Improving Operational Efficiency Ch 23

(Stock Management, Lean Production) Stock Materials and goods required in order to produce for, and supply to the consumer is called stock.  Categories of Stock Raw material and components Work in process Finished goods Stock Management The purpose of stock management is to reduce stock cost into minimum level. Stock management involves;  Purchasing of stock and their delivery  Storing and control of stock  The issue and handling of stock  Disposal of surpluses  Providing information about stock Problems Due to Inefficient Stock Management  Insufficient stock is unable to meet unforeseen changes in demand of product.  Out of date stocks – medicine etc  Stock wastage  High level of stock causes high storage cost  Poor management of stock purchasing can result in late deliveries, low discounts from suppliers etc  Stockholding Cost Opportunity cost Storage cost Risk of wastage and out dated Stock-out Cost Lost sales Idle production resources Special order could be expensive Loss of goodwill Loss of customer loyalty Optimum Order Size The purchasing manager must ensure that supplies of the right quality are delivered at the right time in sufficient quantities to allow smooth and unbroken production.  Economic Order Quantity (EOQ) EOQ is the attempt to calculate the optimum stock order level, given the delivery costs compared with the cost of holding stock. The higher the delivery cost in relation to the stock holding cost, the larger the order level should be (to minimize the number of deliveries). (See figure 23.2 on page 360) Re-order Level Levels of stock when new order for stock is placed is called re-order level. We have different methods;  Fixed reorder interval- placing an order for stock after a specific time

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 Fixed reorder level- placing an order for stock after reaching a fixed amount of stock  Two bin system – dividing stock into two bins when one is empty then order for new and use second one.  Buffer stock- minimum stock level to meet unforeseen demand and to cover break in supplies.  Lead time – the time between the order and delivery of goods.  Stock pile - keeping the stock level which will fulfill demand till next few months on any special event like Eid. (See figure 23.3 on page 361) Just in Time (JIT) stock control  A stock control system which is designed to minimized the costs of holding stocks in raw material, work in process and finished goods by very carefully planned scheduling and flow of resources through the production process.  It requires no buffer stock, just order raw material when you need, and delivered finished goods as soon as they are completed.  It requires a very efficient ordering system and delivery reliability.  Important Requirement for JIT o Excellent relationship with suppliers and employees o Multi skilled production staff o Flexible machinery o Strong infrastructure o Political stability Lean Production “Lean production is an approach to operations management aimed at reducing the quantity of resources used up in production”.  Key Features of Lean Production o Simultaneous engineering instead Sequential engineering – all necessary activities should start at same time instead of one after another or in sequence. This approach will increase the speed of work. o Flexibility – to handle technological advances and changing consumer tastes there should be flexibility in these three areas; • Flexible employment contracts – allows to change in workforce according to the change in demand. • Flexible machinery – that can be quickly change from one design to another. • Multi skills worker  Kaizen –continues improvement Kaizen is a Japanese term meaning continues improvement in productivity. It is difficult to look for continuous improvement all the time. Japanese tried to solve this problem by introducing PDCA (plan, do check action) cycle. It is a series of activities that lead to improvement.  Plan- business must identify that where improvement is needed. Data must be gathered and used to develop a plan which will result in improvement.  Do – the plan should be implemented by workers, on the production line  Check – check whether or not there has been an improvement. This task may be carried out by inspectors.  Action – if plan has been successful, it must be introduced in all parts of the business. Conditions necessary for Kaizen Team working

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Empowerment Involvement of all staff Limitations see on page 367  One-off improvement Productivity remains same for long period of time and suddenly rises due to heavy investment.

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