Operations Midterm 3

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  1. Process Flow Measures
    Affect overall cost and how quickly you can get product to customer
  2. Process Flow Measures (3)
    • 1. Flow Time
    • 2. Flow Rate
    • 3. Inventory
  3. Flow Time
    On average how much time does a typical flow unit spend within the process boundaries?


    How long does it take for an input to turn into an ouptut (remember sub processes)
  4. Flow Rate
    On average, how many flow units pass through the process per unit of time

    i.e. how many seats per hour
  5. Inventory
    How many flow units are within the process boundaries at any point in time
  6. Flow Time - As a unit moves through process, only two things can happen to it:
    • 1. Undergoes an activity
    • 2. Waits in buffer for an activity
  7. Inventory =
    When inflow exceeds outflow rate

    (can be a product or customers waiting to be checked up, complaints submitted that haven't been resolved, etc.)
  8. Example of flow rate, flow time, inventory
    Copy/paste example here!!!
  9. Inventory Factors - Economic Factors
    * Improve operations with inventory velocity - move inventory through ops faster (make sure to maintain quality standards)

    * Subsitute info for inventory - Info (SAP, Oracle) drives down need for inventories

    * Transport deregulation - Decreased cost of transporation

    * Competition - companies with less inventory have lower overall costs (think WalMart)
  10. Inventory factors - Business Factors
    • * More SKUs = More Inventory (more products)
    • * Inventory carying cost
    • * Inventory metrics vary by industry
  11. SKU vs UPC
    • SKU - company specific
    • UPC - Universal product code - better for consistency between companies
  12. Why have inventory (6)?
    • 1. Purchasing economies of scale (buy more for less per unit)
    • 2. Transportation economies
    • 3. Safety stock (anticipate slow down in labor - strike)
    • 4. Speculative purchases (buy now at good opportunity for later - buy Christmas stuff in offseason and hold till holidays to sell.
    • 5. Seasonal Supply (produce)
    • 6. Customer service - make sure you never run out
  13. Classifications of Inventory (5)
    1. Cycle Stock - inventory created through raw material/transporation discounts (volume discounts justify addit. inventory levels)

    2. WIP - flow units within a process. production to co-pack for final assembly

    3. Goods in Transit (air transport faster, but more expensive)

    4. Seasonal stock - raw material availability (fruits, vegies), transport constrains (river during winter), holidays

    5. Safety stock - Minimizes stock out potential - build for uncertainty (policial unrest (mid east for fuel), labor disputes, etc.)
  14. Safety Stock also used for:
    Cover volumes that don't make it (destroyed/damed goods, etc.)
  15. Inventory Costs - Carrying Costs
    • Capital - interest/opportunity cost
    • Storage Space - handling rent, utilities
  16. Contract Warehousing
    Long term contract with 3rd party to run DC - liability = warehouse
  17. Public Warehousing
    Jumbo self storage - Giant eagle just needs some extra space for extra stuff around holiday season
  18. Inventory Costs - Order/Setup Costs
    Cost of placing order beyond the actual prodcut costs (info systems, facilities needed, reviewing inventory levels, etc.)
  19. Inventory Costs - Set up Costs (Carry over costs)
    Capital equipment, personell needed for change over
  20. Inventory costs - stock out costs
    Cost of not having product available to meet demand

    • Safety stock
    • Substitution margin costs (CVS brand vs brand name)
    • Cost of lost sales
    • Back order

    * toughest to calculate
  21. Inventory Costs - In Transit Carrying Costs
    Free on Board
  22. Free On Board shipping
    • Destination is repsonsible for shipping products to its customers
    • Product remains property of shipper until it is loaded on your dock
  23. Just in Time inventory mgmt (JIT)
    • * Material arrives just when needed
    • * Good for high volume, predicable demand products
    • * Need very reliable supply chain
  24. Benefits of JIT (3)
    • 1. Productivy improvements
    • 2. Space utiliziation improvements
    • 3. Remove waste
  25. Vendor Managed Inventory (VMI)
    Supplier manages customers inventory

    Supplier has visibility of customers inventory and triggers new shipment when needed

    * Clear visibility and control neede dos that suppliers don't abuse system to match sales quotas, etc.
  26. Pareto Analysis
    Qumulative graph that shows % of total damages

    Allows you to focus on meaningful few instead of meaningless many
  27. Instantaneous Inventory Accumulation Rate
    Difference between inflow rate and outflow rate - measures whether inventory is increasing or decreasing
  28. Stable Process Inventory
    In long run, average inflow = average outflow rate of inventory
  29. Throughput
    Average number of units that flow through the process per unit of time
  30. Little's Law
    Relationship between average inventory, throughput and flow time

    Average Inventory = Throughput * Average Flow Time
  31. Littles Law Improvement
    Maanger only needs to change 2 pieces and the other occurs automatically

    Average Inventory = Throughput * Average Flow Time
  32. Takt Time
    Maximum amount of time a process can take to keep up with demand (amount of time it takes a cashier to ring up each customer)
  33. Inventory Turns
    How many times you flow inventory through process

    Higher = better (turning inputs into sold outputs)

Card Set Information

Operations Midterm 3
2012-02-08 02:28:54
operations midterm

Operations Midterm Ch 3
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