules or components themselves, this reduces risks of production disruptions
• Step 4 is where the FAS is created
• Step 5 involves ensuring that the production total in the FAS are within the overall constraints set in the MPS

Question 473

o Identify sources of demand to be considered in the final assembly schedule (FAS)

Answer 473

 FAS is needed for MTO and ATO. This is because an important principle of master scheduling is to master-schedule at the point where the fewest product options exist
* For MTO- MPS occurs at the raw materials stage, and the FAS is used instead to schedule the end products
* For ATO- the MPS is created for the modules or options, FAS becomes necessary to schedule the customer configurations of end products

Question 474

o Describe the factors in insourcing versus outsourcing decisions

Answer 474

 Core competencies should be retained in house
 There may be negative effects on employee morale
 Outsourcing may mean a loss of competencies that will be difficult to recover later
 There may be a misalignment of priorities with the supplier of outsourcing services
 Maintaining high quality levels requires ongoing investment in monitoring
 There are associated costs and risks of inbound and outbound logistics
 You will be very dependent on the supplier

Question 475

 Procurement-

Answer 475

the business functions of procurement planning, purchasing, inventory control, traffic, receiving, incoming inspection, and salvage operations

Question 476

Objectives of procurements

Answer 476

o Identify capable suppliers
o Obtain goods in the necessary quantity, with the necessary quantity, and in a reliable time frame
o Reduce costs of supplies and therefore cost of operation. Low cost doesn’t mean best cost though
o Minimize the risks of outsourcing, such as loss of competitive knowledge or suppliers acting in their own interests
o Implement responsible procurement- assuring the use of ethical sources of goods and services. Goods should be sustainable

Question 477

 Purchasing

Answer 477

the term used in industry and management to denote the function of and the responsibility for procuring materials, supplies, and services

Question 478

 Landed cost

Answer 478

this cost includes the product cost plus the cost of logistics, such as warehousing, transportation, and handling fees

Question 479

 Supplier relationship management (SRM)

Answer 479

a comprehensive approach to managing an enterprise’s interactions with the organizations that supply the goods and services the enterprise uses. The goal is to streamline and make more effective the processes between an enterprise and its suppliers

Question 480

o Types of purchases

Answer 480

 Capital expenditures- new property, plant, and equipment
 Materials, supplies, and services

Question 481

o List examples of criteria considered in selecting suppliers

Answer 481

 Technical capabilities
 Manufacturing capabilities
 Location
 Price
 Reliability
 Suppler chain maturity
 Service offerings
 Service level
 Management attitude and culture fit
 Financial stability
 Commitment to sustainability

Question 482

o Distinguish among possible types of customer-supplier relationships

Answer 482

 “Arm’s length” or lower value-added relationships (Vendors, conventional suppliers, certified suppliers), based on compatibility of interests and mutual needs, often for tactical purposes, and on short-term results. Selection is based on whether a supplier fulfills the customer’s needs concerning price, features, quantity, quality, and service level
 “collaborative” or higher value-added relationships (partnership, strategic alliances), based on greater openness and trust, including
* Willingness to share information on topics such as cost, processes, market analysis, and future products
* Mutual respect and confidence in the reliability and integrity of the other party
 Customer-supplier partnership- a long-term relationship between a buyer and supplier characterized by teamwork and mutual confidence. The supplier is considered an extension of the buyer’s organization. The buyer provides long-term contracts and uses fewer suppliers. The supplier implements quality assurance, helps reduce costs, and improve product and process designs

Question 483

 Sole-source supplier

Answer 483

the only supplier capable of meeting (usually technical) requirements for an item

Question 484

 Single source supplier

Answer 484

a company that is selected to have 100% of the business for a part although alternate suppliers are available
* Advantages
o Simplifying transactions (reduces cost)
o Leveraging supplier assistance in new product development (increase speed and quality)
o Improving communication (increase speed and dependability)
o Increasing supply security (also increase dependability)

Question 485

 Multisourcing

Answer 485

procurement of a good or service from more than one independent supplier
* Advantages
o Geographic diversification, reduces disk of supply disruptions
o Splitting up a proprietary product or enabling technology design so that each supplier gets only a particular part can reduce the risk of supplier appropriation
 The use of single rather than multiple suppliers was growing pre 2020, but this trend has slowed or reversed due to numerous supply chain failures

Question 486

o Describe the use of the risk vs profit matrix to determine sourcing strategy

Answer 486

 Strategic items- high supply and profit impact. High-value scarce. Therefore, they directly affect the ability to satisfy customers and profitability
 Leverage items- high profit impact but lower supply risk because they are available from multiple sources. Taking advantage of buyer strength can yield profit because the items represent a large share of costs
 Bottleneck items- high supply risk, low profit impact. They may not contribute significantly to cost, but they are high risk because their unavailability will create production problems. Suppliers therefore have more power
 Noncritical items- low supply risk, low profit impact. Reliably available in terms of volume, price, and quality

Question 487

 Strategic sourcing

Answer 487

a comprehensive approach for locating and sourcing key materials suppliers, which often includes the business process of analyzing total-spend-for-material spend categories. Includes a focus on the development of long-term relationships with trading partners who can help the purchaser meet profitability and customer satisfaction goals
* Best for products that are both high in supply risk and high in the material’s profit impact per the risk vs profit matrix
* Aligns procurement practices with the organization’s overall business strategy

Question 488

 Sourcing management

Answer 488

in terms of the risk vs profit matrix, sourcing management is used when risk is high but the material’s profit impact is low or moderate- bottleneck items. Similar to strategic sourcing, but the time frame and relationships are different. Goal is secure materials as reliably as possible at the best total cost of ownership. Leveraging competition among suppliers means that relationships may be shorter

Question 489

 Tactical buying

Answer 489

the purchasing power focused on transactions and nonstrategic material buying. Closely aligned with the “ordering” portion of executing the purchasing transaction process. Its characteristics include stable, limited fluctuations; defined standard specifications noncritical to production; no delivery issues; and high reliability concerning quality-standard material with very little concerns for rejects
* Transaction based, not focused on creating long-term relationships.

Question 490

 Virtual organization

Answer 490

short term alliances between independent organizations in a potentially long-term relationship to design, produce, and distribute a product. Organizations cooperate based on mutual values and act as a single entity to third parties

Question 491

 Strategic alliance

Answer 491

a relationship formed by 2 or more organizations that share information, participate in joint investments, and develop lined and common processes to increase the performance of both companies. Many organizations form strategic alliances to increase the performance of their common supply chain
* Examples- 2 car manufacturers might form an alliance to develop a revolutionary engine.

Question 492

 Strategic partnership

Answer 492

an alliance with top supplier and buyer performers to enhance a firm’s performance
* Apple and IBM created a strategic partnership to penetrate the global corporate enterprise market by leveraging big data analytics, industry sales consultants, and software developers

Question 493

 Joint venture

Answer 493

an agreement between 2 or more firms to risk equity capital to attempt a specific business objective
* NBC and Disney created a joint venture to create Hulu

Question 494

 Concurrent engineering

Answer 494

simultaneous participation of all the functional areas of the firm in the product design activity. Suppliers and customers are also often included

Question 495

o Explain the purpose of supplier audits and certifying capable suppliers

Answer 495

 Qualify the product designed by the supplier to make sure that it fulfills the buyer’s requirements
 Qualify the manufacturing process that will be used to product the product
 Must meet these characteristics and specifications
* Critical characteristics- the attributes of a product that must function properly to avoid the failure of the product
* Critical-to-quality- characteristics (CTQ)- the important and measurable traits of a product or process whose performance targets must be met to satisfy the customer
* First pass yield- the ratio of products that conform to specifications without rework or modification to total input
* First-article inspection- a quality check on the first component run after a new setup has been completed

Question 496

 Benefits of supplier certification

Answer 496

• Reduction in the cost of quality for buyers: no inspection costs, very low defect-handling costs
• Reduction in internal and external failure costs for suppliers and buyers caused by defective parts
• Reduction in prevention costs
• Preference in competitive bidding by suppliers

Question 497

 Buy-back contracts

Answer 497

the seller gives the buyer the incentive to order more units by agreeing to buy back unsold goods at a negotiated price that is higher than the salvage value but lower than the full purchase price. Seller is cushioned against the buy-back to sell more product. Buyer loses some money but achieves protection against stockouts.

Question 498

 Revenue-sharing contracts

Answer 498

buyer agrees to share revenue with the seller if the seller agrees to discount the wholesale price to the buyer. Seller loses on the wholesale price but potentially gains in revenue sharing. Buyer loses some revenue but offsets this with lower wholesale costs

Question 499

 Pay-back contracts

Answer 499

the buyer agrees to pay a certain price for items that manufacturer produces but the buyer ends up not buying. Suppliers risk for over-production is cushioned by reimbursement, buyer is protected against stockout

Question 500

 Cost-sharing contracts

Answer 500

buyer shares some production costs with the manufacturer in exchange for a discount on the wholesale price

Question 501

 Pricing agreements

Answer 501

the buyer is allowed to buy items for a price lost or catalog at a negotiated price during a contract period

Question 502

 Capacity reservation contracts

Answer 502

manufacturer reveals its forecast of business activity by paying to reserve a given level of capacity at its supplier

Question 503

 Purchase requisition

Answer 503

an authorization to the purchasing department to purchase specified materials in specified quantities within a specified time

Question 504

 A blanket purchase order

Answer 504

is issued under a blanket agreement or master contract with a supplier. Blanket purchase orders are generally used when the purchaser and the supplier have agreed to the periodic supply of the item at a defined priced for an extended period of time

Question 505

 Vendor-managed inventory (VMI)

Answer 505

a means of optimizing supply chain performance in which the supplier has access to the customer’s inventory data and is responsible for maintaining the inventory level required by the customer

Question 506

 Continuous replenishment

Answer 506

a process by which a supplier is notified daily of actual sales or warehouse shipments and commits to replenishing these sales without stockouts and without receiving replenishment orders

Question 507

o Explain the components of the G4 performance indicators for supply chains

Answer 507

 People- a supplier’s treatment of its own workers and its impact on the communities in which it operates may violate the organization’s values and commitments to social objectives
 Planet- a supplier’s energy and emissions can be added at the organization’s own carbon footprint
 Profit- an organization may be liable for damages caused by a supplier’s behavior

Question 508

Why should you revise lot sizes

Answer 508

a common reason to revise lot sizes in MRP is to minimize the sum of inventory ordering costs plus inventory carrying costs. If there are high ordering costs, a lot-for-lot system will quickly become expensive in periods with low, but not zero, demand. If using fixed order quantity, the ordering costs will be minimized but inventory holding costs could become expensive

Question 509

 Buffers

Answer 509

may be required between process steps, BOM levels, or other areas of interface to absorb the effects of variability from one process or level to the other. Frequent small changes up and down through the levels in MRP is the primary cause of MRP system nervousness. Buffers act as shock absorbers to absorb minor variability in supply and demand quantity and timing so that replanning is not frequently needed
* Safety lead time, safety stock, yield factors, and kanban quantity are all examples of buffers

Question 510

o Use what-if analysis and simulation to evaluate viable alternatives before changing the existing material plan

Answer 510

 What-if analysis starts by defining a question, such as “What if a key supplier needs a longer lead time by one period?” or “What if we accommodate this customer order change request that would occur within the demand time fence?” the analysis would then change just the input or inputs related to that question
 A simulation differs from a what-if in that multiple inputs are allowed to change within predefined ranges to simulate real conditions. Such tests might be run many times with randomly determined inputs

Question 511

o Monitor buffer status

Answer 511

 Buffers should be monitored by the planner. Often buffers have calculated green, yellow, and red status codes
* Green- most of the buffer remains. Yellow- much of the buffer has been consumed by variability. Red- most of the buffer has been consumed

Question 512

o Develop a new product introduction (NPI) schedule

Answer 512

 Innovation- research is conducted. Can include market research, competitor scanning, experimentation, and invention
 Concept- vision of the product/service that is vetted for customer demand and financial promise
 Development- engineering, manufacturing, and other functions work together to add details to the concept through a number of iterations. At this step, you may design for logistics or for the environment
 Prototyping- a working model of the product and related services is developed
 Engineering- develop the product structure and BOM
 Supply- supply requirements are developed, suppliers are identified, and the supply footprint is mapped out
* Supply footprint is the map of where suppliers need to be located and what critical characteristics, such as available capacity or specific capabilities, need to be represented in each area
 Manufacturing- manufacturing capability and capacity need to be developed. The manufacturing environment, process, and type and other choices are determined
 Launch- marketing and sales launch the product and foster awareness of it

Question 513

 Unstable demand, low clockspeed

Answer 513

the life cycle for the products is long, and the products can have an integral design. The products can be pushed to a certain point, and then demand-pull can take over. This could occur by centralizing inventory and drop-shipping

Question 514

 Unstable demand, high clockspeed-

Answer 514

due to the high rate of change and short life cycles, manufacturing highlights responsiveness over cost. Modular designs, short lead times, maintaining excess capacity, and dynamic pricing can help ensure that supply can quickly respond to changing demand

Question 515

 Stable demand, low clockspeed-

Answer 515

these are staple items that have low margins and need to be produced economically and create high turnover to ensure profitability. Can have an integral design

Question 516

 Stable demand, high clockspeed

Answer 516

there are few finished goods in this category, but many types of components fit in this area if enough buyers exist to keep demand stable. Push manufacturing and supply chain efficiency help ensure profitability

Question 517

o Describe how to develop an end-of-life plan

Answer 517

 Determine an end-of-sales strategy and schedule- communicate the strategy and schedule to suppliers, supply chain customers, end customers, and other stakeholders. Should be a secret until the time of official communication
 Determine an end-of-service strategy and schedule- includes plan for customer service, technical support, repairs, and/or service parts and will need to be communicated well in advance
 Determine changes to manufacturing equipment or spaces that will no longer be needed
 Incorporate end-of-life plans- includes plans for backward compatibility or the timing of the introduction of new products into NPI
 Manage programs to accept products back at the end of their lives
 Perform risk and crisis management assessments

Question 518

o Detailed scheduling road map

Answer 518

 The MPS, MRP, and CRP are key inputs into production activity control (PAC). They need to be as accurate as possible
 PAC- Scheduling > Implementation > capacity control > scheduling, and so on
* These are short term issues, while planning, capacity requirements, and capacity building are intermediate to long term issues
* Scheduling decisions are made within the capacity constraints and volume and mix goals established by these intermediate to long-term decisions

Question 519

o Explain components of lead time: queue, setup, run, wait, and move times

Answer 519

 Lead time- a span of time required to perform a process. Starts after the order is released and finishes at shipping or put-away
 Elements of manufacturing lead time in order
* Queue- waiting for operation to begin. The jobs at a given work center waiting to begin
* Setup- getting ready for operation. The work required to change a machine, resource, work center or line from making the last good piece of item A to making the next item. Generally required at the end of each process batch
o External set ups are performed while the machine is running, which is not included in setup time
* Run- performing the operation
* Wait- holding after operation is complete
* Move- transporting to next operation
 Gnatt chart is a visual aid used for loading and scheduling, helping account for lead time

Question 520

 Throughput

Answer 520

 Throughput- the rate at which the system generates “goal units”. Always expressed for a given time period- such as per month, week, day etc. Calculated as revenues received minus totally variable costs divided by units of the chosen time period. Can also be done in units
* Simplest, yet most important, manufacturing metric. Common measurements include average number of units produced over a period of time, volume of services provided, or amount of money per time period
 Metrics:
* Efficiency
* Utilization
* Productivity
* Input/output control metrics
* Cycle time or throughput time
* Cycle time vs takt time (rate of customer demand)
 Throughput is measured through visual management- every metric is displayed on the shop floor and office

Question 521

 Production activity control (PAC)-

Answer 521

the function of routing and dispatching the work to be accomplished through the production facility and of performing supplier control. PAC encompasses the principles, approaches, and techniques needed to schedule, control, measure, and evaluate the effectiveness of production operations.
* Controls the flow of work through the facility, and responsible for executing the MPS and MRP, make good use of labor and machines, minimize WIP, and maintain customer service

Question 522

Objectives of PAC

Answer 522

• Execute the MPS and MRP
• Plan and release individual orders to the factory and outside vendors
• Optimize the use of resources, including materials, tooling, equipment, staff and info
• Provide availability information to production coordinators so they can ensure the availability of resources when they are needed
• Provide early warning signals and status information to other manufacturing planning and control (MPC) modules
• Maintain customer service at the targeted level
• Provide information on WIP inventories so planning/operations can maintain the levels set by inventory policy
• Shorten both queue and move
• Provide feedback on shop and suppliers’ performance against plans

Question 523

o Describe the inputs to PAC and why each are needed

Answer 523

 MRP- authorized production
 Item master files- database for each part number
 BOM- determine which options and parts each order needs
 Routing files- series of operations for a unique part number describing how to make product
 Work center file- shifts per week, machine and labor hours, capacity, etc
 Shop order files- live document for each shop order

Question 524

 Dispatching

Answer 524

the selecting and sequencing of available jobs to be run at individual workstations and the assignment of those jobs to workers

Question 525

 Dispatching rules:

Answer 525

• First come, first serve- jobs are done in the order received. Ignores due dates
• Earliest job due date- can be difficult based on when orders get placed
• Earliest operation due date- takes both the due date and processing time into account
• Short process time- most jobs gets done, may delay longer jobs
• Critical ratio- the ratio of processing time remaining to lead time remaining (work remaining). Results in a ratio that shows the relative priority of the order compared to other orders at the work center. Sequence the order with the lowest ratio first
• Slack time- time remaining for an order’s due date minus the sum of its remaining setup and run times

Question 526

• Critical ratio

Answer 526

the ratio of processing time remaining to lead time remaining (work remaining). Results in a ratio that shows the relative priority of the order compared to other orders at the work center. Sequence the order with the lowest ratio first
o CR= (due date – present date) /lead time remaining
 0 or negative- expedite, order Is late
 Less than 1- expedite, order is behind schedule
 1- on schedule
 Greater than 1- ahead of schedule

Question 527

• Slack time

Answer 527

time remaining for an order’s due date minus the sum of its remaining setup and run times
o Slack time = due date – current date – total operation time remaining
o Order with the lowest slack time is schedule first

Question 528

 Backward scheduling

Answer 528

technique for calculating operation start and due dates. The schedule is computed starting with the due date for the order and working backward to determine the required start date and/or due dates for each operation

Question 529

 Forward scheduling

Answer 529

scheduler proceeds from a known start date and computes the completion date for an order, usually proceeding from the first operation to the last. Start from the earliest date the material can be ordered

Question 530

 Central point scheduling

Answer 530

a variant of scheduling that employes both forward and backward scheduling, starting from the scheduled start date of a particular operation

Question 531

 Overlapped schedule

Answer 531

schedule that “overlaps” successive operations. Occurs when the completed portion of an order at one work center is processed at one or more succeeding work centers before the pieces left behind are finished at the preceding work center. Part of a lot is sent to next operation while other part of lot is being finished at the previous operation
* Benefits: Can reduce lead time, WIP, floor space requirements, size of transfer vehicles
* Downsides: costs of having more than one move or transfer, disruption of work center schedule by expediting operations, lengthening of queue and lead time for other orders

Question 532

 Lot splitting

Answer 532

reduces lead time by splitting the lot into smaller portions and running each portion on duplicate equipment and tooling. Requires more capital, only works if there are 2 of more pieces of equipment and each has available capacity
* Not practical when setup time is high

Question 533

 Lot size reduction

Answer 533

control technique for both scheduling and leveling production, especially in lean systems. Goal is to have lot size as small as possible without losing benefits

Question 533

 MRP based (Push) shop Floor system

Answer 533

 Product design- MTO
 Product variety- Broad
 Individual product volume/period -Low
 Ease of changing total volume- Easy/incremental
 Ease of changing product mix - Less difficult
 Delivery speed-Through schedule change
 Ease of changing delivery schedules-More difficult
 Process choice-Low-volume batch
 Changeover cost-High
 WIP -High
 Cost reduction opportunities- overheads-Fewer

Question 534

 Production rate-based (pull) shop floor system

Answer 534

 Product design-MTS
 Product variety- Narrow
 Individual product volume/period- High
 Ease of changing total volume- Difficult/stepped
 Ease of changing product mix - More difficult
 Delivery speed- Through finished goods inventory
 Ease of changing delivery schedules- Less difficult
 Process choice- High volume batch/line
 Changeover cost- Low
 WIP- Low
 Cost reduction opportunities- overheads- more

Question 535

 Intermittent manufacturing process (also called batch manufacturing)

Answer 535

a form of manufacturing in which the jobs pass through the functional departments in lots, and each lot may have a different routing. Goods are produced based on customers’ orders, and are produced on a small scaled. The flow is not continuous
* large variety of products are produced

Question 536

• 3 critical points in intermittent manufacturing:

Answer 536

o Transfer batch- the quantity of an item moved between sequential work centers during production
o Lot sizing- the process of determining lot size
 Planned order release = planned order receipt/ 1-scrap factor
 Benefits of lot sizing- reduced inventory, improved quality through scrap reduction, improved lead time, reducing run time
o Reorder point- order for a fixed quantity is placed whenever the stock reaches a reorder point

Question 537

 Flow manufacturing

Answer 537

a manufacturing organization in which machines and operators handles a standard, usually uninterrupted, material flow. The operators generally perform the same operations for each production run. Mass production shop. Plant layout is designed to facilitate a product flow
* 3 manufacturing process types that can fall into flow manufacturing process:
o Batch- need to be in batches for tracing (ex: pharmaceutical)
o Line- never stop except due to supply or demand issues
o Continuous- goal is to never stop
* Standardized products, and as a result, limited amount of machinery or tools is required. WIP and lead times are low, as are throughput times

Question 538

• Four critical points in flow manufacturing

Answer 538

o Identify and manage bottlenecks
o Identify constraints on resources
o Minimize waste during the manufacturing and assembly process
o Optimize coupling and connectivity

Question 539

 Flow rate

Answer 539

running rate; the inverse of cycle time; for example, 360 units per shift

Question 540

 Production rate

Answer 540

the rate of production usually expressed in units, cases, or some other broad measure, expressed by a period of time

Question 542

o Distinguish between scheduling in push MRP systems and flow MRP systems

Answer 542

 Batch Production
 High variety, low volume ATO
 Varied routing through general purpose equipment
 Operations time at work centers will vary
 High risk that work arrives at work center late or early
 Slow throughput
 WIP builds up
 Capacity required varies by item

 Flow Manufacturing
 Standard high-volume MTS products
 Fixed routings: dedicated assembly lines or flow equipment
 Operations time at work centers about the same: balanced
 Flow between work centers is predictable
 Fast throughput
 Low WIP
 Capacity fixed by line

Question 543

 Input/output control (I/O)

Answer 543

a technique for capacity control where planned and actual inputs and planned and actual outputs of a work center are monitored. Planned inputs and outputs for each work center are developed by capacity requirements planning and approved by manufacturing management. Actual input is compared to planned input to identify when work center output might vary from the plan because work is not available at the work center. Actual output is also compared to planned output to identify problems within the work center
 Ensure WIP and queue times remain at desired levels by controlling the flow of work into the work center and the output rate of work center- in other words, its capacity
 Controlling inputs involves scheduling and dispatching. Controlling outputs involves finding ways to increase or decrease capacity. For example, using undertime or OT or finding and correcting issues

Question 544

 Lean production

Answer 544

a philosophy of production that emphasizes the minimization of the amount of all the resources (including time) used in the various activities of the enterprise. It involves identifying and eliminating non-value-adding activities in design, production, supply chain management, and dealing with customers. Lean produces employ teams of multiskilled workers at all levels of the organization and use highly flexible, increasingly automated machines to produce volumes of products in potentially enormous variety. Contains a set of principles and practices to reduce cost through the relentless removal of waste and through the simplification of all manufacturing and support processes

Question 545

Objectives of lean

Answer 545

o Make only those products and services customers actually want
o Match the production rate to the demand rate
o Make products and services with perfect quality
o Make products and services with the shortest possible lead times
o Include only features actually in demand, excluding all else
o Keep labor, equipment, materials, and inventory continually in motion, with no waste or unnecessary movement
o Build worker learning and growth into each operational activity

Question 546

 Takt time (lean)

Answer 546

sets the pace of production to match the rate of customer demand and becomes the heartbeat of any lean production system
* Takt time = available production time / rate of customer demand
* Example- assumed demand is 500 units per day, and planned available capacity is 420 minutes per day. Takt time = 420 minutes per day / 500 units per day = .84 minutes per unit. This takt time means that a unit should be planned to exit the production system on average every .84 minutes

Question 547

 Production leveling

Answer 547

a production planning method that maintains a stable production rate while varying inventory levels to meet demand.
* Objective is to convert customer demand into period-by-period production rate that is based on level-loaded production plans and master production schedules. The production rate is set to takt time, which means it is paced to the estimated rate of demand and should be made to be level over a reasonable period of time

Question 548

 Kanban

Answer 548

a method of just-in-time production that uses standard containers or lot sizes with a single card attached to each. It is a pull system in which work centers signal with a card that they wish to withdraw parts from feeding operators or suppliers. The term is often used synonymously for the specific scheduling system developed and used by Toyota
* use signals and standard containers to move parts quickly through production with the objective of minimizing inventory by:
o authorizing production at processes upstream from the pacemaker process
o pulling parts through upstream processes to the pacemaker based on the production schedule
o establishing the number of parts containers between processes on the shop floor
o using visual controls in a fast throughput environment

Question 549

• Move card

Answer 549

a card or other signal indicating that a specific number of units of a particular item are to be taken from a source and taken to a point of use. It authorizes the movement of one part number between a single pair of work center. The card circulates between the outbound stockpoint of the supplying work center and the inbound stockpoint of the using work center

Question 550

• Production card

Answer 550

a card or other signal for indicating that items should be made for use or that some items removed from pipeline stock should be replaced

Question 551

 One card kanban system

Answer 551

only a move card is employed. Typically, the work centers are adjacent; therefore, no production card is required. In many cases, squares located between work center are used as the kanban system. An empty square signals the supplying work center to produce a standard container of the item

Question 552

 Two card kanban system

Answer 552

a move card and production card are employed. The move card authorizes the movement of a specific number of parts from a source to a point of use. The move card is attached to the standard container of parts during movement of the parts to the point of use. The production card authorizes the production of a given number of parts for use of replenishment

Question 553

 VATI analysis

Answer 553

in TOC, a procedure for determining the general flow of parts and products from raw materials to finished products. Once the general parts flow is determined, the system control point (operations, convergent points, divergent points, constraints, and shipping points) can be identified and managed

Question 554

• V-plants

Answer 554

a basic raw material (bottom of the V) is split into two or more products that diverge rather than being interrelated later. Starts with one or a few raw materials, and the product expands into a number of different products as it flows through divergent points in its routings. Ex- an org that harvests trees might make various types of lumber

Question 555

• A-plants

Answer 555

various raw materials are transformed in their own product processes and converge (at the top of the A) into one or more final materials. The shape of an A logical structure is dominated by converging points. Many raw materials are fabricated and assembled into a few finished products. Ex- automobile engines

Question 556

• T-plants

Answer 556

raw materials are transformed using a single logical flow production line, but at some point, a limited number of basic units can be configured into many different end products (at the top of the T). Ex- computers

Question 557

• I-plants

Answer 557

basic linear flow for operations that use a production line or continuous flow process to produce one type of end product such as consumer packaged food

Question 558

 Heijunka

Answer 558

in just-in-time philosophy, an approach to level production throughout the supply chain to match the planned rate of end product sales. Servers as a bridge from scheduling to control of production by distributing volume and mix evenly over time. It can reduce the amount of waste in the production system by improving production efficiency

Question 559

Benefits and techniques of Heijunka

Answer 559

• Benefits:
  o Shorter manufacturing lead times
  o Lower WIP and finished goods inventory
  o Avoidance of peaks and valleys in operator workload
  o Smoother flow of work that enables level and standardized work for operators
• Techniques:
  o Using control limits. If demand stays within the plan, the plan should not change
  o Not overreacting to changes in demand. Use takt time to manage and control time
  o Prioritizing regular orders. Don’t let large or unusual order derail regular orders
  o Using available-to-promise logic in master scheduling software
  o Moving to “milk run” deliveries. In this technique, several small batches are delivered on a single vehicle more frequently versus a few large deliveries less frequently. The number of loads stay the same

Question 560

 Pacemaker

Answer 560

in lean, the resource that is scheduled based on the customer demand rate for that specific value stream; this resource performs an operation or process that governs the flow of materials along the value stream. Its purpose is to maintain a smooth flow through the manufacturing plant. A larger buffer is provided for the pacemaker than other resources so that it can maintain continuous operation
* Its cycle time sets a pace that enables all other processes to achieve the takt time objective.
* Advantages:
o Work flows quickly in a cellular lean layout and is visible to workers and production controllers
o It requires only one production schedule. There is no need to schedule or report the start or finish of production at each workstation. This allows the inevitable changes in customer demand to be accommodated much more easily
o Completion of an item needs to be reports only at the final assembly workstation or the store

Question 561

 Stores (lean)

Answer 561

a storage point located upstream of a workstation, intended to make it easier to see customer requirements. It’s a transition step toward the elimination of buffer inventory or safety stock
* 3 types of stores: raw materials, semifinished goods, and finished goods
* A store is a controlled inventory of parts or finished goods that schedules an upstream process through a kanban signal
* Withdrawal of parts from the store is a signal for replenishment by an upstream process

Question 562

 Theory of constraints (TOC)

Answer 562

a holistic management philosophy based on the principle that complex systems exhibit inherent simplicity. Even a very complex system comprising thousands of people and pieces of equipment can have, at any given time, only a very, very small number of variables- perhaps only one, known as a constraint- that actually limit the ability to generate more of the system’s goal
 According to TOC, real gains in efficiency can be made only by finding the part of the system that constrains total output- the weakest link- and making efficiency improvements to that area and only that area. Strengthening any other part of the chain will waste effort without resulting in a stronger chain

Question 563

 3 types of constraints:

Answer 563

• Physical constraint- related to resources, or they are market constraints. Market constraints is when demand is far below capacity
• Capacity constrained resources- a resource that is not a constraint but will become a constraint unless scheduled carefully. Any resource that, if its capacity is not carefully managed, is likely to compromise the throughput of that organization
• Behavior-based constraint- are generated by persons and management policies

Question 564

 Drum-buffer-rope (DBR)

Answer 564

the theory of constraints method for scheduling and managing operations that have an internal constraint or capacity-constrained resource. Enables material and required capacity to be planned simultaneously
 Drum- the constraint is viewed as a drum, and nonconstraints are like soldiers in an army who march in unison to the drumbeat; the resources in a plant should perform in unison with the drumbeat set by the constraint. The drum refers to the necessary pace of production that is focused around the pace of throughput as defined by the constraint
 Buffer- can be time or material and they support throughput and/or due date performance. Buffers can be maintained at the constraint, convergent points, divergent points, and shipping points. By expediting this material into the buffers, the system helps avoid idleness at the constraint and missed customer due dates. In addition, the reason items are missing from the buffer are identified, and the frequency of occurrence is used to prioritize improvement activities
 Rope- the rope is the information flow from the drum to the front of the line, which chokes the release of materials to match the flow through the constraint. The analogy is that the rope pulls production to the constraint for necessary processing. One cannot push a rope, only pull it. While this may imply a kanban-type pull system, it is often done using a well-coordinated release of material into the system at the right time

Question 565

o List the steps in TOC scheduling

Answer 565

 Create a network diagram- accomplished by combing the data in the BOM file with the routing files to form a network diagram for the order being scheduled. Important to note any divergent points- an operation in a production process in which a single material/component enters and, after processing, can be routed to a number of different downstream operations
 Form a product network- combing the network diagram data with the MPS due date and link the customer orders to the final operations, which in turn links to previous operations and back to raw materials
 Assess capacity utilization by work center- identify bottlenecks
 Schedule work center
 Schedule bottleneck resources- quality and efficiency improvements should be targeted here
 Schedule non-bottleneck resources- calculate the production rate for other work centers based on the bottleneck

Question 566

 Bottleneck

Answer 566

a facility, function, department, or resource whose capacity is less than the demand placed upon it. For example, a bottleneck machine or work center exists where jobs are processed at a slower rate than they are demanded
 The rate at which a bottleneck can process work is the rate at which its inputs should be provided to avoid increasing WIP inventory before it. Work centers that depend on the output of the bottleneck should be scheduled to work at the rate set by the bottleneck
 Output from bottleneck areas should be provided to the next work centers in smaller lots than a full batch size. The amount to move might be the amount finished each day or even more often, depending on materials-handling costs. This is called a split lot
 All non-bottleneck areas may be idle at times, but should be running at proper efficiency when running

Question 567

 Nonstandard demand

Answer 567

demand that originates outside of the typical sales process. Sample inventory, displays, product testing, prototyping, etc.

Question 568

 Remanufacturing

Answer 568

the process of returning a product to like-new condition. Planning must include disassembly, purchase, and parts restoration and fabrication time in addition to parts assembly lead time. Lead times are not standard and can vary. It is good to measure how often a repair is required

Question 569

 Process flow manufacturing

Answer 569

production that adds value by mixing, separating, forming, and/or performing chemical reactions in either batch or continuous mode
 Divergent product structure
 Capacity planned first
 Continuous flow
 Perspectives on efficiency
* Meets the planning needs of capital-intensive, repetitive, and continuous production operations
* Scheduling calculations are based on the structure of the production process. This is in contrast to scheduling based on the structure of the finish good, as described by BOM
* Scheduling for the stages within a process is done with processor- or material dominated scheduling
* A process train can be scheduled using reverse-flow scheduling, forward flow scheduling, or mixed flow scheduling

Question 570

 Process train

Answer 570

a representation of the flow of materials through a process industry’s manufacturing system that shows equipment and inventories. Equipment that performs a basic manufacturing step, such as mixing or packaging, is called a process unit. Process units are combined into stages, and stages are combined into process trains. Inventories decouple the scheduling or sequential stages within a process train

Question 571

 Processor dominated scheduling (PDS)

Answer 571

scheduling equipment (processor) before materials
* Steps:
o Prepare a finite capacity scheduling
o Check projected inventory to see if it’s within the target minimum and maximum levels
o Revise production schedule
o Schedule raw materials to meet capacity schedule

Question 572

 Theoretical capacity

Answer 572

the maximum output capability, allowing no adjustments for preventive maintenance, unplanned downtime, shutdown, and so forth

Question 573

 Required capacity

Answer 573

the capacity of a system or resource needed to produce a desired output in a particular time period

Question 574

 Budgeted capacity

Answer 574

the volume/mix of throughput on which financial budgets were set and overhead/burden absorption rates established

Question 575

 Capacity planning

Answer 575

the process of determining the amount of capacity required to produce in the future. This process may be performed at an aggregate or product-line level, at the master scheduling level, and at the material requirements planning level

Question 576

 Capacity management

Answer 576

the function of establishing, measuring, monitoring, and adjusting limits or levels of capacity in order to execute all manufacturing schedules. Capacity management is executed at four levels: resource requirements planning, rough-cut capacity planning, capacity requirements planning, and input/output control

Question 577

 Capacity control

Answer 577

the process of measuring production output and comparing it with the capacity plan, determining if the variance exceeds pre-established limits, and taking corrective actions to get back on plan if the limits are exceeded

Question 578

o Describe how capacity planning is conducted in service industries

Answer 578

 In service industries, capacity is often subject to scarcity, may be expensive to obtain, and is a risk once obtained because it increased fixed costs and the break-even point
 Ways to manage customer-introduced variability:
* When customers want to be served
* What types of service they request
* How able and willing customers are to become involved- help themselves
* What type of experience the customer expects
 How to adjust capacity:
* Change the level of the workforce (ex seasonal workers) by hiring/laying off part-time and full-time workers or acquiring/releasing contractors
* Cross-train employees to enable flexible adjustments to areas of high demand
* Increase customer participation by using automated self-service processes

Question 579

CRP’s load inputs

Answer 579

 Open orders- orders that have already been released, so these will be contained in a shop order file, which is a file of all the manufacturing orders that are waiting to start operations or are WIP
* These orders represent scheduled load- the standard hours of work required by scheduled receipts
 MRP planned orders- planned order releases come from the proposed MRP. These orders represent planned load- the standard hours of work required by planned production orders. The planned orders constitute the proposed additional capacity required for future time buckets
 Other sources and the need for safety capacity- statistical analysis of past performance may suggest the need to plan for safety capacity to handle additional loads:
* Rework, scrap, process yield, past-due orders, engineering-related downtime for testing, prototypes, sales samples, destructive tests

Question 580

capacity-related inputs

Answer 580

 Routing- information detailing the method of manufacture of a particular item. It includes the operations to be performed, their sequence, the various work centers involved, and the standards (standard times) for set up and run. In some companies, the routing also includes information on tooling, operator skill levels, inspection operations and testing requirements
 Work center- the resource unit with capabilities that are factored into the determination of capacity available for production of specific components
 Lead times will usually be stored in the routing, but some components of lead time, specifically queue, wait, and move are usually contained in the work center master file rather than the routing

Question 581

 Rated capacity

Answer 581

the expected output capability of a resource or system. Capacity is traditionally calculated from such data as planned hours, efficiency, and utilization
Used in CRP

Question 582

• Rated capacity =

Answer 582

= available time X utilization X efficiency

Question 583

• Utilization

Answer 583

a measure (normally %) of how intensively a resource is being used to produce a good or service. It compares actual time used to available time used
o Takes into account down or idle time- PMs, rework, breaks, anticipated interruptions, tactical underutilizations
o Utilization is important for the following tasks-
 Managing queues and lead times
 Monitoring performance of the plant in capital-intensive industries
 Analyzing the historical performance of a productive resource
 Making key decisions, such as make-or-buy decisions

Question 584

 Utilization =

Answer 584

= (actual hours worked / available time in hours) X 100

Question 585

• Efficiency

Answer 585

a measurement (usually %) of the actual output relative to the standard output expected. Examines how well something is performing relative to existing standards

Question 586

o Efficiency =

Answer 586

= (standard hours produced / hours actually worked) X 100

Question 587

 Demonstrated capacity

Answer 587

proven capacity calculated from actual performance data, usually expressed as the average number of items produced multiplied by the standard hours per item
* Generally used when efficiency and utilization data have not been studied and are not available
* Can produced a realistic view of the average, rather than maximum, output

Question 588

• Demonstrated capacity =

Answer 588

= sum of standard hours per time bucket / number of time buckets

Question 589

 Yield

Answer 589

the amount of good or acceptable material available after the completion of a process. Usually computed as the final amount divided by the initial amount converted to a decimal or percentage. Usually related to specific routing steps or to the parent item to determine how many units should be scheduled to produce a specific number of finished goods

Question 590

o Explain how load is calculated

Answer 590

 Calculate the operation time per work order (open orders and planned orders). This step converts into a common unit, standard time
 Simulate order scheduling (often done using backward scheduling) to determine start and finish dates for each operations per work center
 Establish load profiles. To do this, sum the operation times for the portions of each work order to be done at each work center in a given time bucket, and then repeat for each time bucket in the planning horizon

Question 591

• Backscheduling steps:

Answer 591

o For each work center, calculate the operation time and determine the queue, wait, and move times at each work center in the sequence shown on the routing
o Starting with the due date, schedule backward, deducting the wait and move time to find the final operation finish date, then deducting the operation and queue times to find the start date, and then repeating for the next operation until the initial operation start date is determined

Question 592

• Operation time per work order =

Answer 592

= setup time + run time (run time = quantity X standard time)

Question 593

• Load profile

Answer 593

a display of future capacity requirements based on released and/or planned orders over a given span of time. Compares the loads that are expected at each work center and the available capacity of each work center by period

Question 594

 Establish load profiles

Answer 594

To do this, sum the operation times for the portions of each work order to be done at each work center in a given time bucket, and then repeat for each time bucket in the planning horizon
* Released load would be the sum of all open orders
* The planned load would be the sum of all planned orders and firm planned orders
* The total load is the sum of these two lines. Take the difference between this and rated capacity. Anything with negative capacity is over capacity, positive values are under capacity

Question 595

o List tactics for resolving imbalances between load and capacity

Answer 595

 If you can’t increase capacity, you need to alter the load
 Increase capacity
* Adding shifts- includes increasing length of shifts or scheduling weekend shifts. Should be used in the medium term to avoid changing shifts frequently
* Scheduling overtime or weekend work
* Increasing the number of workers available- if short-term, try to higher temps. If long-term, hire full time
* Cross-training workers
* Purchase additional equipment or equipment with greater capabilities
* Subcontracting- solution for anticipated short-term capacity issues
* Outsourcing- essentially a make-or-buy decision that can address long-term capacity imbalances
* Use alternate work centers- less efficient or more costly, but they provide an opportunity to shift work
* Use alternate routings- less preferred than the primary routing but results in an identical item
* Modify operation priorities- adjust operation start dates forward or backward in time by tailoring the routing for an order at release
* Revise the MPS or lot sizes- may actually aggravate the load imbalance
* Run overlapping operations or use lot splitting

Question 596

 Labor schedules can be fixed, floating, or flexible

Answer 596

• Fixed- defined start and end times for all similar employees
• Floating- puts employees in various shifts that can differ considerably within the rules set for the employee
• Flexible- enable different start and end times to accommodate individual needs

Question 597

o Describe the contents and purpose of a shop packet

Answer 597

 Production coordinator prepares a shop order packer for each order that will have all materials and capacity available
 Includes the shop order (or manufacturing order), which is an authorization for the specified quantity of a specific part to be made
 Contains anything else the shop floor needs to successfully produce the products, such as quantities, engineering drawings, chemical formulas, BOM, and route sheets (setup and run times, sequence of operations, materials needed, and tools needed)
 May also have pick lists to pull materials from inventory, job tickets for each operation in the routing which records when work is actually started ad completed, and move tickets which authorizes movement to the next work center

Question 598

 Manufacturing order

Answer 598

a document, group of documents, or schedule conveying authority for the manufacture of specified parts or products in specified quantities

Question 599

 Work order

Answer 599

authorization for equipment maintenance. An order to the machine shop for tool manufacture or equipment maintenance

Question 600

o Evaluate the size of process batches and transfer batches

Answer 600

 Process and transfer batchers should be evaluated regularly to determine if adjusting their sizes could better support production and inventory plans.
 Process batches are based partly on equipment capacities, and equipment capacities may not be easy to adjust. However, this is just where process batch lot sizing starts
 Process batch lot sizes are based on minimizing costs, including material preparation and set up times, and so are often multiples of the equipment capacities
* If a machine has a 64-unit capacity, and the cycle time is one hour, it may be most economical to set the economic process batch at 1,024 (16 hours, or 2 8-hour shifts)
 After determining process batch lot size, the size of the transfer batch is determined. Needs to account for factors such as keeping subsequent operations utilized, minimizing inventory investment, making efficient use of floor or storage space, or minimizing wait times.
* Lot splitting- process and transfer batch lot sizes should remain consistent. In exceptional situations, lot splitting could be sued as an ad hoc tool to resolve problems

Question 601

o Determine when alternate routing should be used

Answer 601

 Routings can be disrupted when work center actual capacities do not match their planned capacities. This is when you may need to consider alternate routing
 Alternate routings produce an identical result but are not the preferred routing
 Could include routing to alternate work centers such as an older, less efficient piece of equipment or a contractual agreement with a third part to maintain overflow capacity
 In some cases, order of operations can be shifted
 Alternate routing may increase risk such as rework or scrap

Question 602

o Manage the size of queues

Answer 602

 Queue sizes at each work center need to be carefully monitored against their target or threshold levels for exception review. Queue time is important because queue is often the largest element of lead time and can become a systemic problem that impacts the on-time status of all orders
 The tools for managing the size of queues include input/output control information on load from the schedule, and the status of open orders

Question 603

Participative design/engineering

Answer 603

focuses on parallel processes in order to reduce time to market and changes later in the process.

Participative design/engineering is not a serial approach, nor an approach intended to increase time to market. All involved departments and key suppliers participate.

Marketing; sales; engineering, ops all work on launch stuff at the same time