question

Process design

answer

Use in operations decisions when: Long time horizon Medium accuracy Single or few forecasts Top-level management Qualitative or causal forecasting method

question

Capacity planning

answer

Use in operations decisions when: Long time horizon Medium accuracy Single or few forecasts Top-level management Qualitative or causal forecasting method

question

Aggregate planning

answer

Use in operations decisions when: Medium time horizon High accuracy Few forecasts Middle level management Causal and time series forecasting method

question

Scheduling

answer

Use in operations decisions when: Short time horizon Highest accuracy Many forecasts Lower-level management Time series forecasting method

question

Inventory management

answer

Use in operations decisions when: Short time horizon Highest accuracy Many forecasts Lower-level management Time series forecasting method

question

Long-range marketing programs

answer

Use in marketing, finance, and HR when: Long time horizon Medium accuracy Single or few number of forecasts Top-level management Qualitative forecasting method

question

Pricing decisions

answer

Use in marketing, finance, and HR when: Short time horizon High accuracy Many forecasts Middle management Time series forecasting method

question

New product introduction

answer

Use in marketing, finance, and HR when: Medium time horizon Medium accuracy Single forecast Top-level management Qualitative and causal forecasting method

question

Cost estimating

answer

Use in marketing, finance, and HR when: Short time horizon High accuracy Many forecasts Lower-level management Time series forecasting method

question

Capital budgeting

answer

Use in marketing, finance, and HR when: Medium time horizon Highest accuracy Few number of forecasts Top-level management Causal and time series forecasting method

question

Labor planning

answer

Use in marketing, finance, and HR when: Medium time horizon Medium accuracy Few number of forecasts Lower-level management Qualitative and time series forecasting methods

question

Qualitative forecasting methods

answer

Based on managerial judgment when there is a lack of data. No specific model. Major methods: Delphi technique, market surveys, life-cycles analogy, informed judgment

question

Moving average

answer

Forecasting method Assumes no trend, seasonality, or cycle Formula:

question

Exponential smothing

answer

Based on the idea that a new average can be computed from an old average along with the most recent observed demand

question

Simple exponential smoothing

answer

Assume time series is level with no cycles and that there are no seasonal or trend components

question

Forecast error

answer

Used to monitor outliers and erratic demand observations, to determine when the forecasting method is no longer tracking actual demand, to determine the parameter values that provide the forecast with the least error, and to set safety stocks or safety capacity

question

Forecast accuracy

answer

...

question

Causal forecasting methods

answer

Cause-and-effect model, using other data sets to predict demand Ex: Use population to forecast newspaper sales, use supply chain data on inventory levels to forecast flat screen TV sales

question

Considerations in selecting a forecasting model

answer

User and system sophistication Time and resources available Use or decision characteristics Data availability Data pattern

question

Collaborative Planning, Forecasting, and Replenishment (CPFR)

answer

Aim is to achieve more accurate forecasts, share information in the supply chain with customers and suppliers, and compare forecasts Works best in B2B with few customers (e.g., a small number of large retailers)

question

Capacity

answer

Maximum output that can be produced over a given period of time

question

Theoretical capacity

answer

Labor availability and overtime Physical assets, delayed maintenance, etc Can be used for short-term demand spikes

question

Effective capacity

answer

Should be used in planning Subtracts maintenance downtime, shift breaks, absenteeism

question

Capacity utilization

answer

(Actual output / Capacity) * 100% Utilization is seldom 100%

question

Facilities decisions

answer

How much capacity Size of facility When capacity is needed Location of facility Type of facility/capacity needed Constrain all other capacity decisions

question

Facilities strategy

answer

Considerations include: Amount of capacity, size of facilities, timing of facility decisions, types of facilities

question

Factors affecting facilities strategy

answer

Predicted demand Cost of facilities Likely behavior of competitors Business strategy International considerations

question

Capacity cushion

answer

100% - Utilization

question

Strategies for capacity cushion

answer

1.) Large cushion - make-to-order 2.) Moderate cushions - cost of running out balanced with cost of excess capacity 3.) Small cushion - make-to-stock

question

Optimum facility size

answer

Economies of scale - production costs are not linear and overhead is spread over more units Diseonomies of scale - increased transportation costs ,cost of more bureaucracy, and increased organizational complexity

question

Timing of facility additions

answer

Preempt the competition - build capacity ahead of need and positive capacity cushion Wait-and-see strategy - Small or negative capacity cushion, lower risk strategy

question

Location of facilities

answer

Quantitative factors - ROI, transportation, taxes, lead times Qualitative factors - language, norms, worker and customer attitudes, proximity to customers/suppliers/competitors

question

Types of facilities

answer

Product-focused (55%) -One family of products/services (e.g., computers) Market-focused (30%) - Located near sales (e.g., electricity, bakeries) Process-focused (10%) - Few technologies (e.g., computer chips, MRI center) General purpose (5%) - Several products/services (e.g., furniture, banking)

question

Sales & Operations Planning

answer

Matching supply and demand over a medium time range Time horizon of about 12 months Aggregated demand for one or few categories of product, demand may fluctuate or be uncertain Possible to change both supply and demand Facilities are fixed

question

Options for Managing (Influencing) Demand

answer

Pricing Advertising and promotion Backlogs or reservations Development of complementary offerings Hiring and layoff of employees Using overtime and undertime Using part-time or temporary labor Carrying inventory Outsourcing/subcontracting Cooperative arrangements

question

Aggregate planning strategies

answer

Level strategy - constant work force, inventory as a buffer Chase strategy - vary workforce, produce to demand, typical for services

question

Batch scheduling

answer

Network of queues, as job moves from work center to work station job = manufacturing parts, customer, paperwork work station = machine, room, facility, worker Customers or jobs spend most of their time at work stations waiting to be processed Typical for actual work to be 5-20% of total throughput time

question

Challenges of batch/job shop scheduling

answer

Variety of jobs processed, different routing and processing requirements of each job, number of different job orders in the facility at any one time, competition for common resources

question

Gantt Charting

answer

-Scheduling multiple jobs through set of work centers in order to minimize completion time -Used to monitor progress of jobs -Optimal schedule can be computationally intensive of multiple jobs/multiple machines

question

Makespan

answer

Total time to complete a set of jobs

question

Mahcine utilization

answer

Percent of makespan time machine (or person) is used

question

Finite capacity scheduling

answer

-Scheduling jobs onto work stations, but not to exceed the capacity of any given resource -Can be used to identify bottlenecks

question

Forward scheduling

answer

To determine completion date for all orders

question

Backward scheduling

answer

Work backward from due date to determine start date for orders

question

Theory of Constraints

answer

-Goal is to make money from operations -Production does not have value until it is sold

question

TOC Key Elements

answer

Throughput = sales - COGS Inventory = raw materials value Operating expenses = cost of conversion and overhead

question

Critical Ratio

answer

= Remaining time until due date / remaining processing time

question

Inventory

answer

A stock of materials used to facilitate production or satisfy customer demands

question

Types of inventory

answer

-Raw materials, purchased parts -Work in process -Finished goods

question

Purpose of inventories

answer

-To protect against uncertainties (ie safety stock) -To allow economic production and purchase (ie cycle inventory) -To cover anticipated changes in demand/supply (ie anticipation inventory) -To provide for transit (ie pipeline inventory)

question

Costs of inventory

answer

-Item cost -Ordering (or setup) cost -Carrying (or holding) cost -Stockout cost

question

Item cost

answer

-Expressed as cost per unit or SKU -Quantity discounts possible

question

Ordering (or setup) cost

answer

-Paperwork, worker time (ordering) -Worker time, downtime (setup) -Transportation costs -Typically a fixed cost per order (or setup)

question

Carrying (or holding) cost

answer

-Cost of capital (market rate or internal rate of return) -Cost of storage (building, utilities, insurance, handling) -Cost of obsolescence, deterioration, and loss (shrinkage)

question

Stockout cost

answer

-Back order costs -Lost income -Customer dissatisfaction -Loss of future sales

question

Types of demand

answer

-Independent demand -Dependent demand

question

Independent demand

answer

-Finished goods, spare parts -Based on market demand, independent of other items -Requires forecasting

question

Dependent demand

answer

-Components/parts of the finished products (raw materials/WIP) -Demand is a known function of independent demand items -Calculate instead of forecast

question

Economic order quantity (EOQ)

answer

-Used to answer the question: How much should we order? -Used for independent demand items -Objective is to find order quantity that minimizes total cost of managing inventory -Must calculate for each SKU

question

EOQ assumptions

answer

-Demand rate is constant, recurring, and known. -Lead time is constant and known. -No stockouts allowed. -Items are ordered or produced in a lot or batch, and the lot is received all at once. -Costs are constant -Item is a single product or SKU; demand not influenced by other items.

question

EOQ calculation notation

answer

D = Demand rate, units per year S = Cost per order placed or setup cost, dollars per order C = Unit cost, dollars per unit i = Carrying rate, percent of value per year Q = Lots size, units TC = Total of ordering cost plus carrying cost, dollar per year

question

Order cost per year

answer

(cost per order) x (orders per year) = SD/Q

question

Carrying cost per year

answer

(annual carrying rate) x (unit cost) x (average inventory level) = iCQ/2

question

Total annual cost

answer

ordering cost per year + carrying cost per year = SD/Q + iCQ/2

question

Continuous review system

answer

-Relax assumption of constant demand; demand is assumed to be random -Check inventory position each time there is demand -If inventory position drops below reorder point, place order for the EOQ -Also called the fixed-order-quantiy or Q system

question

Reorder point calculation

answer

R = m + s R = Reorder point m = mean demand during lead time s = safety stock

question

Service level

answer

-When demand is random, reorder point must account for desired service level (fill rate)

question

Types of service levels

answer

-Probability all customer orders will be filled while waiting for supply order to arrive. -Percentage of demand filled from stock. -Percentage of time item is on hand.

question

Periodic review system

answer

-Review inventory position at fixed interval (P), like a bread truck visiting grocery stores every Tuesday -Inventory is brought up to a target level -Order quantity varies according to demand -Also called the fixed-order-interval system or P system

question

Periodic review system calculation

answer

...

question

P system service level

answer

Safety stock must cover a longer interval (P+L)

question

Vendor managed inventory (VMI)

answer

-Supply chain management where you pass responsibility for managing inventory stocks to vendors -Vendor must access to buyer's demand forecast and inventory records -Managed through contractual arrangement -Supply chain partners share cost savings of collaboration

question

ABC inventory management

answer

-Based on Pareto concept (80/20) and total usage in dollars of each item -Classification of A, B, and C items based on usage -Purpose it to set effort priorities to manage different SKUs

question

Materials requirement planning (MRP)

answer

-Used to manage dependent demand items -driven by the master schedule -parts explosion breaks end items into all requirements for components/parts using BOM -Schedule offset based on lead times -Push system used because master schedule is constantly changing

question

Types of MRP

answer

Type I: Inventory control system (MRP) Type II: Production, inventory control system (MRPII) Type III: Enterprise Resource Planning system (ERP)

question

MRP elements

answer

-Inputs - master schedule, BOM, inventory records -Capacity planning -Purchasing -Shop-floor control

question

Master schedule

answer

-Quantities derived from aggregate production plan -Frozen within production lead time -Quantities reflect "build" schedule rather than demand forecasts -Quantities represent what needs to be produced

question

Bill of Materials (BOM)

answer

-Structured list of all parts and materials -Must be 100 percent accurate -Should be one BOM per product per company

question

Purchasing

answer

-Greatly enhanced by use of MRP -Past due orders mostly eliminated -Order expediting mostly eliminated -Can provide vendors with reports of planned future orders -Can use EDI to communicate directly with vendors

question

Shop floor control

answer

-Purposes - release orders to the shop floor and manage the orders for on-time completion -Set job priorities -Manage lead times on basis of priority -Minimize inventory while meeting completion dates

question

Required elements for successful MRP system

answer

-Implementation planning -Appropriate and adequate IT support -Accurate data -Management support -User knowledge

question

Enterprise resource planning (ERP) systems

answer

-Extension and integration of all functions through a common database -Coordinates decisions along the supply chain -Expensive, time-consuming to implement -Major software vendors

question

A qualitative forecast would most likely be used for

answer

process design

question

A regression model is example of..

answer

a causal forecasting method.

question

When should qualitative methods not be used?

answer

When making major costly decisions such as facilities locations.

question

The difference between actual demand and the forecast

answer

Forecast error

question

Measures of forecast accuracy

answer

Cumulative sum of forecast errors Mean square error Mean absolute deviation of forecast errors Mean absolute percentage errors

question

Time-series forecasting

answer

-Basic strategy is to identify the magnitude and form of each component based on available past data -Is used to make detailed analyses of past demand patters over time and to project these patterns forward into the future -Demand can be divided into components such as average level, trend, seasonality, cycle, and error.

question

With exponential smoothing, if we want forecasts to be very responsive to recent demand then the value of alpha should be

answer

large

question

Forecast error estimates are used to

answer

-monitor erratic demand observations or outliers -determine when the forecasting method is no longer tracking actual demand and needs to be reset -determine parameter values that provide the most accurate forecasts

question

Important factors in selecting a forecasting method

answer

-User and system sophistication -Time and resources available -Data availability

question

CPFR

answer

-Basic idea is to share forecasting information with the suppliers and customers in the supply chain -Is best applied to a few customers representing the bulk of demand -Creates visibility in the supply chain, minimizing the occurrence of bullwhip in supply chains

question

All forecasts should include two estimates

answer

-Estimate of demand -Estimate of the forecasting error

question

In aggregate planning

answer

"aggregate" implies that planning is done for a single overall measure of output or at most a few products

question

Demand management variables

answer

Reservations, pricing, and advertising

question

Supply management variables

answer

Inventory, subcontracting, and cooperative agreements

question

The aggregate planning problem

answer

Needs to consider multiple tradeoffs such as customer service level, inventory levels, labor force stability, and costs

question

Aggregate planning is

answer

-concerned with matching supply and demand of output -determines not only the output levels but also the appropriate resource mix to be used -aimed at setting overall output levels for the medium-range future

question

Aggregate planning in service organizations

answer

-time horizon of 12 months, on average, is used -Both supply and demand variables can be changed -Facilities are considered fixed

question

Under a level strategy, variations in demand are managed by

answer

varying inventory levels

question

Aggregate planning costs include

answer

Hiring and layoff costs, part-time labor costs, subcontracting costs

question

Chase strategy

answer

Firm produces exactly what is needed each month

question

A large capacity cushion is appropriate when

answer

a firm is attempting to capture market share in a growing industry

question

Aggregate planning and scheduling differ in that

answer

aggregate planning deals with acquiring resources and scheduling deals with allocating resources

question

Three conflicting objectives of scheduling

answer

Low inventories, high efficiency, and good customer service

question

Overriding problem of batch scheduling

answer

Managing queues

question

A bottleneck is

answer

a resource whose capacity is less than the capacity of all other resources and whose capacity is less than the demand placed on it

question

Reasons for batch scheduling being a complex management problem

answer

-Irregular flow of units with many starts and stops -Layout of the batch process by machine group or skills into work centers -Batches result in inventory or people waiting in queues

question

Gantt charting determines

answer

-Waiting time of each job, makespan of all jobs, and resource utilization

question

Most common priority dispatch rule

answer

First come, first served

question

TOC is

answer

a strategic technique used to help firms effectively improve the rate at which raw materials are converted to finished goods and then money through sales

question

In TOC, inventory is

answer

the raw material value of any goods being held in inventory

question

Finite capacity scheduling can be used to

answer

identify the bottleneck in a given process.

question

Throughput is defined as

answer

the difference between sales and the operating expenses of a plant.

question

Stockout costs

answer

are the most difficult to estimate in determining total inventory costs.

question

Carrying cost components

answer

obsolescence cost, storage cost, and capital cost

question

Replenishment philosophy

answer

is appropriate give nindependent demand

question

Capacity is

answer

resources that provide the potential to produce items

question

Components of inventory ordering costs

answer

transportation costs, obsolescence costs, and receiving costs

question

Purposes of inventory

answer

to protect against uncertainties, to allow economic production of batches, and to provide for transit

question

Independent demand consists of

answer

inventory whose demand is determined by market conditions outside the firm

question

ABC analysis requires that inventory be classified according to

answer

annual dollar usage

question

Safety stock inventory is

answer

maintained to absorb uncertainty in, for example, delivery lead time from suppliers

question

Service levels is

answer

the percentage of time the system has an item on hand, the percentage of demand filled from stock, and the probability that all orders are filled from stock

question

Type II MRP systems has

answer

feedback to control capacity

question

A requirements-based system derives orders from

answer

the master schedule

question

A replenishment-based system derives orders from

answer

forecast or customer request

question

An MRP system is designed to deal with

answer

lumpy demand

question

The parts explosion results in

answer

purchase orders and shop orders

question

Mechanisms for handling uncertainty when operating an MRP system

answer

safety stock, safety lead-time, and safety capacity

question

Objective of an MRP system is to

answer

meet manufacturing needs.

question

Successful MRP system elements

answer

implementation planning, accurate data, user knowledge

question

Master scheduling specifies

answer

the output of the operations function

question

Inputs for an MRP parts explosion

answer

inventory, master schedule, bill of materials

question

At the EOQ

answer

annual ordering cost and annual holding cost for an item are equal

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