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Supply Chain Management

- Supply Chain - linking raw material to finished product (customers, retailers, distributors, manufacturers, suppliers
- Management of flows between and among the supply chain stages to maximize total supply chain profitability

1

Objective of a Supply Chain

- maximize overall value created
- "value" is difference between what the final value is worth to the customer and the effort the supply chain expends in filling the customer request
- value is correlated to supply chain profitability (revenue - cost across the supply chain)

2

Supply Chain Strategy or Design

- decisions about the structure of the supply chain and what processes each stage will perform
1. Strategic (locations/capabilities of facilities, products to be made/stored, modes of transportation, info systems
2. Design Decisions (long-term and expensive to reverse and must support strategic objectives of the firm)

3

Supply Chain Planning

- definition of a set of policies that govern short-term operations
- starts with a forecast of demand in the coming year
- must consider demand uncertainty, exchange rates, competition
1. Planning (which markets will be supplied, inventory policies, timing and size of market promotions)

4

Supply Chain Operation

- time horizon is weekly/daily (much less uncertainty)
- decisions regarding individual customer orders
- goal is to implement operating policies (already set in place) as efficiently as possible
- allocate orders to inventory or production, set order due dates, pick lists, delivery schedules, etc.

5

Push/Pull View of Supply Chain Process

1. Push Process - procurement, manufacturing and replenishment cycle (speculative - initiated in anticipation of customer orders)
1.5. Customer Order Arrives
2. Pull Process - customer order cycle (reactive - initiated in response to an order)

6

Questions to Fit Supply Chain to Corporate Strategy

1. What are customer and supply chain uncertainties?
2. What is the supply chain that will match it?

7

Supply Chain Uncertainties

Have to know:
1. the needs of the customer segment -if demands are wide, more uncertainty
2. what quantities they are ordering - if lead time decreases, more uncertainty
3. how much variety - more variety, more uncertainty
4. what level of service - more service, more uncertainty
5. how much they are willing to pay
6. innovation - more innovation, more uncertainty

8

Variables of Supply Chain (2)

1. Responsiveness -
- higher costs
- high price margin
- high buffer stock of inventory
- flexible
2. Efficiency
- lower costs
- low price margin
- low inventory
- low cost (versus flexible)

9

Supply Chain in terms of Product Life Cycle

- Introduction and Growth Stages = higher implied uncertainty, high margins (time is important), product availability is most important (cost is secondary)
- Maturity and Decline Stage = predictable demand, lower margins, price is important

10

Distribution in the Supply Chain

Distribution = the steps taken to move and store product from the supplier stage to the customer stage
- directly effects cost and the customer experience and therefore drives profitability
- choice of distribution network can achieve objectives from low cost to high responsiveness
- evaluated along two dimensions at the highest level
1. Customer needs are being met
2. Cost of meeting customer needs

11

Distribution Network Design and its Dimensions

- distribution drives profitability of the supply chain
1. Customer Needs being Met - response time, product variety, product availability, return-ability, customer experience
2. Costs - inventories, transportation, facilities, handling, information

12

Seven Design Options for a Distribution Network

1. Manufacturer Storage with Direct Shipping (e.g. Amazon)
2. Manufacturer Storage with Direct Shipping and In-Transit Merge (e.g. Dell)
3. Distributor Storage with Carrier Delivery (e.g. Showroom sales)
4. Distributor Storage with Last Mile Delivery (e.g. furniture store)
5. Manufacturer or Distributor Storage with Customer Pick-Up (cross-docking - from truck-to-truck - no distribution center)
6. Retail Storage with Customer Pick-Up
7. Selecting a Distribution Network Design

13

Promotion

- a way to manage demand
- reducing prices can attract new customers (market growth)
- reducing prices can attract customers who otherwise would have bought from a competitor (stealing market share)
- reducing prices may encourage customers to buy more for future consumption (forward buying)...however this could reduce future profits

14

Transportation Costs

- for carrier (who transports goods): vehicle-related costs, operating costs and trip cost
- for shipper (who wants goods transported): inventory, transportation and facility costs

15

Transportation Modes

- TL: Truck-load
- LTL: less than truck load (due to Just-in-time production)
- rail, air, water, pipelines, etc.

16

Transportation Networks (2)

1. Direct Shipping Network - each supplier to each buyer
2. Direct Shipping with - Milk Run - several suppliers - pick-up supplies from supplier to supplier

17

The Bullwhip Effect and Strategies to Reduce It

- the fluctuations in orders become larger at every step up the supply chain - from the customer through to the raw materials suppliers (e.g. small variation in demand at the customer level and the warehouse level goes up too much
- strategies to reduce:
-- collect sales data at point of sale
-- allow only smaller increases in orders
-- keep prices stable
-- discourage hoarding
-- don't increase production just because demand has increased

18

Quality Definitions

1. Conformance to Design
2. Fitness for Use
3. Meeting/Exceeding Customer requirements now and in the future
4. Attributes such as: performance, reliability, maintainability, features, serviceability

19

Four Dimensions of Quality

1. Quality of Design - decided before the product is produced
2. Quality of Conformance - meets specifications
3. Meets the abilities - high reliability, maintainability and availability
4. Field Service

20

Why Quality?

1. Direct Costs - rework costs, warranties, service calls
2. Hidden Costs - overtime, delays, reputation, excess inventory

21

Costs of Quality

1. Appraisal Costs - costs of ensuring quality such (e.g. inspection)
2. Prevention Costs - costs of reducing of defectives (e.g. training)
3. Failure Costs
a. internal - defectives before the product leaves (e.g. re-testing)
b. external - defectives incurred after the product leaves (e.g. litigation)

22

Juran's Trilogy (in terms of TQM)

Quality Planning -> Quality Control -> Quality Improvement
- emphasis on management
- "vital few, trivial many" - 20% of the quality problems caused 80% of the costs
- quality is a predictable degree of uniformity and dependability at low cost suited to the market

23

Deming's PDCA Cycle (in terms of TQM)

P - Plan - set objectives
D - Do - implement
C- Check - determine shortfall between objectives and what is implimented
A - Act - take corrective action

24

Fishbone Diagram

- brainstorm and create Ishikawa (fishbone) Diagram
- cause and effect analysis

25

8 M's Used in Manufacturing (in terms of TQM)

1. Machine (technology)
2. Method (process)
3. Material (raw materials, consumables, information)
4. Man Power
5. Measurement (inspection)
6. Milieu/Mother Nature (environment)
7. Management/Money Power
8. Maintenance

26

7 P's Used in the Service Industry (in terms of TQM)

1. Product = service
2. Price
3. Place
4. Promotion
5. People/Personnel
6. Process
7. Physical Evidence

27

The 5 S's Used in the Service Industry (in terms of TQM)

1. Surroundings
2. Suppliers
3. Systems
4. Skills
5. Safety

28

Histogram & Pareto Diagram

- pareto takes the one with the highest frequency, plot and then the next highest, plot, etc.

29

ISO 9000

- quality standard developed by International Standards Organization
- purpose = define, establish, maintain an effective quality system for manufacturing and service industries
- gives a certification by being assessed by an examiner

30

Acceptance Sampling

- performed on goods that already exist to determine what percentage of products conform to specifications
- executed through sampling plan
- results include accept, reject or re-test
1. A large number of items must be processed in a short time
2. The cost consequences of passing defectives are low
3. destructive testing is required
4. fatigue or boredom caused by inspecting large numbers of items leads to sampling

31

Sampling Plan

- usually denoted as (n, c) plan for a sample of size n where the lot is rejected if more than c defectives

32

AQL and LTPD

AQL = acceptable quality level of a sample (e.g. the best level you're looking for)
LTPD = Lot tolerance percentage defective (worst you're willing to accept)

33

Type I vs. Type II Error (in terms of Sampling)

- Type I (producer's risk) - a lot that was acceptable is rejected (Alpha, AQL)
- Type II (consumer's risk) - an unacceptable lot was accepted (Beta, LTPD)

34

Types of Process Variation

1. Common Cause Variation - sum of many "chance causes" - non-traceable to a single cause. Essentially noise in the system.
2. Special Cause Variation - due to differences btw people, machines, materials, methods. Occurrences of a special cause is a result of an out of control condition

35

Process Capabilities

- once there is process control, can answer the question of whether the process is capable of meeting customer's specifications

36

Service Quality

- only measures in terms of customer satisfaction
- determine if it has any impact of profitability...if not, ignore

37

Service Quality Attributes

- SERVQUAL - the most popular measure (customer questionnaire based on perpetual measures of service)
- define the attributes on the basis of customer needs and set quality standards, establish tests and identify shortfalls

38

Service Quality Implementation

- once the shortfalls are identified, use tools to come up with strategies to reduce defects
- estimate costs of implementation
- select projects based on benefit analysis
- implement
- audit and make corrective action to achieve planned gains

39

Lean Production

low cost, high productivity, high quality, involve all workers, lot of variety

40

Lean vs. Six Sigma

- both create value to customers
- science
L: eliminate waste
SS: reduce variations
- basis
L: waste elimination improve performance
SS: based on numbers, outputs improved if variations exist

41

5 S - Simple Lean Tool

1. Remove unnecessary items from workplace
2. Locate everything at the point of use
3. Clean the work area
4. Make routine and standard for what good looks like
5. maintain discipline and make 5S second nature

42

Lean Enterprise

entity that creates value to multiple stakeholders by employing lean principles (can be profit or non-profit)

43

Lean Thinking

- process: actions that create outputs from inputs
- customers: output goes to customers, customers could be internal or external
- process map: visualization of all interrelated activities that make up a process
- value stream: all activities that create value...usually begins with raw materials and ends with the customer

44

5 Principles of Lean Thinking

1. Define value (what does or doesn't create value for the customer)
2. Identify the value stream (map out processes necessary to transform input to output and eliminate waste)
3. Ensure value flow continuously (after eliminating waste, ensure remaining steps "flow" - emphasis on time, process control, bottlenecks, etc.)
- Poka Yoke - preventing errors from occurring
4. Allow customers to pull value (allowing just-in-time production - nothing is produced unless the downstream process requests it)
5. Pursue perfection - continuous improvement

45

JIT System

- one of the most popular lean systems
- goal is to eliminate 8 types of waste and minimize raw materials, work-in-process and finished goods
- inventory and excess capacity hides problems

46

JIT Production

- producing what is needed when its needed and nothing more

three tools
1. continuous improvement
2. six sigma
3. theory of constraints

47

Requirements of JIT

1. low set-up costs
2. low batch size
3. good preventative maintenance
4. workers trained in multiple tasks
5. low absenteeism (level strategy, good training)

48

Autonomination

shutting down when defectives are produced

49

Kanban System

Kanban card - visual cuing to indicate that materials can go downstream

Number of K. Cards = avg. # units demanded x lead time to replensih(1 + safety stock %)/size of the container

50

Andon

group of lights to indicate the status of work. When things don't go as planned, the entire line is stopped

51

Principles of Lean Supply Chain Design (3)

1. Lean Layouts (JIT, group technology)
2. Lean Production Schedule (kanban, uniform plant loading)
3. Lean Supply Chain (specialized plants, work with suppliers_

52

Group Technology

- smaller parts grouped into families - eliminate movement between operations, reduces inventory and reduces employees

53

Quality at the Source

- do the right thing the first time and if something goes wrong, stop the process immediately
- workers become their own inspectors and become empowered to do their own maintenance

54

Supply Chain Responsiveness Matrix (SCRM)

- presents inventory turnover and help identify departments with overstock inventory

55

Quality Filter Mapping Focuses (3)

1. product quality
2. defect quality
3. service quality

56

3 Evils of Meetings

1. Meet but don't discuss
2. Discuss but can't decide
3. Decide but don't do

57

Lean Production Schedules (4)

1. Level schedule -pulls material into final assembly at constant rate
2. Freeze Windows - the period of time which the schedule is fixed and no changes are possible
3. Backflash - calculation of how many of each part were required to produce the actual quantity of finished products built
4. Uniform plant loading - smoothing the production flow to dampen schedule variation

58

DMAIC Cyclce

Define, Measure, Analyze, Improve, Control

59

Six Sigma

six standard deviations (versus 3.8 @ 99%)....99.999999%
- much smaller margin of error and defects allowed

60

Intellectual Property Rights

- creations of the mind for which exclusive rights are recognized

61

Type of Intellectual Property (5)

1. Patents - for invention, plant and design
2. Copyrights - physical expression of ideas
3. Trademarks - logo, slogan, right for unique identity
4. Trade Secrets - ideas, technical knowhow
5. Semiconductor Mask Work - electronic circuit design

62

Patents (3 Types)

1. Utility - new and useful process, machine, system (cell phone), anything under the sun that is made by the hand of man
2. Design - for article of manufacture
3. Plant - for any distinct and new variety of plant

63

Criteria for Patenting

1. new
2. useful
3. non-obvious
- things that can't be patented: laws of nature, mathematical equations, ideas or suggestions
- patents doesn't give any right - just prevents others from using your knowhow
- whoever files first gets the patent (must be filed within the first year and it must be the inventor)
- should be written as comprehensively as possible
- CLAIM is the most important part and the only thing protected

64

An Invention has Utility if..

1. It gives a benefit to the public
2. it's useful in achieving a particular purpose
3. it makes a process better or cheaper
4. it is advantageous under certain circumstances
5. it works

65

Pros and Cons of Patents

Pros = encourages further research, policy against theft, helps recover cost, etc.
Cons = expensive to enforce (so left to the owner), need to pay to file (sometimes in several countries),

66

Criteria for Design Patent

1. new
2. satisfy ornamental standards
3. original to the inventor seeking protection
4. unobvious on the basis of any previously existing design or combination of designs
- granted to anyone who invents a new, original and ornamental design of an article of manufacture
- only protected for ornamental design (how it looks)

67

Plant Patent

- granted to anyone who invents or discovers and asexually produces any distinct and new variety of plant (bacteria or similar single-cell organisms not included)
- last for 20 years from the date of filing the application

68

Pharmaceutical Drug Development

- pre-clinical testing: show that company can manufacture the product (includes methodology for trial, testing on animals, show data that drug is safe)
- file with FDA: FDA has 30 days to reject the application

69

Drug Development Phases

Phase 1 - focused on safety and pharmacology (animal testing)
Phase 2 - focused on effectiveness (testing on people who suffer from the condition 100-200)
Phase 3 - focus on further safety and effectiveness (tested on a larger number of people, if successful filed again with the FDA)

70

Trade Secret and its Four Elements

- anything that provides competitive advantage
- any formula, pattern, device, information and database that gives the owner against the competitor
- e.g. customer list, recipes, smells for perfumes (can't trademark a smell)
Elements
1. must consist of information
2. information must derive economic value
3. information cannot be generally known to the public or other persons in the industry
4. information must be treated as a secret and be the subject of reasonable efforts to maintain its security

71

Trademark and Types (5)

- a word, name, symbol or device that is used in trade with goods to indicate the source of the goods and to distinguish them from the goods of others (doesn't include sound or smell)
- lasts 10 years and can be renewed but lapses if it becomes generic
1. Generic (bar for chocolate bar)
2. Descriptive (bright for a diamond)
3. Suggestive (pure for water)
4. Arbitrary (apple for computer)
5. Fanciful (exxon for oil) - the best trademarks create new words not in the dictionary

72

Copyright

- a form of protection provided to the authors of "original works of authorship" including literary, dramatic, musical, artistic (protects the expression not the subject)
- as soon as something it's written, it's copyright protected (don't have to file it)
- lasts for author's life plus 70 years after his/her death (work-for-hire is 95 years from the publication or 120 years from the creation)

73

Geographical Indications

- an indication which identifies any goods as originating in a country, territory, or a region where a given quality, reputation or other quality is essentially attributable to their geographical region (e.g. champagne)

74

Health System Attributes

- highly decentralized
- poorly organized
- lack of care coordination
- compartmentalized care
- lack of accountability for patients across providers
- misuse of resources and medical errors
- a few cost the most (1% of the population accounts for 29% of the healthcare costs)
- 72% of americans think health care system needs a major overhaul

75

Significant Threats to Healthcare

- population getting older
- growth in the number of obese adults
- chronic disease is the leading cause of death and disability

76

Health Care Trends

- the number of uninsured people is going up
- declining number of employers sponsoring insurance
- growth in Medicaid long-term care costs
- there are people who have never been seen by a doctor
- US quality of care is not good

77

Health Care Costs

- US spends more on health care compared to other countries even though:
- fewer physician office visits per capita
- fewer hospital inpatient admissions per capita
- lower average length of stay per admission
Why? Our prices are too high!

78

Two Types of Health Care Payers

1. Medicare - for people over 65, the disabled and people with chronic kidney disease
2. Medicaid - for the poor and nursing home care of people over 65

79

DRG

- diagnosis related group
- a more systematic way of billing someone for health care
- categorized by major medical categories (23) and major surgical (23) - so, 46 total
- helps reduce costs, based on resource consumption are good across hospitals, treating DRG's as products make it easier to manage operations

80

Environmental Issues

- Ecological Footprint = Human pressure on global ecosystems, food, wood, infrastructure, energy, carbon dioxide absorption, expressed in “area miles”
- Greenhouse Effect - Earth would be too cold without greenhouse gases
- Ozone layer - absorbs UV rays but being broken down by CO2
- acid rain
- Vanishing Forests
- Rising Garbage Hazardous Waste
- Water quality and so on.

81

Two Ways to Respond to Environmental Issues

1. Command Control: Specify specific technologies or set standards for products or producers. Policy makers decide where and how to cut pollution.
2. Incentive Based System: Cap emissions and require buying emission rights or taxing emissions

82

Three Categories of Environmental Law

1. Media specific regulating emission into the air, water, and land.
2. Mandating cradle-to-grave management and cleanup of hazardous waste.
3 .Relating to products that generate wastes.

83

National Environmental Policy Act of 1969

- one of the first laws ever written that establishes the broad national framework for protecting our environment.
- Established Council of Environmental Quality to advise president,
- require federal agency to consider environmental consequences in any activity “significantly affecting the quality of the human environment.”

84

Clean Air Act

- requires the EPA to issue Nationwide Ambient Air Quality Standards

85

NPDES and Two Levels of Permits

Under NPDES, all facilities which discharge pollutants from any point source into waters of the United States are required to obtain a permit.
Two levels of permit
- technology-based limits (based on the ability of dischargers in the same industrial category to treat wastewater)
- water quality-based limits (if technology-based limits are not sufficient to provide protection of the water body)

86

The Resource Conservation and Recovery Act (RCRA)

- Seeks to regulate solid and hazardous waste. Establishes standards for generators and transporters of hazardous waste

87

Emergency Planning and Community Right to Know Act

Requires states to prepare emergency response plans.

88

Federal Insecticide, Fungicide, and Rodenticide Act

Regulates pesticides

89

Toxic Substances Control Act

Requires EPA to collect information about adverse effects of chemical materials