Business operations final exam

Operations management

the processes that effectively produce, transform, and deliver a product or service

Why is operations management important to study?

◦ Understand the flow of the business and how products reach the consumer

◦ Uses resources more efficiently, improve business processes effectiveness, improve relationships between business entities, help meet strategic goals, increase customer service

What is supply chain management about?

About how things get done

Getting the product made and in the customers hands without defects

Key Inputs into the Transformation Process

Land, Labour, Capital and Enterprise

Product

the particular good or service a company sells

Service

an activity, benefit, or satisfaction offered for sale that is essentially intangible and does not result in the ownership of anything

Can there be services without products?

-There cannot be services without products

Manufacturing processes

◦ Understand the flow of the business and how products reach the consumer

◦ Uses resources more efficiently, improve business processes effectiveness, improve relationships between business entities, help meet strategic goals, increase customer service

Service processes

locational, exchange, storage, physiological, informational

What 4 core processes do operations (supply chain) managers "obsess" over?

Order fulfillment, customer relationship, supplier relationship, and new product/service development

What decisions do operations managers typically make?

-Process, capacity, Inventory, Quality, Workforce, logistics

What is an operations strategy?

the means by which operations implements the firm's corporate strategy and helps to build a customer-driven firm

Strategy

What should we do

How should we do it

core competencies

the unique resources and strengths that an organization's management considers when formulating strategy

What do core competencies include?

Workforce

Facilities

Market and financial know-how

System and tech

What are the four competitive priorities?

cost, quality, time, flexibility

Competitive Priorities

what the company would like to achieve

Competitive Capabilities

the unique and valued skills, processes and knowledge the firm is able to actually achieve and use to satisfy customers

Order winner

Characteristic causing customers to prefer you over your competitors

Order qualifier

Characteristics you need to have to be considered by potential customers

Are competitive capabilities order winners or order qualifiers?

order winners

Four basic process strategies

1. Process focus

2. Repetitive focus

3. Product focus

4. Mass customization

Process structure

How processes are designed, technology used, resources needed, and their key characteristics

Customer involvement

the extent of customer participation in design and delivery

What are the key attributes of the Customer-Contact Matrix?

degree of customer contact, customization, process characteristics

Capacity

The ability to hold, recieve, absorb, process, or transform resources

How is capacity typically measured?

Some unit of measure over some time period

Such as for a restaurant: number of meals/day

Input measures

Units or resources that are put into or enter the process

Output measures

Units or resources existing a process or system

What does the utilization rate tell a manager?

Available time that the resource is used

Is 100% utilization good or bad?

Bad because this does allow cushion for maintenance

What does capacity management include?

The timing of expansion or contraction

The amount of capacity cushion

The size of facilities

The linkage with marketing/business plans

The linkage with competitive priorities

What is an expansionist strategy?

Capacity exceeds projected demand in the short term

What are the advantages/disadvantages of the expansionist strategy?

Advantages: economies of scale

Disadvantages: installed capacity can be much higher than actual demand

Wait-and-see strategy

Involves postponing commitments to building or expanding facilities or acquiring equipment or personnel until after demand has already exceeded capacity

Advantages/disadvantages of the wait-and-see strategy

Advantages: postpones large investments

Disadvantage: very low or no cushion

Inventory

The physical items used by the firm to transform and provide goods and services to customers

Cycle stock

inventory held temporarily for the purpose of fulfilling predicted demand in a period

pipeline stock

inventory currently in transit between locations

Safety stock

the amount of inventory carried in addition to the expected demand

Anticipation stock

Excess inventory that is held in anticipation of increased demand, often because of seasonal patterns of demand.

How much inventory should be carried?

Why should organizations carry inventory?

When it cost less to have it than to not have it

Costs associated with inventory

Item cost

Ordering costs

Carrying cost

Stock out cost

pressure for low inventory

cost of capital, storage and handling, taxes, insurance, and shrinkage

Pressures for high inventory

Ordering cost is lower, set up cost is lower, reduced stock out chance

Inventory Management

Developing and maintaining adequate assortments of products to meet customers' needs

What are key inventory management decisions?

-What items should be ordered and stored

-When items should be ordered and stored

-How much should be ordered and stored

How does an ABC Analysis inform inventory management decisions?

this process divides SKUs into three different classes based on their dollar usage so that managers can focus on items that have the highest dollar value

Class A: 20% of SKUs but 80% of dollar usage

Class B: 30% of SKUs but 15% of dollar usage

Class C: 50% of SKUs but 5% of dollar usage

Key assumptions of EOQ

◦ Demand is known and steady

◦ Lead times are constant

◦ Item is supplied as needed

◦ Each individual item is independent

At EOQ what is the relationship between annual ordering cost and annual holding cost?

They are equal

Lean system

A production system whose main objective is to elimate waste by reducing or minimized supplier, customer service, and internal variability

just-in-time system

An inventory management approach designed to make the right amount of inventory at the right time at all time

How is just in time and lean systems different?

inventory management approach designed to make the right amount of inventory availed at the right time at all times

• Is the Toyota Production System (TPS) a lean system? A JIT System?

Yes, they try to be both

What are the principles for creating and managing a lean system?

‣ Value should be defined from the customer POV

‣ Evaluate production steps in terms of their contributions to the value creation

‣ The value creating sequence of steps should be organized in a tight and integrated sequence to develop a smooth flow toward the customer

‣ Pull not push

‣ All members of the org should pursue perfection through continuous improvement

muda

a Japanese term for production activities that are wasteful and do not add value to the goods or services

Different types of MUDA

◦ Over production

◦ Inappropriate processing

◦ Waiting

◦ Transportation

◦ Movement

◦ Inventory

◦ Poor quality

◦ Underutilization of employees or other resources

How is muda eliminated via Kaizen?

The key is the understanding that excess capacity or inventory hides underlying problems with the processes that produce a product/service

Close Supplier Ties

Good relationships, trust, and information sharing reduce uncertainty and thus will result in fewer unwanted supply chain surprises.

Batch

Quantities of products that are produces together

Setup

a set of activities that are required to produce units but for which the time to complete these activities does not depend directly on the number of units produced

Pull

a production system that uses customer demand as the primary driver for production planning

Push

production system that focuses on maximizing the use of production capacity and therefore is based on estimating customer demand

standardized components

reduces manufacturing and inventory costs

Jidoka (visual control)

automatically stopping the process when something is wrong and then fixing the problems on the line itself as they occur

Poke Yoke

mistake-proofing methods aimed at designing fail-safe systems that minimize human error

Uniform Workstation Loads

-Takt time

-Heijunka

-Mixed-model assembly

Total preventative maintenance

◦ Reduces the frequency and duration of machine downtime, schedules balance the cost of the PM program against the risks and costs of machine failure

Why draw a value stream map?

◦ Links material and info flow for full value stream

◦ Includes critical processes data

◦ Summarizes actual lead times

◦ Established common language

◦ Provides a blueprint for improvement

◦ Exposes opportunities for waste elimination

How is a value stream map similar to a process chart?

Find where there is waste

Takt Time Formula

Takt time = (Daily available work time) / (Daily Required quantity)

Full-time equivalent (FTE)

An employee who works full-time, 40 hours per week, 2080 hours per year

Processing time

the time it takes a resource to complete one flow unit

Cycle time

The average amount of time between individuals units being completed

Major parts of a value stream map

Customer

Main fulfillment process

Suppliers

Info control center

Timeline calculation

What is the purpose of statistical process control?

Reduce variation and defective units in a process

What key statistical concepts and tenets underlie SPC?

◦ Quality is conformance to specifications

◦ All processes cause output to vary

◦ Variation in processes and products can be measured

◦ Common cause variation produces measurements that follow a predicable pattern

◦ Special cause variation disrupts the predicable pattern

◦ Special cause variation can be identified and removed

What tools and methods support statistical process control?

Pchart, cchart, xchart, rchart

What is a control chart?

A chart that measures whether or not a process is in or under control

P-chart

Proportions of defects within a process

C-chart

Mean number of defects per unit

What do control charts reveal about a transformation process?

The number of defects or defective units

How are control charts constructed?

UCL, LCL, and whether or not products fall within this

How are upper and lower control limits on the control chart related to process tolerance limits and customer specification limits?

If a product is higher than UTL then it is undesirable to the consumer

How do we know whether or not a transformation process is capable of meeting customer requirements?

Based on Cp and Cpk of a process capability

Process Capability

The ability of an in control process to meet the design specifications

Cpk

Comparison index of a process observations to desired process performance to determine centered symmetry

Cp

Comparison ratio of observed process spread to the desired process spread

What does 6 sigma mean?

99.99% of values are within the specifications- within 6sigma distribution of USL and LSL

6 sigma

Cp=2

5 sigma

Cp=1.67

4 sigma

Cp=1.33

3 sigma

Cp=1.00

Supply chain

Network of organizations that convert and move material to customers through a linkage of physical, information, and financial flows

Supply Chain Management

Describes how organizations are linked together

Total system approach to managing the entire flow of information, materials, and services from raw material suppliers through factories and warehouses to end customer

What external causes lead to supply chain disruptions and the bullwhip effect?

Variable delivery lead time

Incorrect shipment quantities

Volume changes

Service and product mix changes

What internal causes lead to supply chain disruptions and the bullwhip effect?

Service or product promotions

Information errors

New service or product introductions

Engineering changes

Internally generated shortages

What does the quality of a product or service mean?

Meeting customer expectations that have been established

How does supply chain integration mitigate the bullwhip effect?

1. It helps the firm see the bullwhip coming sooner so they know if they need to stop ordering or if they can keep going.