Post.

Question 1

Supply Chain network order from focal to third tier customer & supplier

Answer 1

• Center — Focal companyThird tier customer: whoever consumes it, last of the chain, product reaches its goal —> being marketed to this customerSecond tier customer: who ever buys from the storeFirst tier customer: supermarket etc. who buys from the factory1st and 2nd the priorities, 3rd the goalFirst tier suppliers: These are direct suppliers of the final product (food for cows)Second tire suppliers: These are suppliers or subcontractors for your tier 1 suppliers. (cows — milk products)
  • Flow of service and information through all channels

Question 2

Structure - Capacity Management: Optimum Capacity Level

Question 3

Why is long-term capacity management important? And 2. key aspects

Answer 3

Because it has significant impact on
o Operational performance
o The design of configuration of supply networks
o Decision to develop in-house capacity, integrate vertically or outsource o For the network to operate efficiently all stages must balance otherwise the network will be limited to the smallest/slowest stage

key aspects
o capacity can either lead or lag demand
o Inventory can be used to smooth out the peaks

Question 4

Optimum Capacity Level

Answer 4

About unit cost, when optimal and need to know where the optimum point is

when optimal economies of scale (cost lowest but optimal with demand) and when dis-economies of scale (over capacity, more costs)

Impact on: performance, design of supply chain network, decisions to in-house capacity, integrate vertically or outsource

Either leading or lagging strategies

Question 5

What does mean to manage capacity?

Answer 5

Always sufficient capacity to meet Forecast demand

Timing - that demand is always greater than or equal to actual capacity

Smoothing with inventories means using the excess capacity in one period to produce inventory that supplies the under-capacity period

Inventories to obtain the advantage of both capacity leading and capacity lagging

Question 6

Capacity leading advantages and disadvantages

Answer 6

+ always sufficient capacity to meet demand
+ capacity can serve for extra demand
+ start-up problems, less likely to affect supply

• low utilization of factories
• risk of overcapacity, more costs, since forecast not realised
• capital spending early

Question 7

Capacity lagging advantages and disadvantages

Answer 7

+ always sufficient demand to keep factories working at full capacity
+ minimal overcapacity when demand drops
+ capital spending on factories delayed

• insufficient capacity to meet demand
• no ability to exploit short-term increase in demand
• start-up problems with new factories cause even worse undersupply

Question 8

Scope: Configuring supply networks

When operations design their supply networks they have many choices to make, how much of the supply network they will own and manage themselves?

Key aspects for decision making

Answer 8

2 key aspects of supply network design
o Vertical integration and the direction
o Outsourcing

Verical integration upstream or downstream to narrow or wide extent:
Raw material supplier - component maker - assembly operation - wholesaler - retailer

Vertical integration if:
Activity of strategic importance
Company has specialized knowledge
Company’s operations performance superior
Significant operations performance improvement likely
lower cost in-house

Outsourcing if:
Not strategic
Company doesn’t have the knowledge
Can’t perform better than competitors
Not significant in performance

Question 9

Outsourcing vs Offshoring

Answer 9

Offshoring deals with the location of operations

• Company doesn’t own the assets
  
  • Outsourcing: domestic delivers of products & services
  • Offshore outsourcing: overseas supplier delivers (international)
• Company owns the assets
  
  • Domestic operations: focal operations, performs activities themselves
  • Offshore operations: focal operation’s overseas operation delivers products & services (international)

Question 10

Smoothing with inventory

Answer 10

Using the excess capacity in one period to produce inventory that supplies the under-capacity period — Only works if space for inventory: demand met by production and inventory - mostly in leading strategy

Question 11

What is supply chain management?

Answer 11

Supply chain management is the management of the interconnection of organization that relate to each other through upstream and downstream linkages between the processes that produce value to the ultimate consumer in the form of products and services

Market-based/transactional supply arrangements = emphasis predominantly on contracting

Partnership supply arrangements = Emphasis predominantly on relationships

Question 12

Supply Chain Relationship Arrangements

Answer 12

lowest involvement — virtual spot trading: outsources everything with many supplier

highest involvement — vertical integration: close with few suppliers, nothing outsourced

traditional market supply: contract agreements, arm’s length outsourcing some, or nothing, focused on product production
sources materials, provides them to a manufacturer to make the product –> sends them to a sales channel to be delivered to the customer

“Partnership” supply relationships: make everything, close with few

Question 13

“Partnership” supply relationships

Answer 13

committed to work together mutual benefit of both parties, sharing relevant information and the risks and rewards of the relationship

high trust, collaboration in problem solving, early conflict resolution, understanding competencies to reduce costs, quality failures and solve problems early

Question 14

The bullwhip effect

Answer 14

starts with change in demand affects retail store’s sales, wholesaler’s store orders, manufacturer’s orders to manufacture, manufacturer’s orders to it’s supplier: orders affects deliveries

Question 15

The supplier selection process (your organization as customer, your customer)

Answer 15

Initial supplier qualification
Agree measurement criteria
Obtain relevant info
Make selection

Based on:
Supplier performance gap: how the supplier thinks it’s performing and how it thinks what the customer wants
Fulfillment perception gap: how supplier vs customer think of performance

Supplier improvement gap: how customer thinks the supplier is performing and what they really want
Requirements gap: what supplier thinks wants and what they really want

Question 16

What is the difference between planning and control in operations?

Answer 16

Planning = deciding
- What activities should take place in the operation
- When they should take place
- What resources should be allocated to them

Control is
- Understanding what is actually happening in the operation
- Deciding whether there is a significant deviation from what should be happening
- Changing resources in order to affect the operation’s activities

- balance; long, medium and short-term planning and control
- volume-variety effects

when volume high — variety low: planning long term

volume low — variety high: more flexible, short term planning

Question 17

Long-term planning and control

Answer 17

Focus on planning
Uses aggregated demand forecasts
Determines resources in lump form
Objectives mostly financial

Question 18

Medium term planning and control

Answer 18

Uses partially dis-aggregated demand forecasts
Determines resources and contingencies
Objectives: finance and operations terms

Question 19

Short-term planning

Answer 19

Focus on control
Uses totally dis-aggregated forecasts and actual demand
Makes interventions and correct deviations from plans
Ad hoc consideration of operations objectives

Question 20

How do supply and demand affect planning and control?

Answer 20

They affect dependent and independent demand:

Dependent demand
= demand for tyres is governed by the planned number of cars to be made by the auto plant
Independent demand
= demand for tyres is largely governed by random factors

Independent demand (not too predictable, tire fitting service, demand flexible) is the demand for a finished good, such as a car, while dependent demand (relatively predictable, tires for a car company, sells mostly on orders) is the demand for a component part of a finished good, such as the tires on a car.

—> affects the production schedule operations volume and capacity management planning

Question 21

What are the planning and controlling activities?

Answer 21

1. Loading = how much to do, finite / infinite loading
2. Sequencing = in what order to do things
   a. Setting priorities based on predefined set of rules
   b. DD = Earliest Due Date first
   c. Last in, first out
   d. First in, First out
   e. Longest Operation Time (LOT): keeps utilization high
   f. Shortest Operation Time (SOT): eases cash-flow, short invoice
3. Scheduling = when to do things
   a. Gantt chart showing the schedule for jobs at each process stage
4. Monitoring and control = are activities going to plan?
   a. Push system = where items are moved onto the next stage as soon as they have processed
   b. Pull system = when items are moved only when the next stage wants them

Question 22

P:D ratios

Answer 22

P = process time / total throughput time

D = demand time

If P:D ratio is 1, means that the customer waiting time equals the time it takes to obtain the resources, produce the product or service, and deliver it to the customer, usually exceeds 1

(look through examples on lecture 9.)

Question 23

How do increasing integration of information systems and increasing impact on the whole supply chain correlate?

Answer 23

From least (o) to most including of all parts (1)
Material Requirements planning - Focus on material flows
Manufacturing resource planning - Inclusion of capacity dimension
Enterprise resource planning
Web integrated enterprise resource planning (e-commerce)

Meaning that companies have evolved to the use of the whole supply chain with integration of information systems. More trust and communication - less things in-house.

Question 24

Control systems - MRP: Material requirements planning

Answer 24

MRP: Balancing supply and demand
What do you need?
1. The materials you need to support the gross demand for your business
a. For sale in the stores or online
b. To fulfill customer orders placed in advance
c. For the production/manufacturing process

What do you have?
1. The inventory that you have in store, whether in the shops, or in warehouses, or in
the pipeline

Crucial components
1. Master Production Schedule
2. Bill of Materials

Based on all the information: demand from customers, info from suppliers — MRP: purchase orders, materials plan and works order

Question 25

Control systems - Bill of Materials in MRP

Answer 25

- BOM and product structure, is the linking pin between MPS and Material Requirements planing (MRP) records - Product structure consists of various levels, with the finished product being level 0 - The structure: levels tell what products do you need to make the product and the order quantity (x) for them. Lead times (LT) tell how long does it take for the part to get there (dependencies). If you cannot deliver, production stops. - LT: some are dependent resources — LT crucial, the others can be started based on the final date and their lead times. - Uses back scheduling — MRP netting process (project mgmt)

Question 26

Control systems - Enterprise Resource Planning (ERP)

Answer 26

= bring all relevant information for planning and controlling operations together in integrated database that holds applications: operations, supply back-office for suppliers HR, finance, strategy etc. for internal stakeholders sales, delivery, service in front-office for customers Benefits of ERP +Because software communicates across all functions, there is absolute visibility of what is happening in all parts of the business + forcing business-process-based changes in an effective mechanism for making all parts of the business more efficient + capable of integrating whole supply chains including suppliers and customers + continuous improvement - Underestimate total cost - Underestimate time and efforts to implement ERP - More outside expertise required - Bigger changes to business processes than expected - Training requirements

Question 27

What is capacity management?

Answer 27

The scale of productions — needs to be appropriate at all points of time. The activity of understanding the nature of demand for products and services, and effectively planning and controlling capacity in the short term, medium term and long term. All this must be done while reconciling the competing demands of customer satisfaction and resource efficiency. Judged by effect on costs revenue, working capital and service level (speed, quality, dependability, flexibility)

Question 28

How are demand and capacity measured?

Answer 28

- Demand is measured by **forecasting**: qualitative and quantitative and by **seasonality** - panel approach, Delphi method, scenario planning — time series analysis, casual modelling techniques - Causes of seasonality - Capacity is measured by **input & output measures** (formulas) — hotel (rooms available) vs. retail store (sales floor area)

Question 29

Effective capacity formula

Answer 29

design capacity – planned losses i.e Number of seats in the room unused for example

Question 30

Actual output in terms of capacity formula

Answer 30

effective capacity - unplanned losses i.e When ‘the room’ is used, but people cancelled

Question 31

Utilization in capacity calculations

Answer 31

Utilization = actual output / design capacity

Question 32

Efficiency in capacity calculations

Answer 32

Efficiency = Actual output / Effective capacity

Question 33

Factors tending to increase/decrease base level of capacity

Answer 33

+ Low fixed costs + Need for high levels of customer service + High perishability + Inexpensive fixed capacity - High fixed costs - Need for high-capacity utilization - Ability to store output - Expensive fixed capacity

Question 34

!! - Ways of reconciling and coping with the fluctuations in capacity and demand?

Answer 34

Ways of reconciling capacity and demand 1.- Level capacity 2 - Chase demand 3 - Demand management Short-term capacity management - Level capacity plan – absorb fluctuations - Chase demand plan – change capacity to reflect demand fluctuations - Demand management plan – attempt to change demand to reduce fluctuations Absorb demand: level capacity plan Absord demand --> Keep output level - Make customer wait: Queues, Backlogs - Have excess capacity - Make to stock: Part finished, Finished goods, Customer inventory Adjust output to match demand: chase demand plan Change demand and it's pattern, develop alternative products and/or services Yield management - Overbooking capacity - Price discounting - Varying service types Overbooking = one of the most basic tools in yield management is overbooking. For any service provider, capacity is perishable. Having an airline seat, restaurant table, or doctor sit idle is expensive

Question 35

If predictable variation high and unpredictable variation in demand low - objective and capacity mgmt?

Answer 35

adjust planned capacity as efficient as possible capacity: work on how to reduce the cost of planning into effect, evaluate mix of methods for fluctuation

Question 36

If predictable variation high and unpredictable variation in demand high - objective and capacity mgmt?

Answer 36

adjust planned capacity as efficient as possible, enhance for further fast adjustments capacity: combination of predictable and unpredictable

Question 37

If predictable variation low and unpredictable variation in demand low - objective and capacity mgmt?

Answer 37

make sure base capacity is appropriate capacity: seek ways to provide steady capacity effectively

Question 38

If predictable variation low and unpredictable variation in demand high - objective and capacity mgmt?

Answer 38

adjust as fast as possible capacity: identify sources of extra capacity or surplus, work on ways how to adjust it quickly

Question 39

What are the ways of coping with mismatches between demand and capacity?

Answer 39

Absorb demand — keep output level - Have excess capacity, make to stock (finished goods or customer inventory), make customer wait Chase Demand — adjust output to match demand - Hire - fire, temporary - lay-off, overtime - short - time, employee contract focus Demand management — change pattern of demand, develop alternatives (customer incentive focus) Yield management: 1. change demand = change pattern, develop alternatives 2. yield management = overbook capacity, price discounts, varying service types

Question 40

Types of inventory of finished products

Answer 40

1. Buffer/safety inventory - allows for unexpected fluctuations in demand 2. Cycle - allows batches to be made using the same transforming resources 3. Anticipation - Inventory can be used to cope with seasonal demand 4. Pipeline - when inventory moving from one location to another (Containership) Inventory of parts and raw materials: de-coupling inventory This allows work centres to operate relatively independently

Question 41

What is inventory?

Answer 41

stock - accumulation of the transformed resources materials, customers, information - flow through processes or networks physical, queues of customer, info databases (ex. hotel)

Question 42

Return on assets and inventory effect on it

Answer 42

profit / total assets (revenues – costs)/(working capital + fixed assets)¨ rev - ability to supply from stock cost - orders, storage, loss working capital - debt to suppliers, acc. receivable, funding inventory

Question 43

Disadvantages of holding inventory

Answer 43

* Ties up capital * Incurs storage costs: energy, security, maintenance... * May become obsolete, be damaged or perish or may be lost * Occupies space that could be valuable and could be used to make money * Incurs costs due to administration and insurance

Question 44

Why there should be physical inventory & ways to reduce it

Answer 44

uncertanity of demand and supply - improve demand forecasting lack of flexibility, cycle stock to maintain supply - increase flexibilitym use parallel production processes short-term opportunities (suppliers offers) - supplier negotiation of lower prices anticipate demands - increase volume flexibility: chase demand fill processing pipeline, items delivered to customers -reduce time of request and dispatch, reduce throughput time in downstream supplychain

Question 45

Costs associated with inventory order quantity (volume)

Answer 45

* Cost of placing and order (transaction costs) * Price discount costs (volume discount) * Operating inefficiency costs (high inventory levels hide inefficient processes) * Storage costs (heating, cooling, equipment, facility, security) etc.

Question 46

How much inventory to order - EOQ, formula?

Answer 46

Economic Order Quantity (EOQ) * EOQ corresponds to the order quantity that has the lowest total cost Total cost = Holding costs + Order costs Holding costs * working capital costs, storage costs, obsolescence risk costs * increase linearly as the order quantity increases Ordering costs * cost of placing the order, transportation cost, price discount cost * decrease hyperbolically as the order quantity increases

Question 47

When to Order inventory - Re-order Level & Re-order Point?

Answer 47

Instantaneous delivery - simple model Deliveries at the rate of D/Q per period (D = predictable demand, steady) Average inventory = Q/2 When to re order? Order lead time model - When re-order level reached - order more Order lead time = the time from order to receiving the stock *- In most situations the demand rate is unpredictable / non-linear and there is variation in lead-times* Problem is that with complications after re-order level is reached, safety stock might be used and reorder level not reaching the demand at time

Question 48

The ‘Two bin’ and ‘Three bin’ systems of re-ordering system

Answer 48

In both systems: reorder when Bin 1 is empty (c.q. when you start on Bin 2) two bin bin 1: items used bin 2: re-order level + safety inventory three bin system bin 1: used items bin 2: re-order level inventory bin 3: safety inventory

Question 49

Risk management - 4. broad activities

Answer 49

1. Understanding what failures could occur. 2. Preventing failures occurring. 2. Minimizing the negative consequences of failure (called risk ‘mitigation’). 2. recovering from failures when they do occur. 3. if failure happens how to recover

Question 50

How can operations assess the potential causes and consequences of failure?

Answer 50

**Sources of potential failure in operations** - Supply failure - Human failures - Organizational failure - Technology failure - Environmental disruption - Product/service design failure - Customer failure

Question 51

Assessing consequences of failure — post-failure analysis procedures include

Answer 51

- Accident investigation - Failure traceability - Complaint analysis - Fault-tree analysis with and/or nodes

Question 52

How can failures be prevented?

Answer 52

- *Product/service innovation (Chapter 4)* - *Process design (Chapter 6)* - *Quality management (Chapter 17)* Maintenance — In order to achieve quality - Enhanced safety - Increased reliability - Higher quality - Lower operating costs - Longer life span for process technology - Higher end-value

Question 53

How can operations mitigate the effects of failure? — maintenance methods

Answer 53

- Preventing, run-to-breakdown, condition-based monitoring - Optimum level of maintenance effort

Question 54

Preventing, run-to-breakdown, condition-based monitoring

Answer 54

different kinds of maintenance to be considered - **Run to breakdown** — not preventive and not optimal maintenance method - **Condition based monitoring** — the best one, continuous data, actionable advice for the company (the crew ship advice), make sure the maintenance schedule is organized and optimized, unscheduled maintenance minimize to avoid problems - Preventive maintenance Traditional view = we will always have faulty products to throw away, which is why does not care about preventive maintenance Lean approach = not acceptable, waste (excess inventory — time and effort already in) to avoid at all costs, quality first — preventive maintenance

Question 55

Optimum level of maintenance effort

Answer 55

costs associated with preventive maintenance shows - Only to optimum, since no more necessary: as in all operations Total costs = Cost of breakdowns + Cost of providing preventive maintanance If preventive maintenance tasks are carried out by operators and if the real cost of breakdowns is considered, the ‘optimum’ level of preventive maintenance shifts toward a higher level - Preventive maintenance Traditional view = we will always have faulty products to throw away, which is why does not care about preventive maintenance Lean approach = not acceptable, waste (excess inventory — time and effort already in) to avoid at all costs, quality first — preventive maintenance

Question 56

What is layout and how can it influence performance?

Answer 56

= how its transforming resources are positioned relative to each other, how its various tasks are allocated to these transforming resources and the general appearance of the transforming resources. = pattern and nature of how transformed resources progress through the operation or process

Question 57

What makes a good layout in operations?

Answer 57

lay out will depend on the strategic objectives of the operation, objectives: Inherent safety Length of flow - Minimize delays - Reduce work-in progress - Clarity of flow - Communication - Use of space minimizing the space used for a particular purpose - Use of capital = capital investment should be minimized etc.

Question 58

What are the basic layout types used in operations? - 4

Answer 58

1. Fixed position layout 2. Functional layout 3. Cell layout 4. Line (product) layout

Question 59

Fixed position layout

Answer 59

a. Locating the product or service so that it remains largely stationary while transforming resources are moved to and from it i. Transformed resources cannot be moved or prefer not to be moved b. Advantages i. Very high mix and product flexibility ii. Product or customer not moved or disturbed iii. High variety of tasks for the staff c. Disadvantages i. Very high unit cost ii. Scheduling of space and activities can be difficult iii. Can mean much movement of equipment and staff

Question 60

Functional layout

Answer 60

a. Similar resources or processes are located together = convenient to group them together, or that utilization of transforming resources is improved. b. Route from activity to activity according to needs Examples i. Hospital, machining the parts which go into aircraft engines, supermarket d. Advantages i. High mix and product flexibility ii. Relatively robust in the case of disruptions iii. Relatively easy to supervision of transforming resources e. Disadvantages i. Low facilities utilization ii. Can have very high work-in-progress or customer queuing iii. Complex flow can be difficult to control

Question 61

Cell layout

Answer 61

a. Transformed resources entering the operation are pre-selected to move to one part of the operation in which all the transforming resources, to meet their immediate processing needs, are located. b. Processing same type of product c. Serving same type of customers Examples i. Dental clinic: brings together all the transforming resources to meet processing needs of the transformed resources e. Advantages i. Gives a compromise between cost and flexibility for relatively high- variety operations ii. Fast throughput iii. Potential good staff motivation f. Disadvantages i. Can be costly to rearrange existing layout ii. Can require more equipment iii. Can give lower equipment utilization

Question 62

Line (product) layout

Answer 62

a. Locating transforming resources in a sequence defined by the processing needs of product or service Examples i. Automobile assembly  almost all variants of the same model require the same sequence of processes d. Advantages i. Low unit cost for high volume ii. Gives opportunities for specialization of equipment iii. Materials or customer movement is convenient e. Disadvantages i. Can have low mix flexibility ii. Not very robust if there is disruption iii. Work can be very repetitive

Question 63

What type of layout should an operation choose?

Answer 63

= low volume, high variety - flow is not a major issue = higher volume, low variety - flow becomes an issue, line layout = resources in low-volume-high-variety processes should be arranged to cope with irregular flow = resources in high-volume-low-variety processes should be arranged to cope with smooth, regular flow

Question 64

Process type framework

Answer 64

(look through slides L13) Are we looking at services or products? - Volume and Variety characteristics - Process flow o Intermittent = transformed resource coming into the process o Continuous = oil refinery, transformed resource is not divided into units - Process tasks o Diverse/complex = many complex things need to be taken care