Operations Management Final

Inventory

is a stock over which we have responsibility and title but yet over which no value is added

Holding Costs

Costs for storage, handling, insurance, breakage

Setup Costs

Costs for arranging specific equipment setups

Ordering Costs

Costs of placing an order and shipping cost

Shortage Costs

Costs of running out

inventory System

The set of policies and controls that monitor levels of inventory and determine what levels should be maintained, when stock should be replenished and how large orders should be

Two bin system

Use one bin to reserve enough during the replenishment period

One bin system

Once order, fill up the bin

independent demand

the demands for various items are unrelated to each other

Dependent demand

The need for anyone itemis a directresult of the need for some other item

Single-period model

used when we are making a one-time purchase of an item, seeks to balance the costs of inventory overstock and understock

Fixed-Order quantity model

used when we want to maintainan item in stock and when we restock, a certain number of units must be ordered, event triggered

Fixed-time period model

The item is ordered at certain intervals of time, time triggered

Quality

Excellence that is better than a minimum standard

Total Quality Management

Managing the entire organization so that it excels on all dimensions of products and services that are important to the customer

Customer Satisfaction

Committed to both internal and external customers, every person in a process and current, prospective and lost customers

Continuous Improvement

Quality Management is a never ending process

System Wide Approach

Top management commitment to quality management principles and methods

Design Quality

Inherent value of the product in the marketplace

Conformance Quality

Degree to which the product or service design specifications are met

Costs of Quality

Appraisal, Prevention, Internal Failure, External Failure

Appraisal Cost

Cost of the inspection and testing to ensure that the product or process is acceptable

Prevention Cost

Sum of all the costs to prevent defects

Internal Failure Cost

Cost for defect incurred within the system (scrap, rework, down time, repair)

External Failure Cost

Cost for defects that pass through the system (warranty, loss of goodwill, repairs)

Six Sigma method

Define, Measure, Analyze, Improve, Control

Define

Identify customers and their priorities

Measure

Determine how to measure the process and how it is performing

Analyze

Determine the most likely causes of defects

Improve

Identify means to remove the causes of defects

Control

Determine how to maintain the improvements

Quality Control Assumption

Every process has random variation but is there a special cause of variation

Safety Stock

Amount of inventory carried in addition to expected demand

Manufacturing Inventory

WIP, Fin Good, Raw Mat

Purposes of Inventory

Maintain independence of operations, meet variation in product demand, to provide a safeguard for variation in raw material delivery time, to allow flexibility in producing scheduling, take advantage of economic purchase order

Process limits

relate to how consistent the process is for making a product

Specification Limits

The range of allowable values associated with a process

Four main issues in creating a control chart

Size of samples, control limits, number and frequency of samples

if common cause is treated as a special cause

Resources will be wasted

If a special cause is treated as a common cause

Missed opportunity to correct and improve

p-Chart

Attribute measurement control chart, can not measure the product characteristic

Variable Measurement

X bar and R bar charts, product characteristics that can be measured

Linear Programming Steps

1) Define decision variable

2) Set Objective Function

3) Set Constraints

ABC Inventory Classification

Divides inventory into dollar value categories that map into strategies appropriate for the category