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# OM 300 Study Guide for Test 2 OM 300

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This 14 page Study Guide was uploaded by Julie Knight on Saturday March 5, 2016. The Study Guide belongs to OM 300 at University of Alabama - Tuscaloosa taught by Andrea Marks in Winter 2016. Since its upload, it has received 499 views. For similar materials see Operations Management in Business at University of Alabama - Tuscaloosa.

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Date Created: 03/05/16

OM 300 Andrea Marks Operations Management Test Review (Chapters Spreadsheet Modeling, 6s, 11, and Linear Programming and Optimization) Spreadsheet Modeling: Mental model- a decision-making process we conduct in our heads. Visual model- a model in which graphics or diagrams are used to convey real objects or situations o Ex: map and graph Physical model- a model in which physical objects are used to represent the real objects or situations, usually on a smaller scale o Ex: model cars and buildings Mathematical model- a model in which quantitative relationship are used to represent a real situation or phenomena o Ex: a weather prediction model o Spreadsheet model- a mathematical model implemented in the form of a computer spreadsheet Inputs- quantities or factors that affect the decision making situation Controllable inputs (decision variables)- quantities or factors that a decision maker can change for the current situation o Ex: the order quantity in an inventory planning situation Uncontrollable inputs (parameters)- quantities or factors that a decision maker cannot control for the current situation o The unit cost of a raw material that must be purchased to produce a product Output- a quantity or factor that is calculated from the inputs of a model and is of interest of the decision maker Model- a purposeful representation of the key factor in a situation and the relationships among them Base case- the model containing the “default” or “given” values for the inputs; this is normally the starting point for the analysis Correct model- a model is correct if it produces the numerically correct values for the outputs for the current values of the inputs Flexible model- a model is flexible if it produces the numerically correct values for the outputs for any legitimate values of the inputs, without making any changes to the formulas in the model Documented model- a model is documented if someone else generally familiar with the situation can understand the model without having the model developer explain it in detail; can be put away for months at a time, and when viewed again by the modeler, is readily understandable Goal seek- an analysis tool in Excel that allows one to search for the value of an input that results in an output becoming a specific value Andrea Marks o Data table- an analysis tool in Excel that allows one to vary one (or two, in a two- way Data Table) input and automatically calculate the value of an output Relative reference- a cell reference that changes when it is copied Absolute reference- a cell reference that stays the same when copied Chapter 6s: Statistical Process Control Statistical process control (SPC)- a process used to monitor standards by taking measurements and corrective actions as a product or service is being produced Control chart- a graphical presentation of process data over time Natural variations- variability that affects every production process to some degree and is to be expected; also known as common cause o Assignable variation- variation in a production process that can be traced to specific causes o OM 300 Andrea Marks X bar chart- a quality control chart for variables that indicates when changes occur in the central tendency of a production process R chart- a control chart that tracks the “range” within a sample; it indicates that a gain or loss in uniformity has occurred in dispersion of a production process Central limit theorem- the theoretical foundation for x-bar charts, which states that regardless of the distribution of the population of all parts or services, the distribution of x-bars tends to follow a normal curve as the number of samples increases o o X-bar bar = μ o σ x-bar = σ /(root (n)) *** on the formula sheet! *** on the formula sheet! OM 300 Andrea Marks P-chart- a quality control chart that is used to control attributes *** on the formula sheet! o Run test- a test used to examine the points in a control chart to see if nonrandom variation is present OM 300 Andrea Marks o o Cp- a ratio for determining whether a process meets design specifications; a ratio of the specification to the process variation *** on the formula o sheet! Cpk a proportion of variation (3 ) between the center of the process and the nearest specification limit *** on the formula o sheet! Acceptance sampling- a method of measuring random samples of lots or batches of products against predetermined standards o Andrea Marks Operating characteristic (OC) curve- a graph that describes how well an acceptance plan discriminates between good and bad lots o Producer’s risk- the mistake of having a producer’s good lot rejected through sampling Consumer’s risk- the mistake of a customer’s acceptance of a bad lot overlooked through sampling Acceptable quality level (AQL)- the quality level of a lot considered good Lot tolerance percentage defective (LTPD)- the quality level of a lot considered bad Type I error- statistically, the probability of rejecting a good lot Type II error- statistically, the probability of accepting a bad lot Average outgoing quality (AOQ)- the percentage defective in an average lot of goods inspected through acceptance sampling o o Chapter 6s Practice Problems: If the mean of a particular sample is within control limits and the range of that sample is not within control limits: o The process is not producing within the established control limits The central limit theorem: OM 300 Andrea Marks o Allows managers to use the normal distribution as the basis for building some control charts The type of chart used to control the central tendency of variables with continuous dimensions is: o X-bar chart If parts in a sample are measured and the mean of the sample measurement is outside the control limits: o The process is out of control, and the cause should be established Control charts for attributes are: o Both p-charts and c-charts The ability of a process to meet design specifications is called: o Process capability The _______ risk is the probability that a lot will be rejected despite the quality level exceeding or meeting the ______: o Producer’s; AQL The R chart is used: o To indicate gains or losses in uniformity Which type of control chart should be used when it is possible to have more than one mistake per item? o C-chart One type of control chart for attributes is a: o P-chart If a sample of parts is measured and the mean of the sample measurements is outside the control limits: o The process is out of control and the cause can be established The object of a statistical process control (SPC) system is to: o Provide a signal when assignable variations are present In acceptance sampling, the producer’s risk is the risk of having a: o Good lot rejected Twenty samples of size 5 are taken from a stable process. The average means of the sample means is 42.5, and the average range of the samples is 1.5. What is the UCL for the X-bar chart? o 43.37 Twenty samples of size 5 are taken from a stable process. The average means of the sample means is 42.5, and the average range of the samples is 1.5. What is the UCL for the R-chart? o 3.17 Twenty samples of size 100 are taken. The total number of defective items is 75. What is the UCL of the 3-sigma (z=3) p-chart? o 0.094 A customer service hotline has received an average of 7 complaints a day for the last 25 days. What type of control chart should be used to monitor this hotline? o C-chart For the last 30 days, the number of mistakes on the daily report has averaged 4.5. What would the UCL be if a 3-sigma c-chart was constructed? o 10.86 A bottling company runs a filling process that should fill bottles with 12 plus or minus 0.04 ounces. A capability study reveals that the process mean is 12 ounces OM 300 Andrea Marks and the standard deviation is 0.01 ounces. What is the capability of the bottling process? o 1.33 A manufacturing engineer is designing a process that must be able to produce a shaft with a diameter of 2.5 cm plus or minus 0.01 cm. If the process capability must be 1.5, what is the maximum process standard deviation? o 0.00222 Which is the best statement regarding an operating characteristic curve? o As the AQL decreases, the producer’s risk also decreases A box of 1000 parts is subjected to an acceptance sampling plan that examines only 50 parts. The actual fraction defective in the box is 0.02 and the sampling plan has a 0.53 probability of accepting a box of this quality. What is the average outgoing quality for this scenario? o 0.01 When the process average is under control, the process dispersion is also under control. o FALSE The central limit theorem states that regardless of the distribution of all parts (or services), the distribution of x-bars will tend to follow a normal curve as the number of samples increases. o TRUE Control charts for variables classify items as defective or not defective. o FALSE One popular measure of process capability is Cpk. o TRUE When the process fraction defective is low, the p-chart may have a negative lower control limit. o FALSE If the producer’s risk increases, then the consumer’s risk decreases. o TRUE If a process is in control, then all of the output produced is acceptable for use. o FALSE Which type of control chart should be used when it is possible to have more than one mistake per item? o C-chart Which of the following statements is NOT true about the process capability ratio? o A capable process has a process capability ratio less than one Which is the best statement regarding an operating characteristic curve? o As the AQL decreases, the producer’s risk also decreases Chapter 11: Supply Chain Management Supply chain management- the coordination of all supply chain activities involved in enhancing customer value o The objective of supply chain management is to coordinate activities within the supply chain to maximize the supply chain’s competitive advantage and benefits to the ultimate consumer Andrea Marks Make or buy decision- a choice between producing a component or service in house or purchasing it from an outside source Outsourcing- transferring a firm’s activities that have traditionally been internal to external suppliers Six supply chain strategies for goods and services to be obtained from outside sources: o Negotiating with many suppliers and playing one supplier against another o Developing long term partnering relationships with a few suppliers o Vertical integration o Joint ventures o Developing keiretsu networks o Developing virtual companies that use suppliers on an as needed basis Vertical integration- developing the ability to produce goods or services previously purchased or actually buying a supplier or a distributor Keiretsu- a Japanese term that describes suppliers who become part of a company coalition Virtual companies- companies that rely on a variety of supplier relationships to provide services on demand; also known as hollow corporations or network companies Cross sourcing- using one supplier for a component and a second supplier for another component, where each supplier acts as a backup for the other Andrea Marks Three issues complicate the development of an efficient, integrated supply chain: o Local optimization o Incentives o Large lots Bullwhip effect- the increasing fluctuation in orders that often occurs as orders move through the supply chain Pull data- accurate sales data that initiate transactions to “pull” product through the supply chain Single stage control of replenishment- fixing responsibility for monitoring and managing inventory for the retailer Vendor managed inventory (VMI)- a system in which a supplier maintains material for the buyer, often delivering directly to the buyer’s using department Collaborative planning, forecasting, and replenishment (CPFR)- a system in which members of a supply chain share information in a joint effort to reduce supply chain costs Blanket order- a long term purchase commitment to a supplier for items that are to be delivered against short term releases to ship Postponement- delaying any modifications or customization to a product as long as possible in the production process Drop shipping- shopping directly from the supplier to the end consumer rather than from the seller, saving both time and reshipping costs Four stages of the supplier selection: o Supplier evaluation- finding potential vendors and determining the likelihood of their becoming good suppliers OM 300 Andrea Marks o Supplier development- may include everything from training, to engineering and production help, to procedures for information transfer o Negotiations- approaches taken by supply chain personnel to set prices The cost based price model The market based price model Competitive bidding o Contracting- a design to share risks, share benefits, and create incentives so as to optimize the whole supply chain E procurement- purchasing facilitated through the internet Logistics management- an approach that seeks efficiency of operations through the integration of all material acquisition, movement, and storage activities Six major means of distribution: o Trucking o Railroads o Airfreight o Waterways o Pipelines o Multimodal Channel assembly- postpones final assembly of a product so the distribution channel can assemble it Reverse logistics- the process of sending returned products back up the supply chain for value recovery or disposal Closed loop supply chain- a supply chain designed to optimize both forward and reverse flows Inventory turnover- cost of goods sold divided by average inventory o = cost of goods sold / inventory investment o weeks and supply = inventory investment / (annual cost of goods sold / 52 weeks) Supply Chain Operations Reference (SCOR) model- a set of processes, metrics, and best practices developed by the Supply Chain Council o Plan o Source OM 300 Andrea Marks o Make o Deliver o Return Chapter 11 Practice Questions: The objective of supply chain management is to _____________________. o Build a chain of suppliers that focuses on maximizing value to the ultimate customer The term vertical integration means to: o Produce goods or services previously purchased The bullwhip effect can be aggravated by: o All of the above (local optimization, sales incentives, quantity discounts, and promotions) Supplier selection requires: o Negotiations, supplier evaluation, supplier development, and contracts A major issue in logistics is: o Cost of shipping alternatives Inventory turnover equals: o Cost of goods sold / inventory investment If a process is in control, then all of the output produced is acceptable for use. o FALSE Which of the following statements is NOT one of the differentiation strategy decisions? o Use buffer stocks to ensure speedy supply Which sourcing strategy is particularly common when the products being sourced are commodities? o Many suppliers Which of the following mitigation tactics could reduce economic risk? o Purchasing contracts that address price fluctuations Which of the following is NOT one of the risk mitigation tactics for the supply chain risk category of suppliers failing to deliver? o Require overnight delivery What are the four stages of supplier selection? o Supplier evaluation, supplier development, negotiations, and contracting Once revenue and total logistics costs are considered together, the optimal number of facilities in a distribution network may decrease compared to the optimal number of facilities based on total logistics costs only. o FALSE Distribution management focuses on which of the following? o The outbound flow of products Which of the following statements does NOT accurately explain what occurs when the number of facilities in a distribution network increases? o Response time first decreases, the increases Benchmark firms have driven down costs of supply chain performance. o TRUE OM 300 Andrea Marks Linear Programming and Optimization Objective- the quantity to be maximized or minimized Constraints- limitations or requirements that must be satisfied Decision variables- quantities under the control of the decision maker Constrained optimization problem- a mathematical model in which one is trying to maximize or minimize some quantity, while satisfying a set of constraints Formulation- a formal, algebraic statement of a constrained optimization problem Text based formulation: o Decision variables o Objective function o Constraints Linear program (LP)- a constrained optimization problem in which all the functions involving decision variables are linear Feasible solution- a specific combination of values of the decision variables such that all of the constraints are satisfied Infeasible solution- a specific combination of values of the decision variables such that at least one of the constraints is violated Optimal solution- the feasible solution with the largest (for a maximization problem) or smallest (for a minimization) objective value Simplex method- a mathematical algorithm developed by George Dantzig that, when implemented in software, can solve LP’s very quickly Guidelines to set an LP in a spreadsheet: o Develop a correct, flexible, and documented model o Divide the worksheet into three sections Decisions variables Objective function Constraints o Use the algebraic formulation and the natural structure of the problem to guide the structure of the spreadsheet o Use one cell for each decision variable o Store the coefficients of the objective function in separate cells, and use another cell to store a formula that calculates the value of the objective function (by referring to the decision variable cells and the coefficient cells) Target cell- in Solver, the cell to be maximized or minimized; this cell corresponds to the objective function Changing cells- in Solver, the cells that can be changed during the optimization process; these cells correspond to the decision variables Constraints- in Solver, the limitations and requirements that must be met Binding constraints- constraints that are satisfied exactly at the optimal solution Nonbinding constraints- constraints that are satisfied at the optimal solution, but as strict inequalities Slack- the difference between the left hand side and the right hand side of a constraint Andrea Marks Shadow price- the amount by which the optimal objective value will change if the right hand side of a constraint is increased by one unit, assuming all other coefficients of the problem remain the same Marginal value- another name for shadow price Infeasible problem- a LP in which it is impossible for all the constraints to be satisfied simultaneously Unbounded problem- a LP in which the objective value can increase (for a maximization problem) or decrease (for a minimization problem) without bound

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