MGMT Exam 2

Capacity

How much a manufacturing/ service system can get done (output) in a given amount of time

Theoretical Capacity

Maximum output in a given amount of time under ideal conditions

Effective Capacity

Actual output achievable in the long run under normal operating conditions

Safety Capacity

Capacity cushion built into plans to account for difference b/w theoretical & effective capacity. Safety + effective = theoretical

Economies of Scale

are achieved when the average unit cost of a good or service decreases as the capacity and/or volume of throughput increases

• For example, the design and construction cost per room of building a hotel decreases as the facility gets larger because the fixed cost is allocated over more rooms, resulting in a lower unit room cost.

Diseconomies of scale

occur when the average unit cost of the good or service begins to increase as the capacity and/or volume of throughput increases.

• In the hotel example, as the number of rooms in a hotel continues to increase, the average cost per unit begins to increase because of larger amounts of overhead and operating expenses required by higher levels of such amenities as restaurants, parking, and recreational facilities

Revenue Management System (RMS)

consists of dynamic methods to forecast demand, allocate perishable assets across market segments, decide when to overbook and by how much, and determine what price to charge different customer (price) classes.

• These four components of RMS—forecasting, allocation, overbooking, and pricing—must work in unison if the objective is to maximize the revenue generated by a perishable asset.

Utilization

is the fraction of time a workstation or individual is busy over the long run

• Difficult to achieve 100% utilization, as most job shop range from 65% - 90%

• Flow shop ranges from 80% - 90%

• Resources used/ Resources available

• Demand rate/ [ Service rate x # of service ]

Throughput

The number of units or tasks that are completed per unit time from a process

• might be measured as parts per day, transactions per minute, or customers per hour, depending on the context.

Bottleneck

is the work activity that effectively limits the throughput of the entire process.

Flow time/ cycle time

is the average time it takes to complete one cycle of a process

• 
  

Little’s Law

Is a simple equation that explains the relationship among flow time (T), throughput (R), and work-in-process (WIP):

• Work in Progress = Throughput x Flow time or W = R x T

WIP Inventory

Partially finished products in various stages of completion that are waiting further processing

Finished Goods Inventory

Completed products ready for distribution or sales to customers

Raw materials, component parts, subassemblies & supplies

Inputs to manufacturing & servicing- delivery processes

Inventory

is any asset held for future use or sale

Inventory Management

involves planning, coordinating, and controlling the acquisition, storage, handling, movement, distribution, and possible sale of raw materials, component parts and subassemblies, supplies and tools, replacement parts, and other assets that are needed to meet customer wants and needs.

Safety Stock Inventory

Additional amount of inventory that’s kept over & above the average amount required to meet demand

Ordering cost/ set up cost

are incurred as a result of the work involved in placing orders with suppliers or configuring tools, equipment, and machines within a factory to produce an item

• do not depend on the number of items purchased or manufactured, but rather on the number of orders placed

Inventory holding/ inventory- carrying costs

are the expenses associated with carrying inventory.

• are typically defined as a percentage of the dollar value of inventory per unit of time (generally 1 year).

Shortage/ stockout costs

are costs associated with inventory being unavailable when needed to meet demand.

• These costs can reflect backorders, lost sales, or service interruptions for external customers, or costs associated with interruptions to manufacturing and assembly lines for internal customers.

Unit costs

is the price paid for purchased goods or the internal cost of producing them

• the unit cost of SKUs is an important purchasing consideration when quantity discounts are offered; it may be more economical to purchase large quantities at a lower unit cost to reduce the other cost categories and thus minimize total costs.

Stock-Keeping Unit

is a single item or asset stored at a particular location.

• For example, each color and size of a man’s dress shirt at a department store and each type of milk (whole, 2 percent, skim) at a grocery store would be a different SKU

Independent Demand

is demand for an SKU that is unrelated to the demand for other SKUs and needs to be forecasted.

• This type of demand is directly related to customer (market) demand. Inventories of finished goods such as toothpaste and electric fans have independent demand characteristics.

Dependent Demand

if their demand is directly related to the demand of other SKUs and can be calculated without needing to be forecasted.

• For example, a chandelier may consist of a frame and six lightbulb sockets. The demand for chandeliers is an independent demand and would be forecasted, whereas the demand for sockets is dependent on the demand for chandeliers

Static Demand

Stable demand

• For example, the demand for milk might range from 90 to 110 gallons per day, every day of the year.

Dynamic Demand

demand that varies over time is

• the demand for airline flights to Orlando, Florida, will probably have different means and variances throughout the year, reaching peaks around Thanksgiving, Christmas, spring break, and in the summer, with lower demands at other times.

Lead Time

is the time between placement of an order and its receipt.

• Is affected by transportation carriers, buyer order frequency and size, and supplier production schedules, and may be deterministic or stochastic

Stockouts

is the inability to satisfy the demand for an item.

• When stockouts occur, the item is either back-ordered or a sale is lost

ABC Analysis

consists of categorizing inventory items or SKUs into three groups according to their total annual dollar usage

1. “A” items account for a large dollar value but a relatively small percentage of total items.

2. “C” items account for a small dollar value but a large percentage of total items.

3. “B” items are between A and C.

Fixed Quantity System

When inventory position falls to a specific reorder point, order a specific fix quantity to replenish the inventory

Inventory Position

is defined as the on-hand quantity (OH) plus any orders placed but which have not arrived (called scheduled receipts, SR), minus any backorders (BO), or IP = OH + SR - BO

Fixed Period System

Check inventory at a time interval, then reorder however much you need to replenish to some set maximum inventory level ( Replenishment level or order-up-to-level)

Reorder point

is the value of the inventory position that triggers a new order.

Eliminate Waste (1/4 Principles)

Eliminate any activity that does not add value in the organization

Increase speed & response (2/4 principles)

Design better process that allow efficient response to customers needs & the competitive enviornment

Improve quality (3/4 principles)

Poor quality is pricy! It disrupts work, reduce yields, requiring extra inventory, processing time, & space for scrap work

Reduce costs (4/4 principles)

Simplifying processes and improving efficiency reduce costs

Inventory

Holding costs (storage and tracking) and hiding problems

Overproduction

Making extra items just incase ties up resources and capital and creates inventory

Waiting times

Having stuff waiting to get processed does same as above

Transportation

Moving goods around factory floor takes time & labor

Processing

Poorly designed stuff creates lots of scraps (unused raw materials)

Motion

Workers having to move to get stuff takes time and labor

Production defects

Duplicates effort, fixing stuff is time consuming

5S:

Short, set in order, shine, standardize, sustain:

Neat, well organized production spaces reduce errors and accidents, allow quicker work and make it easier to spot problems early

Visual control

Make important information easy to see, understand & notice

Setup costs

In terms of costs, they behave like the fixed costs of each production run (batch