Flashcards in Final Deck (90):
Any factor that limits the
performance of a system
and restricts its output
A capacity constraint resource
(CCR) whose available capacity
limits the organization’s ability to
meet the product volume, product
mix, or demand fluctuations
required by the marketplace
A systematic management approach that focuses on
actively managing those constraints that impede a firm’s
progress toward its goal
The Theory of Constraints
-All the money invested in a system in
purchasing things that it intends to
-A decrease in I leads to an increase in
net profit, ROI, and cash flows
-Rate at which a system generates
money through sale
-An increase in T leads to an increase
in net profit, ROI, and cash flows
-All the money a system spends to turn
inventory into throughput
-A decrease in OE leads to an increase
in net profit, ROI, and cash flows
-The degree to which equipment,
space, or workforce is currently being
-An increase in U at the bottleneck
leads to an increase in net profit,
ROI, and cash flows
is the assignment of work to stations
in a line so as to achieve the desired output rate
with the smallest number of workstations
Maximum time allowed for each station to meet the
Cycle time (c)
A benchmark or goal for the smallest number of
Theoretical Minimum (TM)
The total unproductive time for all stations in the
assembly of each unit
The ratio of productive time to total time, expressed as
The amount by which efficiency falls short of 100
assign task with the longer processing
- a rule that provides a shortcut to solving
- used when you have limited time and/or
information to make a decision
-solutions may not be optimal but quite close to
-rules differ in their performance, but for the
purpose of this class, we will work with a simple one
other tasks which can not be started unless
the focal task is completed
Followers for a task
Movement of product from one station to
the next as soon as the cycle time has elapsed
Machine paced production
and high specialization lower job satisfaction
Need to consider
not only throughput rate but also variety
Number of models produced
Number of models produced
Operations systems that maximize the value added by each of a company’s activities by removing waste and delays from them.
The belief that waste can be eliminated by cutting unnecessary capacity or inventory and removing non-value-added activities in operations
Just-in-time (JIT) philosophy:
Disruptions are caused by poor quality, equipment breakdowns, changes to the schedule, and late deliveries.
The ultimate goal of JIT is a balanced system achieving a smooth, rapid flow of materials through the system.
Goals of Lean Systems
Robust enough to handle a mix of products and handle changes in the level of output while still maintaining balance.
• E.g., reducing setup times and lead times.
Make the system flexible
Waste represents unproductive resources.
• Inventory can take up space and add cost to the system.
• Inappropriate processing
• Underutilization of employees
8 Types of Waste
Inventories are buffers that tend to cover up recurring problems.
• The presence of inventory makes problems seem less serious.
• E.g.,when a machine breaks down, it won’t disrupt the system if there is sufficient inventory.
Inventory Hides Problem
• Inventory storage = waste
• A low inventory level reveals true problems.
• It allows to investigate the causes and eliminate them
Low Inventory Reveals Problems
Once the problems are eliminated, we can sail smoothly even with the lower level of inventory.
• Reduction of waste!
Low Inventory Provides Opportunity
1. Close supplier ties
2. Pull system
3. Kanban production system
4. Automatic detection of error (Jidoka)
5. Fail-safe method (Poka-Yoke)
6. Uniform workstation loads (Heijunka)
7. Standardized parts and work methods
8. Flexible workforce
Key Considerations in Lean System
When work is finished at a workstation, the output is pushed to the next station
Push system (Traditional)
A workstation pulls output from the preceding station as it is needed. Output of the final operation is pulled by customer demand.
Pull System (Lean)
A Japanese word meaning “card” or “visible record” that refers to cards used to control the flow of production through a factory
Automatically stopping the process when something is wrong and then fixing the problems on the line itself as they occur
Automatic detection of error (Jidoka)
Building safeguards into a process to reduce or eliminate the potential for errors during a process.
Fail-Safe Methods (Poka-yoke)
One-Worker, Multiple Machines (OWMM)
Separate needed items from unneeded items (including tools, parts, materials, and paperwork), and discard the unneeded
Neatly arrange what is left, with a place for everything and everything in its place. Organize the work area so that it is easy to find what is needed.
Clean and wash the work area and make it shine.
Establish schedules and methods of performing the cleaning and sorting. Formalize the cleanliness that results from regularly doing the first three S practices so that perpetual cleanliness and a state of readiness are maintained.
Create discipline to perform the first four S practices, whereby everyone understand, obeys, and practice the rules when in the plant. Implement mechanisms to sustain the gains by involving people and recognizing them through a performance measurement.
A stock of materials used to satisfy customer demand or to support
the production of services or goods
Inputs, Transformation, Outputs
• Safety Stock Inventory
• Anticipation Inventory
• Pipeline Inventory
Fixed costs (e.g. order cost, setup cost)
- Administrative charges, delivery charges, labor costs, costs of changing setup
• Holding costs
• Purchase costs
• Stockout costs
Costs of Inventory
• Improve customer service
• Reduce ordering cost
• Reduce setup cost
• Improve labor and equipment utilization
• Reduce transportation cost
• Reduce payments to suppliers
Pressures for Large Inventories
• Reduce cost of capital
• Reduce storage and handling costs
• Reduce taxes
• Reduce insurance
• Reduce shrinkage
Pressures for Small Inventories
The lot size, Q, that minimizes total annual inventory holding
and ordering costs
1. Demand rate is constant and known with certainty
2. No constraints are placed on the size of each lot
3. Price is constant regardless of the order size
4. The only two relevant costs are the inventory holding
cost and the fixed cost per lot for ordering or setup
5. Decisions for one item can be made independently of
decisions for other items
6. The lead time is constant and known with certainty
Economic Order Quantity (EOQ) Model
The quantity of an inventory item management either buys from a supplier or
manufactures using internal processes
1. Demand known & steady
2. No restriction on lot size
5. Only one product
6. Lead time constant
A minimum amount of an item which a firm holds in
stock, such that, when stock falls to this amount, the item must be reordered.
Reorder point (ROP)
A system designed to track the
remaining inventory of a SKU each time a withdrawal is made
to determine whether it is time to reorder.
Continuous Review System
Portion of inventory prepared for the expected
demand during a cycle
Stock that is held in excess of expected demand
due to variable demand and/or lead time
The desired probability of not
running out of stock in any one ordering cycle, which begins at the
time an order is placed and ends when it arrives in stock.
Service Level (Cycle Service Level)
Items ready to be sold or used.
Components of finished products.
• A computer-based information system that translates master schedule
requirements for end items into time-phased requirements for
subassemblies, components, and raw materials.
• Requirements for end items generate requirements for low-level
• Working backward from the due date to determine when and how much
Material Requirements Planning (MRP)
The master schedule (or master production schedule) states which
independent demand items are to be produced, when they are needed, and in
Master Production Schedule
• BOM is a listing of all of the raw materials, parts, subassemblies, and
assemblies needed to produce one unit of a finished product.
• It shows the quantity of each part needed to complete one unit of its
Bill of Materials (BOM)
• The total demand derived from all parent production plans.
Projected on-hand inventory
Planned order release
• Orders that have been placed but not yet completed.
• E.g., being processed by a supplier, being transported to the purchaser, or being
inspected by the purchaser’s receiving department.
• An estimate of the amount of inventory available each week after gross
requirements have been satisfied.
Projected on-hand inventory
• Orders that are not yet released to the shop or the supplier.
• Still at the planning stage and can still change.
• An indication of when an order for a specific quantity of an item is to be issues.
Planned order release
A process that converts the requirements of
various final products into a material requirements plan that
specifies the replenishment schedules of all the
subassemblies, components, and raw materials needed to
produce final products
• Low levels of in-process inventories
• Ability to track material requirements
• Ability to evaluate capacity requirements
• Means of allocating production time
• Ability to easily determine inventory usage by MRP Explosion
Benefits of MRP
with emphasis placed on integration
o A system that ties the basic MRP system to the company’s
financial system and to other core and supporting processes
Manufacturing Resource Planning (MRP II)
Next step in the evolution
that began with MRP and evolved into MRPII
o Large, integrated information systems that support many
enterprise processes and data storage needs
o Expanded effort to integrate standardized record keeping
that will permit “information sharing” among different areas
of an organization.
Enterprise Resource Planning (ERP)
Sales and Marketing
Accounting and Finance
Enterprise Resource Planning (ERP System)
an interrelated set of projects that have a common strategic
• Unique, one-time operations designed to accomplish a specific set of
objectives in a limited time frame
• An interrelated set of activities with a definite starting and ending point,
which results in a unique outcome for a specific allocation of resources
• A systemized, phased approach to defining, organizing, planning,
monitoring, and controlling projects
Three Main Goals:
• Complete the project on time or earlier
• Do not exceed the budget
• Meet the specifications to satisfaction of the customers
• A statement of all work that has to be completed
• A hierarchical listing of what must be done during a project
• Establishes a logical framework for identifying the required activities for
Work Breakdown Structure (WBS)
– A network planning method
designed to depict the relationships
– Consist of nodes (circles) and arcs
– A relationship that determines a
sequence for undertaking activities;
it specifies that one activity cannot
start until a preceding activity has
- Project steps that consume resources and time
- Smallest unit of work effort that the project manager can schedule/control
- A sequence of activities that leads from the starting node to the finishing node
- The path that takes longest completion time
- Determines expected project duration
- Activities on the critical path
- Path that are shorter than the critical path can experience some delays and still
not affect the overall project completion time
- The difference between the length of a path and the length of the critical path
widely used techniques for planning and
coordinating large-scale projects. These are two different names for
essentially the same technique.
• Program Evaluation and Review Technique (PERT)
• Critical Path Method (CPM)
Shortening (or expediting) some activities within a project to reduce
overall project completion time and total project costs
1. Determine the project’s critical path(s).
2. Find the activity or activities on the critical path(s) with the lowest
cost of crashing per week
3. Reduce the time for this activity until it cannot be further reduced
or another path becomes critical
4. Repeat this procedure until the increase in direct costs is larger
than the savings generated by shortening the project
a. Concept – at which point the organization recognizes the need for
a project or responds to a request for a proposal.
b. Feasibility Analysis – which examines the expected costs, benefits,
and risks of undertaking the project.
Definition and organization
• Spelling out the details of the work and providing estimates of the
necessary human resources, time, and cost.
• During which the project itself is done. This phase often accounts
for the majority of time and resources consumed by a project.