Operations Management Productivity Ratios/Break-Even Analysis, Operations Management Inventory Management/Supply Chain Design, Operations Management Strategic Capacity/Theory of Constraint

operations and supply chain management (OCSM)

the design, operation, and improvement of the systems that create and deliver the firm's primary products and services

operations

refers to manufacturing and service processes that are used to transform the resources into products

supply chain

refers to processes that move information/materials to and from manufacturing processes

processes

one or more activities that transform inputs into outputs

service

1. intangible

2. interaction with customer

3. heterogeneous (varies)

4. perishable

pure goods

food products, chemicals, mining

core goods

appliances, automobiles

core services

hotels, airlines, internet service providers

pure services

therapy session, yoga class

just-in-time (JIT)

An integrated set of activities designed to achieve high-volume production using minimal inventories of parts that arrive exactly when they are needed.

total quality control (TQC)

aggressively seeks to eliminate causes of production defects

lean manufacturing

to achieve high customer service with minimum levels of inventory investment

Total Quality Management (TQM)

managing the entire organization so it excels in all dimensions of products and services important to the customer

Business Process Reengineering (BPR)

An approach to improving business processes that seeks to make revolutionary changes as opposed to evolutionary (small) changes.

Six Sigma

A statistical term to describe the quality goal of no more than 3.4 defects out of every million units

- also refers to a quality improvement philosophy and program

triple bottom line

people, planet, profit

ex: Patagonia

efficiency

doing something at the lowest possible cost

effectiveness

doing things to meet requirements (quality)

value

highest quality relative to cost

productivity

highest outputs relative to inputs

lead time

the time needed to respond to a customer order

customer decoupling point

where inventory is positioned in the supply chain

make-to-stock (shortest lead time)

serve customers from finished goods inventory (ex: Tide laundry detergent)

assemble-to-order

preassembled modules are put together to meet a customer's specific order (ex: Chipotle)

make-to-order

where product is built directly from raw materials and components in response to specific customer order (does NOT carry finished goods until order is received)

(ex: customized wedding cake)

engineer-to-order (highest lead time)

firm works with the customer to design the product, which is then made from purchased material, parts, and components

(ex: customized NASA spacecraft)

process selection

the strategic decision of selecting which kind of production processes to use to produce a product or provide a service

ex: if low volume --> manual assembly

if high volume --> set up assembly line

project layout

A setup in which the product remains at one location, and equipment is moved to the product

ex: construction site, equipment is moved to the product

workcenter layout

where similar equipment or functions are grouped together

ex: put all drilling materials in one area

manufacturing cell

where products that are similar in processing requirements are produced

continuous process

a process that converts raw materials into finished product in one continuous process

product-process matrix

a framework depicting when the different production process types are typically used depending on product volume and how standardized the product is

service package

a bundle of goods and services that is provided in some environment

the service triangle

1. service strategy

2. employees

3. support systems

(the customer is in the center)

Job Shop

low volume, high customization

ex: customized cake, spacecraft

Batch

medium/low volume, medium/high customization

ex: grocery store bakery

Line

medium/high volume, medium/low customization

ex: car manufacturer

Continuous Flow

high volume, low customization

ex: chemical refinery, oil

Front Office

Customer-Contact Matrix: high customer involvement, low volume

ex: hotel concierge (highly personalized recommendations/service)

Hybrid

Customer-Contact Matrix: medium customer involvement, medium volume

ex: bank teller (somewhat routine, somewhat personalized service)

Back Office

Customer-Contact Matrix: low customer involvement, high volume

ex: car repairman (you drop off your car and leave, they perform routine repairs)

single-period model of demand

one-time purchase of item

ex: purchasing t-shirts to sell at one-time sporting event

fixed-order quantity model of demand (EOQ model)

used when we want to maintain an item "in-stock"

- inventory for item is monitored until risk of stocking out, so must order more

fixed-time period model of demand (P model)

item is ordered at certain intervals of time

ex: every Friday morning, grocery store orders delivery of different breads

inventory position

The amount on-hand plus on-order minus backordered quantities

safety stock

the amount of inventory carried in addition to the expected demand

optimal order quantity (Qopt)

order size that minimizes total cost

reorder point (R)

an order is placed when inventory drops to this level

inventory turn

a measure of the expected number of times inventory is replaced over a year

ABC inventory classification

divides inventory into dollar volume categories that map into strategies appropriate for the category

(A) high dollar volume

(B) moderate dollar volume

(C) low dollar volume

Pareto Principle

for many outcomes, roughly 80% of the effects come from 20% of the causes.

strategic sourcing

the development and management of supplier relationships to acquire goods and services in a way that aids in achieving the immediate needs of the business

sourcing

process for procuring products that are strategically important to the firms

specificity

how commonly available material is and whether substitutes can be used

ex: common --> low specificity

not common --> high specificity

vendor managed inventory

When a customer allows the supplier to manage the inventory policy of an item or group of items.

forward buying

refers to when a customer, responding to a promotion, buys far in advance when an item will be used

ex:

bullwhip effect

the variability in demand is magnified as we move from the customer to the producer in the supply chain

- indicates lack of synchronization in supply chain

ex: beer scenario

functional products

staples that people buy in a wide range of retail outlets, such as grocery stores and gas stations

- predictable demand

- long life cycles

ex: toothpaste, toilet paper

innovative products

products such as fashionable clothes and personal computers that typically have a life cycle of just a few months

- unpredictable demand

- new, innovative, trendy

efficient supply chain

utilize strategies aimed at creating the highest cost efficiency (lowest possible cost)

risk-hedging supply chain

utilize strategies aimed at pooling and sharing resources in a supply chain to share risk

ex: multiple groups sharing cost of increasing safety stock

responsive supply chain

utilize strategies aimed at being responsive and flexible to changing customer need

(customization, speed, customer-centric)

agile supply chain

utilize strategies aimed at being responsive in an unpredictable environment

(market responsiveness)

inventory turnover

measures the number of times on average the inventory is sold during the period

cost of goods sold

the annual cost for a company to produce the goods or services provided to customers

average aggregate inventory value (AAIV)

the total average value of all items held in inventory for a firm, valued at cost

weeks of supply

how many weeks' worth of inventory is in the system at a particular point in time

capacity

the output a system is capable of achieving overtime

ex: 480 cars per day

long-range time dimension of capacity

greater than ONE YEAR productive resources, takes a long time to acquire/dispose of (ex: buildings, equipment, facilities)

intermediate range time dimension of capacity

monthly or quarterly plans, capacity may be varied by alternatives like hiring layoffs, new equipments

short range time dimension of capacity

less than ONE MONTH, tied into the daily scheduling process and involves making adjustments to eliminate the variance between planned and actual output

strategic capacity planning

Finding the overall capacity level of capital-intensive resources to best support the firm's long-term strategy

best operating level

output level where average unit cost is minimized

capacity utilization rate

Measure of how close the firm's current output rate is to its best operating level (percent)

economies of scale

As you produce more units, the cost per unit goes down. (You get cheaper because you get bigger.)

diseconomies of scale

As you produce too many units, the cost per unit starts to go up. (You get inefficient because you get too big.)

economies of scope

It is cheaper to produce two different products together than to produce them separately in two different factories.

capacity cushion

capacity in excess of expected demand

capacity utilization

measures how much of a company's potential output is actually being utilized

expansionist

- infrequent, larger increases

- innovative products

wait-and-see

- more frequent, smaller increases

- functional products (toilet paper, laundry detergent)

capacity planning in manufacturing

capacity is measured as output, predictable demand

ex: toy factory: how many toys were produced?

capacity planning in service

capacity is measured as input, unpredictable demand

ex: hospital: how many beds, ORs, staff?

optimized production technology (OPT)

schedule for more optimal production

- scheduling based on separation of bottleneck and nonbottleneck operations

synchronous manufacturing

A production process coordinated to work in harmony to achieve the goals of the firm

- goal of every firm is to MAKE MONEYYY

throughput

the rate at which money is generated by the system through sales

inventory

all the money that the system invested in things it intends to sell

operating expenses

all the money the system spends to turn inventory into throughput

ex: rent, utilities, salaries

bottleneck

The slowest step in a process. It limits the overall capacity of the entire system. Everything else must wait for it.

non bottleneck

A faster step that has extra capacity. It often ends up waiting because it finishes its work faster than the bottleneck can accept it.

Capacity-constrained resource (CCR)

any resource (machine, person, or step) that has a utilization rate so high that if it loses even a small amount of time (due to a breakdown or delay), it will cause the entire system to lose output

- if not careful, will become bottleneck

steps of synchronous manufacturing

1. IDENTIFY system constraint

2. Decide how to EXPLOIT constraint

3. SUBORDINATE everything else to that decision

4. ELEVATE the system constraint

5. REPEAT the process

what does TOC do in operational excellence?

manage constraints