COB 300 Operations Exam #2

quality control

process that evaluates output relative to a standard and takes corrective action when output doesn't meet standards

acceptance sampling

approach to quality assurance where inspection is done before/after production; least progressive approach

process control

approach to quality assurance where inspection and corrective action is done during production

continuous improvement

approach to quality assurance where quality is built into the process; most progressive approach

inspection

appraisal of goods or services; used to provide information on the degree to which items conform to a standard

low-cost, high-volume items (paper clips, roofing nails, wooden pencils) require:

little inspection because the cost associated with passing defective items is quite low and the processes that produce these items are highly reliable so defects are rare

high-cost, low-volume items require:

more intensive inspection; automated inspection is an option that can be used

quality conformance

product or service conforms to specifications

statistical process control (SPC)

statistical evaluation of the output of a process; used to decide if a process is in control or if corrective action is needed

random variation

natural variation in the output of a process, created by countless minor factors; common variability (variations are so minor that it is unimportant to attempt to eliminate them)

assignable variation

in process output, a variation whose cause can be identified; non-random variation

sampling distribution

theoretical distribution of sample statistics; most frequently used is normal distribution

central limit theorem

distribution of sample averages tends to be normal regardless of the shape of the process distribution

How is control achieved?

by checking a portion of the goods or services, comparing the results to a predetermined standard, evaluating departures from the standard, taking corrective action when necessary, and following up to ensure that problems have been corrected

control chart

time-ordered plot of sample statistics, used to distinguish between random and nonrandom variability; has upper and lower limits to define range of acceptable variation from the sample statistic

control limits

dividing lines between random and nonrandom deviations from the mean of the distribution

Type I error

concluding a process is not in control when it actually is; also referred to as alpha risk

Type II error

concluding a process is in control when it is not

variables

generate data that are measured (amount of time needed to complete a task, length or width of a part)

attributes

generate data that are counted (ex number of defective parts in a sample, the number of calls per day)

mean control chart/x-bar chart

control chart used to monitor the central tendency of a process

upper control limit (UCL) for x-bar chart

x-bar-bar + z(standard deviation of x-bar)

lower control limit (LCL) for x-bar chart

x-bar-bar - z(standard deviation of x-bar)

standard deviation of x-bar

process standard deviation/square root(sample size)

range control chart

control chart used to monitor process dispersion

upper control limit (UCL) for R-chart

D4(R-bar)

lower control limit (LCL) for R-chart

D3(R-bar)

p-chart

control chart for attributes, used to monitor the proportion of defective items in a process

standard deviation, p

square root of (p(1-p))/n; used if p is known; if p is unknown, you replace p with p-bar and standard deviation, p becomes standard deviation-hat, p

upper control limit (UCL) for p

p + z(standard deviation, p)

lower control limit (LCL) for p

p - z(standard deviation, p)

c-chart

control chart for attributes, used to monitor the number of defects per unit

upper control limit (UCL) for c

c + z(square root of c)

lower control limit (LCL) for c

c - z(square root of c)

If c is unknown...?

sample estimate, c-bar, is used in place of c

c-bar

number of defects/number of samples

run test

test for patterns in a sequence; enables analysts to do a better job of detecting abnormalities in a process and provides insights into correcting process that is out of control

run

sequence of observations with a certain characteristic

specifications

range of acceptable values established by engineering design or customer requirements

process variability

natural or inherent variability in a process; measured in terms of process standard deviation

process capability

inherent variability of process output relative to variation allowed by the design specification

capability index

used to assess the ability of a process to meet specifications; to be deemed capable this must be of at least 1.00 though this means the process is barely capable; want to aim for at least 1.33

process capability index, Cp

Specification width/process width OR (upper specification - lower specification)/6sigma

process capability, Cpk

used if process is not centered; (upper specification - process mean)/3sigma AND (process mean - lower specification)/3sigma

reliability

ability of a product, service, part, or system to perform its intended function under a prescribed set of conditions; is a probability

independent events

events whose occurrence or nonoccurence does not influence each other

probability rules

Rule 1: If two or more events are independent and success is defined as the probability that all of the events occur, then the probability of success is equal

Rule 2: If two events are independent and success is defined as the probability that at least one of the events will occur, the probability of success is equal to the probability of either one plus 1.00 minus that probability multiplied by the other probability

Rule 3: If two or more events are involved and success is defined as the probability that at least one of them occurs, the probability of success is 1-P (all fail)

redundancy

the use of backup components to increase reliability

mean time between failures (MTBF)

the average length of time between failures of a product or component

z

(T - mean wear-out time)/standard deviation of wear-out time

availability

fraction of time a piece of equipment is expected to be available for operation; = MTBF/MTBF + MTR where MTR=mean time to repair, including waiting time

capacity

the upper limit or ceiling on the load that an operating unit can handle

design capacity

maximum designed service capacity or output rate

effective capacity

design capacity minus personal and other allowances

efficiency

(actual output/effective capacity) x 100%

capacity utilization

(actual output/design capacity) x 100%

capacity cushion

extra capacity used to offset demand uncertainty

steps in capacity planning process

estimate future capacity requirements, evaluate existing capacity and facilities and identify gaps, identify alternatives for meeting requirements, conduct financial analyses of each alternative, assess key qualitative issues for each alternative, select the alternative to pursue that will be best in the long term, implement the selected alternative, and monitor results

bottleneck operation

operation in a sequence of operations whose capacity is lower than that of the other operations

economies of scale

if the output rate is less than the optimal level, increasing the output rate results in decreasing average unit costs

diseconomies of scale

if the output rate is more than the optimal level, increasing the output rate results in increasing average unit costs

constraint

something that limits the performance of a process or system in achieving its goals

break-even point

volume of output at which total cost and total revenue are equal

indifference point

quantity that would make two alternatives equivalent

cash flow

difference between cash received from sales and other source, and cash outflow for labor, material, overhead, and taxes

present value

sum, in current value, of all future cash flows of an investment proposal

aggregate planning

intermediate-range capacity planning, usually covering 2 to 12 months; goal is to achieve a production plan that will effectively utilize the organization's resources to match expected demand

sales and operations planning

intermediate-range decisions to balance supply and demand, integrating financial and operations planning

level capacity strategy

maintaining a steady rate of regular-time output while meeting variations in demand by a combination of options

chase demand strategy

matching capacity to demand; the planned output for a period is set at the expected demand for that period

number of workers in a period

number of workers at the end of the previous period + number of new workers at start of the period - number of laid-off workers at start of the period

inventory at the end of a period

inventory at end of the previous period + production in the current period - amount used to satisfy demand in the current period

average inventory for a period

(beginning inventory + ending inventory)/2

cost for a period

output cost + hire/lay-off cost + inventory cost + back-order cost

simulation models

computerized models that can be tested under different scenarios to identify acceptable solutions to problems

yield management

application of pricing strategies to allocate capacity among various categories of demand

master production schedule (MPS)

schedule indicates the quantity and timing of planned completed production

rough-cut capacity planning (RCCP)

approximate balancing of capacity and demand to test the feasibility of a master schedule

time fences

points in time that separate phases of a master schedule planning horizon

available-to-promote (ATP) inventory

uncommitted inventory

inventory

stock or store of goods

Little's Law

average amount of inventory in a system is equal to the product of the average demand rate and the average time a unit is in system

inventory turnover

ratio of average cost of goods sold to average inventory investment

periodic system

physical count of items in investor made at periodic intervals (weekly, monthly)

perpetual inventory system

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

two-bin system

two containers of inventory; reorder when the first is empty

universal product code (UPC)

bar code printed on a label that has information about the item to which it is attached

point-of-sale (POS) systems

record items at time of sale; can greatly enhance forecasting and inventory management

lead time

time interval between ordering and receiving the order

purchase cost

amount paid to buy the inventory

orderingcosts

costs of ordering and receiving inventory

setup costs

costs involved in preparing equipment for a job

shortage costs

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

ABC approach

classifying inventory according to some measure of importance, and allocating control efforts accordingly; A=very important, account for 10-20% of number of items and 60-70% of dollar value; B=moderately important; C=least important, 50-60% of items and 10-15% of the dollar value of inventory

cycle counting

physical count of items in inventory

cycle stock

amount of inventory needed to meet expected demand

safety stock

extra inventory carried to reduce the probability of a stockout due to demand and/or lead time variability; depends on average demand rate and average lead time, demand and lead time variability, and the desired service level

economic order quantity (EOQ)

order size that minimizes total annual cost

assumptions of EOQ model

Only one product is involved, annual demand requirements are known, demand is spread evenly throughout the year so that the demand rate is reasonably constant, lead time is known and constant, each order is received in a single delivery, and there are no quantity discounts

annual carrying cost

(Q/2)H; Q=order quantity in units and H=holding cost per unit per year