SCM 352 EXAM 2

1. Make-to-order (MTO, Custom) goods and services

generally produced and delivered as one-of-a-kind or in small quantities, and are designed to meet specific customers’ specifications. (ships, weddings, custom jewelry, estate plans, buildings, and most surgery.)

1. Assemble-to-order (ATO, Option) goods and services

are configurations of standard parts, sub assemblies, or services that can be selected by customers from a limited set. (Ex: Dell computers, Subway sandwiches, machine tools, and travel
agent services.)

1. Make-to-stock (MTS, Standard) goods and services

goods and services are made according to a fixed design, and the customer has no options from which to choose. (appliances, shoes, sporting goods, credit cards, online Web-based
courses, and bus service.)

2. [four types of processes]

2. Projects

are large-scale, customized initiatives that consist of many
smaller tasks and activities that must be coordinated and completed to finish on time and within budget.
(Legal defense preparation, construction, custom jewelry, consulting, building airplane, custom software development, cruise ships.)

2. Job shop processes

are organized around particular types of general-purpose equipment that are flexible and capable of customizing work for
individual customers.
(Many small manufacturing companies are set up as job shops, as are hospitals, legal services, commercial printing, and some restaurants.)

2. Flow shop processes

are organized around a fixed sequence of activities
and process steps, such as an assembly line, to produce a limited variety of similar goods or services.
[Characteristics: Little or no setup time, dedicated to small range of goods that are similar, similar sequence of process steps, moderate to high volume. Many option-oriented and standard goods are produced in flow-shop settings.]
ex: cars, appliances, insurance policies, checking account statements, cafeterias

2. A continuous flow process

creates highly standardized goods or services, usually around the clock in very high volumes.
Characteristics: not made from discrete parts, very high volumes in a fixed processing sequence, high investment in system, 24/7 continuous operation, automated, dedicated to a small range of goods or services.

3. [product-process matrix]

4. [Customer-routed services and provider-routed services]

4. Customer-routed services

are those that offer customers broad freedom to select the pathways that are best suited for their immediate needs and wants, from many possible pathways through the service delivery system.
Examples: include searching the Internet, museums, health clubs, and amusement parks.

4. Provider-routed services

constrain customers to follow a very small number of predefined pathways through the service system.
Ex: logging into bank account, newspaper dispenser

5. [utilization analysis and bottleneck]

5. Utilization (U)

is the fraction of time that a workstation is being used. Utilization can be computed in two ways,
1. Utilization (U) = (Resources Used) / (Resource Availability)
2. Utilization (U) = (Demand Rate) / (Service Rate × Number of Servers)

5. Throughput

is the output rate of a process.

5. Bottleneck

is the work activity that limits throughput of the entire process.
(something with the lowest "output/per time"

6. [Flowchart versus value stream map]

6. process map (flowchart)

describes the sequence of all process activities and tasks necessary to create and deliver a desired output or outcome. A process map can include the flow of goods, people, information, or other entities, as well as decisions that must be made and tasks that are performed. Process maps document how work either is, or should be, accomplished, and how the transformation process creates value.

6. process boundary

marks the beginning and end of a process.

6. value stream map (VSM)

shows the process flows in a manner similar to a
traditional process flowchart or service blueprint. However, VSM is different from the others because it highlights value-added versus non-value-added activities, and include costs associated with value-and non-value added activities.

6. elimination of non-value-added activities

in a process design is one of the most important responsibilities of operations managers.
ex:
* overproducing
• waiting for service or work to do
• not doing work correctly the first time
• inventory sitting idle in the warehouse

7. [Little's Law Computation]

7. Little's Law

simple formula that explains the relationship among flow time (T), throughput (R) and work-in-process (WIP).

Work-In-Process (WIP) = Throughput (R units/time) × Flow time (T time); WIP = R * T
Flow Time is the average time to complete one cycle of a process (time/unit).
Cycle Time is the interval between two successive outputs (time/unit).

7. calculation of WIP

throughput (R units/time) * Flow time (T time)

7. more calculations of WIP

R = WIP/T ; T = WIP/R

8. [Types of layouts, pay close attention to product layout versus process layout]

8. Facility layout (four types)

refers to the specific arrangement of physical facilities. A good
layout should support the ability of operations to accomplish its mission. If the facility layout is flawed in some way, process efficiency and effectiveness suffers.

In manufacturing, facility layout is generally unique, and changes can be accomplished without much difficulty.

For service firms, however, the facility layout is often duplicated in hundreds or thousands of sites. This makes it extremely important that the layout be designed properly, as changes can be very costly.

8. Product layout (1)

is an arrangement based on the sequence of operations that are
performed during the manufacturing of a good or delivery of a service
(low skill labor + specialized machines; high volume, MTS)

Examples: winemaking industry, credit card processing, Subway sandwich shops, paper
manufacturers, insurance policy processing, and automobile assembly lines.

Advantages include lower work-in-process inventories, shorter processing times, less material
handling, lower labor skills, and simple planning and control systems.

Disadvantages include that a breakdown at one workstation can cause the entire process to
shut down; a change in product design or the introduction of new products may require
major changes in the layout, limiting flexibility.

8. process layout (2)

consists of a functional grouping of equipment or activities that do similar work.
(high skill labor + general purpose machines; low volume, flexibility, MTO)

Examples: legal offices, shoe manufacturing, jet engine turbine blades, and hospitals.

Advantages of process layouts include a lower investment in equipment, and the diversity of jobs inherent in a process layout can lead to increased worker satisfaction.

Disadvantages include high movement and transportation costs, more complicated planning and control systems, longer total processing time, higher in-process inventory or waiting time, and higher worker-skill requirements.

8. cellular layout (3)

the design is not according to the functional characteristics of
equipment, but rather by self-contained groups of equipment (called cells), needed for producing a particular set (family) of goods or services.
Group technology, or cellular manufacturing, classifies parts into families so that efficient
mass-production-type layouts can be designed for the families of goods or services.
• Cellular layouts are used to centralize people expertise and equipment capability.

8. Fixed Position Layout (4)

A fixed-position layout consolidates the resources needed to manufacture a good or deliver a service, such as people, materials, and equipment, in one physical location.

* The production of large items such as heavy machine tools, airplanes, buildings,
locomotives, and ships is usually done in a fixed-position layout.

9. [Flow blocking and lack of work delays]

9. Flow-blocking delay

occurs when a work center completes a unit but
cannot release it because the in-process storage at the next stage is full. The worker must remain idle until storage space becomes available.

9. Lack-of-work delay

occurs whenever one stage completes work and no
units from the previous stage are awaiting processing.

10. [Computation - cycle time, minimum # of workstation, assembly line efficiency]

10. Cycle time

Cycle time, CT = A/R
A = available time to produce the output
R = output or demand forecast in units, adjusted for on-hand inventory if appropriate, or orders released to the factory

Both A and R must have the same time units of measure (hour, day, week,
month...)

10. Min # of workstations required

Min # of workstations required = Sum of task times/Cycle time = sum of t/CT

10. Assembly Line Efficiency

sum of t / (N * CT)
N = number of workstations; CT = cycle time

11. [Throughput, cycle time, flowtime, assembly line balancing]

11. Throughput formula

amount of parts or objects/time

11. cycle time formula

time required / per part

11. flow time

is the average time to complete one cycle of a process (time/unit)

11. assembly line balancing

Assembly line balancing is a technique to group tasks among workstations so that each workstation has (ideally) the same amount of work.

12. [Longest task time first and shortest task time first assignment rules]

12. Longest task time first

chosen because shortest task time is easier to fit in a line

12. shortest task time first

chosen because it minimizes idle time

13. [Time series data – trend, seasonal, cyclical and random error]

13. time series

is a set of observations measured at successive points
in time or over successive periods of time

A time series pattern may have one or more of the following five characteristics:
1. Trend
2. Seasonal patterns
3. Cyclical patterns
4. Random variation (or noise) & Irregular (one time) variation

13. trend

moves in a predictable manner

13. seasonal patterns

are characterized by repeatable periods of ups and downs over
short periods of time, usually within a year.

13. cyclical patterns

are regular patterns in a data series that take place over long periods of time, usually more than a year.

13. random variation

(sometimes called noise) is the unexplained
deviation of a time series from a predictable pattern, such as a trend, seasonal, or cyclical pattern. Because of these random variations, forecasts are never 100% accurate.

13. irregular variation

is a one-time variation that is explainable. For example, a hurricane can cause a surge in demand for building materials, food, and water.

14. [computation - forecast techniques such as simply moving average, exponential smoothing]

14. simply moving average

forecast is an average of the most recent “k” observations in a time series. MA methods work best for short planning horizons
when there is no major trend, seasonal, or business cycle pattern.

SMA = sum of (A_t....A_(t-k+1))/k
A = observed value
F = forecast

14. exponential smoothing

is a forecasting technique that uses a weighted average of past time-series values to forecast the value of the time series in the next period. The forecast “smoothes out” the irregularfluctuations
in the time series.

Ft = At-1 + (1-)Ft-1

15. [BIAS, MAD, MAPE and MSE (description and computation) at least 5 questions]

15. forecast error

is the difference between the observed value (A) of the time
series and the forecast (F), i.e., Et = At – Ft.

15. BIAS

the sum of (At - Ft) / n

15. Mean Absolute Deviation Error (MAD)

MAD = | (At - Ft) | / n

15. Mean Absolute Percentage Error (MAPE)

MAPE = sum of [|(At - Ft)| / At] / n

15. Mean Square Error (MSE)

MSE = sum of (At - Ft)^2 / n

16. [PMI & NMI indices – description and computation]

16. PMI

is a composite index based on the diffusion indexes for the following five indicators at equal weights:
• New Orders (seasonally adjusted) 20%
• Production (seasonally adjusted) 20%
• Employment (seasonally adjusted) 20%
• Supplier Deliveries (seasonally adjusted)20%
• Inventories 20%

16. NMI

beginning in June 1998, ISM began calculating for the non-manufacturing sector. ___ is a composite index based on the diffusion indexes for the following four indicators at equal weights:
• Business Activity (seasonally adjusted) 25%
• New Orders (seasonally adjusted) 25%
• Employment (seasonally adjusted) 25%
• Supplier Deliveries 25%

17. [ABC inventory analysis]

17. ABC INVENTORY (80/20 rule or Pareto)

• ABC inventory (80/20 rule or Pareto) analysis gives managers useful information to identify the best methods to control each category of inventory. A vital few SKUs represent a high percentage of the total dollar inventory value.
• ABC analyses of on-hand inventory and usage (sales) can be used to check if the firm is stocking the correct items.

• ABC analysis is simple but is a vital inventory management tool.
• “A” items account for a large dollar value but relatively small percentage of total items.
• “B” items are between A and C.
• “C” items account for a small dollar value but a large percentage of total items.

18. [types of inventories]

18. raw materials

component parts, subassemblies, and supplies are inputs to manufacturing and service-delivery processes.

18. work-in-process (WIP)

inventory consists of partially finished products in various stages of completion that are awaiting further processing.

18. finished goods

inventory is completed products ready for distribution or sale.

18. Maintenance, Repair, and Operating (MRO)

supplies are items used in operations but do not become parts of the finished goods, such as lubricants and cleaning supplies.

18. Cycle inventory (order or lot size inventory)

is inventory that results from purchasing or producing in larger lots than are needed for immediate consumption/sale.

18. Safety stock

inventory is an additional amount of inventory that is kept over and above the average amount required to meet demand.

19. [Economic Order Quantity (EOQ) model – purpose, assumptions and computation]

19. Economic Order Quantity (EOQ)

The Economic Order Quantity (EOQ) model is a classic economic model that minimizes total cost, which is the sum of the inventory-holding (carrying) cost and the ordering (setup) cost.

20. [EOQ computation – EOQ, annual ordering cost, annual holding cost, total annual cost]

20. EOQ annual ordering cost

# of orders per year x cost per order

20. EOQ annual holding cost

average inventory x annual holding cost per unit

20. EOQ total annual cost

annual inventory holding cost + order cost

20. When does AHC and AOC equal

AHC (annual holding cost) and AOC (annual ordering cost) equal when you ORDER AT THE EOQ QUANTITY

21. [Inventory turnovers]

21. Inventory Turnovers or Inventory Turnover Ratio

• how many times inventory “turns” in an accounting period
• faster is better, suggesting the firm generates more revenue per $ in inventory investment

formula = cost of revenue / average inventory

22. [Basic relationship of Quantity Discounts model with classic EOQ model.]

22. Classic eoq model assumption

1. Only a single item (SKU) is considered
2. Demand must be known & constant
3. Delivery time is known & constant
4. Replenishment is instantaneous
5. Price is constant (i.e., no quantity discounts)
6. Holding cost is known & constant
7. Ordering cost is known & constant
8. Stockouts are not allowed

22. EMQ model

it is the same as EOQ model assumption except we relax the instantaneous replenishment assumption by allowing usage during production or partial delivery
(NOT RESPONSIBLE FOR EMQ MODEL CALCULATIONS)

22. Quantity discount model relationship with EOQ model

If we relax the constant price assumption which allows quantity discount. this transitions from EOQ to quantity discount model.

23. [Continuous review versus periodic review inventory systems.]

23. continuous review system

is costly to conduct but requires less safety stock

(we review our inventory level continuously; more expensive to administer)

23. Periodic Review System

reviews physical inventory at specific points in time, hence, requires higher level of safety stock

(we review inventory once every week; less expensive to administer)

24. [What is cross-docking?]

24. cross docking

• Incoming shipments are sort and transfer to outgoing trucks without storing
• Feasible only if the final destination of the goods is known
• Cross-docking equipment

Automatic identification devices - bar coding & RFID, Software packages, Materials-handling equipment, Warehouse space