Exam 4 Study Guide
Process Selection – refers to deciding on the way production of goods or services will be organized
Key Questions in Process Selection:
1) Variety – How much variety will the process need to be able to handle? 2) Equipment Flexibility – to what degree is it needed?
3) Volume – How much volume will the process need to be able to handle?
1) Job Shop – small scale, customizable, craft
2) Batch – moderate volume of related items
3) Repetitive/Assembly Line – high volumes of standardized goods or services 4) Continuous – very high volumes of non-discrete goods
Types of Processing
Job Shop Batch Repetitive/Assembly Continuous
Standardized goods or services
Able to handle a wide variety of work
Flexibility; easy to add or
Low unit cost, high volume, efficient
Very efficient, very high
Slow, high cost per unit,
planning and scheduling
Moderate cost per unit,
Low flexibility, high cost of downtime
Very rigid, lack of variety,
high cost of
Don't forget about the age old question of Do metals lose electrons to have a positive charge?
Process Technology – methods, procedures, and equipment used to produce goods and provide services—extends to the supply chain
Process Technology impacts:
Automation – machinery that has sensing and control devices that enable it to operate automatically
1) Fixed automation – least flexible and used for high volume
2) Programmable automation – may be used for batches
3) Flexible automation – more customizable and requires less changeover time
Facilities Layout – the configuration of departments, work centers, and equipment, with particular emphasis on movement of work (customers or materials) through the system
The Need for Layout Planning:
1) Inefficient Operations
a. High cost
2) Accidents or safety hazards
3) Changes in product or service design
4) Introduction of new products or services
5) Changes in output volume or product mix
6) Changes in methods or equipment
7) Changes in environmental or other legal requirements
8) Morale problems
Basic Layout Types: Don't forget about the age old question of What is it called when a living thing maintains internal conditions?
1) Product Layouts – most conductive to repetitive processing
2) Process layouts – used for intermittent processing
3) Fixed-position layout – used when projects require layouts
4) Combination layouts – hybrids of these pure types (e.g., cellular and flexible manufacturing systems)
Advantages of Product Layouts:
1) High rate of output
2) Low unit cost
3) Labor specialization
4) Low material handling cost per unit
5) High utilization of labor and equipment
6) Established routing and scheduling
7) Routine accounting, purchasing, and inventory control
Disadvantages of Product Layouts:
1) Creates dull, repetitive jobs
2) Poorly skilled workers may not maintain equipment or quality of output 3) Fairly inflexible to changes in volume or product or process design 4) Highly susceptible to shutdowns
5) Preventive maintenance, capacity for quick repair and spare-parts inventories are necessary expenses
6) Individual incentive plans are impractical
Advantages of Process Layouts: If you want to learn more check out What happens to kinetic energy when an object slows down?
We also discuss several other topics like What are the colors of the clouds?
1) Can handle a variety of processing requirements
2) Not particularly vulnerable to equipment failures
3) General-purpose equipment is often less costly and easier and less costly to maintain 4) It is possible to use individual incentive systems
Disadvantages of Process Layouts:
1) In-process inventories can be high
2) Routing and scheduling pose continual challenges
3) Equipment utilization rates are low
4) Material handling is slow and inefficient
5) Reduced spans of supervision
6) Special attention necessary for each product or customer
7) Accounting, inventory control, and purchasing are more involved
Service layout requirement are somewhat different due to such factors as: 1) Degree of customer contact
2) Degree of customization
Line Balancing – the process of assigning tasks to workstations in such a way that the workstations have approximately equal time requirements We also discuss several other topics like Isaac had two sons, who are they?
Goal: to obtain task grouping that represent approximately equal time requirements since this minimizes idle time along the line and results in a high utilization of equipment and labor Why is line balancing important?
1) It allows us to use labor and equipment more efficiently
2) To avoid fairness issues that arise when one workstation must work harder than another
Cycle time – the maximum time allowed at each workstation to complete its set of tasks on a unit before it moves on; cycle time also establishes the output rate of a line
The minimum cycle time is equal to the longest tasks time in a sequence. The maximum cycle time is equal to the sum of all the tasks times.
3 Rules for Line Balancing:
1) Assign tasks with no predecessors (or where proceeding tasks have already been assigned).
2) Assign tasks in order of most following tasks; count the number of tasks that follow. 3) Assign tasks in order of greatest positional weight (longest processing time); positional weight is the sum of each task’s time and the times of all following tasks. Don't forget about the age old question of What is demand curve?
Know how to calculate cycle time and output rate.
Know how the calculate minimum number of workstations needed for line balancing. Know how to calculate balance delay and efficiency.
Quality – ability of a product or service to consistently meet or exceed customer expectations
2) Emphasis is on finding and correcting defects before they reach the market Strategic Approach
2) Focuses on preventing mistakes from occurring
3) Greater emphasis on customer satisfaction
4) Involves all manager and workers in a continuing effort to improve quality
Assessing Service Quality:
In particular, look for discrepancies between:
1) Customer expectations and management perceptions of those expectations 2) Management perceptions customer expectations and service-quality specifications 3) Service quality and service actually delivered
4) Service actually delivered and what is communicated about the service to customers 5) Customers’ expectations of the service provider and their perceptions of provider delivery
4 Determinants of Quality:
1) Quality of Design – intention of designers to include or exclude features in a product or service; can be influenced by consumer surveys and marketing
2) Quality of Conformance – the degree to which goods or services conform to the intent of the designers
3) Ease-of-Use and User Instructions – increase the likelihood that a product will be used for its intended purpose and in such a way that it will continue to function properly and safely
4) After-the-Sale-Service – taking care of issues and problems that arise after the sale
Benefits of Good Quality:
1) Enhanced reputation for quality
2) Ability to command premium prices
3) Increased market share
4) Greater customer loyalty
5) Lower liability costs
6) Fewer production or service problems
7) Lower production costs
8) Higher profits
Consequences of Poor Quality:
1) Loss of business
3) Decreased productivity
4) Increased costs
Costs of Quality:
1) Appraisal Costs – Costs of activities designed to ensure quality or uncover defects 2) Prevention Costs – all training, planning, customer assessment, process control, and quality improvement costs to prevent defects from occurring
ROQ (return on quality) – focuses on the economics of quality efforts and demonstrates the financial returns resulting from better quality
3) Failure Costs – costs incurred by defective parts/products or faulty services a. Internal failure costs – costs incurred to fix problems that are detected before the product/service is delivered to the customer
b. External failure costs – all costs incurred to fix problems that are detected after the product/service is delivered to the customer; could include product recalls
Ethics and Quality:
1) Defective products
2) Substandard service
3) Poor designs
4) Shoddy workmanship
5) Substandard parts and materials
Deming – 14 Points; Special vs. Common Causes of Variation
Quality and the Supply Chain – Business leaders are increasingly recognizing the importance of their supply chains in achieving their quality goals
1) Measuring customer perceptions of quality
2) Identifying problem areas
3) Correcting these problems
Supply chain quality management can benefit from a collaborative relationship with suppliers: 1) Helping suppliers with quality assurance efforts
2) Information sharing on quality-related matters
3) Especially relevant for outsourced processes
Total Quality Management (TQM) – a philosophy that involves everyone in an organization in a continual effort to improve quality and achieve customer satisfaction
Continuous Improvement – a philosophy that seeks to make never-ending improvements to the process of converting inputs into outputs
Kaizen – Japanese word for continuous improvement
Quality at the Source – the philosophy of making each worker responsible for the quality of his or her work
Six Sigma – a business process for improving quality, reducing costs, and increasing customer satisfaction
Having no more than 3.4 defects per million opportunities in any process, product, or service
Program designed to reduce defects
Requires the use of certain tools and techniques
Define – set the context and objectives for improvement
Measure – determine the baseline performance and capability of the process Analyze – use data and tools to understand the cause-and-effect relationships of the process Improve – develop the modifications that lead to a validated improvement of the process Control – establish plans and procedures to ensure that improvements are sustained
Plan-Do-Study-Act (PDSA) Cycle – the conceptual basis for problem solving activities Plan:
1) Begin by studying and documenting the current process
2) Collect data on the process or problem
3) Analyze the data and develop a plan for improvement
4) Specify measures for evaluating the plan
1) Implement the plan, document any change made, collect data for analysis Study:
1) Evaluate the data collection during the do phase
2) Check results against goals formulated during the plan phase
1) If the results are successful, standardize the new method and communicate it to the relevant personnel
2) Implement training for the new method
3) If unsuccessful, revise the plan and repeat the process
Be Able to Recognize Basic Quality Tools:
2) Check Sheets
4) Pareto Charts
5) Scatter Diagrams
6) Control Charts
7) Cause-and-Effect Diagrams
8) Run Chards
Methods for Generating Ideas:
1) Brainstorming – all ideas are acceptable, the more the ideas the better 2) Quality Circles – groups of workers who meet to discuss ways of improving products or processes
3) Benchmarking – an approach that measures an organization’s performance against the best in the industry
5 Reasons for Control:
1) Prevent Crises
2) Standardized outputs
3) Appraise employee performance
4) Update plans—environment and internal changes require alterations 5) Protect the organization’s assets—i.e., prevent waste, theft etc.
Control Process – any process that directs the activities of individuals toward the achievement of organizational goals.
1) Establishment of clear standards of performance
2) Comparing performance to those standards
3) Taking corrective action to repair performance deficiencies
3 Basic Control Methods:
1) Feedback control – mechanism for gathering information about performance deficiencies after they occur
2) Concurrent control – addresses the problems inherent in feedback control by gathering information about performance deficiencies as they occur
3) Feedforward control – mechanism for gathering information about performance deficiencies before they occur
Situations Where Control Isn’t Possible:
1) Control loss – occurs when behavior and work procedures do not conform to standards and managers need to find out what, if anything, they could have done to conform it 2) Regulation costs – costs associated with implementing or maintaining control; benefits must outweigh costs
3) Cybernetic feasibility – the extent to which it is possible to implement each of the steps in the control process
Traditional Ways to Control Finances:
1) Cash flow analysis
2) Balance sheets
3) Income statements
4) Financial ratios
Ways to Make Control Systems More Effective:
1) The systems are based on valid performance standards
2) They communicate adequate information to employees
3) They are acceptable to employees
4) They use multiple approaches
5) They recognize the relationship between empowerment and control
Quality Measure Advantages Disadvantages
1) Promotes clear
2) Being/providing the
“best” motivates and
1) Provides little
practical guidance for
2) Excellence is
ambiguous. What is
it? Who defines it?
1) Appeals to customers who know excellence
“when they see it.”
2) Customers recognize differences in value.
3) Easier to measure and compare whether
differ in value.
1) Difficult to measure
2) Can be difficult to
seen as having value.
3) Controlling the
excellence and cost
excellence) can be
1) If specification can be written, conformance
to specifications is
2) Should lead to
3) Promotes consistency in quality.
cannot be easily
evaluated in terms of
adapting to changes is
3) May be less
services, which are
dependent on a high
degree of human
Quality Control – a process that evaluates output relative to a standard and takes corrective action when output doesn’t meet standards
Inspection – an appraisal activity that compares goods or services to a standard
1) How much to inspect and how often
a. Low cost, high volume items?
b. High cost, low volume items?
c. High proportion of human involvement?
2) At what points in the process to inspect?
3) Whether to inspect in a centralized or on-site location
4) Whether to inspect attributes or variables
Centralized Inspection – take product to centralized testing facility
Specialized tests that my best be completed in a lab
More specialized testing equipment
More favorable testing environment
On-Site Inspection – examine quality on the spot
Quickest decisions are rendered
Avoid introduction of extraneous factors
Quality at the source
Attributes – count the number of occurrences
Variables – measure the characteristic
Statistical Process Control (SPC) – is used to evaluate process output to decide if a process is “in control” or if corrective action is needed
2 Basic Questions of Process Variations:
1) Issue of Process Control – are the variations random? If nonrandom variation is present, the process is said to be unstable.
2) Issue of Process Capability – given a stable process, is the inherent variability of the process within a range that conforms to performance criteria?
Random (Common Cause) Variation:
1) Natural variation in the output of a process, created by countless minor factors 2) Amount can vary from process to process
Assignable (Special Cause) Variation:
1) A variation whose cause can be identified.
2) A nonrandom variation
3) E.g., equipment out of adjustment, carelessness etc.
Sampling Distribution – a theoretical distribution that describes the random variability of sample statistics; the normal distribution is commonly used for this purpose
Steps Required for Effective Control:
1) Define – What is to be controlled?
2) Measure – How will measurement be accomplished?
3) Compare – There must be a standard of comparison.
4) Evaluate – Establish a definition of out of control.
5) Correct – Uncover the cause of nonrandom variability and fix it.
6) Monitor – Verify that the problem has been eliminated.
Control Chart – a time ordered plot of representative sample statistics obtained from an ongoing process (e.g. sample means), used to distinguish between random and nonrandom variability
Control Limits – statistical limits that reflect the extent to which sample statistics such as means and ranges can vary due to randomness alone
1) If you find no out-of-control signals, assume the process is in control. 2) If you find an out-of-control signal, search for and correct the assignable cause of variation.
5 Methods for Improving Process Capability:
1) Simplify – eliminate steps, reduce the number of parts, use modular design 2) Standardize – use standard parts, standard procedures
3) Make Mistake-Proof – design parts that can only be assembled the correct way; have simple checks to verify a procedure has been performed correctly
4) Upgrade Equipment – replace worn-out equipment; take advantage of technological improvements
5) Automate – Substitute processing for manual processing
Know how to use a mean control chart.
Calculate control limits when the standard deviation is known.
Calculate control limits when only the range is known.
Inventory – a stock or store of goods
Inventories are a vital part of business because they:
1) Are necessary for operations
2) Contribute to customer satisfaction
1) Raw materials and purchased parts
2) Work-in-process (WIP)
3) Finished goods inventories or merchandise
4) Tools and supplies
5) Maintenance and Repairs (MRO) inventory
6) Goods-in-transit to warehouse or customers (pipeline inventory)
1) To meet anticipated customer demand
2) To smooth production requirements—what demand patterns would need smoothing? 3) To decouple operations—bottlenecks?
4) To protect against stockouts—safety shock
5) To take advantage of order cycles
6) To hedge against price increases
7) To permit operations—WIP
8) To take advantage of quantity discounts—Sam’s Club
2 Objectives of Inventory Control:
1) Achieve satisfactory levels of customer service
2) Keep inventory costs within reasonable bounds (thus a balance in stocking is necessary)
2 Inventory Counting Systems:
1) Periodic System – physical count of items in inventory made at periodic intervals 2) Perpetual Inventory System – system that keeps track of removals from inventory continuously, thus monitoring current levels of each item
a. An order is placed for Q amount when inventory drops to a predetermined minimum level.
b. Two bin-system – two containers of inventory; reorder when the first is empty
Point-of-Scale (POS) Systems – a system that electronically records actual sales 1) Such demand information is very useful for enhancing forecasting and inventory management
2) Helps to make restocking decisions
3) UPC codes usually used
Lead time – time interval between ordering and receiving the order
4 Types of Inventory Costs:
1) Purchase Cost – the amount paid to buy the inventory (typically the largest cost) 2) Holding (Carrying) Costs – costs to carry an item in inventory for a length of time (includes interest, insurance, taxes, depreciation, spoilage, shrinkage etc.) 3) Ordering Costs – costs of ordering and receiving inventory
a. Setup costs associated with creating inventory
i. The costs involved in preparing equipment for a job
ii. Analogous to ordering costs
4) Shortage Costs – costs resulting when demand exceeds the supply of inventory; often unrealized profit per unit; “opportunity costs” including goodwill
A-B-C Approach – classifying inventory according to some measure of importance (usually $ value *usage rate), and allocating control efforts accordingly
1) A items (very important) – 10 to 20 percent of the number of items in inventory and about 60 to 70 percent of the annual dollar value
2) B items (moderately important)
3) C items (least important) – 50 to 60 percent of the number of items in inventory but only about 10 to 15 percent of the annual dollar value
Cycle Stock – inventory intended to meet expected demand
Safety Stock – inventory held to reduce the probability of a stockout
Basic Economic Order Quantity (EOQ) – used to find a fixed order size that will minimize the sum of the annual costs of holding inventory and ordering inventory
Assumptions of the basic EOQ model:
1) Only one product is involved
2) Annual demand requirements are known
3) Demand is spread evenly throughout the year so that the demand rate is reasonably constant
4) Lead time is known and constant
5) Each order is received in a single delivery
6) There are no quantity discounts
Reorder Point (ROP) – when the quantity on hand of an item drops to this specified amount, the item is reordered
4 Factors that Determine ROP:
1) The rate of demand (usually based on a forecast)
2) The lead time
3) The extent of demand and/or lead time variability
4) The degree of stockout risk acceptable to management
Service Level – the probability that demand will not exceed supply during lead time (i.e., that the amount of stock on hand will be sufficient to meet demand); service level=100% stockout risk
3 Factors that Influence the Amount of Safety Stock:
1) The average demand rate and average lead time
2) Demand and lead time variability
3) The desired service level
4 Areas that Can Lead to Better Inventory Processes:
1) Record Keeping – records and data must be accurate and up-to-date 2) Variation Reduction – lead variation and forecast errors
3) Lean Operations
4) Supply Chain Management
Calculate total inventory costs.
Calculate EOQ or Qo.
Calculate ROP under certainty.
Calculate ROP under uncertainty.
Calculate ROP when standard deviation of lead time is known (i.e., calculate safety stock) Calculate ROP with demand uncertainty.
Calculate ROP with lead time uncertainty