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What are the three principles to manage inventory/counteract the negative aspects of holding inventory?
First Principle: Reduce Waste
- Use smaller lot sizes to reduce holding costs, space needed to store materials, time to process each lot through each stage
- -Time inventory in queues
The first thing is to work to the main principles of lean manufacturing, making value flow at the pull of the customer, the idea of Just in Time (JIT) production. This will cause us to remove the main cause of inventory that of overproduction.Look at factory and cell layout and balance your production processes to ensure that work in progress does not build up between processes, it is not important to run every machine as fast as it can be run, at the end of the day we only need to make things as quickly as the customer wants them, no faster; takt time (the time interval between customer call off) and Kanban can be used to help ensure that we balance our processes and prevent the build up of inventory.Inventory as I have already mentioned hides all other problems, even if you implement flow with Kanban systems you should look to continue to keep dropping your inventory (comfort levels) to expose more and more of the rocks enabling you to make your processes more and more reliable.
"Pull" instead of "Push"
The pull inventory control system begins with a customer's order. With this strategy, companies only make enough product to fulfill customer's orders. One advantage to the system is that there will be no excess of inventory that needs to be stored, thus reducing inventory levels and the cost of carrying and storing goods. However, one major disadvantage to the pull system is that it is highly possible to run into ordering dilemmas, such as a supplier not being able to get a shipment out on time. This leaves the company unable to fulfill the order and contributes to customer dissatisfaction.An example of a pull inventory control system is the just-in-time, or JIT system. The goal is to keep inventory levels to a minimum by only having enough inventory, not more or less, to meet customer demand. The JIT system eliminates waste by reducing the amount of storage space needed for inventory and the costs of storing goods.
“Push” method: orders work expecting that all process stages will be coordinated & will finish work on schedule
“Pull” system: triggers work to replenish WIP only when products are completed at the end of the production process
Pull process stops all work when one process stage is stopped – strong incentive to ensure that all stages are functioning properly
Better to under-utilize equipment than to work part of the system at high volume -- and build up WIP
Third Principle: Continuous Improvement
Removal of waste: Eliminate safety stock and other system buffers to help illuminate causes of waste
Well-controlled system makes quality problems more visible (andon system to signal problems on the line); as more mistakes are eliminated, the firm can concentrate on the more difficult remaining ones
Highly trained workers have broader job classifications and added responsibility for improving their part of the process
- Broad use of quality control systems to signal process performance
What are 6 types of inventory management?
Anticipation inventory: buildup of material in advance of demand to reduce seasonal high-capacity requirements–
Cycle inventory: material present as a result of buying or producing in batches to reduce setup/order costs
Buffer or decoupling inventory: allows various stages of production to operate at different rates
Safety stock: material held to compensate for unpredicted or non-predictable requirements
Pipeline or transit inventory: Material that allows multiple work centres to operate simultaneously or that is needed to maintain physical flows over distance
When does Just In Time Inventory work best?
DEFINITION of 'Just In Time - JIT' An inventory strategy companies employ to increase efficiency and decrease waste by receiving goods only as they are needed in the production process, thereby reducing inventory costs. This method requires that producers are able to accurately forecast demand.
Assess your production flow.
Do you produce a steady or predictable amount of products each day, week, month? Can you predict how much inventory you will need in a given day, week, month? If you cannot, implementing a JIT program could be difficult, if not impossible.
Talk to your suppliers.
Are they willing to make smaller, but more frequent, deliveries? Will they negotiate good deals, given the promise of guaranteed, long-term business from your company? Not every supplier is going to want the responsibility of being part of your JIT program, but some will accept the challenge and sign on for the long haul. Can you rely on them to make deliveries just in time?
Talk to your employees.
How well do the employees communicate with one another and with you? Is each willing to take the time to learn a new system and do what it takes to have it run smoothly?
Not just with your employees and suppliers, but with yourself. Switching over to a JIT system will take a lot of commitment. Don’t get involved with JIT simply because other companies have; do it if you think it will work for your company.
- From the course, JIT works best when...-Problem-free process with no unreliability in personnel, skills, equipment uptime, supplier performance
- -Fairly constant capacity utilization, with limited demand seasonality
- -Flexible workers who can switch from one task to another or from one kind of output to another without difficulty
- -Ability to balance capacity utilization despite changes in product mix (perhaps using mixed-model production)
What determines quality of products /services?
Quality refers to the ability of a product or service to consistently meet or exceed customer requirements or expectations.
Different customers will have different expectations, so a working definition of quality is customer-dependent. When discussing quality one must consider design, production, and service. In a culmination of efforts, it begins with careful assessment of what the customers want, then translating this information into technical specifications to which goods or services must conform. The specifications guide product and service design, process design, production of goods and delivery of services, and service after the sale or delivery.Some of these consequences of poor quality include loss of business, liability, decreased productivity, and increased costs. However, good quality has its own costs, including prevention, appraisal, and failure. A recent and more effective approach is discovering ways to prevent problems, instead of trying to fix them once they occur.This will ultimately decrease the cost of good quality in the long run.
Dimensions of Quality include:
- -Product or service design
- -Facilities design and layout,“servicescape”
- -Capability of tools and equipment to work within specifications
- -Suppliers capable of working within specifications
- -Organizational culture and systems to promote constant efforts to improve
- -Workers with knowledge, skills and motivation
What are four costs of quality?
Cost of poor quality (COPQ): The costs associated with providing poor quality products or services. There are four categories: internal failure costs (costs associated with defects found before the customer receives the product or service), external failure costs (costs associated with defects found after the customer receives the product or service), appraisal costs (costs incurred to determine the degree of conformance to quality requirements) and prevention costs (costs incurred to keep failure and appraisal costs to a minimum).
Prevention costs: steps taken to reduce the possibility of defects
(Process & product redesign, Employee training, Supplier development)
- Appraisal costs: steps taken to evaluate products, measure performance ( Inspection of incoming goods, Statistical process control, Product / service testing)
Internal failure costs: costs associated with defects or problems that are discovered before they are passed on to a customer (Scrap, Rework, Downtime)
External failure costs:
costs associated with defects or problems that reach customers (Complaint handling, Warranty costs, Product liability costs, Loss of market share)
What is total quality management?
- Total Quality Management (TQM) is amanagement approach that originated in the 1950s and has steadily become more popular since the early 1980s. Total quality is a description of the culture, attitude and organization of a company that strives to provide customers with products and services that satisfy their needs.
- Ultimate driver is customer satisfaction; whether for internal or external customer, aim for delivering exactly what is expected
Incorporate idea of continuous improvement
, with expectation that quality and efficiency can always be improved
- Requires employee involvement, since all staff are expected to find ways to eliminate problems and waste in their work areas
- –Use of team-based approach; employee teams are empowered to investigate problems and experiment with possible solution
- –Based on Deming’s PDCA cycle to move continuously toward perfect consistency and greater efficiency
What is PDCA?
PDCA (plan–do–check–act or plan–do–check–adjust) an iterative four-step management method used in business for the control and continuous improvement of processes and products.
- Establish the objectives and processes necessary to deliver results in accordance with the expected output (the target or goals). By establishing output expectations, the completeness and accuracy of the spec is also a part of the targeted improvement. When possible start on a small scale to test possible effects.
- Implement the plan, execute the process, make the product. Collect data for charting and analysis in the following "CHECK" and "ACT" steps.
- Study the actual results (measured and collected in "DO" above) and compare against the expected results (targets or goals from the "PLAN") to ascertain any differences. Look for deviation in implementation from the plan and also look for the appropriateness and completeness of the plan to enable the execution, i.e., "Do". Charting data can make this much easier to see trends over several PDCA cycles and in order to convert the collected data into information. Information is what you need for the next step "ACT".
- If the CHECK shows that the PLAN that was implemented in DO is an improvement to the prior standard (baseline), then that becomes the new standard (baseline) for how the organization should ACT going forward (new standards are enACTed). If the CHECK shows that the PLAN that was implemented in DO is not an improvement, then the existing standard (baseline) will remain in place. In either case, if the CHECK showed something different than expected (whether better or worse), then there is some more learning to be done... and that will suggest potential future PDCA cycles. Note that some who teach PDCA assert that the ACT involves making adjustments or corrective actions... but generally it would be counter to PDCA thinking to propose and decide upon alternative changes without using a proper PLAN phase, or to make them the new standard (baseline) without going through DO and CHECK steps.
A plan of action implemented by a firm that describes how they will employ their resources in the production of a product or service. An operational strategy is a necessary element for a business and supports the firm's corporate strategy.
Operations Strategy as a functional strategy to support the overall organizational strategy. how the functional area of operations is intended to support the overall corporate strategy.
Most decisions for managing operations have long-term impacts and significant costs, thus have to be weighed carefully, since the firm will be living with the outcomes for a long time.
Trade-offs in the key dimensions along which Operations is expected to deliver
Distinctions among basic process archetypes
Distinctions in operational “environments,” i.e., the basic approach to fulfilling customers’ requirements.
Competitive advantage in operations comes from finding ways to minimize the tradeoffs that must be made among time -- cost -- flexibility and other dimensions. Being good on one dimension alone is rarely sufficient to ensure competitive success
Must prioritize dominant needs for meeting market requirements
In many cases, Process Structure dictates the range of Resource Flexibility, Capital Intensity and Customer Involvement that makes sense with the chosen process configuration
To customers specifications
- Highly skilled workers, more broadly skilled workers...General purpose/manual labour, selling skills, less products produced/sold because they are so custom.
- MAKE TO ORDER
- Job Shop: a type of manufacturing process in which small batches of a variety of custom products are made. In the job shop process flow, most of the products produced require a unique set-up and sequencing of process steps.
- MAKE TO ORDER
- Batch Flow: a technique used in manufacturing, in which the object in question is created stage by stage over a series of workstations, and different batches of products are made. With job production (one-off production) and flow production (continuous production) it is one of the three main production methods.Batch production is most common in bakeries and in the manufacture of sports shoes, pharmaceutical ingredients (APIs), purifying water, inks, paints and adhesives. In the manufacture of inks and paints, a technique called a colour-run is used. A colour-run is where one manufactures the lightest colour first, such as light yellow followed by the next increasingly darker colour such as orange, then red and so on until reaching black and then starts over again.
- ASSEMBLE TO ORDER
- Line Flow: low production (Process Production) is also a very common method of production. Flow production is when the product is built up through many segregated stages; the product is built upon at each stage and then passed directly to the next stage where it is built upon again. The production method is financially the most efficient and effective because there is less of a need for skilled workers.
- ASSEMBLE To ORDER/MAKE TO STOCK
- Continuous production is called a continuous process or acontinuous flow process because the materials, either dry bulk or fluids that are being processed are continuously in motion, undergoing chemical reactions or subject to mechanical or heat treatment.Continuous processing is contrasted with batch production.
- Less skilled workers/diversity... customized machines/Automation... large scale contracts/lots of stuff created
- MAKE TO STOCK
Define and explain:
Make to Order
Assemble to Order
Make to stock
- Make To Order - MTO' A business production strategy that typically allows consumers to purchase products that are customized to their specifications. The make to order (MTO) strategy only manufactures the end product once the customer places the order.
- EXAMPLES: Victoria Shipyard, Canadian Disaster Assistance Response Team
- BENEFITS: Specialization, No extra inventory
- DISADVANTAGE: Low Supply and waiting time for consumers to receive goods
- Assemble to order: A business production strategy where products ordered by customers are produced quickly and are customizable to a certain extent. The assemble-to-order (ATO) strategy requires that the basic parts for the product are already manufactured but not yet assembled. Once an order is received, the parts are assembled quickly and sent to the customer. A business that utilizes the assemble to order method doesn’t have to face the often impossible task of anticipating every end product that a customer would want. For example, two customers may want sheds built two different ways. The business owner has the option to build the two shelters in advance, which is the make to stock method. If the same business is now faced with 100 customers who want the sheds built 10, 20 or 30 different ways, then that could pose space and efficiency problems for that business. The way to resolve this is to customize each order by assembling each order for a shed as it comes in instead of trying to anticipate varying customer preferences.
- EXAMPLE: Chevy Chase Custom Tailor, etc
- Make to Stock - A traditional production strategy used by businesses to match production with consumer demand forecasts. The make-to-stock (MTS) method forecasts demand to determine how much stock should be produced.
- EXAMPLE: Microwave assembly plant in China... Or a machine paced line flow
Competitive strategy in operations management
- The value that is added by both operations management and operations strategy is fundamental
- to most organizations. Obstacles facing companies in today's hyper-competitive global markets are seemingly more complex than ever, to the point that managers must rethink many of the basic principles of good operations management, says Robert Hayes.
Most companies in the late 1990s were preoccupied with keeping up with burgeoning demand, and exploring the possibilities created by the explosion of information and telecommunications technologies, particularly the Internet, which enabled entirely new ways to communicate with customers and suppliers, as well as internally. This was the era when everybody was developing new initiatives in B2C (business-to-consumer) communications and B2B (business-to-business) supply chains, installing ERP (enterprise resource planning systems, as exemplified by SAP), and worrying about Y2K. The threat posed to our economy by Japan and Germany had eased, the stock market was going crazy, and everybody was pursuing dot-com start-ups.In that kind of climate, traditional operations took somewhat of a back seat. There were just too many new things to think about and explore, and everybody's attention was focused on "breakthrough improvements," so the mandate for operations became "just keep up with business while we pursue the pot of gold at the end of the rainbow everyone sees out there."Now, of course, the economic bubble has burst, the "easy money" is gone, and managers are worrying about how to stay competitive in the new world economy that has emerged. It's time, once again, to concentrate attention on your core business, squeeze out the waste, and focus on how to differentiate yourself from your competitors in meaningful ways. But the tools available to—and the challenges facing—companies are so much greater now than before, that managers have to rethink many of the basic principles of good operations management that they have adopted in the past and decide if these are still appropriate in today's world. And, if not (for a variety of reasons that we describe in the book), what new principles and methodologies should replace them?
One has to adopt a strategy for improvement that fits the specific needs of the organization at that point in its life. Slow, steady improvement is appropriate in some situations, and attempts at dramatic breakthroughs through process reengineering are appropriate in others. Moreover, different improvement strategies require different resources, management styles, and support structures. They not only require different organizational capabilities, they also create new capabilities.
experts are likely to make decisions based on what has worked at other companies or even at your own company in the past. But your company (and, in particular, its competitive strategy) may have changed over time, and/or be different from these other companies in critical ways. So top managers have to get involved in these decisions, to ensure that these decisions are based on a complete understanding of what the company hopes to achieve, what it has the resources to support, and how they fit with the other activities that are underway.
The companies that jump to most people's minds are big ones, such as Dell Computer, Southwest Airlines, Toyota, and Wal-Mart. But there are lots of smaller ones that are not as well known, several of which are described in our book. All these companies compete in markets that have long existed, and in which they were minor players up to a few years ago. None offers products or services that are markedly different from those their competitors offer.
DEFINITION of 'Capacity Management'The management of the limits of an organization's resources, such as its labor force, manufacturing and office space, technology and equipment, raw materials, and inventory. Capacity management also deals with the capacity of an organization's processes – for example, new product development or marketing – as well as with capacity constraints that arise when various resources are combined. Since capacity constraints in any process or resource can be a major bottleneck for a company, capacity management is of critical importance in ensuring that an organization operates smoothly.Read more: Capacity Management Definition
In operations management, the capacity of an operation is the maximum level of value-added activity over a period of time that the process can achieve under normal operating conditions.
To illustrate this, consider a car park which can hold a maximum of 500 vehicles at any given time. The actual processing capacity of the car park will vary depending on how it is used. For example, if the car park is opened for eight hours a day and will be occupied only by full time office workers, the processing capacity will be 500 vehicles per day. On the other hand, if the car park is opened to shoppers, each averaging two hours, the processing capacity will be up to 2000 vehicles per day.
In reality, your business, like many others, does not operate at the maximum processing capacity. This can be either because of insufficient demand, or as a strategic policy, so that the operation can quickly respond to new orders.
Usually, you will find that some parts of your operations are operating below capacity while others are at their peak (also referred to as the ‘ceiling'). The parts that are at the ceiling are the areas of concern for your business as they are the capacity constraint for the whole operation and may potentially cause your business to miss valuable opportunities. Hence, it is critical that you ensure that your business at all times, have enough capacity to meet all current and future demands.
Capacity: The capacity can be calculated for every station in a business process. It is always m / processing time with m being the number of resources (e.g. workers) being devoted to the station. If, for example, one worker needs 40 seconds to put together a sandwich, the capacity of this station is 1/40 per second or 1,5 sandwiches per minute. If there are two workers on the same station, the capacity increases to 2/40 per second or 3 sandwiches per minute.
Bottleneck: The bottleneck is defined as the process step (station) in the flow diagram with the lowest capacity (the “weakest link”). Although the bottleneck is often the process step with the longest processing time, it is important to always look at the capacities for making a judgement.
Process capacity: The process capacity is always equivalent to the capacity of the bottleneck. It is useful, to calculate a comprehensible number, such as customers per hour or parts per day (instead of a hard to comprehend number such as 1/40 customer per second or 1/345 part per second).
Flow rate: Even though the flow rate was previously defined, the definition needs to be augmented as the flow rate being the minimum of demand and process capacity. While the flow rate logically can never be higher than the capacity of the bottleneck, it can very well be lower, if the demand is insufficient.
Utilization: The utilization tells us, how well a resource is being used. It is calculated as flow rate divided by capacity (e.g. 1/40 / 1/25). The utilization always lies between 0% and 100%.
What are detriments of effective capacity?
The most important parts of effective capacity are process and human factors. Process factors must be efficient and must operate smoothly, if not the rate of output will dramatically decrease. Human factors must be trained well and have experience, they must be motivated and have a low absenteeism and labor turnover. In resolving constraint issues, all possible alternative solutions must be evaluated. This is possible by using CVP analysis and the Break-Even Point formula.
Facilities: The size and provision for expansion are key in the design of facilities. Other facility factors include locational factors (transportation costs, distance to market, labor supply, energy sources). The layout of the work area can determine how smoothly work can be performed.
Product and Service Factors: The more uniform the output, the more opportunities there are for standardization of methods and materials. This leads to greater capacity.
Process Factors: Quantity capability is an important determinant of capacity, but so is output quality. If the quality does not meet standards, then output rate decreases because of need of inspection and rework activities. Process improvements that increase quality and productivity can result in increased capacity. Another process factor to consider is the time it takes to change over equipment settings for different products or services.
Human Factors: the tasks that are needed in certain jobs, the array of activities involved and the training, skill, and experience required to perform a job all affect the potential and actual output. Employee motivation, absenteeism, and labor turnover all affect the output rate as well.
Policy Factors: Management policy can affect capacity by allowing or not allowing capacity options such as overtime or second or third shifts
Operational Factors: Scheduling problems may occur when an organization has differences in equipment capabilities among different pieces of equipment or differences in job requirements. Other areas of impact on effective capacity include inventory stocking decisions, late deliveries, purchasing requirements, acceptability of purchased materials and parts, and quality inspection and control procedures.
Supply Chain Factors: Questions include: What impact will the changes have on suppliers, warehousing, transportation, and distributors? If capacity will be increased, will these elements of the supply chain be able to handle the increase? If capacity is to be decreased, what impact will the loss of business have on these elements of the supply chain?
External Factors: Minimum quality and performance standards can restrict management's options for increasing and using capacity.
What is Process Analysis?
Processes are any part of an organization that takes inputs and transforms them into outputs.
Cycle time is the average successive time between completions of successive units.
Utilization is the ratio of the time that a resource is actually activated relative to the time that is available for use.
Process flowcharting uses diagrams to present the major elements of a process. The basic elements can include tasks or operations, flows of materials or customers, decision points and storage areas or queues. It is used to analyze a process.
To optimize processes, you can perform activities in parallel, change the sequence of activities, reduce interruptions... etc.
Describe Waiting Line Management (Capacity Management) and how to manage customers?
To solve problems related to queue management it is important to understand characteristics of the queue. Some common queue situations are waiting in line for service in super-market or banks, waiting for results from computer and waiting in line for bus or commuter rail. General premise of queue theory is that there are limited resources for a given population of customers and addition of a new service line will increase the cost aspect to the business. A typical queue system has the following:
As the name suggests an arrival process look at different components of customer arrival. Customer arrival could in single, batch or bulk, arrival as distribution of time, arrival in finite population or infinite population.
this looks at available resources for customer service, queue structure to avail the service and preemption of service. Underlining assumption here is that service time of customers is independent of arrival to the queue.
this looks at selection of customers from the queue for service. Generally, customer selection is through first come first served method, random or last in first out. As a result, customers leave if the queue is long, customer leave if they have waited too long or switch to faster serving queue.
Another aspect of waiting line management is the service configuration. There are four types of service configuration, and they are as follows:
- -Single Channel, Single Phase (e.g. ship yards and car wash)
- -Single Channel, Multi Phase (e.g. bank tellers)
- -Multi Channel, Single Phase (e.g. separate queue of man and women for single ticket window)
- -Multi Channel, Multi Phase (e.g. Laundromat, where option of several washers and several dryers)
Waiting in lines is a part of our everyday life. Waiting in lines may be due to overcrowded, overfilling or due to congestion.
Any time there is more customer demand for a service than can be provided, a waiting line forms. We wait in lines at the movie theater, at the bank for a teller, at a grocery store. Wait time is depends on the number of people waiting before you, the number of servers serving line, and the amount of service time for each individual customer. Customers can be either humans or an object such as customer orders to be process, a machine waiting for repair. Mathematical analytical method of analyzing the relationship between congestion and delay caused by it can be modeled using Queuing analysis. Queuing theory provides tools needed for analysis of systems of congestion. Mathematically, systems of congestion appear in many diverse and complicated ways and can vary in extent and complexity.
A waiting line system or queuing system is defined by two important elements: the population source of its customers and the process or service system.
The customer population can be considered as finite or infinite. The customer population is finite when the number of customers affects potential new customers for the service system already in the system. When the number of customers waiting in line does not significantly affect the rate at which the population generates new customers, the customer population is considered infinite. Customer behavior can change and depends on waiting line characteristics. In addition to waiting, a customer can choose other alternative. When customer enters the waiting line but leaves before being serviced, process is called Reneging. When customer changes one line to another to reduce wait time, process is called Jockeying. Balking occurs when customer do not enter waiting line but decides to come back latter.
Another element of queuing system is service system. The number of waiting lines, the number of servers, the arrangements of the servers, the arrival and service patterns, and the service priority rules characterize the service system. Queue system can have channels or multiple waiting lines.
Examples of single waiting line are bank counter, airline counters, restaurants, amusement parks. In these examples multiple servers might serve customers. In the single line multiple servers has better performance in terms of waiting times and eliminates jockeying behavior than the system with a single line for each server. System serving capacity is a function of the number of service facilities and server proficiency. In queuing system, the terms server and channel are used interchangeably.
Queuing systems are either single server or multiple servers.
Single server examples include gas station food mart with single checkout counter, a theater with a single person selling tickets and controlling admission into the show. Multiple server examples include gas stations with multiple gas pumps, grocery stores with multiple cashiers, multiple tellers in a bank. Services require a single activity or services of activities called phases. In a single-phase system, the service is completed all at once, such as a bank transaction or grocery store checkout counter. In a multiphase system, the service is completed in a series of phases, such as at fast-food restaurant with ordering, pay, and pick-up windows. Queuing system is characterized by rate at which customers arrive and served by service system. Arrival rate specifies the average number of customers per time period. The service rate specifies the average number customers that can be serviced during a time period. The service rate governs capacity of the service system. It is the fluctuation in arrival and service patterns that causes wait in queuing system. Waiting line models that assume that customers arrive according to a Poisson probability distribution, and service times are described by an exponential distribution. The Poisson distribution specifies the probability that a certain number of customers will arrive in a given time period. The exponential distribution describes the service times as the probability that a particular service time will be less than or equal to a given amount of time. A waiting line priority rule determines which customer is served next. A frequently used priority rule is first-come, first-served. Other rules include best customers first, high-test profit customer first, emergencies first, and so on. Although each priority rule has merit, it is important to use the priority rule that best supports the overall organization strategy. The priority rule used affects the performance of the waiting line system.
Basic single server model
assumes customers are arriving at Poisson arrival rate with exponential service times, and first come, first serviced queue discipline, and infinite queue length, and infinite calling population. By adding additional resources to single server system either service rate can be increased or arrival rate at each server can be decreased with additional cost overhead. In Single server single-phase system, customer is served once completed. Common examples of single server single-phase are a teller counter in bank, a cashier counter in super market, automated ticketing machine at train station. In single server queuing system wait time or performance of system depends on efficiency of serving person or service machine. Single server single-phase queuing system is most commonly automated system found in our regular life. For example many superstores have replaced manual billing counters with automated machines. Single server multiple-phase system incorporates division of work into phases to keep waiting line moving as completion of whole complete operation might increase wait in a line. Common examples of these systems are automatic or manual car wash, drive through restaurants.
Waiting line models are important to a business because they directly affect customer service perception and the costs of providing service. If system average utilization is low, that suggests the waiting line design is inefficient.
Poor system design can result in over staffing. Long waits suggest a lack of concern by the organization or can be view as a perception of poor service quality. Queuing analysis has changed the way businesses use to run and has increased efficiency and profitability of businesses.
What is the purpose of Inventory in operations management?
Meeting customer demand: Maintaining finished goods inventory allows a company to immediately fill customer demand for product. Failing to maintain an adequate supply of FGI can lead to disappointed potential customers and lost revenue.
Protecting against supply shortages and delivery delays: A supply chain is only as strong as its weakest link, and accessibility to raw materials is sometimes disrupted. That’s why some companies stockpile certain raw materials to protect themselves from disruptions in the supply chain and avoid idling their plants and other facilities.
Separating operations in a process: Inventory of subassemblies or partially processed raw material is often held in various stages throughout a process. Work in process inventory (or WIP) protects an organization when interruptions or breakdowns occur within the process. Maintaining WIP allows other operations to continue even when a failure exists in another part of the process.
Smoothing production requirements and reducing peak period capacity needs: Businesses that produce nonperishable products and experience seasonal customer demand often try to build up inventory during slow periods in anticipation of the high-demand period. This allows the company to maintain thruput levels during peak periods and still meet higher customer demand.
Taking advantage of quantity discounts: Many suppliers offer discounts based on certain quantity breaks because large orders tend to reduce total processing and shipping costs while also allowing suppliers to take advantage of economies of scale in their own production processes.
What are some capacity related decisions?
- How to manage demand
- - Move demand off peak times (of day, month or year), using promotions or differential pricing
- -Create products or services that utilize otherwise idle capacity (complementary products or services)
- -Yield management for fixed capacity facilities, to promote timely ordering of services-Appointment systems
- -Queues (perceived vs actual wait times... using different wait line models (multichannel)). Waiting lines (queues) provide ability to “smooth” demand by temporarily storing customers or inventory. Waiting line analysis most useful where inter-arrival times and service times vary; capacity requirements are not easily determined
- .1. Determine customers’ wait time tolerance
- 2. Estimate period-by-period arrival rates
- 3. By trial and error, determine the number of servers, s, that will reduce expected wait times to tolerable levels for the different arrival rates by period.
- 4. Ensure that space requirements for expected queue can be met.
Keep non-serving employees hidden
- Customers react to perceived rather than actual wait times.
- Informed Wait - let customers know how long they can expect to be waiting.
- Ensure that space requirements for expected queue can be met.
- Occupied Wait Provide customers with distractions
- Pre-service vs in process wait: Involve customers while they are waiting
- Fair Wait Segment customers for priority reasons (i.e. Nexus)
- How much capacity is needed?
- - Think of seasonality and extent of demand variability
- -Think of the cost of additional capacity
- -Think of the impact of making customers wait
- -Think of the growth rate
- How much capacity should be put in one facility?
- - Economies vs diseconomies of scale. Diseconomies of scale are the forces that cause larger firms and governments to produce goods and services at increased per-unit costs. The concept is the opposite of economies of scale.  The rising part of the long-run average cost curve illustrates the effect of diseconomies of scale.
- -Service area
Independent vs Dependent demand
Another way to understand inventory is to separate it into two broad categories: dependent and independent demand. Understanding this difference is important as the entire inventory policy for an item is based on this. Independent demand is demand for a finished product, such as a computer, a bicycle, or a pizza.
Finished goods Items, which are ordered by External Customers or manufactured for stock and sale, are called independent demand items.Independent demands for inventories are based on confirmed Customer orders, forecasts, estimates and past historical data.
Dependent demand, on the other hand, is demand for component parts or subassemblies. Raw materials and component inventories are dependant upon the demand for Finished Goods and hence can be called as Dependant demand inventories.For example, this would be the microchips in the computer, the wheels on the bicycle, or the cheese on the pizza.The two inventory systems we discussed are used to determine order quantities for independent demand. But how do we compute quantities for dependent demand? Quantities for dependent demand are derived from independent demand, which we call the “parent.” For example, we can forecast the amount of automobiles we expect to sell, then we can derive the quantities needed of wheels, tires, braking systems, and other component parts. For example, if a company plans to produce 200 cars in a day, it would need 800 wheels, 400 windshield wipers, and 200 braking systems. The number of wheels, windshield wipers, braking systems, and other component parts is dependent upon the quantity of the independent demand item from which it is derived.
Take the example of a Car. The car as finished goods is an held produced and held in inventory as independent demand item, while the raw materials and components used in the manufacture of the Finished Goods - Car derives its demand from the demand for the Car and hence is characterized as dependant demand inventory.This differentiation is necessary because the inventory management systems and process are different for both categories.
Managing Raw Material Inventories is far more complicated than managing Finished Goods Inventory. This involves analyzing and co-coordinating delivery capacity, lead times and delivery schedules of all raw material suppliers, coupled with the logistical processes and transit timelines involved in transportation and warehousing of raw materials before they are ready to be supplied to the production shop floor. Raw material management also involves periodic review of the inventory holding, inventory counting and audits, followed by detailed analysis of the reports leading to financial and management decisions.
LEAN just in time system (dependent demand system)
The overall philosophy of Lean/JIT is to pursue a system that functions efficiently with minimal levels of inventories, space, and transactions. The main benefits of lean operations systems are:
Inventories should never be used as the solution to fix machine malfunctions. One method that JIT systems uses to minimize inventory is to have suppliers deliver goods directly to the production floor. Overall, carrying low inventories offers many benefits such as less carrying cost, less space needed, and less rework to complete in case of a product recall. Lean systems can also be referred to as "just-in-time" (JIT) systems. The object of a lean system is to create a system that is demand driven, and provides supply based on demand at any given point. Lean systems tend to concentrate on waste reduction and have continuous improvement. There are four building blocks that contribute to the building of a lean system. They are:
- 1. Reduced cost through reduced inventory levels
- 2. Higher Quality
- 3. Reduced Lead Time
- 4. Increased Productivity
- 5. Reduced Amounts of Waste
- Product design consists of standard parts (workers have fewer parts to deal with), modular design (an extension of standard parts, they are separate parts clustered together and treated as one unit), highly capable production systems with quality built in ( JIT requires highly capable production systems), and concurrent engineering (keeping engineering practices shouldn't change to avoid disruptions).
- PROCESS DESIGN
- Process Design consists of small lot sizes (optimal one unit), setup time reductions, manufacturing cells (specialized and effecient production centers, quality improvement, production flexibility, a balanced system (distributing workload evenly among the workstations), little inventory storage, and fail safe methods (incorporate ways to reduce or eliminate the potential for errors during the process). Lean systems have an extremely effective production method.
- PERSONNEL/ORGANIZATIONAL ELEMENTS
- Personnel/organizational elements includes workers as assets ( A JIT philosophy), Cross-trained workers (perform several parts of the process and operate several machines), cost accounting, and leadership/project management( a two-way communication process between managers and workers).
- MANUFACTURING PLANNING AND CONTROLThe last building block is manufacturing planning and control. It includes level loading,(achieving stable, level daily mix schedules) pull systems (work moves on in response to demand from the next stage in the process), visual systems (A kanban card used as authorization to move or work on parts), limited work-in-process, close vendor relationships, reduced transaction processing(logistical, balancing, quality, or change transactions), preventive maintenance and housekeeping(keeping the workplace clean and free of unneeded material. .
Lean operations began as lean manufacturing in the 1900's, and was developed by the Japanese automobile manufacturer, Toyota. The Japanese were sensitive to waste and inefficiency issues. The goal was to eliminate all waste from the process. Waste was identified by them as anything that interfered with the process or simply did not add value. Companies began adopting the lean approach and to do so realized that they had to do major changes in their organization and with their culture in the organization. Lean methods have demand-based operations, flexible operations with rapid changeover capability, effective worker behaviors, and continuous improvement efforts.
- JIT system stands for a Just-In-Time system. It represents the philosophy that includes every aspect of the process from the design to after the sale. JIT is a highly coordinated processing system in which goods move through the system, and services are performed just as they are needed. First, management should decide if JIT is a compatible method for the company. JIT is best used with companies that have repetitive operations and a stable demand. The first step is planning the conversion to JIT. Managers need to be involved in the process and understand the commitment needed. The next step is to begin working only with suppliers who support the JIT system. The biggest obstacles faced are management, worker or supplier disapproval, and also changing the culture of the company.
Material requirements planning
Material requirements planning (MRP) is a production planning, scheduling, and inventory control system used to manage manufacturing processes.
MRP is intended to meet three objectives:
- - Ensure materials are available for production and products are available for delivery to customers
- -Maintain the lowest possible material and product levels in the store
- -Plan manufacturing activities, delivery schedules and purchasing activities
The basic functions of an MRP system include: inventory control, bill of materialprocessing, and elementary scheduling. MRP helps organizations to maintain low inventory levels. It is used to plan manufacturing, purchasing and delivering activities. Companies need to control the types and quantities of materials they purchase, plan which products are to be produced and in what quantities and ensure that they are able to meet current and future customer demand, all at the lowest possible cost. Making a bad decision in any of these areas will make the company lose money.
- MRP is a tool to deal with these problems. It provides answers for several questions:
- What items are required?
- How many are required?
- When are they required?...
PROBLEMS WITH MRP SYSTEMS:
- The integrity of the data. If there are any errors in the inventory data, the bill of materials (commonly referred to as 'BOM') data, or themaster production schedule, then the output data will also be incorrect ("GIGO":Garbage In, Garbage Out). Data integrity is also affected by inaccurate cycle count adjustments, mistakes in receiving input and shipping output, scrap not reported, waste, damage, box count errors, supplier container count errors, production reporting errors, and system issues.
Systems require that the user specify how long it will take for a factory to make a product from its component parts (assuming they are all available). Additionally, the system design also assumes that this "lead time" in manufacturing will be the same each time the item is made, without regard to quantity being made, or other items being made simultaneously in the factory.
A manufacturer may have factories in different cities or even countries. It is not good for an MRP system to say that we do not need to order some material, because we have it plenty thousands of miles away. The overall ERP system needs to be able to organize inventory and needs by individual factory and inter-communicate the needs in order to enable each factory to redistribute components to serve the overall enterprise. This means that other systems in the enterprise need to work properly, both before implementing an MRP system and in the future. For example, systems like variety reduction and engineering, which makes sure that product comes out right first time (without defects), must be in place.
It fails to account for capacity in its calculations. This means it will give results that are impossible to implement due tomanpower, machine or supplier capacity constraints. However this is largely dealt with by MRP II. Generally, MRP II refers to a system with integrated financials. An MRP II system can include finite / infinite capacity planning. But, to be considered a true MRP II system must also include financials. In the MRP II (or MRP2) concept, fluctuations in forecast data are taken into account by including simulation of the master production schedule, thus creating a long-term control. A more general feature of MRP2 is its extension to purchasing, to marketing and to finance (integration of all the functions of the company), ERP has been the next step.
Kanban is a scheduling system for lean and just-in-time (JIT) production.
 Kanban is a system to control the logisticalchain from a production point of view, and is an inventory control system. Kanban was developed by Taiichi Ohno, an industrial engineer at Toyota, as a system to improve and maintain a high level of production. Kanban is one method to achieve JIT.Kanban became an effective tool to support running a production system as a whole, and an excellent way to promote improvement. Problem areas are highlighted by reducing the number of kanban in circulation.[clarification needed] One of the main benefits of kanban is to establish an upper limit to the work in progress inventory, avoiding overloading of the manufacturing system. Other systems with similar effect are for example CONWIP. A systematic study of various configurations of kanban systems, of which CONWIP is an important special case, can be found in Tayur (1993), among other papers.
One key indicator of the success of production scheduling based on demand, pushing, is the ability of the demand-forecast to create such a push. Kanban, by contrast, is part of an approach where the "pull" comes from demand. Re-supply or production is determined according to the actual demand of the customer. In contexts where supply time is lengthy and demand is difficult to forecast, often, the best one can do is to respond quickly to observed demand. This situation is exactly what a kanban system accomplishes, in that it is used as a demand signal that immediately travels through the supply chain. This ensures that intermediate stock held in the supply chain are better managed, and are usually smaller. Where the supply response is not quick enough to meet actual demand fluctuations, thereby causing potential lost sales, stock building may be deemed more appropriate, and is achieved by placing more kanban in the system.Taiichi Ohno stated that, to be effective, kanban must follow strict rules of use. Toyota, for example, has six simple rules, and close monitoring of these rules is a never-ending task, thereby ensuring that the kanban does what is required.
- Toyota's Six Rules1. Later processes picks up the number of items indicated byt he kanban at the earlier process
- 2. earlier processes produces items in the quantity and sequence indicated by the kanban
- 3. No items are made or transported without a Kanban
- 4. Always attach a kanban to the goods
- 5. Defective products are not sent on to the subsequent process. THe result is 100% defect free goods.
- 6. Reducing the number of Kanban increases the sensitivity
An example of a simple kanban system implementation is a "three-bin system" for the supplied parts, where there is no in-house manufacturing. One bin is on the factory floor (the initial demand point), one bin is in the factory store (the inventory control point), and one bin is at the supplier. The bins usually have a removable card containing the product details and other relevant information—the classic kanban card.When the bin on the factory floor is empty (because the parts in it were used up in a manufacturing process), the empty bin and its kanban card are returned to the factory store (the inventory control point). The factory store replaces the empty bin on the factory floor with the full bin from the factory store, which also contains a kanban card. The factory store sends the empty bin with its kanban card to the supplier. The supplier's full product bin, with its kanban card, is delivered to the factory store; the supplier keeps the empty bin. This is the final step in the process. Thus, the process never runs out of product—and could be described as a closed loop, in that it provides the exact amount required, with only one spare bin so there is never oversupply. This 'spare' bin allows for uncertainties in supply, use, and transport in the inventory system. A good kanban system calculates just enough kanban cards for each product. Most factories that use kanban use the coloured board system
For a business that has weekly seasonality, what are three tactics that a firm might use to match capacity with demand?
Pricing: An important factor to consider is the degree of price elasticity; the more the elasticity, the more effective pricing will be in influencing demand patterns. Opportunity cost includes the lost profit stemming from capacity insufficient to meet demand during certain periods and the lost profit of lost demand due to the shift. Examples of pricing are: low rates for weekend stay in a hotel, low fares for night travel of an airline, "early bird special" from a restaurant, and reduced matinee rates offered by a movie theater.
Promotion: The timing of promotion efforts and knowledge of response rates and response patterns will be needed to achieve the desired results. Unlike pricing, there is much less control over the timing of demand but more impact on quantity of the promoted products / services and the sales of their associated ones. There is always the risk that promotion can worsen the condition it was intended to improve.
Back orders: Back orders allow orders to be taken in one period and deliveries promised for a later period. The success of this approach depends on how willing customers are to wait for delivery. The costs associated with back orders are difficult to pin down and include lost sales, annoyed or disappointed customers, and perhaps additional paperwork.
New demand: Developing a demand for a complementary product (e.g., lawn mowers, garden equipment) that makes use of the same production processes achieves a more consistent use of labor, equipment, and facilities. Examples are: Creating new demand for buses at other times (e.g., trips by schools, clubs, and senior citizen groups) would make use of the excess capacity during those slack times; Opening fast food restaurants for breakfast to use their capacities more fully; Using landscaping equipment during the winter months for snow removal.
1.Hire and lay off workers: The extent to which operations are labor intensive determines the impact that changes in the workforce level will have on capacity. Of the cost involved in this option, hiring cost includes recruitment, screening, and training to bring new workers "up to speed." And, quality may suffer. Some savings may occur if workers who have recently been laid off are rehired. Layoff costs include severance pay, the cost of realigning the remaining workforce, potential bad feelings toward the firm on the part of workers who have been laid off, and some loss of morale for workers who are retained (i.e., in spite of company assurance, some workers will believe that in time they too may be laid off). In addition, other factors having impacts on this option include the availability of (in particular, skilled) workers and the contracts of unions.
2. Overtime / slack time: The use of overtime can be especially attractive in dealing seasonal demand peaks by reducing the need to hire and train people who will have to be laid off during the off-season. Moreover, in situations with crews, it is often necessary to use a full crew rather than to hire one or two additional people. It should be noted that some union contractors allow workers to refuse overtime. Some people may not appreciate having to work on short notice or the fluctuations in income. Overtime could also result in lower productivity, poor quality, more accidents, and increased payroll costs. Slack time can result in less efficient use of machines and other fixed assets. Some organizations use slack time for training. It also gives workers time for problem solving and process improvement, while retaining skilled workers.
3. Part-time workers: The use of part-time workers depends on the nature of the work, training and skills needed, and union agreements. It costs less than regular workers in hourly wages and fringe benefits. Unions may regard such workers unfavorably because they typically do not pay union dues and may lessen the power of unions. Contract workers, also called independent contractors, have different pay scales and no benefits. They can be added or subtracted from the workforce with greater ease than regular workers, giving companies greater flexibility in adjusting the size of workforce.
4. Inventories: Inventory can be built up during periods when production capacity exceeds demand and drawn down in periods when demand exceeds capacity. Inventory involves holding or carrying those goods as inventory until they are needed. The cost is tied up that could be invested elsewhere. Additional cost includes insurance, obsolescence, deterioration, spoilage, breakage, and so on. Although services tend not to make use of inventories to alter capacity requirements, a portion of the services can be done during slack periods (e.g., organize the workplace).
5.Subcontracting: Subtracting enables planners to acquire temporary capacity with great flexibility. Factors to consider include availability capacity, relative expertise, quality considerations, cost, and the amount and stability of demand. As an alternative to subcontracting, an organization might consider outsourcing: contracting with another organization to supply some portion of the goods or services on a regular basis.
Organizations that have very expensive capacity, such as capital-intensive operations, have concerns about expanding their capacities. What are two factors that such firms should consider in deciding whether to expand expensive capacity?
ROWING TOO FAST This is a common malady that strikes ambitious and talented entrepreneurs who have built a thriving business that meets a strong demand for a specific set of goods and/or services. Success is wonderful, of course, but rapid growth can sometimes overwhelm the ill-prepared business owner. "Companies growing at hyper-speed sometimes pay a steep price for their success," confirmed Ingram's contributor Bonar Menninger. "According to management experts, controlling fast-track growth and the problems that come with it can be one of the most daunting tasks an entrepreneur will face." This problem most often strikes on the operational end of a business. Demand for a product will outpace production capacity, for example. In such instances, the business often finds that its physical needs have outgrown its present facilities but that its lease agreement or other unanticipated factors hinder its ability to address the problem. "You may sign a five-year lease for a building, and 18 months later you're busting at the seams," one executive told Menninger. "We had to move three times in five years. When we signed our latest lease, we signed a three-year deal. It's a little more expensive, but we can bail if we have to." In other cases, a business may undergo a period of feverish expansion into previously untapped markets, only to find that securing a meaningful share of that market brings them unacceptably low profit margins. Effective research and long range planning can do a lot to relieve the problems often associated with rapid business expansion.
RECORDKEEPING AND OTHER INFRASTRUCTURE NEEDS It is essential for small businesses that are undergoing expansion to establish or update systems for monitoring cash flow, tracking inventories and deliveries, managing finances, tracking human resources information, and myriad other aspects of the rapidly expanding business operation. As one business owner told Nation's Business, "if you double the size of the company, the number of bills you have goes up by a factor of six." Many software programs currently available in the marketplace can help small businesses implement systems designed to address these recordkeeping requirements. In addition, growing enterprises often have to invest in more sophisticated communication systems in order to provide adequate support to various business operations.
EXPANSION CAPITAL Small businesses experiencing growth often require additional financing. Finding expansion capital can be a frustrating experience for the ill-prepared entrepreneur, but for those who plan ahead, it can be far less painful. Businesses should revise their business plan on an annual basis and update marketing strategies accordingly so that you are equipped to secure financing under the most advantageous terms possible.
PERSONNEL ISSUES Growing companies will almost always have to hire new personnel to meet the demands associated with new production, new marketing campaigns, new recordkeeping and administrative requirements, etc. Careful hiring practices are always essential, but they are even more so when a business is engaged in a sensitive period of expansion. As one consultant told Ingram's, "too often, companies spend all their energy on marketing and production plans and ignore developing similar roadmaps for their personnel needs.
CUSTOMER SERVICE Good customer service is often a significant factor in small business success, but ironically it is also one of the first things that tends to fall by the wayside when business growth takes on a hectic flavor. "When the workload increases tremendously, there's a feeling of being overwhelmed," one small business owner admitted to Menninger. "And sometimes you have a hard time getting back to clients in a timely fashion. So the very customer service that caused your growth in the first place becomes difficult to sustain." Under such scenarios, businesses not only have greater difficulty retaining existing clients, but also become less effective at securing new business. A key to minimizing such developments is to maintain adequate staffing levels to ensure that customers receive the attention and service they demand (and deserve).
METAMORPHOSIS OF COMPANY CULTURE As companies grow, entrepreneurs often find it increasingly difficult for them to keep the business grounded on the bedrock values that were instituted in its early days. Owners are ultimately the people that are most responsible for communicating those values to employees. But as staff size increases, markets grow, and deadlines proliferate, that responsibility gradually falls by the wayside and the company culture becomes one that is far different from the one that was in place—and enjoyed—just a few short years ago. Entrepreneurs need to make sure that they stay attentive to their obligations and role in shaping company culture.
CHANGING ROLE OF OWNER "In the early years, from the time you start a business until it stabilizes, your role [as small business owner] is probably handson," said Nelton. "You have few employees; you're doing lots of things yourself. But when a company experiences its first real surge of growth, it's time for you to change what you do. You need to become a CEO—that is, the leader, the strategic thinker, and the planner—and to delegate day-to-day operations to others." Moreover, as businesses grow in size they often encounter problems that increasingly require the experience and knowledge of outside people. Entrepreneurs guiding growing businesses have to be willing to solicit the expertise of accounting and legal experts where necessary, and they have to recognize their shortcomings in other areas that assume increased importance with business expansion.
Statistical Process Control
Statistical Process Control (SPC) is an industry-standard methodology for measuring and controlling quality during the manufacturing process. Quality data in the form of Product or Process measurements are obtained in real-time during manufacturing. This data is then plotted on a graph with pre-determined control limits. Control limits are determined by the capability of the process, whereas specification limits are determined by the client's needs.
Data that falls within the control limits indicates that everything is operating as expected. Any variation within the control limits is likely due to a common cause—the natural variation that is expected as part of the process. If data falls outside of the control limits, this indicates that an assignable cause is likely the source of the product variation, and something within the process should be changed to fix the issue before defects occur.
-scientifically improve productivity-reduce costs
- With real-time SPC you can...
- -Drastically reduce variability and scrap
- -Uncover hidden processes personalities
- -instantly react to process changes
- -make real-time decision on the shop floor
- Measuring the ROI of a Real-Time SPC Solution
- To quantify the return on your SPC investment, start by identifying the main areas of waste and inefficiency at your facility. Common areas of waste include scrap, rework, over inspection, inefficient data collection, incapable machines and/or processes, paper-based quality systems and inefficient lines.
X bar and R bar charts..
n statistical quality control, the and R chart is a type of control chart used to monitorvariables datawhen samples are collected at regular intervals from a business orindustrial process.
The "chart" actually consists of a pair of charts: One to monitor the process standard deviation (as approximated by the sample moving range) and another to monitor the process mean, as is done with the and s and individuals control charts. The and R chart plots the mean value for the quality characteristic across all units in the sample.
X-Bar and R charts draw a control chart for subgroup means and a control chart for subgroup ranges in one graphic. Interpreting both charts together allows you to track both process center and process variation and detect the presence of special causes. Generally, a user focuses on the range portion of the chart first, confirming that the process is in control. Finally, the user focuses on the average chart, looking for special cause there.
MPROVE a process. Common causes are always present and generally attributed to machines, material and time vs. temperature. This normally takes a minor adjustme ent to the process to make the correction and return the process to a normal output. HOWEVER, when making a change to the process, it should always be a MINOR change. If a plot is observed that shows a slight deviation trend upward or downward, the "tweaking" adjustment should be a slight change, and then another observation should be made. Too often people will over-correct by making too big of an adjustment which then causes the process to dramatically shift in the other direction. For that reason, all changes to the process should be SLIGHT and GRADUAL!
The purpose of drawing a control chart is to detect any changes in the process that would be evident by any abnormal points listed on the graph from the data collected. If these points are plotted in "real time", the operator will immediately see that the point is exceeding one of the contol limits, or is heading in that direction, and can make an immediate adjustment. The operator should also record on the chart the cause of the drift, and what was done to correct the problem bringing the process back into a "state of control".
An Xbar & R Control Chart is one that shows both the mean value ( X ), and the range ( R ). The Xbar portion of the chart mainly shows any changes in the mean value of the process, while the R portion shows any changes in the dispersion of the process. This chart is particularly useful in that it shows changes in mean value and dispersion of the process at the same time, making it a very effective method for checking abnormalities within the process; and if charted while in progress, also points out a problem in the production flow in real time mode.
Now that we know how to make a control chart, it is even more important to understand how to interpret them and realize when there is a problem. All processes have some kind of variation, and this process variation can be partitioned into two main components. First, there is natural process variation, frequently called "common cause" or system variation. These are common variations caused by machines, material and the natural flow of the process. Secondly is special cause variation, generally caused by some problem or extraordinary occurrence in the system. It is our job to work at trying to eliminate or minimize both of these types of variation. Below is an example of a few different process variations, and how to recognize a potential problem.
Decoupling inventory vs Pipeline Inventory
Inventory accumulated between two inter-dependent operations as a buffer against breakdowns or unevenness in machine production rates, thus reducing the need for output synchronization. Also called intermediate stock.
Decoupling inventory involves separating inventory within a manufacturing process. This is done so that the inventory associated with one part of a manufacturing process does not slow down the other part of the process -- one portion of a process is not contingent upon the other. The book "Production and Operations Management" provides a fictitious example of an automobile company. The automobile company decouples its inventory so engine assembly, seat assembly and final assembly are separate from one another. This way, if there is any problem or shortage in seat inventory, the final assembly can continue on without any hiccup.
- Inventory goes through many different locations prior to becoming an end product for purchase by a consumer. Products may come from many different countries -- one part of a product may come from China and another part of the same product may come from India, for instance. Inventory that is en route from one location to another is called pipeline inventory because it is in the pipeline on its way to its next stop. It could be on its way from a large distributor to a factory where it is going to be turned into the end product, or it may be on its way from a factory to a local retailer.
- Both pipeline inventory and decoupling inventory are used in efforts to promote efficiency. It takes time to move inventory from point A to point B to point C. Using the ideals associated with pipeline inventory, businesses can calculate measures such as time periods and respective cost figures. Decoupling inventory promotes efficiency by allowing production to continue on, even given an inventory issue. Additionally, both pipeline inventory and decoupling inventory are efforts to improve organization by considering the impact of details. Pipeline inventory accounts for inventory during intermediary stages, and decoupling inventory breaks down and evaluates each manufacturing stage.
- The major distinction between pipeline inventory and decoupling inventory is that pipeline inventory is a type of inventory, whereas decoupling inventory is a method of managing inventory. Pipeline inventory is also inventory that is at many stages of the production process -- from raw materials on a ship to finished products on the way to the retail seller. Decoupling inventory generally occurs at the factory or business facilities. It generally involves materials that are used during the process of building a finished product. Pipeline inventory is applicable in all industries. Even the smallest business, a local retail gas station, for instance, has pipeline inventory that arrives from a local supplier to its store. Decoupling inventory on the other hand, is mainly relevant in industries where the company is turning raw materials into a finished product.