Summary of Chapter 1: Introduction to Operations Management

 Operation refers to the business activity of an organization which is to

produce goods and services.

 Goods can be defined as the physical items such as raw materials, parts and
final products while services refers to the activities that provide some
combination of time, location, form and psychological value.

 Operation management refers to the management of systems or processes that

create good and/or provide services.

 A supply chain is the sequence of organization such as the facilities,

functions and activities that involved in producing and delivering a product
or service.

 Supply chain has both external and internal to the organization. The external
parts of a supply chain provide raw materials, parts, equipment, supplies and
they deliver outputs that are goods to the organization’s customers.

 The internal part of a supply chain refers to the part of the operations function
itself, supplying operations with parts and materials, performing work on
products and performing services.

 The creation of goods and services requires transformation process which

need to convert inputs into outputs.

 To ensure the desired outputs are obtained, an organization takes

measurement in the transformation process and compare it with established
standards to determine whether corrective action is needed.

 Value-added refers to the difference between the cost of inputs and the value
or price of outputs.

 The value of outputs is measured by the prices that customers are willing to
pay for those goods or services.

 Operations interacts with other functional areas of the organization, including

legal, management information system, accounting, personnel/human
resources and public relations.

 System design involves decisions that relate to system capacity, the

geographic location of facilities, arrangement of departments and placement
 of equipment within physical structures, product and service planning and
acquisition of equipment.

 System operation involves management of personnel, inventory planning and

control, scheduling, project management and quality assurance.

 Purchasing has responsibility for procurement of materials, supplies and

equipment. The purchasing department is often called on to evaluate vendors
for quality, reliability, service, price and ability to adjust to changing
demand.

 Industrial engineering is often concerned with scheduling, performance

standards, work methods, quality control and material handling.

 Distribution involves the shipping of goods to warehouses, retail outlets or

final customers.

 Maintenance is responsible for general upkeep and repair of equipment,

buildings and grounds, heating and air-conditioning, removing toxic wastes.

 A system can be defined as a set of interrelated parts that must work together.
In a business organization, the organization can be thought of a system
composed of subsystems which in turn are composed of lower subsystems.

 Technology is the application of scientific discoveries to the development

and improvement of goods and services.

 Product and service technology refers to the discovery and development of

new products and services.

 Process technology refers to methods, procedures and equipment used to

produce goods and provide services.

 Information technology refers to the science and use of computers and other
electronic equipment to store, process and send information.

 Revenue management refers to the method used by some companies to

maximize the revenue they receive from fixed operating capacity by
influencing demand through price manipulation.

 Process analysis and improvement includes cost and time reduction,

productivity improvement, process yield improvement and quality
improvement and increasing customer satisfaction.

 Agility refers to the ability of an organization to respond quickly to demands

 or opportunities.

 Lean systems refers to the systems that uses minimal amounts of resources to
produce a high volume of high quality goods with some variety.

 Ethics is a standard of behaviour that guides how one should act in various
situations.

 The utilitarian principle refers to the good done by an action or inaction

should outweigh any harm it causes or might cause.

 The right principle is that actions should respect and protect the moral rights
of others.

 The fairness principle is that equals should be held to, or evaluated by, the
same standards.

 The common good principle is that actions should contribute to the common
good of the community.

 The virtue principle is that actions should be consistent with certain ideal
virtues.

Summary of Chapter 2: Competitiveness, Strategy and Productivity

 Competitiveness is an important factor in determining whether a company
prospers, barely gets by or fails.

 Business organizations compete through some combination of price, delivery

time and product or service differentiation.

 Marketing influences competitiveness in several ways, including identifying

consumer wants and needs, pricing and advertising and promotion.

 Identifying consumer wants and needs is a basic input in an organizational

decision making process and central to competitiveness.

 Price and quality are key factors in consumer buying decisions. It is

important to understand the trade-off decision consumers make between price
and quality.

 Advertising and promotion are ways organization can inform potential

customers about features of their products or services and attract buyers.

 Product and service design should reflect joint efforts of many areas of the
firm to achieve a match between financial resources, operations capabilities,
supply chain capabilities and consumer wants and needs.

 Cost of an organizational output is a key variable that affects pricing

decisions and profits.

 Location can be important in terms of cost and convenience for customers.

Location near inputs can result in lower inputs costs. Location near markets
can result in lower transportation costs and quicker delivery times.

 Quality refers to materials, workmanship, design and service. Consumers

judge quality in terms of how well they think of a product or service will
satisfy its intended purpose.

 Supply chain management can be competitive advantage by effectively

matching supplies of goods with demand.

 Service might involve after sale activities customers perceive as value-added

such as delivery, setup, warranty work and technical support.

 Organizations have overall strategies called organizational strategies which

relate to the entire organization.
 They also have functional strategies which relate to each of the functional
areas of the organization. The functional strategies should support the overall
strategies of the organization, just as the organizational strategies should
support the goals and mission of the organization.

 Tactics are the methods and actions used to accomplish strategies. They are
more specific than strategies and they provide guidance and direction for
carrying out actual operations, which need the most specific and detailed
plans and decision making in an organization.

 Core competencies are the special attributes or abilities that give an

organization a competitive edge.

 SWOT approach refers to the strengths, weaknesses, opportunities and

threats. Strengths and weaknesses have an internal focus and are typically
evaluated by operations people. Threats and opportunities have an external
focus and are typically evaluated by marketing people.

 Order qualifiers are those characteristics that potential customers perceive as

minimum standards of acceptability for a product to be considered for
purchase.

 A supply chain strategy specifies how the supply chain should function to
achieve supply chain goals. It establishes how the organization should work
with suppliers and policies relating to customer relationships and
sustainability.

 To be successful, organisations need a sustainability strategy which requires

elevating sustainability to the level of organisational governance; formulating
goals for products and service, for processes and for the entire supply chain;
measuring achievements and striving for improvements and possibly linking
executive compensation to the achievement of sustainability goals.

 Operations strategy is narrower in scope, dealing primarily with the

operations aspect of the organisation. Operation strategy relates to products,
processes, methods, operating resources, quality, costs, lead times and
scheduling.

 Quality-based strategies focus on maintaining or improving the quality of an

organisation’s products or services.

 Time-based strategies focus on reducing the time required to accomplish

various activities such as develop new products or services and market them,
respond to a change in customer demand or deliver a product or perform a
service.
  Productivity is an index that measures output (goods and services) relative to
the input (labor, materials, energy and other resources) used to produce it.

 Although productivity is important for all business organisations, it is

particularly important for organisations that use a strategy of low cost
because the higher the productivity, the lower the cost of the output.

 Numerous factors affect productivity. Generally they are methods, capital,

quality, technology and management.

Summary of Chapter 4: Product and Service Design

 Manufacturability The capability of an organization to produce an item at
an acceptable profit.

 Serviceability The capability of an organization to provide a service at an

acceptable cost or profit.

 Organizations become involved in product and service design or redesign for

a variety of reasons. The main forces that initiate design or redesign are
market opportunities and threats.

 The factors that give rise to market opportunities and threats can be one or
more changes:

- Economic (e.g., low demand, excessive warranty claims, the need to reduce
costs).
- Social and demographic (e.g., aging baby boomers, population shifts).
- Political, liability, or legal (e.g., government changes, safety issues, new
regulations).
- Competitive (e.g., new or changed products or services, new
advertising/promotions).
- Cost or availability (e.g., of raw materials, components, labor, water,
energy)
- Technological (e.g., in product components, processes).

 Ideas for new or redesigned products or services can come from a variety of
sources, including customers, the supply chain, competitors, employees, and
research.

 Reverse engineering Dismantling and inspecting a competitor’s product to

discover product improvements.

 Research and development (R&D) Organized efforts to increase scientific

knowledge or product innovation.

 Basic research has the objective of advancing the state of knowledge about a
subject, without any near-term expectation of commercial applications.

 Applied research has the objective of achieving commercial applications.

 Development converts the results of applied research into useful commercial

applications.
 Product liability is the responsibility of a manufacturer for any injuries or
damages caused by a faulty product because of poor workmanship or design.

 Increasing customer awareness of product safety can adversely affect product

image and subsequent demand for a product.

 Human factor issues often arise in the design of consumer products. Safety
and liability are two critical issues in many instances, and they must be
carefully considered.

 Product designers in companies that operate globally also must take into
account any cultural differences of different countries or regions related to
the product. This can result in different designs for different countries or
regions.

 Virtual teams can provide a range of comparative advantages over traditional

teams such as engaging the best human resources from around the world
without the need to assemble them all in one place, and operating on a 24-
hour basis, thereby decreasing the time-to-market.

 Cradle-to-grave assessment is the assessment of the environmental impact of

a product or service throughout its useful life.

 End-of-life (EOL) programs deal with products that have reached the end of
their useful lives. The products include both consumer products and business
equipment.

 Designers often reflect on three particular aspects of potential cost saving and
reducing environmental impact: reducing the use of materials through value
analysis; refurbishing and then reselling returned goods that are deemed to
have additional useful life, which is referred to as remanufacturing; and
reclaiming parts of unusable products for recycling.

 Value analysis refers to an examination of the function of parts and

materials in an effort to reduce the cost and/or improve the performance of a
product.

 Remanufacturing refers to refurbishing used products by replacing worn-

out or defective components and reselling the products.
 Recycling means recovering materials for future use. This applies not only to
manufactured parts but also to materials used during production, such as
 lubricants and solvents.

 Standardization refers to the extent to which there is absence of variety in a

product, service, or process.

 Companies like standardization because it enables them to produce high

volumes of relatively low-cost products, albeit products with little variety.

 Customers, on the other hand, typically prefer more variety, although they
like the low cost.

 Mass customization is a strategy of producing standardized goods or services

but incorporating some degree of customization in the final product or
service.

 Delayed differentiation is a postponement tactic: the process of producing,

but not quite completing, a product or service, postponing completion until
customer preferences or specifications are known.

 Modular design is a form of standardization. Modules represent groupings

of component parts into subassemblies, usually to the point where the
individual parts lose their separate identity.

 Reliability is a measure of the ability of a product, a part, a service, or an

entire system to perform its intended function under a prescribed set of
conditions.

 The importance of reliability is underscored by its use by prospective buyers

in comparing alternatives and by sellers as one determinant of price.

 Quality function deployment (QFD) is a structured approach for integrating

the “voice of the customer” into both the product and service development
process.

 Feasibility analysis entails market analysis (demand), economic analysis

(development cost and production cost, profit potential), and technical
analysis (capacity requirements and availability, and the skills needed).

 Product specifications involves detailed descriptions of what is needed to

meet (or exceed) customer wants, and requires collaboration between legal,
 marketing, and operations.

 Process specifications have been set attention turns to specifications for the
process that will be needed to produce the product.

 Prototype development refers with product and process specifications

complete, one (or a few) units are made to see if there are any problems with
the product or process specifications.

 Design review refers to any necessary changes are made or the project is
abandoned. Marketing, finance, engineering, design, and operations
collaborate to determine whether to proceed or abandon.

 A market test is used to determine the extent of consumer acceptance. If

unsuccessful, the product returns to the design review phase. This phase is
handled by marketing.

 Concurrent engineering means bringing design and manufacturing

engineering people together early in the design phase to simultaneously
develop the product and the processes for creating the product.

 Computer-aided design (CAD) uses computer graphics for product design.

The designer can modify an existing design or create a new one on a monitor
by means of a light pen, a keyboard, a joystick, or a similar device.

 The term design for manufacturing (DFM) is used to indicate the

designing of products that are compatible with an organization’s capabilities.

 Service refers to an act, something that is done to or for a customer (client,

patient, etc.). It is provided by a service delivery system which includes the
facilities, processes, and skills needed to provide the service.

 A useful tool for conceptualizing a service delivery system is the service

blueprint which is a method for describing and analysing a service process.
Summary of Chapter 6: Process Selection and Facility Layout

 Process selection refers to deciding on the way production of goods or

services will be organized.
 Capital intensity: the mix of equipment and labor that will be used by the
organization.

 Process flexibility: the degree to which the system can be adjusted to changes
in processing requirements due to such factors as changes in product or
service design, changes in volume processed, and changes in technology.

 A job shop usually operates on a relatively small scale. It is used when a low
volume of high-variety goods or services will be needed.

 Batch processing is used when a moderate volume of goods or services is

desired, and it can handle a moderate variety in products or services.

 When higher volumes of more standardized goods or services are needed,

repetitive processing is used. The standardized output means only slight
flexibility of equipment is needed.

 Continuous refers to a very high volume of non-discrete, highly standardized

output is desired, a continuous system is used.

 A project is used for work that is nonroutine, with a unique set of

objectives to be accomplished in a limited time frame.

 Product or service profiling can be used to avoid any inconsistencies by

identifying key product or service dimensions and then selecting appropriate
processes.

 Technological innovation refers to the discovery and development of new

or improved products, services, or processes for producing or providing
them.

 Technology refers to applications of scientific discoveries to the development

and improvement of goods and services and/or the processes that produce or
provide them.

 Process technology includes methods, procedures, and equipment used to

produce goods and provide services.

 Information technology (IT) is the science and use of computers and other
electronic equipment to store, process, and send information.
 Automation is machinery that has sensing and control devices that enable it
to operate automatically.

 Fixed automation is the least flexible. It uses high-cost, specialized

equipment for a fixed sequence of operations. Low cost and high volume are
its primary advantages; minimal variety and the high cost of making major
changes in either product or process are its primary limitations.

 Programmable automation involves the use of high-cost, general-purpose

equipment controlled by a computer program that provides both the sequence
of operations and specific details about each operation.

 Computer-aided manufacturing (CAM) refers to the use of computers in

process control, ranging from robots to automated quality control.

 Numerically controlled (N/C) machines are programmed to follow a set of

processing instructions based on mathematical relationships that tell the
machine the details of the operations to be performed.

 A flexible manufacturing system (FMS) is a group of machines that include

supervisory computer control, automatic material handling, and robots or
other automated processing equipment.

 Computer-integrated manufacturing (CIM) is a system that uses an

integrating computer system to link a broad range of manufacturing
activities, including engineering design, flexible manufacturing systems,
purchasing, order processing, and production planning and control.

 Layout refers to the configuration of departments, work centres, and

equipment, with particular emphasis on movement of work (customers or
materials) through the system.

 Product layouts are used to achieve a smooth and rapid flow of large
volumes of goods or customers through a system. This is made possible by
highly standardized goods or services that allow highly standardized,
repetitive processing.

 Production line is a standardized layout arranged according to a fixed

sequence of production tasks.
 Assembly line is a standardized layout arranged according to a fixed
sequence of assembly tasks.

 Process layouts is a (functional layouts) are designed to process items or

provide services that involve a variety of processing requirements.

 Cellular production is a type of layout in which workstations are grouped

into what is referred to as a cell. Groupings are determined by the operations
needed to perform work for a set of similar items, or part families, that
require similar processing.

 Cellular manufacturing enables companies to produce a variety of products

with as little waste as possible.

 Service layouts can often be categorized as product, process, or fixed-

position layouts.

 In a fixed-position service layout (e.g., appliance repair, roofing, landscaping,

home remodelling, copier service), materials, labour, and equipment are
brought to the customer’s residence or office.

 Process layouts are common in services due mainly to the high degree of
variety in customer processing requirements.

Summary of Chapter 8: Location Planning and Analysis

 Location decisions are closely tied to an organization’s strategies. For

example, a strategy of being a low-cost producer might result in locating
 where labour or material costs are low or locating near markets or raw
materials to reduce transportation costs.

 Location choices can impact capacity and flexibility. Certain locations may
be subject to space constraints that limit future expansion options.

 Location decisions are strategically important for other reasons as well. One
is that they entail a long-term commitment, which makes mistakes difficult to
overcome.

 Another is that location decisions often have an impact on investment

requirements, operating costs and revenues, and operations.

 A poor choice of location might result in excessive transportation costs, a

shortage of qualified labour, loss of competitive advantage, inadequate
supplies of raw materials, or some similar condition that is detrimental to
operations.

 As a general rule, profit-oriented organizations base their decisions on profit

potential, whereas non-profit organizations strive to achieve a balance
between cost and the level of customer service they provide.

 Supply chain management must address supply chain configuration. This

includes determining the number and location of suppliers, production
facilities, warehouses, and distribution centres.

 Expand an existing facility. This option can be attractive if there is adequate

room for expansion, especially if the location has desirable features that are
not readily available elsewhere. Expansion costs are often less than those of
other alternatives.

 Add new locations while retaining existing ones. This is done in many retail
operations. In such cases, it is essential to take into account what the impact
will be on the total system.

 Shut down at one location and move to another. An organization must weigh
the costs of a move and the resulting benefits against the costs and benefits of
remaining in an existing location.

 Technological advances in communication and information sharing have

been
very helpful. These include faxing capability, e-mail, cell phones,
teleconferencing, and the Internet.

 Companies often seek opportunities for expanding markets for their goods
and services, as well as better serving existing customers by being more
 attuned to local needs and having a quicker response time when problems
occur.

 Among the areas for potential cost saving are transportation costs, labour
costs, raw material costs, and taxes.

 High transportation costs can occur due to poor infrastructure or having to

ship over great distances, and the resulting costs can offset savings in labour
and materials costs.

 Increased security risks and theft can increase costs. Also, security at
international borders can slow shipments to other countries.

 Low labour skills may negatively impact quality and productivity, and the
work ethic may differ from that in the home country. Additional employee
training may be required.

 Political instability and political unrest can create risks for personnel safety
and the safety of assets. Moreover, a government might decide to nationalize
facilities, taking them over.

 Terrorism continues to be a threat in many parts of the world, putting

personnel and assets at risk and decreasing the willingness of domestic
personnel to travel to or work in certain areas.

 Economic instability might create inflation or deflation, either of which can

negatively impact profitability.

 the major influences on location decisions are location of raw materials,

labour supply, market considerations, community-related factors, site-related
factors, and climate.

 Foreign locations may be attractive in terms of labour costs, abundance of

raw materials, or as potential markets for a firm’s products or services.
Problems organizations sometimes encounter in foreign countries include
language differences, cultural differences, bias, and political instability.

 A common approach to narrowing the range of location alternatives is to first

identify a country or region that seems to satisfy overall needs and then
identify a number of community-site alternatives for more in-depth analysis.

Summary of Chapter 9: Management of Quality

 Quality refers to the ability of a product or service to consistently meet or

exceed customer requirements or expectations. However, different customers
will have different requirements, so a working definition of quality is
 customer-dependent.

 One way to think about quality is the degree to which performance of a

product or service meets or exceeds customer expectations.

 The difference between these two, that is Performance – Expectations, is of

great interest. If these two measures are equal, the difference is zero, and
expectations have been met. If the difference is negative, expectations have
not been met, whereas if the difference is positive, performance has exceeded
customer expectations.

 Product quality is often judged on nine dimensions of quality:

- Performance —main characteristics of the product.

- Aesthetics —appearance, feel, smell, taste.
- Special features —extra characteristics.
- Conformance —how well a product corresponds to design
specifications.
- Reliability —dependable performance.
- Durability —ability to perform over time.
- Perceived quality —indirect evaluation of quality (e.g., reputation).
- Serviceability —handling of complaints or repairs.
- Consistency —quality doesn’t vary.

 The dimensions of product quality don’t adequately describe service quality.

Instead, service quality is often described using the following dimensions:

- Convenience —the availability and accessibility of the service.

- Reliability —the ability to perform a service dependably, consistently,
and
accurately.
- Responsiveness —the willingness of service providers to help
customers in
unusual situations and to deal with problems.
- Time —the speed with which service is delivered.
- Assurance —the knowledge exhibited by personnel who come into
contact with
a customer and their ability to convey trust and confidence.
 - Courtesy —the way customers are treated by employees who come into
contact
with them.
- Tangibles —the physical appearance of facilities, equipment, personnel,
and
communication materials.
- Consistency —The ability to provide the same level of good quality
repeatedly.
- Expectations —Meet (or exceed) customer expectations.

 The dimensions of both product and service quality establish a conceptual

framework for thinking about quality, but even they are too abstract to be
applied operationally for purposes of product or service design, or actually
producing a product or delivering a service.

 Information on customer wants in service can sometimes be difficult to pin

down, creating challenges for designing and managing service quality.

 A widely used tool for assessing service quality is SERVQUAL, an instrument

designed to obtain feedback on an organization’s ability to provide quality
service to customers.

 The degree to which a product or a service successfully satisfies its intended

purpose has four primary determinants:

- Design
- How well the product or service conforms to the design
- Ease of use
- Service after delivery

 Design involves decisions about the specific characteristics of a product or

service such as size, shape and locations.

 Quality of design refers to the intention of designers to include or exclude

certain features in a product or service.

 Quality of conformance refers to the degree to which goods and services

conform to the intent of the designers. This is affected by factors such as the
capability of equipment used, the skills, training and motivation of workers, the
extent to which the design lends itself to production, the monitoring process to
assess conformance and the taking of corrective action when necessary.
 Top management has the ultimate responsibility for quality. While establishing
strategies for quality, top management must institute programs to improve
quality, guide, direct and motivate managers and workers.

 Quality products and services begin with design. This includes not only features
of the product or service, it also includes attention to the processes that will be
required to produce the products and or the services that will be required to
deliver the service to customers.

 The procurement department has responsibility for obtaining goods and services
that will not detract from the quality of the organization’s goods and services.

 Production/operations has responsibility to ensure that processes yield products

and services that conform to design specifications.

 Quality assurance is responsible for gathering and analyzing data on problems

and working with operations to solve problems.

 Poor designs or defective products or services can result in loss of business.

Failure to devote adequate attention to quality can damage a profit-oriented
organisation’s reputation and lead to a decreased share of the market, or it can be
lead to increased criticism and or controls for a government agency or nonprofit
organization.

 Appraisal cost relate to inspection, testing and other activities intended to

uncover defective products or services or to assure that there are none. They
include the cost of inspectors, testing, test equipment, labs, quality and its field
testing.
 Prevention costs relate to attempts to prevent defects from occurring.

 Failure costs are incurred by defective parts or products or by faulty services.

 Internal failures are those discovered during the production process; external
failures are those discovered after delivery to the customer.

 The return on quality approach focuses on the economies of quality efforts. In

this approach, quality improvement projects are viewed as investments and as
such they are evaluated like any other investment using metrics related to return
on investment.

 Management systems —systems development and integration of environmental

responsibilities into business planning.

 Operations - consumption of natural resources and energy.

 Environmental systems - measuring, assessing and managing emissions,

effluents and other waste streams.
 ISO 24700 pertains to the quality and performance of office equipment and that
contains reused components.

 Total Quality Management refers to a quest for a quality in an organisation.

 There are three key philosophies. One is never-ending push to improve whcih is
referred to as continuous improvement, the second is the involvement of
everyone in the organisation and the third is a goal of customer satisfaction
which means meeting or exceeding customer expectations.

 The plan-do-study-act (PDSA) cycle, refers to conceptual basis for problem-

solving activities.

 Plan. Begin by studying the current process. Document that process. Then
collect data on the process or problem. Next, analyse the data and develop a plan
for improvement.

 Do. Implement the plan, on a small scale if possible. Document any changes
made during this phase. Collect data systematically for evaluation.

 Study. Evaluate the data collection during the do phase. Check how closely the
results match the original goals of the plan phase.

 Act. If the results are successful, standardize the new method and communicate
the new method to all people associated with the process.

 Process improvement is a systematic approach to improving a process. It

involves documentation, measurement and analysis for the purpose of improving
the functioning of a process.
 Summary of Chapter 10: Quality Control

 Quality control efforts that occur during production are referred to as statistical
process control.

 Inspection is an appraisal activity that compares goods and services to a

standard.

 Inspection can occur at three points: before production, during production, and
after production.

 The logic of checking conformance before production is to make sure that inputs
are acceptable.

 The logic of checking conformance during production is to make sure that the
conversion of inputs into outputs is proceeding in an acceptable manner.

 The logic of checking conformance of output is to make a final verification of

conformance before passing goods on to customers.

 Inspection before and after production often involves acceptance sampling

procedures, monitoring during the production process is referred to as process
control.

 Low-cost, high volume items such as paper clips, roofing nails and wooden
pencils often require little inspection because the cost associated with passing
defective items is quite low and the processes that produce these items are
usually highly reliable, so defects are rare.

 Operations with a high proportion of human involvement necessitate more

inspection effort than mechanical operations which tend to be more reliable.
 Raw materials and purchased parts. There is little sense in paying for goods that

do not meet quality standards and in expending time and effort on material that

is bad to begin with. Supplier certification programs can reduce or eliminate

the need for inspection.

 Finished products refers to customer satisfaction and the firm’s image are at
stake here, and repairing or replacing products in the field is usually much more
costly than doing it at the factory.

 Before a costly operation. The point is to not waste costly labor or machine time
on items that are already defective.

 Before an irreversible process. In many cases, items can be reworked up to a

certain point, beyond that point they cannot.

 Before a covering process. Painting, plating and assemblies often mask defects.

 Quality control is concerned with the quality of conformance of a process.

 Statistical process control (SPC) is used to evaluate process output to decide if a

process is ‘in control’ or if corrective action is needed.

 The natural or inherent process variation in process output are referred to as

chance or random variations.

 Sampling distribution a theoretical distribution that describes the random

variability of sample statistics.

 The central limit theorem states that as the sample size increases, the distribution
of sample averages approaches a normal distribution regardless of the shape of
the sampled population.
 Specifications or tolerances are 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.

 Process variability reflects the natural or inherent variability in a process.

Summary of Chapter 11: Aggregate Planning and Master Scheduling

 Aggregate planning is intermediate-range capacity planning that typically cover

a time horizon of 2 to 12 months.

 Sales and operations planning is defined as making intermediate-range decisions

to balance supply and demand, integrating financial and operations planning.

 Organisations make capacity decisions on three level. Long term, intermediate

term and short term.

 Long-term decisions relate to product and service selection, facility size and
location, equipment decisions and layout of facilities.

 Intermediate decisions relate to general levels of employment, output and

inventories which in turn establish boundaries within which short-range apacity
decisions must be made.

 Short-term decisions involve scheduling jobs, workers and equipment.

 The business plan establishes guidelines for the organisation, taking into account
the organisation’s strategies and policies; forecasts of demand for the
 organisation’s products or services and economic, competitive and political
conditions.

 A key objective in business planning is to coordinate the intermediate plans of

various organisation functions, such as marketing, operations and finance.

 Time-based competition is important to incorporate some flexibility in the

aggregate plan to be able to handle changing requirements promptly.

 Aggregate planning also can serve as an important input to other strategic

decisions; for example, management may decide to add capacity when aggregate
planning alternatives for temporarily increasing capacity such as working
overtime and subcontracting are too costly.

 Demand and supply. Aggregate planners are concerned with the quantity and the
timing of expected demand.

 Inputs to aggregate planning. Effective aggregate planning requires good

information.

 Pricing. Pricing differentials are commonly used to shift demand from peak
periods to off-peak periods.

 Promotion. Advertising and other forms of promotions, such as displays and

direct marketing can sometimes be very effective in shifting demand so that it
conforms more closely to capacity.

 Back orders. An organisation can shift demand fulfillment to other periods by

allowing back orders.

 New demand. Many organisations are faced with the problem of having to
provide products or services for peak demand in situations where demand is
very uneven.

 Hire and lay off workers. The extent to which operations are labor intensive
determines the impact that changes in the workforce level will have on capacity.
 Overtime/slack time. Use of overtime or slack time is a less severe method for
changing capacity than hiring and laying off workers and it can be used across
the board or selectively as needed.

 In certain instances, the use of part-time workers is a viable option-much

depends on the nature of the work, training and skills needed and union
agreements.

 The use of finished-goods inventories allows firms to produce goods in one

period and sell or ship them in another period, although this involves holding or
carrying those goods as inventory until they are needed.

 Level capacity strategy, variations in demand are met by using some

combination of inventories, overtime, part-time workers, subcontracting and
back orders while maintaining a steady rate of output.

 Matching capacity to demand implies a chase demand strategy; the planned

output for any period would be equal to expected demand for that period.

 To maintain a constant level of output and still satisfy varying demand, an

organization must resort to some combination of subcontracting, backlogging,
and use of inventories to absorb fluctuations.

 A chase demand strategy presupposes a great deal of ability and willingness on

the part of managers to be flexible in adjusting to demand.

 A major advantage of this approach is that inventories can be kept relatively

low, which can yield substantial savings for an organization.

 A major disadvantage is the lack of stability in operations—the atmosphere is

one of dancing to demand’s tune. Also, when forecast and reality differ, morale
can suffer, since it quickly becomes obvious to workers and managers that
efforts have been wasted.

 Whatever strategy an organization is considering, three important factors are

company policy, flexibility, and costs.
 The master schedule is the heart of production planning and control. It
determines the quantities needed to meet demand from all sources, and that
governs key decisions and activities throughout the organization.

 The master schedule interfaces with marketing, capacity planning, production

planning, and distribution planning.

 It enables marketing to make valid delivery commitments to warehouses and

final customers.

 It enables production to evaluate capacity requirements and provides the

necessary information for production and marketing to negotiate when customer
requests cannot be met by normal capacity.

 It provides senior management with the opportunity to determine whether the

business plan and its strategic objectives will be achieved.

Summary of Chapter 12: MRP and ERP

 Dependent demand refers to when demand for items is derived from plans to
make certain products, as it is with raw materials, parts and assemblies used in
producing a finished product.

 The parts and materials that go into the production of cars are examples of
dependent demand because the total quantity of parts and raw materials needed
during any time period depends on the number of cars that will be produced.

 Material requirements planning (MRP) is a methodology used for planning the

production of assembled products such as smart phones, automobiles, kitchen
tables and a whole host of other products that are assembled.

 Master schedule: quantity and completion time of an end item.

 Master requirements plan: quantities and timing of sub-assemblies, components

and raw materials required to achieve the master schedule.
 The primary inputs of MRP are a bill of materials, which tells the composition
of a finished product; a master schedule, which tells how much finished product
is desired and when and an inventory records file which tells how much
inventory is on hand or on order.

 Outputs from the process include planned-order schedules, order releases,

changes, performance-control reports, planning reports and exception reports.

 The master schedule also referred to as the master production schedule, states
which end items are to be produced, when they are needed and in what
quantities.

 The quantities in a master schedule come from a number of different sources,

including customer orders, forecasts, and orders from warehouses to build up
seasonal inventories.

 The master schedule separates the planning horizon into a series of time periods
or time buckets, which are often expressed in weeks. However, the time buckets
need not be of equal length. In fact, the near-term portion of a master schedule
may be in weeks, but later portions may be in months or quarters.

 A bill of materials (BOM) contains a listing of all of the assemblies, sub-

assemblies, parts, and raw materials that are needed to produce one unit of a
finished product. Thus, each finished product has its own bill of materials.

 Product structure tree , which provides a visual depiction of the sub-assemblies

and components needed to assemble a product.

 A product structure tree is useful in illustrating how the bill of materials is used
to determine the quantities of each of the ingredients (requirements) needed to
obtain a desired number of end items.

 Items at the lowest levels of a tree often are raw materials or purchased parts,
while items at higher levels are typically assemblies or sub-assemblies. Product-
structure trees for items at the lowest levels are the concerns of suppliers.

 Comment is extremely important that the bill of materials accurately reflect the
composition of a product, particularly since errors at one level become
 magnified by the multiplication process used to determine quantity
requirements.

 Inventory records refer to stored information on the status of each item by time
period, called time buckets. This includes quantities on hand quantities ordered.

 It also includes other details for each item such as supplier, lead time and lot size
policy.

 MRP processing takes the end item requirements specified by the master
schedule and explodes them into time-phased requirements for assemblies, parts
and raw materials using the bill of materials offset by lead times.

 Gross requirements is the total expected demand for an item or raw material
during each time period without regard to the amount on hand.

 Scheduled receipts I the orders that have been placed and are scheduled to arrive
from vendors or elsewhere in the pipeline by the beginning of a period.

 Projected on hand is the expected amount of inventory that will be on hand at

the beginning of each tie period: scheduled receipts plus available inventory
from last period.

 Net requirements is the actual amount needed in each time period.

 Planned-order receipts is the quantity expected to be received by the beginning

of the period in which it is shown. Under lot-for-lot ordering, this quantity will
equal net requirements. Under lot-size ordering, this quantity may exceed net
requirements.

 Planned-order releases indicates a planned amount to order in each time period,

equals planned-order receipts offset by lead time.

 The quantities that are generated by exploding the bill of materials are gross
requirements; they do not take into account any inventory that is currently on
hand or due to be received.

 The materials that a firm must actually acquire to meet the demand generated by
the master schedule are the net material requirements.
 The determination of the net requirements is the core of MRP processing.

 The timing and sizes of orders are determined by planned order receipts.

 The term pegging denotes working this process in reverse, that is, identifying the
parent items that have generated a given set of material requirements.

 The two basic systems used to update MR records are regenerative and net
change.

 A regenerative system is updated periodically; a net change system is

continuously updated.

 A regenerative system is essentially a batch-type system, which complies all

changes that occur within the time interval and periodically updates the system.

 In a net-change system, the production plan is modified to reflet changes as they

occur.

 The regenerative system is best suited to fairly stable systems, whereas the net-
change system is best suited to systems that have frequent changes.

 The disadvantages of a regenerative system is the potential amount of lag

between the time information becomes available and the time it can be
incorporated into the material requirements plan.

 Primary reports are the production and inventory planning and control are part
of primary reports.

 Planned orders refers to a schedule indicating the amount and timing of future
orders.

 Order releases refers to authorizing the execution of planned orders.

 Changes to planned orders, including revisions of due dates or order quantities

and cancellations of orders.

 Secondary reports is the performance control, planning and exceptions.

 Performance control reports evaluate system operation. They aid managers by
measuring deviations from plans, including missed deliveries of stock outs and
by providing information that can e used to assess cost performance.

 Planning reports are useful in forecasting future inventory requirements. They

include purchase commitments and other data that can be used to asses the
future material requirements.

 Exception reports call attention to major discrepancies such as late and overdue
orders, excessive scrap rates, reporting errors and requirements for nonexistent
parts.

 If safety stock is needed, planned-order release amounts can be increased by the

safety stock quantities for the designated components.

 Determining a lot of size to order or to produce is an important issue in

inventory management for both independent and dependent demand items.

 MRP has applications in services as well as in manufacturing. These

applications may involve material goods that form a part of the product-service
package or they may involve mainly service components.

 MRP enables managers to easily determine the quantities of every component

for a given order size, to know when to release orders for each component and to
be alerted when items need attention.

 Backflushing is a procedure in which an end item’s bill of materials is

periodically exploded to determine the quantities of the various components that
were used to make the item, eliminating the need to collect detailed usage
information on the production floor.

 In order to implement and operate an effective MRP system, it is necessary to

have a computer and the necessary software programs to handle computations
and maintain records, accurate and up-to-date and integrity of file data.

 Manufacturing resource planning (MRP II) evolved from MRP because

manufacturers recognized additional needs.
 Capacity requirements planning is the process of determining short-range
capacity requirements.

 Enterprise resource planning (ERP) is a computerized system designed to

connect all parts of a business organisation as well as key portions of its supply
chain to a single database for the purpose of information sharing.

Summary of Chapter 15: Supply Chain Management

 Supply chain management is the strategic coordination of business functions

within a business organisation and throughout its supply chain for the purpose of
integrating supply and demand management.

 Logistics is the part of a supply chain involved with the forward and reverse
flow of goods, services, cash and information.

 Logistics management includes management of inbound and outbound

transportation, material handling, warehousing, inventory, order fulfillment and
distribution, third-party logistics and reverse logistics.

 Supply chain are sometimes referred to as value chains, a term that reflects the
concept that value is added as goods and services progress through the chain.

 Supply or value chains typically comprise separate business organisations rather

than just a single organisation.
 Supply or value chain has two components for each organisations; a supply
component and a demand component.

 The supply component starts at the beginning of the chain and ends with the
internal operations of the organisation.

 The demand component of the chain starts at the point where the organisation’s
output is delivered to its immediate customer and ends with the final customer in
the chain.

 The demand chain is the sales and distribution portion of the value chain.

 The length of each component depends on where a particular organisation is in

the chain; the closer the organisation is to the final customer, the shorter its
demand component and the longer its supply component.

 Measuring supply chain ROI enables managers to incorporate economies into

outsourcing and other decisions giving them a rational basis for managing their
supply chains.

 Greening the supply chain is generating interest for a variety of reasons,

including corporate responsibility, regulations and pubic pressure.

 Reevaluating outsourcing- companies are taking a second look at outsourcing,

especially global suppliers.

 Integrating IT produces real-time data that can enhance strategic planning and
help businesses to control costs, measure quality and productivity, respond
quickly to problems and improve supply chain operations.

 Managing risks. For some businesses, the supply chain is a major source of risk
so it is essential to adopt procedures for managing risks.

 Many businesses are turning to lean principles to improve the performance of

their supply chains.

 Risk management involves identifying risks, assessing their likelihood of

occurring and their potential impact and then developing strategies for
addressing those risks.
 Resiliency is the ability of a business to recover from an event that negatively
impacts the supply chain.

 Supply chain visibility means that a major trading partner can connect to any
part of its supply chain to access data in real time on inventory levels, shipment
status and similar key information.

 Event-response capability is the ability to detect and respond to unplanned

events such as delayed shipment or a warehouse running low on a certain item.

 Supply chain management that integrates ERP is a formal approach to

effectively plan and manage all the resources of a business enterprise.

 Implementation of ERP involves establishing operating systems ad operating

performance measurements to enable them to manage business operations and
meet business and financial objectives.

 ERP encompasses supply chain management activities such as planning for

demand and managing supply, inventory replenishment, production,
warehousing and transportation.

 ERP software provides the ability to coordinate, monitor and manage a supply
chain. It is an integrated system that provides for system-wide visibility of key
activities and events in areas such as supplier relationships, performance
management, sales and order fulfillment and customer relationships.

 Supplier relationship management- ERP integrates purchasing, receiving,

information about vendor ratings and performance, lead time, quality, electronic
funds disbursements, simplifying processes and enabling analysis of those
processes.

 Performance management- this aspect of ERP pulls together information on

costs and profits, productivity, quality performance and customer satisfaction.

 Sales and order fulfillment- ERP includes the ability to provide inventory and
quality management, track returns and schedule and monitor production,
packaging and distribution.
 Customer relationship management is an ERP system not only centralizes basic
contact information, details on contracts, payment terms, credit history and
shipping preferences, it also provides information on purchasing patterns,
service and returns.

 There are three aspects of supply chain management that are often of concern to
small business which are inventory management, reducing risks and
international trade.

 Supply chain strategy alignment: aligning supply and distribution strategies with
organisational strategy and deciding on the degree to which outsourcing will be
employed.

 Network configuration: determining the number and location of suppliers,

warehouses, production/operations facilities and distribution centers.

 Information technology: integrating systems and processes throughout the

supply chain to share information including forecasts, inventory status, tracking
shipments and events.

 Products and services: making decisions on new product and services selection
and design.

 Capacity planning: assessing long-term capacity needs, including when and how
much will be needed and the degree of flexibility to incorporate.

 Strategic partnerships: partnership choices, level of partnering and degree of

formality.

 Distribution strategy: deciding whether to use centralized or decentralized

distribution and deciding whether to use the organisation’s own facilities and
equipment fro distribution or to use third-party logistics providers.

 Uncertainty and risk reductions: identifying potential sources of risk and

deciding the amount of risk that is acceptable.
 Operations constitute that main source of requests for purchased materials and
close cooperation between these units and the purchasing department is vital if
quality, quantity and delivery goals are to be met.

 Accounting is responsible for handling payments to suppliers and must be

notified promptly when goods are received in order to take advantage of
possible discounts.

 Design and engineering usually prepare material specifications which must be

communicated to purchasing.

 Receiving checks incoming shipments of purchased items to determine whether

quality, quantity and timing objectives have been met and it moves the goods to
temporary storage.

 Suppliers or vendors work closely with purchasing to learn what materials will
be purchased and what kinds of specifications will be required in terms of
quality, quantity and deliveries.

 The main steps in purchasing cycles are purchasing receives the requisition,
purchasing selects a supplier, purchasing places the order with a vendor,
monitoring orders and receiving orders.

 Centralized purchasing means that purchasing is handled by one special

department.

 Decentralized purchasing means that individual departments or separate

locations handle their own purchasing requirements.

 Strategic partnering occurs when two or more business organisations that have
complementary products or services that would strategically benefit the others
agree to join so that each may realize a strategic benefit.

 The rate at which material moves through a supply chain is referred to as

inventory velocity. The greater the velocity, the lower the inventory holding
costs and the faster orders are filled and goods are turned into cash.
 Bullwhip effect known as the periodic ordering and reaction to shortages can
magnify variations, causing inventories to oscillate in increasingly larger swings.

 Order fulfillment refers to the processes involved in responding to customer

orders.

 Engineer-to-order (ETO) refers to products that designed and built according to

customer specifications.

 Make-to-order (MTO) is a standard product design used but production of the

final product is linked to the final customer’s specifications.

 Assemble-to-order (ATO)- products are assembled to customer specifications

from a stock of standard and modular components.

 Make-to-Stock (MTS)- production is based on a forecast and products are sold

to the customer from finished goods stock.

 Logistics refers to the movement of materials, services, cash and information in

a supply chain.

 Overseeing the shipment of incoming and outgoing goods comes under the
heading of traffic management.

 Radio frequency identification (RFID) is a technology that uses radio waves to

identify objects such as goods in supply chains.

 Strategic sourcing is a systematic process fro analyzing the purchase of products

and services to reduce costs by reducing waste and non-value-added activities,
increase profits, reduce risks and improve supplier performance.