Operations Management - Inventory & Lean Production

Flashcards covering key concepts from the lecture notes on inventory management, lean production, and related topics.

What is Continuous Improvement (Kaizen)?

Small, incremental improvements with employee involvement and a focus on customer value.

What is Total Productive Maintenance (TPM)?

A method to prevent breakdowns.

What is the formula for Economic Order Quantity (EOQ)?

Q = √(2AS/ic)

What is the formula for Order Point?

OP = DDLT + SS

What is the formula for Safety Stock?

SS = Safety Factor × σ

What is the formula for Inventory Turns?

COGS / Average Inventory

What is the roof of the House of Lean focused on?

Eliminate waste (Muda).

What are the two pillars of the House of Lean?

Just-in-Time (JIT) and Jidoka (Autonomation).

What is the foundation of the House of Lean?

Continuous improvement (Kaizen) and respect for people.

What are the 5S principles?

Sort, Straighten, Shine, Standardize, Sustain.

What is Kanban?

A pull-based replenishment system.

What is Takt Time?

Production rate matching customer demand.

What is Value Stream Mapping (VSM)?

A method to visualize and eliminate non-value-added steps.

What is a Push system (MRP/ERP)?

Forecast-driven system that schedules production in advance.

What is a Pull system (Kanban)?

Demand-driven system that replenishes only what is consumed.

What are the advantages of Pull systems?

Reduces inventory, faster response to demand changes, encourages process improvement.

What are the disadvantages of Pull systems?

Struggles with high demand variability, less effective for new product introductions.

What is Lot-for-Lot?

Ordering exactly what is needed.

What is Fixed Order Quantity?

Ordering the same amount each time.

What is Periods of Supply?

Ordering enough to cover a fixed time period.

What is Economic Order Quantity (EOQ)?

Order quantity that minimizes total ordering and carrying costs, assuming constant demand and fixed setup costs.

What is Period Order Quantity (POQ)?

Adjusting the order frequency based on EOQ.

What is Order Point (OP)?

The level of inventory which triggers an action to replenish that particular stock.

What is the formula for Order Point (OP)?

OP = Demand During Lead Time (DDLT) + Safety Stock (SS)

What is the formula for Safety Stock (SS)?

SS = Safety Factor × σ (standard deviation)

What does service level represent?

The percentage of time stockouts are avoided.

What are order costs?

Setup/teardown costs, purchase order processing, and lost capacity costs.

What are stockout costs?

Lost sales, backorders, and customer dissatisfaction.

What are capacity-associated costs?

Hiring, training, and overtime costs.

What is the formula for Inventory Turns Ratio?

Annual Cost of Goods Sold / Average Inventory Value

What is the formula for Days Supply?

Inventory on Hand / Average Daily Usage

What are A items in ABC inventory analysis?

Approximately 20% of items, representing 80% of the value, requiring tight control and frequent counts.

What are B items in ABC inventory analysis?

Approximately 30% of items, representing 15% of the value, requiring moderate control.

What are C items in ABC inventory analysis?

Approximately 50% of items, representing 5% of the value, requiring minimal control and bulk ordering.

What are the three steps for ABC Classification?

1. Calculate annual dollar usage (units x cost). 2. Rank items by dollar value (highest to lowest). 3. Assign A, B, C classifications.

What are Raw Materials?

Items not yet entered into production.

What is Work-in-Process (WIP)?

Items currently being manufactured.

What are Finished Goods?

Completed products ready for sale.

What are Distribution Inventories?

Stock held in warehouses or distribution centers.

What is Maintenance, Repair, and Operating (MRO) inventory?

Supplies not part of the final product (e.g., cleaning supplies).

What is Anticipation Inventory?

Stock built for expected demand (e.g., seasonal demand).

What is Safety Stock (Buffer Inventory)?

Protects against variability in demand, lead time, or quality issues.

What is Lot-Size Inventory?

Ordered in quantities larger than immediate need (e.g., EOQ).

What is Transportation Inventory?

Inventory in transit.

What is Hedge Inventory?

Protection against price fluctuations.

What is Decoupling Inventory?

Allows different production stages to operate independently.

What is Item Cost (Landed Cost)?

Purchase price + transportation.

What are Carrying Costs?

Cost of capital (opportunity cost), storage costs, and risk costs (obsolescence, damage, theft).