OM 323 Final Exam

what is capacity?

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

how is capacity measured?

Measured in output (# of units) or availability of inputs (e.g. machine or labor hours)

what is design capacity?

Maximum output under ideal conditions

what is effective capacity?

Maximum capacity given product mix, maintenance, breaks, and other doses of reality

what is actual output

Rate of output actually achieved - cannot exceed effective capacity 

how to improve capacity utilization

increase effective capacity

what are some way to develop capacity alternatives?

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* Design flexibility into systems
* Take stage of life cycles into account
* Take a “big picture approach”
* Prepare to deal with capacity chunks 
* Attempt to smooth out requirements
* Identify optimal operating level

what are functions of size of a production unit?

minimum costs and optimal operating rates

most capacities are ? in nature

fixed cost

what is the alternative to own capacity (and make the products ourselves)

buy from suppliers or contract manufacturers

what is indifference point

cost to buy = cost to make

what should you do if expected volume is larger than the IP

make

what should you do if expected volume is less than the IP

buy

what are some capacity planning challenges for services

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* The inability to produce and store services for consumption later
* The need to produce and deliver services with the customer present
* Greater demand volatility in short time increments

what is demand management strategies used to offset?

capacity limitations and shift demand away from peak periods

reasons to make location decisions

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* New company 
* Expand markets or adjust to shifts
* Accommodate growth in demand
* Reduce costs
* Depletion of resources
* Mergers and acquisitions

what is the process to make location decisions

1. identify a country
2. identify a general region
3. identify a small # of community alternatives
4. identify site alternatives
5. 5 evaluate and amke selection

what are the two methods to evaluate location decisions

1. center of gravity
2. factor rating method

what is center of gravity

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* Minimizes factors such as costs, distance, and response - or travel time
* Can include customers, suppliers, or both
* for products

what is factor rating method

Incorporates qualitative and quantitative factors into a single weighted value. for services

what is not a major consideration for service locations

nearness to raw materials

how many # of receiving addresses for large chains and mass merchants?

handful (1-10 DC’s per each chain)

how many # of receiving addresses for independent retail stores?

tens/hundreds (separately to each store)

how many # of receiving addresses for online sales ?

Tens of Thousands (separately to each consumer)

what is frequency of shipment for large chains and mass merchants?

tens of thousands of units

what is frequency of shipment for independent retail stores?

tens of units

what is frequency of shipment for online sales?

single unit

planned vs responsive ? (large chains and mass merchants)

planned & regular schedule

planned vs responsive ? (independent retail stores)

responsiveness to each store’s order

planned vs responsive ? (online sales)

responsive to each consumer’s order

logistics parters for large chains and mass merchants

logistics companies, 3PLs

logistics partners for independent retail stores

parcel freight companies like UPS

logistics partners for online sales

package delivery companies like fedex and USPS

do products or services have greater labor flexibility?

services

how do demand for services need to be predicted?

predicted by day and hour

what is inventory

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* Parts in a factory
* Product on a retailer’s shelves 
* Paper towels in cupboard
* Customers on hold

is inventory limited to physical products?

no, not limited to physical products

what are considered inputs within an organization

raw materials (materials received, customers waiting in a bank, customers on hold)

what is considered transformation in a organization

work in process (semi finished products, customers at the counter, paperwork on desk)

what is considered output in a organization?

finished goods (products waiting to be shipped, customers leaving the bank, paperwork in out box

what is the purpose of cycle stock

inventory holding costs = inventory ordering costs

what is cycle stock

the amount of inventory available to meet typical demand during a given period

which stock is to achieve economies of scale?

cycle stock

which stock is to deal with uncertainty

safety stock

which stock is for smoothing capacity requirements

pre-build stock

which stock is for hedging against possible price increases in the future

speculative stock

which stock is to keep supply lines full

pipeline stock

what are some costs of holding onto inventory?

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* Holding inventory costs money
* Warehousing, insurance …
* Opportunity cost of investment (interest)
* Taxes
* Devaluation
* Rework

how much does it cost to keep inventory for a year

average of 30% of item cost to keep inventory for a year

what are costs of ordering?

Costs that are associated with ordering (and receiving) raw materials, each time purchasing order is issued and does not depend on the order size

what is demand in the economic order quantity model?

demand is known and constant

what is the trade off in the economic order quantity model?

fixed order costs vs inventory costs

what are the basic inventory management decisions?

how much to order and when to order?

what does EOQ model assume?

constant demand and instant replenishment of inventory

what is the reorder point model

When the quantity on hand of an item drops to this amount, the item is reordered

what is uncertain about the reorder point model?

uncertain demand and/or lead time

what is the tradeoff for reorder point model?

service level and inventory costs

what is lead time

time between submitting an order and receiving it

what is service level?

The probability that demand will not exceed supply during the lead time period (no stockout)

what does a greater value of z indicate?

the smaller the risk you are willing to take

what does a smaller value of z indicate?

the larger the risk you are willing to take

what is a single period inventory model

ordering decision is made every period

what is uncertain in a single period inventory model

demand is uncertain

when is order placed during a single period inventory model

order is placed before demand materializes

how many times can a order be placed in a single period inventory model

once

what is the tradeoff in a single period inventory model

excess vs shortage

what are the inputs for a single period inventory model

1. revenue per unit
2. cost per unit
3. salvage value per unit

what does the income statement determine

cogs (direct mateirals, direct labor, MOH (products, facility (services)

what does the balance sheet affect

drives inventories in current assets (raw materials, WIP, finished goods)

wait time is x added

non value

what are the costs of waiting time

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* Lower productivity
* Reduced competitiveness 
* Wastes resources
* Diminished quality of life 

why is there waiting

demand > capacity and variability

what is variable in waiting

arrival and service rates

what are some characteristics of waiting lines

1. population source
2. number of servers
3. arrival and service patterns
4. queue discipline

what is littles law

For a stable system, the average number of customers in line or in the system is equal to the average customer arrival rate multiplied by the average time in the line or system

what are some waiting line metrics

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* The average number of customers waiting (in line or in the system)
* The average time customers wait (in line or in the system)
* System utilziation
* The implied cost of a given level of capacity and its related waiting line
* The probability that an arrival will have to wait for service 

what does service system design reflect?

desire of management to balance cost of capacity with expected cost of customers waiting in the system

what is considered optimal capacity?

Optimal capacity is one that minimizes sum of customer waiting costs and capacity or server costs 

what is quality

The ability of a product or service to consistently meet or exceed customer expectations 

what does fewer production or service problems yield in terms of costs?

costs are lowered

what does fewer production or services problem yield in terms of productivity and profits?

higher productivity and profit

what is the least progressive in the evolution of quality management?

quality assurance, it is reactive and the emphasis on finding and correcting defects before reaching market

what is the most progressive in the evolution of quality management?

strategic approach, it is proactive and focuses on preventing mistakes from occurring in the first place

how many defect per million in any process, product, or serivce?

3\.4 defects per million

what is the principle for six sigma?

reduction in variation

what is six sigma focusing on

Focus on modifying and/or controlling inputs to improve outputs

what is vilfredo pareto effect

relatively few factors generally account for a large % of the total cases

what is the 80-20 rule

80% of problems come from 20% of items

what is the formalized problem solving process of six sigma

DMAIC (define, measure, analyze, improve, control)

what is a control chart

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* Evaluating process output - is it random
* Helps detect presence of correctable causes of variation
* Tells when a problem occurred and gives insight into what caused the problem 

what are the two strategies for quality control

1. acceptance sampling
2. statistical process control

what is acceptance sampling

inspection before and after production

what is statistical process control

inspection and corrective action during production

what type of inspection is cost prohibitive

100% inspection

what types of inspection makes sense?

raw materials, WIP, finsihed goods, centralized or offsite

what are some problems with inspection?

1. expensive
2. not completely effective
3. doesnt prevent problems, just catches them

what is a better solution to inspections

control your process so you are assured that products have good quality

what are two critical methods to statistical process control

1. process capacity analysis
2. control charts

what is process capacity analysis

To assure your selected process is inherently capable to meet the quality standard under normal conditions

how is process capacity analysis conducted?

by comparing the inherent process variability (sigma) and the range of acceptable values (upper and lower specifications)