BM630 Midterm Review Outline- Winter 11

52 Multiple choice questions worth 2 points each. Overview/Process Choice: 13 questions with 3 problems Capacity: 12 questions with 3 problems Inventory: 12 questions with 9 problems Supply Chain: 15 questions with 2 problems

Course Introduction and Overview& Operations and Supply Chain Strategy 1. Operations management- the processes that effectively produce transform, and deliver a product or service 2. Supply chain management linked set of multiple orgs with structured fashion 3. Competitive priorities the relative ranking of what the company WOULD LIKE TO ACHIEVE. How the company would like to compete, and beat their competitors a. Cost low cost, high cost b. Quality consistent, superior c. Time delivery speed, on-time d. Flexibility customization, variety/mix, volume flexibility e. Others: service, social & environmental concerns 4. Competitive capabilities the relative effectiveness that the company is able to ACTUALLY ACHIEVE a. Order Winners: Characteristics causing customers to PREFER you over your competitors b. Order Qualifiers: Characteristics you need to have to be CONSIDERED by potential customers c. Order Losers: Characteristics that make customers NOT want to do business with you d. Non-Issues: Characteristics that do not enter into the competitive picture 5. The role of operations within business strategy; a. Developing a strategy involves three considerations: i. Monitoring and adapting to the environment ii. Identifying and developing core competencies iii. Developing the firms core processes b. Core Competencies: unique resources and strengths an org develops and possessesinclude; i. Workforce ii. Facilities iii. Market and financial know-how iv. Systems and technology/product development processes v. Order fulfillment processes vi. Supplier relationship processes c. Core Processes i. Customer Relationship processes ii. New service 6. Operational decision areas a. Structural decisions Long Term, high capital, less frequent b. Infrastructural decisions- Shorter term, more frequent, less capital 7. Differences and similarities between services and manufacturing a. Manufacturing is a shrinking part of our economy b. Many manufacturing firms have outsourced processes off shore c. Service orgs also have operations that must be managed 8. Manufacturing Processes change materials in or more of the following dimensions:

a. Physical properties b. Shape c. Fixed dimensions d. Surface finish e. Joining parts 9. Service Process a. Locational transportation/logistics b. Exchange retailing c. Storage warehousing d. Physiological health care e. Informational exchange of data/information 10. Supply chain view within and across organizations two major areas beyond operations management a. Sourcing includes processes associated with service needs, locating and selecting suppliers, negotiating contract and pmt terms b. Logistics plans, implements, and manages the efficient, effective flow and storage of goods and services from the point of origin to the point of end consumption Video: What is OM? Process Design and Analysis 1. Major process decision elements a. process structure determines how processes are designed relative to the kinds of resources needed, how resources are partitioned between them, and their key characteristics b. Customer involvement refers to the ways in which customers become part of the process and the extent of their participation c. Resource flexibility is the ease with which employees and equipment can handle a wide variety of products, output levels, duties, and functions d. Capital and labor intensity is the mix of equipment and human skills in a process. 2. Process structure in services a. Customer contact is the extent to which the customer is present, is actively involved, and receives personal attention during the process i. Customer-contact matrix

b. Service Process Strucuring: i. Front Office process with HIGH customer contact where the service provider interacts directly with the internal or external customer

ii. Hybrid Office a process with MODERATE levels of customer contact and STANDARD services with some options available iii. Back Office a process with LOW customer contact and LITTLE service customization

c. Service-process matrix;

d. Service package i. Supporting facilities the physical resources must be in place to provide the service ii. Facilitating goods materials purchases or consumed by the customer while receiving the service iii. Explicit services benefits readily observable by customer and essential feature of the service (E.g., Mcdonalds satisfied) iv. Implicit services psychological benefits that the customer may vaguely sense or are nonessential features of the service 3. Process structure in manufacturing a. Project Process type of process that has a HIGH degree of CUSTOMIZATION, large scope, HIGH degree of CUSTOMER INVOLVEMENT, and the use of primarily generalized tools and equipment b. Job Shop provides HIGH FLEXIBILITY to produce a VARIETY of products in LIMITED volumes (E,g., bakery with large variety of breads and desserts, a plumber, airplane manufacturer, machine shop) c. Batch process HIGHER VOLUME job shop, in which the same or similar products are produced REPETITIVELY (E.g., commercial printers that produce brochures or advertisements, car loan processing)

d. Line Processes processes that have HIGH VOLUMES, STANDARDIZED products, and dedicated resources (E.g., computer assembly, food production (kellogs corn flakes), book printing) e. Continuous Processes processes that have HIGH VOLUME and LOW FLEXIBILITY, and that work with non-discrete items that are not divided into their final packages until the very end of production (E.g., soda production, chemical production, brewing beer)

f.

Product process Matrix

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4. Production strategies and characteristics a. Engineer to order (ETO): No processing begins until the design is completed b. Make to order (MTO) begin processing only after receiving a customer order c. Assemble to order (ATO) begin processing prior to receiving customer order; complete after receiving customer order d. Make to stock (MTS) complete processing prior to, and hold until, receipt of customer order 5. Process and product layout considerations 6. Strategic fit - implications of process choice 7. Break-even analysis uses and calculations a. Can tell you. i. If forecasted sales volume is sufficient to break even

ii. How low variable cost per unit must be to break even given current prices and sales forecast iii. How low fixed cost needs to be to break even iv. How price levels affect the break-even volume b. Calculation Total Revenue = Total Cost i. RQ = F + VQ or Q = F / (R-V) Video: King Soopers Bakery (process choices due to volume and customization, business implications) Constraint & Capacity Management 1. Capacity is the maximum rate of output of a process or system is the ability to hold, receive, absorb, process or transform resources 2. Capacity measures must be customized to fit specific situations a. Output measurers: units or resources exiting a process or system b. Input measures: units or resources that are put into or enter the process or system 3. Utilization =       4. Capacity factors a. Economies of scale occur when the average unit cost of a service or good can be reduced by increasing its output rate 1. Result from: 1. Ability to spread setup costs 2. Ability to obtain quantity purchase discounts 3. Ability to spread construction costs 4. Various process advantages b. Diseconomies of scale occur when the average cost per unit increases as the facilitys size increases 5. Capacity timing and sizing strategies a. capacity cushions 100% - utilization rate (%) b. aggressive expansion of facilities where capacity exceeds projected demand in the short term c. wait-and-see strategies typically involve postponing of building or expanding facilities, or acquiring equipment or personnel until after demand has already exceeded capacity d. connections between process capacity and other decisions, and evaluating capacity alternatives 6. Smoothing capacity requirements yield management and complementary products 7. Systematic approach to capacity decisions a. Four-step approach 1. Identify largest constraint = min/part, measure/WIP 2. Exploit run longer 3. Subordinate paced process 4. Elevate lift load (E.g., new machine, additional people, speed up) b. Calculating capacity requirements 8. Special factors for managing service capacity 9. Identification and management of bottlenecks, product mix considerations a. Traditional Method select the best mix according to the highest overall profit margin for each product b. Bottleneck-based approach better using the bottleneck resource maximize throughput calculate profit margin per minute at the bottleneck - takes traditional method one step further Video: The Goal! (ways to improve productivity, how to find the bottleneck, Theory of Constraints: Identify, Exploit, Subordinate, Elevate, Repeat)

Inventory Management 1. Independent demand inventory items for which demand is influenced by market conditions and is not related to production decisions for any other item held in stock 2. Dependent demand inventory items required as components or inputs to a product or service and depends on independent demand 3. Pressures for low inventories a. Inventory holding costs sum of cost of capital and VC of keeping items on hand such as, storage and handling, taxes, insurance, and shrinkage 4. Pressures for high inventories a. Customer service b. Ordering cost c. Setup cost d. Labor and equipment utilization e. Transportation costs f. Quantity discount 5. Types of inventory a. Cycle Stock inventory that results from the replenishment process of a fixed order quantity b. Safety stock amount held due to demand or supply uncertainties, increases with high variation in demand or supply, should be determined by customer service level foals c. Pipeline Inventory items that are en-route from one location to another considered part of on-hand inventory, even though it is not available d. Anticipation Stock items stocked in anticipation of a known event 6. Placement of Inventor can be held in a. Raw materials b. Work-in-process c. Finished goods 7. and inventory reduction tactics 8. Economic order quantity best in make-to-stock environments with stable demand and known holding & ordering costs determines least total cost Q to order a. Balances the two costs of holding inventory and acquiring inventory b. Assumptions i. Demand is known and steady ii. Lead times are constant iii. Costs are constant iv. Item is supplied as needed v. Each individual item is independent, variables, calculation, effects of changes, time between orders, total cost 9. Inventory control systems a. continuous review (Q) system (including inventory position, cycle-service levels, calculating safety stock and reorder points, total cost) (Reorder point systems) are designed to track the remaining inventory of an item each time a withdrawal is made to determine whether it is time to reorder b. periodic review (P) systems (fixed interval reorder systems) in which an items inventory position is reviewed periodically rather than continuously 10. Alternative inventory systems (including development of an ABC system)

Supply Chain Management 1. Globalization - what it is, a. why and how firms globalize i. cheaper labor ii. access to knowledge and skills iii. rich in natural resources iv. access to new markets v. can reduce logistics and distribution costs vi. take advantage of tax and financial incentives vii. political and industry-specific reasons b. Functions globalized, i. Manufacturing ii. Procurement iii. Maintenance and monitoring iv. Logistics and distribution services v. Customer service and support vi. Knowledge-based processes vii. Product development and innovation c. Classifications i. Offshore factory ii. Source factory iii. Server factory iv. Contributor factory v. Outpost factory vi. Lead factory 2. Measures of supply chain performance a. average aggregate inventory value total value of all items held in inventory for a firm b. weeks of supply average aggregate inventory value divided by sales per week at cost i. weeks of supply = average aggregate inventory value / weekly sales (at cost) c. inventory turnover annual sales at cost divided by the average aggregate inventory value maintained for the year i. inventory turnover = annual sales (at cost) / average aggregate inventory value d. process measures i. customer relationship-percent of shipments complete and on-time ii. order fulfillment iii. supplier relationship 3. Supply chain dynamics external and internal causes of disruption; tactics for reducing a. bullwhip effect the phenomenon in supply chains whereby ordering patterns experience increasing variance as you produced upstream in the chain b. Tactics for reducing bullwhip effect i. Buffering safety stock, safety lead time, safety capacity ii. Postponement wait until uncertainties are resolved 3 types production, logistics, and full iii. Info sharing uncertainty is reduced when forecasts, sales, data, production schedules and future plans are shared iv. Coordination beyond info sharing requires commitment to certain actions c. external causes of disruption i. variable delivery lead time ii. incorrect shipment quantities iii. volume changes iv. service and product mix changes

d. Internal causes of supply chain disruption i. Service or product promotions ii. Information errors iii. New service or product introductions iv. Engineering changed v. Internally generated shortages 4. Supply chain strategies a. Efficient supply chains focus on the efficient flows of services and materials, keeping inventories to a minimum i. Work best where demand is highly predictable b. Responsive supply chains designed to react quickly and be flexible i. Work best when firms offer a great variety of services or products and demand predictability is low c. supply-based segmentation i. Transaction-based relationship ii. Arms Length iii. Full Partnership d. and management, outsourcing and off-shoring, e. Virtual supply chains outsourcing some part of the entire order fulfillment process with the help of sophisticated web-based information technology support packages i. Benefits 1. Reduced investment 2. Greater service or product variety 3. Lower costs 4. Lower transportation costs 5. Sustainable operations management lifecycle analysis, triple bottom line