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Operations Management > Test 3 > Flashcards

Test 3 Flashcards

1
Q

Types of Inventory

A
  • raw materials and purchased parts
  • work in progress
  • finished goods
  • maintenance and repairs
  • goods in transit to warehouse/customers (pipeline inventory)
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2
Q

Functions of Inventory

A
  • meet anticipated demand
  • permit operations (work in progress)
  • smooth production requirements (seasonal demand)
  • decouple operations (in case of breakdown)
  • protect against stock outs (delayed deliveries/ increase in demand)
  • take advantage of order cycles (economy of scale)
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3
Q

Goal of Inventory Management

A
  1. satisfactory levels of customer service

2. minimize inventory costs

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4
Q

Customer Satisfaction

A
  • number and quantity of back orders

- complaints

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5
Q

Inventory Turnover (Equation)

A

(average COGS) / (average inventory investment)

over a give time period

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6
Q

Management and Inventory

A
  • establish a system for tracking items in inventory

- make decisions about when to order and how much to order

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7
Q

Effective Inventory Management Requires:

A
  • classification of inventory items
  • system to keep track of inventory
  • reliable forecast of demand
  • knowledgeable lead time
  • reasonable estimates of costs
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8
Q

ABC Classification System

A

-A items (very important)
-10 to 20 percent of the number of items in inventory
about 60 to 70 percent of the annual dollar value
-B items (moderately important)
-C items (least important)
-50 to 60 percent of the number of items in inventory
-only about 10 to 15 percent of the annual dollar value

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9
Q

Periodic Inventory Counting System

A

physical count of items in inventory made at periodic intervals

  • many items ordered at one time
  • lack of control between checks
  • must keep extra stock
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10
Q

Perpetual Inventory Counting

A

System that keeps track of removals from inventory continuously, monitoring current levels of each item

  • added cost of record keeping
  • also has periodic physical count
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11
Q

Point of Sale (POS) Inventory Counting

A

a system that that electronically records actual sales

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12
Q

Radio Frequency Identification

A

RFID

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13
Q

Economic Order Quantity (EOQ) Model

A
  • used to find a fixed order quantity that will minimize total (annual) inventory costs
  • continuous monitoring system
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14
Q

EOQ Model Assumptions

A
  1. Only one product is involved
  2. Annual demand requirements are known
  3. Demand is even throughout the year
  4. Lead time does not vary
  5. Each order is received in a single delivery
  6. There are no quantity discounts
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15
Q

Purchase Cost

A

amount paid to buy the inventory

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16
Q

Holding/Carrying Costs

A

Cost to carry an item in inventory for a length of time, usually a year

rent + equipment + materials + labor to operate the space + insurance + security + interest +other direct expenses

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17
Q

Ordering Costs

A

Costs of ordering and receiving inventory

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18
Q

Shortage Cost

A

Costs resulting when demand exceeds the supply of inventory; unrealized profit per unit

Cshortage = Cs = Revenue per unit – Cost per unit

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19
Q

Lead Time

A

Time interval between ordering and receiving the order

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20
Q

Determinants of Re-Order Point

A
  1. rate of demand
  2. lead time
  3. extent of demand and/or lead time variability
  4. degree of stock-out risk acceptable to management
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21
Q

Single Period Model

A

Model for ordering of perishables and other items with limited useful lives

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22
Q

Optimal Service Level

A

order quantity that will minimize the long-run excess and shortage costs

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23
Q

Goal of Single Period Model

A

to identify the optimal service level

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24
Q

Service Level

A

probability that demand will not exceed the stocking level

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25
Q

Stock Out Risk

A

1 - Service Level

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26
Q

Excess Cost

A

Different between purchase cost and salvage value of items left over at the end of the period

Cexcess = Ce = Cost per unit – Salvage value per unit

27
Q

Aggregate Planning Characteristics

A
  • Intermediate Capacity Planning (2-18 months)
  • good for variation in demand (seasonal, etc)
  • big picture approach (groups together similar products)
28
Q

Goal of Aggregate Planning

A

Achieve a production plan that equates demand and capacity over the entire planning horizon while minimizing cost

29
Q

Rolling Horizon

A
  • Most organizations use rolling 3, 6, 9 and 12 month forecasts
    • forecasts are updated periodically
30
Q

Aggregate Planning Strategies

A
  • Proactive: Alter demand to match supply (capacity)
  • Reactive: Alter supply (capacity) to match demand
  • Mixed
31
Q

Demand Options (Aggregate Planning Strategies)

A
  • Pricing and Promotions
  • Back Orders
  • New Demand
  • Yield/Revenue Management
32
Q

Pricing and Promotions

A

Demand Option

  • shift demand from peak to off-peak periods
  • Price elasticity is important
33
Q

Back Orders (Delayed Order Filing)

A

Demand Option

  • Orders are taken in one period and deliveries promised for a later period
  • Possible loss of sales, increased record keeping, lowered customer service level
34
Q

New Demand

A

Demand Option

Offer different products/services during off-peak periods

35
Q

Yield/Revenue Management

A

Demand Option

  • Maximizing revenue by using a variable pricing strategy.
  • Prices are set relative to capacity availability
36
Q

Supply Options (Aggregate Planning Strategies)

A
  • Hire/Fire Workers
  • Inventories
  • Overtime
  • Part Time Workers
  • Subcontracting
  • Level Capacity
  • Chase Demand
37
Q

Level Capacity Stratgey

A

Supply Option

  • Maintaining a steady rate of regular-time output;
  • Variations in demand are met by using Inventories
38
Q

Chase Demand Strategy

A

Supply Option
-Matching capacity to demand; the planned output for a period is set at the expected demand for that period

  • Advantages
    • Investment in inventory is low
    • Labor utilization in high
  • Disadvantages
    • The cost of adjusting output rates and/or workforce levels
39
Q

Dependent Demand

A

Demand for component parts that are used in the production of finished goods

40
Q

Material requirements planning

A
  • Planning and scheduling technique used for batch production of assembled items
  • translates Master production schedule requirements to time-phased requirements
41
Q

Goal of MRP

A

Scheduling of ordering, fabrication, assembly for timely completion while keeping low inventory levels

42
Q

MRP Inputs

A

Master Schedule
Bill of materials
Inventory records

43
Q

What does the Master schedule state?

A

Which end items are produced
When these items are needed
In what quantities

44
Q

Bill of Materials (BOM)

A

A hierarchical listing of all the assemblies, parts, raw materials needed to produce on unit

45
Q

Product Structure tree

A

a visual depiction of the requirements in the BOM, listed by levels

46
Q

Cumulative Lead Time

A

The sum of lead times of all phases required from ordering parts to final assembly

47
Q

What is the relation between the master schedule and cumulative lead time ?

A

The master schedule should be at least equivalent to the cumulative lead time.

48
Q

MRP Processing

A

Takes the end item requirements and splits them into time-phased requirements based on the master schedule.

49
Q

Inventory Records

A

Includes information of an item by time periods (Time buckets)

50
Q

Gross requirements

A

Total expected demand ignoring supply

51
Q

Schedule receipts

A

Open orders scheduled to arrive

52
Q

Projected on hand

A

Expected inventory on hand

53
Q

Net requirements

A

Actual amount needed

54
Q

Planned-order receipts

A

quantity expected to received

55
Q

Planned-order releases

A

Planned amount to order

56
Q

Primary MRP Outputs

A

Order receipts
Order releases
Changes

57
Q

Order receipts

A

amount and time of future orders

58
Q

Order releases

A

Authorizing the execution of planned orders

59
Q

Secondary MRP Outputs

A

Performance-control reports
Planning reports
Exception reports

60
Q

Performance-control reports

A

Evaluation of system operation

61
Q

Planning reports

A

Data useful for assessing future material requirements

62
Q

Exception reports

A

Data on any major discrepancies encountered

63
Q

MRP Benefits

A

Slide 12-24

64
Q

Enterprise Resource Planning (ERP)

A

Captures and makes data available in real-time

Operations Management (3 decks)

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