Exam 2 Study Guide PDF

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Exam 2

Chapter: 5, 6, 7, 8, 9 – Study guide OBJECTIVES

April 16th (Tuesday)

Chap. 5 (Sales and Operations Planning) 1) Recognize contradicting objectives of sales, manufacturing, and distribution Sales and marketing: it drives money Operations: safety, productivity (more parts for less $$), on-time production Warehousing, distribution: efficient storage (reduce req.), lower logistics cost Finance: increase the value of the firm to the shareholders, allocate financial resources Purchasing: lower material/component cost (economies of scale), inventory turns

2) Define the silo effect and discuss its impacts on the organization.

**** SAID IN CLASS ON THE TEST

It’s when the departments within an organization don’t talk with each other. They just look on what is best for their own department.

3) Explain the objectives and participants of the S&OP process S&OP process include: Sales & Operations Planning    

Finance Corp. Leadership: Financial Plan Sales, Marketing: Forecast, Demand Operations, Production: Capacity Distribution, Warehousing: Inventory

-Demand: (planning) seasonal? how many people need to have on the phone, packages, transportation, how many cellphones, cars, etc to we need to make?

-Supply: (production planning) – How we convert/create value (output/input) - Approaches/techniques for Supply- measuring performance, functions, creating metrics that involves all departments for them to be on the same page etc. *Aggregate Plan (3 -18 months) -> Production Schedule (MPS): Purchasing (MRP) and Rough-cut Capacity Plan *Inventory (3-18 months) 4) Describe typical OM capacity options and categorize these relative to the time horizon

(short-term vs. long-term) 

Inventory Levels: Ex. Capacity on the shelf for future peak periods



Workforce: - Hiring, firing (training costs, low morale) - Production Rate (Overtime / Idle time) - Temp. labor (China), Amazon seasonal, UPS seasonal - Subcontracting / Outsourcing work - Equipment, facilities (capital equipment/new machines, upgrades, additional floor space, etc)

5) Differentiate demand chase and level capacity change strategies

**** SAID IN CLASS ON THE TEST

Demand chase strategy: Ex. Hospitality (Restaurants, etc.), Education, Construction +Production = Demand +Lower Inventory (waste), Lower Inventory Carrying Costs, and all other related benefits

Level strategy: +Ex. If the three month average is 20,000 units of a certain item and there are a total of 56 working days, production can be leveled to 358 units per day + Jobs, satisfaction, no hiring/firing, low variability

6) Describe how yield management can be used to enhance profitability and in which industries it is most effective

**** SAID IN CLASS ON THE TEST

Yield Management is an inventory focused branch of Revenue Management (RM) It is a variable pricing strategy, based on understanding, anticipating and influencing consumer behavior in order to maximize revenue or profits from a fixed, perishable resource. Industries that it’s most effective include: Capital intensive industries (e.g., hotels, car rental, Delta airlines, parking?) Labor (TaskRabbit)? Atlanta

Chap. 6 (Forecasting)

1) Define the objective of forecasting It is the process of estimating the future demand of product. Improve organizational performance— more revenue, more profit, increased customer satisfaction Short term (0 - .5 years): labor scheduling, production scheduling Medium term (.5 - 2 years): sales planning, budget/cash flow Long term (2+ years): capacity (facilities, equipment) planning

2) Justify the importance of forecasting Forecasting is essential to making marketing plans, but so are concerns with budget, overhead and cash flow. Of all of those concerns, forecasting may be the most important because it tells you the future environment in which you may operate.

3) Describe the difference between qualitative and quantitative forecasting methods. Recognize qualitative methods. Qualitative: jury of executive opinion (Delphi), sales force composite, consumer surveys. s. Quantitative: naïve, moving average, exponential smoothing, regression, etc

4) List and define the four components of a time series Trend: Demand can stay the same, or it can rise or fall. (Definition) A Trend is general upward or downward movement of a variable over time (for example: demand, process attributes). Cycle: Long-term upward and downward cyclical moves generally correlate with the business cycle, but the duration of these economic trends is difficult to predict and is therefore generally left to economists. Season: Demand may fluctuate depending on time of the year, for example holidays, weather, or other seasonal events.

Random fluctuation: Many factors affect demand during specific time periods and occur on a random basis.The size of this variation can usually be measured. (Definition) Random Variation is a fluctuation in data that is caused by uncertain or random occurrences. These random changes are generally very short-term, mere bumps and dips on the road up or down a trend line.

5) Interpret the tracking signal for a forecast IF: >+ 3, then it’s a trend

11) List and describe steps in a forecasting approach Approaches to choose from -> accuracy vs. effort (investment?) -> Quantitative base  qualitative expertise      

Identify the Problem. ... Collect Information. ... Perform a Preliminary Analysis. ... Choose the Forecasting Model. ... Data analysis. ... Verify Model Performance.

12) Recognize forecast challenges and their explanations   

Forecasts are wrong Forecast (expected sales) vs. sales/financial plan (desired sales) Forecast sharing (software)

Chap. 7 (Inventory)

1) List and describe types of inventory. Provide examples of each.

2) List and define the functions of inventory (reasons to hold inventory). Contrast why too much inventory is problematic. Why hold inventory?

vs.

Why not hold inventory?

-Uncertainty/ variability

-WASTE

- Economics of scale

- Have supplies – instead of stuff on the shelves

3) Define service level, stockout, safety stock, and lead time. Relate these terms to one another. Service level (fill rate): is the expected probability of not hitting a stock-out during the next replenishment cycle or the probability of not losing sales. Stockout: (out of stock) common sense** Safety stock: (↑ uncertainty / ↑ variability): is simply extra inventory beyond expected demand. Lead time: time it takes to order a product and have it delivered for the costumer. (placement/delivery) 4) List and describe inventory costs including carrying costs, ordering costs, and stockout

costs 

Carrying/Holding costs: these are costs involved with storing inventory before it is sold -Warehousing/storage -Capital -Taxes, insurance, obsolescence, pilferage (more), damage



Ordering costs / Setup Costs: (WCM / LSS SMED, F1 video): essentially costs incurred every time you place an order. ...



Stockout costs: (out of stock) A situation in which the demand or requirement for an item cannot be fulfilled from the current inventory.

5) Contrast a fixed quantity (R) system to a fixed period (P) inventory system Fixed quantity (R) (has 2 decisions) - Always the same quantity** or near -Has 2 decisions (EOQ or ROP)

vs.

Fixed period (P) -consistent timing of order

- Quantity ordered varies based on items still on stock

What HAS HIGHER VARIABILITY?? UPSTREAM OR DOWNSTREAM? **** SAID IN CLASS ON THE TEST - Upstream

6) Conduct and interpret an EOQ analysis, including calculating annual carrying/holding and ordering costs. Formula on exam below:****** Order Quantity (Q) = Target inv. level (T) – on-hand inv. (OH) – existing orders (PO) DO PROBLEMS ON SLIDE 16 WITH THIS FORMULA*****

7) Describe ABC analysis for inventory management and how an organization might apply it to inventory management

(slide 23)**** SIMILAR TABLE ALSO INCLUDED ON EXAM***

8) Justify the need for inventory cycle counting (slide 23) Besides the obvious benefit of eliminating the need to perform a yearly physical count Cycle counting also provides businesses with many benefits, including: Improved operational efficiency. Improved customer service. More accurate inventory records. 9) Define and interpret inventory turnover Times per year all inventory sold off (replaced)** Advantages - -Income (high sales), Negotiation Advantage, Shelf Life, Holding Cost/Carrying Cost vs. Disadvantages: Lost Sales (stock outs), Higher Expenses per unit (economies of scale), Setup Cost/Ordering Cost

Chap. 8 (Supply Chain) 1) Define supply chain management, including its primary focuses. Differentiate from OM. Supply Chain (external/multicompanies) is integration of activities to procure, transform, and deliver goods and services (to create and deliver value). vs. OM (internal/ one firm): manage resources to transform inputs into outputs to create value. The focus is to transform (inputs into outputs).

2) Diagram and describe an example of a supply chain not discussed in class ON EXAM*** -TIERS slide 7

Remember (tier labels created above) –

ON EXAM****************

- TIER I: IS ALWAYS THE MOST FINISED (CLOSEST) TO FINISHED ASSEMBLY LINE. Tier III Tier II Tier I - TIER III: most variability

3) Define the bullwhip effect. Explain how it might be minimized. It creates uncertainty. (Zoran’s fate) -Solution includes: Pull System (Supply Chain: from Customer to Supplier), Kanban, More, Detailed explanation.

4) Define outsourcing. Compare/contrast to offshoring. Outsourcing: outsourcing is about moving internal operations to a third-party. (“outsourcing the work”). vs. Offshoring: Getting/sending stuff overseas. - Offshoring takes advantage of these cost differentials by relocating factories from costly countries to the cheaper economies in order to sell the goods back in the West 5) List and describe reasons to buy (i.e., outsource) and reasons to make (i.e., not outsource) Why Outsource?

vs.

Why not Outsource?

-Low costs (race to the bottom, China vs. India),

- Control, loyalty, innovation

-expertise, demand

-Governor’s garage sale

6) Contrast reasons for having many suppliers versus having few suppliers Many suppliers: higher power to bargain (go with the the lowest cost) easier to negotiate Few Suppliers: can have problems with the supplier, products, defects, become DEPENDENT of the supplier easily (BSA example with MACH)

ortance to the supply chain It has specific modes, carriers, warehousing strategy, r service is one of the most important benefits of good ate has ripple effects up the supply chain, creating a ality service. It is responsible for satisfying customer Logistics management is also important for creating visibility into a company’s supply chain. Advanced transportation management systems (TMS) analyze historical data and track the real-time movement of goods into and out of a business.

8) Relate supply chain to quality, sustainability One advantage is developed through increased brand value due to consumer concern with the environment, but there are other benefits as well. Governments are also putting an increasing focus on sustainability, drafting laws and regulations that businesses must follow to avoid penalties and fines. Proactive companies put themselves in a much better position to avoid regulatory and legal setbacks, setbacks that other companies who are slow to adopt sustainability measures most certainly will encounter.

Chap. 9 A (Lean Thinking) 1) What is lean Manufacturing? - “Way of life” philosophy It is a systematic method for the minimization of waste -------------------------------------------------------------------------------------------------------------------------------------

JIDOKA: means automation (with a human touch) KANBAN: making enough parts to replenish inventory (goes upstream, keeps pulling)**** Heijunka: (after getting all the parts) , you create/plan a schedule to figure out what’s gonna be the mix, how many per hr, etc. Andon: it’s where the human touch comes in effect. It’s a tool/approach to quality of the source. (goes hand in hand with automation).

LEAN MANUFACTURING - CONTINUOUS IMPROVEMENT (Credit to Walter Andrew Shewhart an American physicist, engineer and statistician) and (developed by Dr. Edward Deming)***** -PLAN

-> DO -> CHECK -> ACT

(PDCA)...