OTM REVIEW Flashcards
What is the key OTM motivation? (4)
- Reduce costs
- Reduce risk exposure
-Increase customer satisfaction (high service
level) - Meet sustainable goals
5 elements of the process view
- inputs/outputs
- resources
- flow unit
- network of activities and buffers
- information structure
4 product attributes
- product cost
- product variety
- product quality
- product time
4 process competencies
- process cost
- process flexibility
- process quality
- process flow time
Product attributes are for ______ and process competencies are for _______
Customers, Process managers
What is the customer value proposition?
All organizations must provide products and services whose value to customers is much greater than the cost of production and delivery
What are the 2 process architechtures?
Job shop and Flow shop
Job Shop
Uses flexible resources to produce low volumes of highly customized variety products
- similar resources are located together:
functional layout
Flow Shop
Uses specialized resources that perform limited tasks with high precision and speed
- resources arranged in sequence to
produce product: product layout
Process competencies for Job Shop (4)
- high variable cost (often low initial investment)
- high flexibility
- high quality (may not be consistent)
- long flow time
Process competencies for Flow Shop (4)
- low variable costs (often high initial
investment) - low flexibility
- consistent quality
- short flow time
What are the process flow measures? (3)
- Flow Time: total time spent by a flow unit
within process boundaries - Flow Rate: the number of flow units that flow
through a specific point in the
process per unit of time - Inventory: the total number of flow units
present within process boundaries
Little’s Law
I = RT
- Average Inventory (I) = Throughput (R) x
Average Flow Time (T)
What are the competitive advantages of shorter flow times? (5)
- Shorter delivery response times
- Delaying production closer to the time of sales
- More responsive to technological
development and customer preference - Moving from extremes of make-to-stock to
make-to-order - Reduced inventory
How to reduce flow time?
- Must shorten the length of every critical path
- Flow time is the sum of activity and waiting
time
What are the levers for reducing activity time? (5)
- Restructuring the critical path
- Reduce non-value adding activities
(non-value adding do not directly increase the
value of a flow unit) - Work faster
- Do it right the first time
- Modify the product sequencing (do the
quickest thing first)
Throughput
The average number of flow units that flow through a stable process per unit time
Capacity
The maximum sustainable throughput
Resource pool
Collection of interchangeable resources that can perform an identical set of activities
Process Cycle Time
Process cycle time = ( 1/ process effective
capacity)
The effective capacity of a process
The effective capacity of a process if the effective capacity of its bottleneck (the slowest resource pool of the process
Why keep inventory? (3)
- economies of scale
- production and capacity smoothing
- stockout protection
Why avoid keeping inventory? (2)
- physical holding costs
- opportunity costs
How to find optimal order size?
Economic Order Quantity (EOQ): Q = √2SR/H
- Q: order size
- S: fixed ordering cost
- R: annual demand rate
- H: unit holding cost for 1 year
Replenishment leadtime
time lag between an order being placed and its arrival
Forecasting (4)
- Forecasts are usually inaccurate
- Forecasts should be accompanied by a
measure of forecast such as standard
deviation - Long-range forecasts are usually less accurate
than short-range forecasts - Aggregate forecasts are more accurate than
individual forecasts
What is a service level?
The probability that there will be no stockout within a time interval, or equivalently, the proportion of time intervals without a stockout
- service level is a strategic decision by a
firm
- the amount of safety inventory depends
on the desired service level and the
demand uncertainty during the lead time
Relationship between safety inventory, demand uncertainty, and service level
- the larger the safety inventory, the larger the service level (& vice versa)
- the larger the demand uncertainty, the lower the service level (& vice versa)
3 key factors affecting safety inventory
- required service level
- the uncertainty in demand
- the lead time
How to reduce safety inventory? (2)
- Reducing lead time
- Reducing demand uncertainty
- better forecasting, demand aggregation,
shortening forecast horizon, provide
incentive for customers in order in
advance
Postponement
the practice of reorganizing a process in order to delay the differentiation of a generic product to specific end-products closer to the time of sale
7 sources of waste
- overproduction
- waiting
- internal transport
- over-processing
- inventory
- rework
- unnecessary worker movement
Just-In-Time process order
- achieve a one-unit-at-a-time flow
- produce at the rate of customer demand
- implement a pull system
Cellular layout
A product layout where all workstations that perform successive operations on a given family of products are grouped together to form a cell
The goal of a supply chain is to…
satisfy customer demand in the most economical way
4 causes of the bullwhip effect
- demand signal processing
- order batching
- price fluctuations
- rationing and shortage gaming
How to mitigate the bullwhip effect? (3)
- operational effectiveness
- information sharing
- channel alignment
What is the fisher matrix?
functional products & physically efficient supply chain = match
innovative products & market responsive supply chain = match
Reasons to outsource activities (2)
- achieve economies of scale
- aggregate demand
How can outsourcing add value to the supply chain? (4)
- capacity aggregation
- transportation aggregation
- warehouse aggregation
- a firm gains the most by outsourcing to a third
party is its needs are small, uncertain, and
shared by other firms
Risks of outsourcing (6)
- the process is broken
- underestimation of the cost of coordination
- reduced customer/supplier contact
- leakage of sensitive data and information
- loss of supply chain visibility
- negative reputation damage
Outsourcing across the product life cycle (4)
- phase 1: Relationship
- phase 2: Coordination
- phase 3: Efficiency
- phase 4: minimize obsolescence
Trade credit
when a buyer pays a supplier late, we say that the supplier extends a credit to the buyer
Consequences of trade credit for the supplier (2)
- increased need of external funding/capital
- cash flow forecasting becomes more difficult
Consequences of trade credit for the buyer (2)
- reduction in need of external funding/capital
- increased supply disruption risk (due to
possible bankruptcy of suppliers)
Working capital
the money that a firm needs to finance inventory and receivables
Cash Conversion Cycle
the time it takes to convert a dollar spent on buying raw material into a dollar of revenue received from the customer
CCC = DIO + DSO - DPO
- DIO: Days Inventory Outstanding
(the average time the inventory stays in
the supply chain) - DSO: Days Sales Outstanding
(the average time a firm waits for
payment after goods have been sold to a
customer) - DPO: Days Payables Outstanding
(the average time a supplier is payed
after the goods have been received)
How to reduce the cash conversion cycle? (3)
- reduce accounts receivables (DSO)
- make customers pay quickly - reduce inventories (DIO)
- optimize your inventories - increase accounts payables (DPO)
- pay your suppliers as late as reasonable
Why is risk management important?
most firms are leveraged, meaning they take on debt to finance their business but there are risks of using debt
What are drivers of supply chain risk? (3)
- lean production
(vulnerable to small supply chain glitches) - globalization
(fragmented supply chain, higher probability
of disruption, upstream/down) - outsourcing
(often results in supply chain delays,
increasing likelihood of disruption)
Recurrent demand risks
ongoing risks: daily, weekly, monthly, or yearly
(ex: higher than expected demand)
Disruptive supply risks
occur rarely, but can be very impactful
(ex: nuclear disaster in Japan, COVID)
Mitigating recurrent risks (2)
- holding capacity and inventory
- transporting components quickly
Mitigating disruptive risks (3)
- multi-sourcing
- differentiate risk for different products
- pricing
Mitigating both recurrent and disruptive risks
flexibility
Heat matrix
- considers impact and likelihood of identified risks, so that managers can give priority to certain risks
(look at lecture 10 for image of matrix)
6 responses to risk
- ignore or accept the risk
- reduce the probability of the risk
- reduce or limit the consequences
- transfer or share the risk
- oppose a change
- move to another environment
DIO =
(Inventory / Cost of goods sold) x 365
DSO =
(Accounts receivable / Annual sales) x 365
DPO =
(Accounts Payable / Cost of goods sold) x 365
