H1 Introduction to operations management Operations management (OM) is the business function responsible for planning, coordinating and controlling

the resources needed to produce a companys goods and services. The role of operations management is to transform organizational inputs into outputs. Value added is the net increase created during the transformation of inputs into final outputs. Efficiency is performing activities at the lowest possible cost. Manufacturing organizations produce primarily a tangible product and typically have low customer contact. Service organizations produce primarily an intangible product and typically have high customer contact. Strategic decisions set the direction for the entire company; they are broad in scope and long term in nature. Tactical decisions are specific and short term in nature and are bound by strategic decisions. Lean system is a concept that takes a total system approach to creating efficient operations (JI , !", #$"%. Enterprise resource planning (ER ) are large, sophisticated software systems used for identifying and planning the enterprise&wide resources needed to coordinate all activities involved in producing and delivering products. !ustomer relationship management (!RM) are software solutions that enable the firm to collect customer& specific data. !ross functional decision ma"ing is the coordinated interaction and decision making that occurs between the different functions of the organization.

H2 Operations strategy and competitiveness #usiness strategy defines long&range plan for company. It will be draw up on the basis of the companys mission$ environmental scanning and the company%s core competencies. 'eveloping a business strategy( Mission is a statement defining what business an organization is in, who its customers are, and how its core beliefs shape its business. Environmental scanning is monitoring the e)ternal environment for changes en trends to determinate business opportunities and threats. !ore competencies are the uni*ue strengths of a business. Operations strategy develops a plan for the operations function to support the business strategy. +hen a business strategy is designed, a company can develop an operations strategy( !ompetitive priorities are capabilities that the operations function can develop in order to give a company a competitive advantage in its market. ,. $ost -. !uality a. .igh performance design (#watch% b. /oods and services consistency ("c'onalds% 0. ime a. 1apid delivery (how *uickly an order is received% b. 2n&time delivery (number of times an order is made on time% 3. 4le)ibility a. 5roduct fle)ibility b. 6olume fle)ibility Trade&off is the need to focus more on one competitive priority than on others. Order 'ualifiers are competitive priorities that must be met for a company to *ualify as a competitor in the marketplace (standards%. Order (inners are competitive priorities that win orders in the marketplace (e)clusivity%. he structure and the infrastructure will determine the nature of the companys operations function. 2nce the competitive priorities have been identified, a plan is developed to support those priorities. ,. Structure are operations decisions related to the design of the production process, such as facilities, technology and the flow of goods and services through the facility. -. )nfrastructure are operations decisions related to the planning and control systems of the operation, such as organization of operations, the skills and pey of workers and *uality measures. Types of technologies (technology is a tool for competitive advantage% ,. 5roduct technology -. 5rocess technology 0. Information technology Measuring productivity output productivity = input 2ther ratios that could be calculated are partial productivity and multifactor productivity (page 30%.

H3 Product design and process selection Manufactura*ility is the ease with which a product can be made. roduct design is the process of defining all of the products characteristics. The product design process )dea development Ideas could ac*uired from customers, competitors and suppliers #enchmar"ing is the process of studying the practices of companies considered 7best in class8 and comparing your companys performance against theirs. Reverse engineering is the process of disassembling a product to analyze its design features9 Early supplier involvement (ES)) Involving suppliers in the early stages of product design. roduct screening on operations, marketing and finance. #rea"&even analysis is a techni*ue used to compute the amount of goods a company would need to sell to cover its costs. +i,ed costs are costs a company incurs regardless of how much it produces. Varia*le costs are costs that vary directly with the amount of units produced. reliminary design - testing +inal design +actors impacting product design .esign for manufacture (.+M) are a series of guidelines to follow in order to produce a product easily and proftably. It focuses on two isues( ,. 'esign simplification -. 'esign standardization, the use of interchangeable parts roduct life cycle is a series of stages that product pass through in their lifetime, characterized by changing product demands over time. he cycle consists of four stages( introduction, growth, maturity (ri:pheid% and decline. !oncurrent (in samen(er"ing) engineering is an approach that brings together multifunction teams in the early phase of product design in order to simultaneously design the product and the process. ;dvantages with regard to the 7over&the&wall8 approach( it is more efficient and less costly, it takes less time and it creates team&building. Remanufacturing is the concept of using components of old products in the production of new ones. rocess selection )ntermittent (*i/ tussenpozen (er"ende) operations are processes used to produce a variety of products with different processing re*uirements in lower volumes. ,. ro/ect processes is a type of process used to make a one&at&a&time product e)actly to customer specifications. -. #atch processes is a type of process used to produce a small *uantity of products in groups or batches based on customer orders or specifications. Repetitive operations are processes used to produce one or a few standardized products in high volume. ,. Line processes is a type of process used to produce a large volume of a standardized product. -. !ontinuous processes is a type of process that operates continually to produce a high volume of a fully standardized product.

.esigning processes rocess flo( analysis is a techni*ue used for evaluating a process in terms of the se*uence of steps from inputs to outputs with the goal of improving its design. rocess flo(chart is a chart showing the se*uence of steps in producing the product or service. #ottlenec" is the longest task in the process. Ma"e&to&stoc" strategy produces standard products and services for intermediate sale or delivery. 0ssem*le&to&order strategy produces standard components that can be combined to customer specifications. (figure 0&< and 0&,,% Ma"e&to&order strategy produces products to customer specifications after an order has been received. rocess performance metrics are measurements of different process characteristics that tell how a process is performing. =)amples( Throughput time is the average amount of time it takes a product to move through the system. rocess velocity is the ratio of throughput time to value&added time.

process velocity =

roductivity is the ratio of outputs over inputs. 1tilization (*enutten) is the ratio of time a resource is used to time it is available for use.

throughput time value added time

utilization =

time a resource used time a resource available

Efficiency is the ratio of actual output to standard output. actual output efficiency = standard output Technology decisions )nformation technology ()T) is the technology that enables storage, processing and communication of information within and between firms. ,. Internet. -. =15. 0. +ireless communication technologies. 3. 2lo*al positioning system (2 S) is a type of wireless technology that uses satellite transmission to communicate e)act locations. >. Radio fre'uency identification (R+).) is a wireless technology that uses memory chips e*uipped with radio antennas attached to ob:ects used to transmit streams of data. 0utomation is using machinery to perform work without human operators. 'isadvantages are the costprice and its infle)ibility. ,. ;utomated material handling a. automated guided vehicle (;/6% b. automated storage and retrieval systems (;#91#s% -. +le,i*le manufacturing system (+MS) is a type of automated system that provides the fle)ibility of intermittent operations with the efficiency of continuous operations. 0. 1obotics a. 3umerically controlled (3!) machine is a machine controlled by a computer that can perform a variety of tasks. e&Manufacturing ,. !omputer&aided design (!0.) is a system that uses computer graphics to design new products. -. !omputer&integrated manufacturing (!)M) is a term used to describe the integration of product design process planning, and manufacturing using an integrated computer system.

Service design is the process of establishing all the characteristics of the service, including physical, sensual and psychological benefits. Service pac"age is a grouping of physical, sensual and psychological benefits that are purchased together as part of the service. 'iffering service designs ,. #ubstitute technology for people ("c'onalds% -. /et the customer involved (self&serve areas% 0. .igh customer attention approach

H4 E-commerce and supply chain management E&commerce is the use of the internet to transact business. ,. ?-? (is the largest%. -. ?-$. 0. $-$. 3. 5-5. >. "obile commerce. Supply chain is a network of all the activities involved in delivering a finished product to the customer. Supply chain management coordinates and manages all the activities of the supply chain. ,. $oordinating the movement of goods through the supply chain from suppliers to manufacturers to distributors. -. #haring relevant information such as sales forecasts, sales data, and promotional campaigns among members of the chain. =)ternal suppliers ,. Tier (ri/) one supplier supplies materials or services directly to the processing facility. -. Tier t(o supplier directly supplies materials or services to a tier one supplier in the supply chain. 0. Tier three supplier directly suppliers materials or services to a tier two supplier in the supply chain. =)ternal distributors Logistics are activities involved in obtaining, producing and distributing materials and products in the proper place and in proper *uantities. ,. Traffic management is responsible for arranging the method of shipment (vracht% for both incoming and outgoing products or materials. -. .istri*ution management is responsible for movement of material from the manufacturer to the customer. #ull(hip effect is the inaccurate or distorted demand information created in the supply chain. $auses( ,. 'emand forecast updating. -. 2rder batching. 0. 5rice fluctuations. 3. 1ationing and shortage gaming. $ounteracting (tegenwerken% the bullwhip effect. ,. "aking forecast information available to all levels of the supply chain. -. =liminate order batching. 0. #tabilize prices. 3. =liminate gaming. )ntranets are networks that are internal to an organization. E,tranets are intranets that are linked to the internet so that suppliers and customers can be included in the system. Vertical integration is a measure of how much of the supply chain is actually owned or operated by the manufacturing company. )nsource are the processes or activities that are completed in&house. Outsource are the processes or activities that are complete by suppliers. #ac"(ard integration is owning or controlling sources of raw materials and components. +or(ard integration is owning or controlling the channels of distribution.

+arehouses have three roles within the supply chain( ,. ransportation consolidation. a. truckload *uantities ( @% b. less&than&truckload *uantities (@ @% -. 5roduct mi)ing or blending. 0. #ervice. 2eneral (arehouse is used for long&term storage. .istri*ution (arehouse is used for short&term storage, consolidation and product mi)ing. !rossdoc"ing eliminates the storage and order&picking functions of a distribution warehouse. ;dvantages( ,. 1educing inventory. -. $onsolidate shipments to achieve @s and so reducing costs. ypes of crossdocking( ,. Manufacturing crossdoc"ing is the receiving and consolidating of inbound suppliers and materials to support :ust&in&time manufacturing. -. .istri*utor crossdoc"ing is the receiving and consolidating of inbound products from different vendors (verkopers% into a multi&#AB pallet. 0. Transportation crossdoc"ing is the consolidation of @ @ shipments to gain economies of scale. 3. Retail crossdoc"ing is sorting product from multiple vendors onto outbound trucks headed for specific stores.

H5 Total uality management !T"#$ Total 'uality management (T4M) is an integrated effort designed to improve *uality performance at every level of the organization. 'efining !uality !onformance to specifications measures how well a product or service meets the targets and tolerances determined by its designers. +itness for use is a definition of *uality that evaluates how well the product performs for its intended use. Value for price paid is the *uality defined in terms of product or service usefulness for the price paid. Support services is the *uality defined in terms of the support provided after the product or service is purchased. sychological criteria is a way of defining *uality that focuses on :udgmental evaluations of what constitutes product or service e)cellence. $ommon *uality definitions in manufacturing are( conformance, performance, reliability (betrouwbaarheid%, features, durability, and serviceability. $ommon *uality definitions in service companies are( courtesy (hoffeli:kheid%, friendliness, promptness, atmosphere, time and consistency (conse*uentie%. $ost of *uality !uality control costs( revention costs are costs incurred in the process of preventing poor *uality from occurring. 0ppraisal costs are costs incurred in the process of uncovering defects. !uality failure costs( )nternal failure costs are costs associated with discovering poor product *uality before the product reaches the customer (rework or scrap%. E,ternal failure costs are costs associated with *uality problems that occur at the customer site. /enichi aguchi Ro*ust design is a design that results in a product that can perform over a wide range of conditions. Taguchi loss function says that the costs of *uality increase as a *uadratic function as conformance values move away from the target.

he philosophy of !" $ustomer focus, the goal is to identify and meet customer needs. !ontinuous improvement ("aizen) is a philosophy of never&ending improvement. lan&do&study&act ( .S0) cycle is a diagram that describes the activities that need to be performed to incorporate continuous improvement into the operation. #enchmar"ing is studying the business practises of other companies for purposes of comparison. =mployee empowerment, =mployees are e)pected to seek out, identify, and correct *uality problems. Internal customers. =)ternal customers. 4uality circle is a team of volunteer production employees and their supervisors who meet regularly to solve *uality problems. Bse of *uality tools, ongoing employee training in the use of *uality tools (figure >&C and >&<%. !ause&and&effect diagram (fishbone diagram% is a chart that identifies potential causes of particular *uality problems. +lo(chart is a schematic of the se*uence of steps involved in an operation or process. !hec"lists are lists of common defects and the number of observed occurrences of these defects. !ontrol charts are charts used to evaluate whether a process is operating within set e)pectations. Bpper control limit (B$@%. @ower control limit (@$@%. Scatter diagrams are graphs that show how two variables are related to each other. areto analysis is a techni*ue used to identify *uality problems based on their degree of importance. 5istogram is a chart that shows the fre*uency distribution of observed values of a variable. 5roduct design, products need to be designed to meet customer e)pectations. 4uality function deployment (4+.) is a tool used to translate the preferences of the customer into specific technical re*uirements. 5rocess management "anaging supplier *uality

H% &ust-in-time and lean systems 6ust&in&time (6)T) philosophy is getting the right *uantity of goods at the right place at the right time. he core beliefs are( =liminate (aste, anything that does not add value. ,. "aterial -. =nergy 0. ime 3. #pace =veryone should have a *road vie( of organisation, tasks and procedures are important only if they meet the companys overall goals. Simplicity says the simpler a solution, the better it is. !ontinuous improvement ("aizen) is a philosophy of never ending improvement. Visi*ility is that problems must be visible to be identified and solved. +le,i*ility a company can *uickly adapt to the changing needs of its customers. ; JI &system consists of( 6ust&in&time manufacturing is the element of JI that focuses on the production system to achieve value& added manufacturing. ull system, JI is based on a pull system rather than a push system. 7an*an card is a card that specifies the e)act *uantity of product that needs to be produced. roduction card is a kanban card that authorizes production of material. 8ithdra(al card is a kanban card that authorizes withdrawal of material.

D=

' +# $

# = percentage '

D E total numbers of kanbans or containers. ' E demand rate at a using workstation. E the time it takes to receive an order from the previous workstation (lead time%. $ E size of container. # E safety stock to protect against variability or uncertainty in the system. 6ariations of kanban production( kanban s*uare, signal kanban and supplier kanban. #mall lot sizes and *uick setups. Small&lot production is the ability to produce small *uantities of products. Setup cost is the cost incurred when setting up e*uipment for a production run. )nternal setup re*uires the machine to be stopped in order to be performed. E,ternal setup can be performed while the machine is still running. 1niform plant loading is a constant production plan for a facility with a given planning horizon (table C&,%. Master production schedule 4le)ible resources Multifunction (or"ers are capable of performing more than one :ob. 4acility layout !ell manufacturing is the placement of dissimilar machines and e*uipment together to produce a family of products with similar processing re*uirements (figure C&F%.

Total 'uality management (T4M) 4uality at the source is uncovering the root cause of a *uality problem. #ources could be( ,. 5roduct design. -. 5rocess design. 0. #uppliers. 6ido"a gives authority to workers to stop the production line if a *uality problem is detected. o"a&yo"e are foolproof devices or mechanisms that prevent defects from occurring. 5reventive maintenance. +ork environment. Respect for people is an element of JI that considers human resources as an essential part of the JI philosophy. he role of production employees. $ross&functional worker skills. #ottom&round management consensus management by committees or teams. 4uality circles are small teams of employees that volunteer to solve *uality problems. @ifetime employment. he role of management #upplier 1elationships Single&source suppliers are suppliers that supply an entire family of parts for one manufacturer. Implementing JI ,. "ake *uality improvements. -. 1eorganize workplace. 0. 1educe setup times. 3. 1educe lot sizes and lead times. >. Implement layout changes. F. #witch to pull production. C. 'evelop relationship with suppliers.

H' (orecasting ,. -. 0. 4orecasts are rarely perfect. 4orecasts are more accurate for groups or families of items rather than for individual items. 4orecasts are more accurate for shorter than longer time horizons.

#teps in the forecasting process( ,. 'ecide what to forecast. -. =valuate and analyze appropriate data. 0. #elect and test the forecasting model. 3. /enerate the forecast. >. "onitor forecast accurancy. 4ualitative forecasting methods are methods in which forecast is made sub:ectively by the forecaster. ,. E,ecutive opinion is a forecasting method in which a group of managers collectively develop a forecast. -. Mar"et research is an approach to forecasting that relies on surveys and interviews to determine customer preferences. 0. .elphi method is an approach to forecasting in which a forecast is the product of a consensus among a group of e)perts. 4uantitative forecasting methods are methods in which forecast is based on mathematical modelling. ,. Time series models are based on the assumption that a forecast can be generated from the information contained in a time series of data. a. Level or horizontal pattern is a pattern in which data values fluctuate around a constant mean. i. The na9ve method is a forecasting method that assumes ne)t periods forecast is e*ual to the current periods actual value. ii. Simple mean or average is the average of a set of data. iii. Simple moving average (SM0) is a forecasting method in which only n of the most recent observations are averaged. iv. 8eighted moving average is a forecasting method in which n of the most recent observations are averaged and past observations may be weighted differently.

b.

4t +, = $t ; t v. E,ponential smoothing uses a sophisticated weighting average procedure to generate a forecast. 4t +, = ; t + (, % 4t Trend is a pattern in which data e)hibit increasing or decreasing values over time. i. Trend&ad/usted e,ponential smoothing #t = ; t + (, %(#t , + t , % t = (# t + # t , % + (, % t ,

4I

t+ ,

= #t +

ii.

; E ;ctual demand. #t E e)ponentially smoothed average of the time series in period t. t E e)ponentially smoothed trend of the time series in period t. 4I'tG, E forecast including trend for ne)t period t + 1. @inear trend line.

I = a + bH

$ompute parameter b( b =

HI n H I H n H
-

$ompute parameter a( a = I b H /enerate the linear trend line and generate a forecast (I% on time (H%.

c.

Seasonality is any pattern that regularity repeats itself and is constant in length. Seasonal inde, is the percentage amount by which data for each season are above or below the mean. i. $alculate the average demand for each season. ii. $ompute a seasonal inde) for every season. iii. $alculate the average seasonal inde) for each season. iv. $alculate the average demand per season for ne)t year. v. "ultiply ne)t year;s average seasonal demand by each seasonal inde). d. !ycles are data patterns created by economic fluctuations. Random variation is the une)plained variation that cannot be predicted. -. !asual models are based on the assumption that the variable being forecast is related to other variables in the environment.

+orecast error is the difference between forecast and actual value for a given period. Mean a*solute deviation (M0.) is a measure of forecast error that computes error as the average of the sum of the absolute errors.

";' =

actual forecast
n

Mean s'uared error (MSE) is a measure of forecast error that computes error as the average of the s*uared error.

( actual forecast ) ";' =

n

+orecast *ias (vooroordeel) is a persistent tendency for a forecast to be over or under the actual value of the data. Trac"ing signal is a tool used to monitor the *uality of a forecast.

rackingsignal =

( actual forecast )
";'

#electing the right forecasting model( ,. ;mount and type of available data. -. 'egree of accuracy re*uired. 0. @ength of forecast horizon. 3. 'ata patterns present.

H) *apacity planning and +acility location !apacity is the ma)imum output rate that can be achieved by a facility. !apacity planning is the process of establishing the output rate that can be achieved by a facility. "easuring available capacity. .esign capacity is the ma)imum output rate that can be achieved by a facility under ideal conditions. Effective capacity is the ma)imum output rate that can be sustained under normal conditions. "easuring effectiveness of capacity use. !apacity utilization is the percentage measure of how well available capacity is being used. $apacity considerations (figure J&,% #est operating level is the volume of output that results in the lowest average unit cost. Economies of scale is a condition in which the average cost of a unit produced is reduced as the amount of output is increased. .iseconomies of scale is a condition in which the cost of each additional unit made increases. +ocused factories are facilities that are small, specialized and focused on a narrow set of ob:ectives. !apacity cushion is additional capacity added to regular capacity re*uirements to provide greater fle)ibility. .ecision tree is a modelling tool used to evaluate independent decisions that must be made in se*uence. It contains the following information( decision points, decision alternatives, chance events and outcomes. E,pected value (EV) is a weighted average of chance events, where each chance event is given a probability of occurrence. Location analyses are techni*ues for determining location decisions. +actor rating is a procedure that can be used to evaluate multiple alternative locations based on a number of selected factors (e)ample J.0%. Load&distance model is a procedure for evaluating location alternatives based on distance (e)ample J.3%. $enter of gravity approach (e)ample J.>% #rea"&even analyses is the techni*ue used to compute the amount of goods that must be sold :ust to cover costs (e)ample J.F%. Rectilinear distance is the shortest distance between two points measured by using only north K south and east K west movements. 2lo*alisation is the process of locating facilities around the world.

H1, (acility layout Layout planning is deciding on the best physical arrangement of all resources that consume space within a facility. rocess layouts are layouts that group resources based on similar processes or functions (intermittent process systems%. ,. /ather information. a. Identify space needed. b. Identify space available. #loc" plan schematic showing the placement of resources in a facility. c. Identify closeness measures +rom&to matri, is a table that gives the number of trips or units of product moved between any pair of departments (table ,L&-%. REL chart is a table that reflects opinions of managers with regard to the importance of having any two departments closed together (table ,L&0%. 'evelop a block plan or schematic of the layout. a. Bsing trial and error. Load&distance model (table ,L&>%. b. Bsing decision support tools. 'evelop a detailed layout.

-.

0.

+arehouse layouts (e)ample ,L.0%. 2ffice layouts. roduct layouts are layouts that arrange resources in se*uence to allow for an efficient build&up of the product (repetitive processing systems%. Line *alancing is the process of assigning tasks to workstations in a product layout in order to achieve a desired output and balance the workload among stations. ,. -. 0. Identify tasks and their immediate predecessors (voorgangers%. )mmediate predecessor is a task that must be performed immediately before another task. 'etermine output rate, the number of units we wish to produce over a specific period of time. 'etermine cycle time, the ma)imum amount of time each workstation has to complete its assigned tasks. available time output = cycle time $ompute the theoretical minimum number of stations.

3.

"=
>. F.

t
$

;ssign tasks to workstations (balance the line%. $ompute efficiency, Idle time, and balance delay.

efficiency =

t
D$

balance delay =,LL & efficiency

aced line is a system in which the product being worked on is physically attached to the line and automatically moved to the ne)t station when the cycle time has elapsed. 5y*rid layouts are layouts that combine characteristics of process and product layout. 2roup technology (2T) or cell layout is a hybrid layout that creates groups of products based on similar processing re*uirements. +i,ed position layout is a layout in which the product cannot be moved due to its size and all the resources have to come to the production site.

H11 -or. system design 6o* design specifies the contents of the :ob. Technical feasi*ility (uitvoer*aarheid) the :ob must be physically and mentally doable. Economic feasi*ility cost of the :ob should be less than the value it adds. #ehavioural feasi*ility degree to which the :ob is intrinsically satisfying to the employee. Specialization is the breadth of the :ob design. =liminating employee boredom. ,. 6o* enlargement a horizontal e)pansion of the :ob through increasing the scope of the work assigned. -. 6o* enrichment a vertical e)pansion of the :ob through increased worker responsibility. 0. 6o* rotation workers shift to different :obs to increase understanding of the total process. eam approaches ro*lem&solving teams small groups of employees and supervisors trained in problem&solving techni*ues who meet to identify, analyze and propose solutions to workplace problems. Special&purpose teams highly focused, short&term teams addressing issues important to management and labor. Self&directed or self&managed teams integrated teams empowered to control portions of their process. Methods analyses is a process concerned with the detailed process for doing a particular :ob. 8or" measurement determines how long it should take to do a :ob. Standard time is the length of time it should take a *ualified worker using appropriate process and tools to complete a specific :ob allowing time for personal, fatigue and unavoidable delays. Time study is a techni*ue for developing a standard time based on actual observations of the operator. erformance rating factor is a sub:ective estimate of a workers pace (tempo% relative to a normal work pace. +re'uency of occurrence is how often a work element must be done each cycle. 3ormal time is the mean observed time multiplied by the performance rating factor by the fre*uency of occurrence. 0llo(ance factor is the amount of time the analyst allows for personal, fatigue and unavoidable delays (table ,,&F and e)ample ,,.3%. 8or" sampling is a techni*ue for estimating the proportion of time a worker spends on a particular activity. $ompensation Time&*ased compensation systems pay the worker based on the number of hours worked (1M'%. Output&*ased (incentive) systems pay the worker based on the number of units completed. /roup incentive plans 5rofit sharing. /ain sharing. @earning curve (e)ample ,,.F%. @n = time re*uired for nth time the task is done

H12 Independent demand inventory management ypes of inventory( Ra( materials are purchased items or e)tracted materials transformed into components or products. !omponents are parts of subassemblies used in final product. 8or"&in&process (8) ) are items in process throughout the plant. +inished goods are products sold to customers. .istri*ution inventory are finished goods in the distribution system. Maintenance$ repair and operational (MRO) are supplies that are used in manufacturing but do not become part of the finished product. .ow companies use their inventory 0nticipation or seasonal inventory is inventory built in anticipation of future demand. +luctuation inventory or safety stoc" provides a cushion against une)pected demand. Lost&size inventory or cycle stoc" is a result of the *uantity ordered or produced. Transportation or pipeline inventory is inventory in movement between locations.

; I=

t' (e)ample ,-.,% 0F>

Speculative or hedge inventory is used to protect against some future event. MRO are items used in support of manufacturing and maintenance. !ustomer service is the ability to satisfy customer re*uirements. ercentage of orders shipped on schedule is a customer service measure appropriate for use when orders have similar value. ercentage of line items shipped on schedule is a customer service measure appropriate when customer orders vary in number of line items ordered. ercentage of dollar volume shipped on schedule is a customer service measure appropriate when customer orders vary in value. )nventory turnover is a measure of inventory policy effectiveness. annual cost of goods sold inventory turnover = average inventory in dollars 8ee"s (or days$ or hours) of supply is a measure of inventory policy effectiveness. average inventory on hand in dollars weeks of supply = average weekly usage in dollars 1elevant inventory costs )tem cost includes price paid for the item plus other direct costs associated with the purchase. 5olding costs include the variable e)penses incurred by the plant related to the volume of inventory held. !apital cost is the higher of the cost of capital or the opportunity cost for the company. Storage costs include the average e)penses for space, workers and e*uipment related to the colume of inventory held. Ris" costs include obsolescence, damage or deterioration, theft, insurance and ta)es associate with the volume of inventory held. Ordering costs are the fi)ed costs associated with either placing an order with a supplier or setup costs incurred for in&house productions. Shortage costs incurred when demand e)ceeds supply. #ac" order is delaying delivery to the customer until the item becomes available. Lost sale occurs when the customer is not willing to wait for delivery. 'etermining order *uantities. ; stoc"&"eeping unit (S71) is an item in a particular geographic location. Lot&for&lot is when the company orders e)actly what needed. +i,ed&order 'uantity is ordering a predetermined amount each time an order is placed. Min&ma, system is when on&hand inventory falls below a predetermined minimum level, order a *uantity that will take the inventory back up to its predetermined ma)imum level. Order n periods is ordering enough to satisfy demand for the ne)t n periods.

Economic order 'uantity model (EO4) is an optimizing method used for determining order *uantity and reorder points. Lead time is the amount of time it takes from order placement until the item is received. total annual cost = annual ordering costs + annual holding costs 1 = d@

' ! $ = # + . ! -

=2! =

-'# .

(e)ample ,-.F%

Economic production 'uantity (E 4) is a model that allows for incremental product delivery.

' I $ = # + ";H . ! =5! = -'# d . , p

d I ";H = !, 5
(e)ample ,-.J%

(e)ample ,-.C%

erpetual inventory record provides an up&to&date inventory balance. T(o&*in system splits replenishment orders into tow&bins, placing one bin in reserve. +hen the initial bin is empty, the contents of the second bin are used and a replenishment order is placed.N 4uantity discount model modifies the =2! process to consider cases where *uantity discounts are available. ' ! $ = # + . + 5' (e)ample ,-.,L, ,-.,,% ! - Safety stoc"

Order&cycle service level is the probability that demand during lead time will not e)ceed on&hand inventory. ## = zO d@ (e)ample ,-.,-% eriodic revie( system re*uires periodic reviews of the on&hand *uantity to determine the size of the replenishment order. Target inventory level (T)) use in determining order *uantity in the periodic review system. arget inventory less on&hand inventory e*uals order *uantity. I = d ( 15 + @ ) + ## ## = zO 15 +@ O 15 +@ = O t 15 + @ ! = I 2. (e)ample ,-.,0% areto%s la( implies that about -LP of the inventory items will account for about <LP of the inventory value. 0#! classification is a method for determining level of control and fre*uency of review of inventory items (e)ample ,-.,>%.

1 = d@ + ##

H13 /ggregate planning 0ggregate plan includes the budgeted levels of finished products, inventory, backlogs, workforce size, and aggregate production rate needed to support the marketing plan. Level aggregate plan is a planning approach that produces the same *uantity each time period. Inventory and back orders are used to absorb demand fluctuations. !hase aggregate plan is a planning approach that varies production to meet demand each period. 5y*rid aggregate plan is a planning approach that uses a combination of level and chase approaches while developing the aggregate plan. ;ggregate planning options( .emand&*ased options is a group of options that respond to demand fluctuations through the use of inventory or back orders, or by shifting the demand pattern. 1eactive options (inventories and back orders%. 5roactive options (shift demand patterns%. !apacity&*ased options is a group of options that allow the firm to change its current operating capacity. 2vertime, undertime, subcontracting, hiring and firing. =valuating the current situation oint of departure is the percentage of normal capacity the company is currently using. Magnitude of the change is the relative size of the change needed. .uration of the change is the e)pected length of time the different capacity level is needed. 'eveloping the aggregate plan (e)ample ,0.3 9 ,0.,L% ,. $hoose the aggregate plan (level, chase or hybrid%. -. 'etermine the aggregate production rate. 0. $alculate the size of the workforce. 3. est the plan. >. =valuate the plans performance in terms of cost, customer service, human resources and operations. Master production schedule (M S) is the anticipated build schedule. Material re'uirements planning (MR ) is a techni*ue using the master production schedule, bill of material data and inventory records to calculate re*uirements for materials. Rough&cut capacity planning (R!! ) is the process of converting the master production schedule into re*uirements for key resources such as direct labor and machine time. !apacity planning using overall planning factors (! O +) is a rough&cut capacity planning techni*ue. "5# items are multiplied by historically determined planning factors for key resources. ,. 'etermine the planning factors. -. $alculate the workload generated by this schedule. 0. $alculate the total capacity needs for each resource for each time period. 3. $alculate individual workcenter capacity needs based on historical percentage allocation. Order promising is the process of making order delivery commitments. 0vaila*le&to&promise (0T ) is the uncommitted portion of a companys inventory and planned production, maintained in the "5# to support order promising (e)ample ,0.,0%.

H14 0esource planning "aterial planning systems !losed:loop MR is an "15 system that includes production planning, master production scheduling and capacity re*uirements. Manufacturing resource planning (MR ))) is a method for effective planning and integration of all internal resources. ;n overview of "15 Material re'uirements planning (MR ) is a system that uses the "15, inventory record data and ?2" to calculate material re*uirements. !apacity re'uirements planning (!R ) determines the labor and machine resources needed to fill the open and planned orders generated by the "15. #ill of material (#OM) lists all the subassemblies, component parts and raw materials that go into an end item and shows usage *uantity of each re*uired. ypes of demand )ndependent demand is as the demand for an item is unrelated to the demand for other items. .ependent demand is as the demand for component parts is based on the number of end items being produced. 2ross re'uirements is the total&period demand for an item. Inputs of an "15 system( ,. ;uthorized "5#. -. ?2". 0. Individual item inventory records.

H15 1cheduling .igh&volume operations +lo( operations are processes designed to handle high9volume, standard products. Routing provides information about the operations to be performed, their se*uence, the workcenters and the time standards. @ow&volume operations 2antt chart is a planning and controlling chart designed to graphically show workloads or to monitor :ob progress. Load chart is a chart that visually shows the workload relative to the capacity at a resource. rogress chart is a chart that visually shows the planned schedule compared to actual performance. #cheduling work )nfinite loading is scheduling that calculates the capacity needed at workcenters in the time period needed without regard to the capacity available to do the work. +inite loading is scheduling that loads workcenters up to a predetermined amount of capacity. +or(ard scheduling is a scheduling that determines the earliest possible completion date for a :ob. .ue date is the time when the :ob is supposed to be finished. #ac"(ard scheduling is a scheduling method that determines when the :ob must be started to be done on the due date. Slac" is the amount of time a :ob can be delayed and still be finished by its due date. )nput:output control is a techni*ue for monitoring the flow of :obs between workcenters (e)ample ,>.,%. "easuring performance (e)ample ,>.F, ,>.C% 6o* flo( time is the measurement of the time a :ob spends in the shop before it is finished. :ob flow time = time of completion & time a :ob was first available for processing 0verage num*er of /o*s in the system measures work&in&process inventory. Ma"espan is the amount of time it takes to finish a batch of :obs. 6o* lateness measures whether the :ob is done ahead of, on, or behind schedule. 6o* tardiness measures how long after the due date the :ob is completed.