Production & Operations Management Exam 3

Pareto Analysis
Technique for classifying problem areas according to degree of importance, and focusing on the most important.
Control Chart
Voice of the process – A statistical chart of time-ordered values of a sample statistic used to monitor a processes to see if the process output is random and help detect the presence of correctable causes of variation.
Fishbone Diagram
A diagram used to search for the cause of a problem by organizing problem-solving efforts by identifying categories of factors that might be causing problems. Also know as the cause-and-effect diagram.
Random Variation
Natural variation in the output of a process, created by countless minor factors. variation in the output of a process, created by countless minor factors.
Assignable Variation
In process output, a variation whose cause can easily be identified. Also know as special variation in Deming’s terms.
Central Limit Theorem
The distribution of sample averages tends to be normal regardless of the shape of the process distribution.
Control Limits
The dividing lines between random and non-random deviations from the mean of the distribution. The two limits that separate random and non-random variation are the upper control limit and the lower control limit. A value that falls within these two limits suggests randomness, while a value on the outside of either limit suggests non-randomness.
Upper Control Limit – Larger value
Lower Control Limit – Smaller value
Type I Control Chart Error
There is a small probability that a value will fall outside the limits even though only random variations are present. Also referred to as an alpha risk, where alpha is the sum of the probabilities in the two tails.
Type II Control Chart Error
Widening limits reduces the probability of a type I error but makes it more difficult to detect non-random variations if they are present, which leads to concluding that a process is in control when it is really out of control.
Supply-Chain Management
A total system approach to managing the entire flow of information, materials, and services from raw-material suppliers through factories and warehouses to the end customer.

Activities include aggregation of inventory,
information sharing, collaboration and coordination, and revenue sharing.

Centralized Inventories
Decentralized Inventories
Inventory Velocity
The speed at which goods move through a supply chain.
The Bullwhip Effect
Inventory oscillations that become increasingly larger looking backward through the supply chain.
Reduces safety stocks (pooling) and cycle stocks (economies of scale) so the company can offer better service for the same inventory investment or same service with smaller inventory investment.

Cost savings are proportional to square root of # of locations pooled.

The Bullwhip Effect – Demand Uncertainty
The magnification of variability in orders in the supply-chain:

A lot of retailers each with little variability in their orders can lead to greater variability for a fewer number of wholesalers, and can lead to even greater variability for a single manufacturer.

Variations in demand cause inventory fluctuations to fluctuate and get out of control.

Vendor-managed Inventory
Vendors monitor goods and replenish retail inventories when supplies are low.
Efficient Supply Chain Purpose
Supply predictable demand at low cost
Responsive Supply Chain Purpose
Respond quickly to unpredictable demand
Efficient Supply Chain Role of Manufacturing
High utilization rate
Responsive Supply Chain Role of Manufacturing
Excess buffer capacity
Efficient Supply Chain Inventory Strategy
High turns, minimize inventory
Responsive Supply Chain Inventory Strategy
Buffers of parts of finished goods
Efficient Supply Chain Lead-time
Shorten provided no increase in cost
Responsive Supply Chain Lead-time
Invest aggressively in reducing
Efficient Supply Chain Choosing Suppliers
Cost and Quality
Responsive Supply Chain Choosing Suppliers
Speed, Flexibility, & Quality
Efficient Supply Chain Product-design Strategy
Maximize performance and minimize cost
Responsive Supply Chain Product-design Strategy
Modular, Postponement, Customization
Efficient Supply Chain Product
Responsive Supply Chain Product
SCM Product Misfit
Stockouts – lose sales
Unacceptable lead times
Lose competitive advantage
SCM Product Fit
Accept uncertainty with innovative products
Strive to reduce uncertainty
Share information with suppliers
Reduce lead times
Hedge against remaining uncertainty
Types of Flow Management
Product and service flow
Information flow
Product and Service Flow
Involves movement of goods and services from suppliers to customers as well as handling customer service needs and product returns
Information Flow
Involves sharing forecasts and sales data, transmitting orders, tracking shipments, and updating order status
Financial Flow
Involves credit terms, payments, and consignment and title ownership arrangements
Six Sigma
A program designed to reduce the occurrence of defects to achieve lower costs and improved customer satisfaction.
Six Sigma Statistic
Having no more than 3.4 defects per million opportunities in any process, product, or service.
Control Charts for Attributes
Attributes generate data that are counted.

P-chart and C-chart

Control chart used to monitor the number of defects per unit.
Control chart used to monitor the proportion of defectives in a process.
Control Charts for Variance
Variables generate data that are measured.

X bar charts and R charts

X Bar Chart
Mean control chart used to monitor the central tendency of a process.
R Chart
Range control chart used to monitor the process dispersion.
Process Capability
Process variability relative to specification – Given a stable process, is the inherent variability of the process within a range that conforms to performance criteria

Once a process has been determined to be stable, it is necessary to determine if the process is capable of producing output that is within an acceptable range. The variability of a process becomes the focal point of the analysis.
– Process variability
– Process capability
– Tolerances or specifications
– Control Limits

Process Variability
Reflects the natural or inherent (i.e., random) variability in a process. It is measured in terms of the process standard deviation.
Process Control
Are the variations random?
Quality efforts that occur during the production stage including inspection and corrective action during production.
Feedback Control Principle
Plan-Do-Study-Act Cycle
Proactive quality management used for problem solving and improvement instead of traditional inspection
Building a Pareto Diagram
1. Determine data classifications
2. Decide on time period
3. Total frequency of occurrence for each class
4. Draw axes on paper
5. Draw in the bars, begin on left with most frequent defect.
6. Label each bar.
7. Plot a line showing the cumulative total
8. Title
Multi-Vari Charts
Plot the high-average-low values over time.
Range between high and low measurements shows variability at one time and variability over time.
the voice of the customer: process capability
six sigma process
1. define problem
2. measure
3. analyze
4. improve
5. control (design strategy-proactive, control designed into system)
Tolerances – Established by engineering design or customer requirements. They indicate a range of values in which individual units of output must fall in order to be acceptable.
Robust design elements
1. process simplification
2. standardization
3. poka-yoke
Improving process capability
changing the process target value and or reducing the process variability inherent in a process through robust design elements
process simplification
eliminate steps, reduce number of parts, use modular design
six sigma improvement project
reduce defects, reduce costs, reduce product/ process variability, reduce deliver time, increase productivity, and customer satisfaction
Roles of six sigma
1. Master black belt
2. Black belt
3. Green belt
master black belt
Identify and rank potential projects, select/ evaluate candidates, manage program resources, serve as advocates for program. Have intensive training in quality tools.
black belt
project team leaders responsible for implementing process improvement projects
green belt
members of project teams
total quality management
philosophy that involves everyone in an organization in a continual effort to improve quality and achieve customer satisfaction
A technique whereby goods arriving at a warehouse from a supplier are unloaded from the supplier’s truck and loaded onto outbound trucks, thereby avoiding warehouse storage.
Closed-loop Supply Chain
A manufacturer controls both the forward and reverse shipment of product.
Centralized Purchasing
Purchasing is handled by one special department.
Finding ways to minimize the number of items that are returned.
Decentralized Purchasing
Individual departments or separate locations handle their own purchasing requirements.
Screening returned goods to prevent incorrect acceptance of goods.
Information Velocity
The speed at which information is communicated in a supply chain.
The movement of materials, services, cash, and information in a supply chain.
Purchasing Cycle
Series of steps that begin with a request for purchase and end with notification of shipment received in satisfactory condition.
Reverse Logistics
The process of transporting returned items.
Radio Frequency Identification (RFID)
A technology that uses radio waves to identify objects, such as goods in supply chains.
Strategic Partnering
Two or more business organizations that have complementary products or services join so that each may realize a strategic benefit.
Strategic Sourcing
Analyzing the procurement process to lower costs by reducing waste and nonvalue-added activities, increase profits, reduce risks, and improve supplier performance.
Supply Chain
A sequence of organizations—their facilities, functions, and activities—that are involved in producing and delivering a product or service.
Supply Chain Management
The strategic coordination of the supply chain for the purpose of integrating supply and demand management.
Supply Chain Visibility
A major trading partner can connect to its supply chain to access data in real time.
Third-party logistics (3-PL)
The outsourcing of logistics management.
Traffic Management
Overseeing the shipment of incoming and outgoing goods.
Vendor Analysis
Evaluating the sources of supply in terms of price, quality, reputation, and service.
Vendor-managed inventory (VMI)
Vendors monitor goods and replenish retail inventories when supplies are low.
The procurement department has responsibility for obtaining goods and services that will not detract from the quality of the organization’s goods and services.
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