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276 Cards in this Set

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Supply Chain Def.
The entire network of organizations involved in
1. converting raw materials
2. consuming the products and servivces
3. and disposing of the products and services
This definition treatsthe supply chain as a product cradle-to-grave concept, including all value-added activities required to plan, source, make, and deliver products and services that meet customer needs
Emergence and growth of SCM as a dominant pradigm in the operations management system is a value-driven response to the forces such as;
1. Demands for the flexibility of partnership
2. Advances in technology
3. collaborative networks
4. recognition of core competencies
4 major forces that caused the shift
Core Competencies
a unique set of skills that confer a competitive advantage because rival firms cannot easily duplicate them.
The greater value through higher quality and greater efficiency is the effect of;
Focusing on competencies and outsource noncore activities
The ultimate objective of the supply-chain approach is;
the seamless integration of the various supply-chain partners
Integrated capabilities offer value-based benefits which are;
1. A faster response to shift in market demand, enabling an increase in market share or the avoidance of obsolete inventories

2. Improved linkages with supploiers that maximize suppliers' value-added activies.

3. Quick-response manufacturing capable of mass customization and directly driven by actual customer demands.

4. An order fulfillment process that integrates all of a customer's needs and provides service levels that are a competitive strength.
Upstream supply chain involve;
1. production planning
2. suppliers
3. purchasing
4. Inbound logistics
5. raw materials and components inventory management
Upstream supply chain brings all together four major sets of partners.
Downstream supply chain involves;
1. production scheduling
2. sales and distribution
3. outbound logistics
4. warehousing / finished goods inventory management
Supply chains involve many stages of
sourcing, making, and delivery
Sourcing stage of the supply chains is called;
Upstream supply chain
Delivery stage of the supply chain is called;
Downstream supply chain
Mane stages involved in the upstream supply chain are known as;
A firs-tier supplier provides
components and services directly to the firm.
Tier 2 is the supplier to;
Multiple levels making up downstream side of the supplychain are called
Different distribuiors, exporters, importers, channels, etc.
Internal Supply Chain
Coordinating internal activities related to operations, production / manufacturing, procurement, marketing, and logiistics.
External supply chain
linkage between supply network and distributive/customer network
Focus on customers gives the firm;
Effectiveness and values
focus on integration gives the firm;
Efficiency and cost reduction
Prior to 1980, supply chain structure was;
- focusing on optimizing functional management
- uncoordinated internal activities spilit among different organizational departments
- Lack of coordination
1980's SC was characterized by;
- internal integration
- coordination between internal activities
- cross-functional
- shared information among the firm
- shared planning, measurements among processes
Present SC is focusing on;
- external integration
- information shared with customers and suppliers
Utilization of operations accomplished internally
Utilization of operations and items purchased from suppliers
Insourcing advantagesq
1. Control
2. Competition
3. Costs
Insourcing provides the control over the followings;
- Insulates scarce resources
- More direct influence on delivery and quality
- More comprehensive planning and coordinated scheduling
Control advantage of insourcing
Insourcing creates;
- barriers to the entry
- improved market information
Competitive advantage of insourcing
Insourcing provides
- More complete use of resources
- Avoid transaction costs
- Reduce supplier risk premiums
Cost advantage of Insourcing
The reasons to choose outsourcing
1. better cost and quality
2. greater flexiibility
3. enhanced market reputaion
4. easier availability of capacity
5. broader access to technical expertise
better market information
Major disadvantages of insourcing;
- Compatibility
- Competition
- Cost
Insourcing creates (disadvantages) ;
Barriers to exit = inflexibility and slow response to the market shift
Imcompatibility of insourcing cause;
- Diverts attention away from core capabilities and markets
- Breakeven volume and production may rise
- Incompatible strategies and infrastructure
- Increased overhead (operation cost), planning and logistics costs
Spectrum of benefits offered by suppliers consist of;
1. Process/Capability Buys
2. Product/Capacity buys
Product/Capacity Buys from suppliers offer;
- Reduced cost
- Flexibility
- Better quality
- Name recognition
- Excess capacity
Process/Capability Buys from suppliers offer;
- Access to technical expertise - market information
- rationalization
- latest technology/ processes
Forward vertical integration
Acquisition of downstream suppliers or customers.
Downstream insourcing
e.g. TV manufacurer acquire one or two distributors or a logistics service provider.
Backward vertical integration
Acquisition of one or more of its upstream suppliers.
upperstream integration
Efficiency Model
- anticipate demands / forcasting is the first step of the model
e.g. The Limited
Rationale for the anticipatory model
Low cost
Excess/lack of production
Difficulty to anticipate demands
Responsiveness Model
No forecasting involved
First step is to SELL, and respond to the market demand
e.g. DELL: Customer order starts assembly
Purpose of Responsive model
respond quickly to unpredictable demand to maximize service
Manufacturing focus of Responsive model;
Deploy excess buffer capacity
Inventory strategy
deploy significant buffer stock
Lead time focus
Invest in ways to reduce lead time
Approach to choose suppliers
select primarily for speed, flexibility, and quality
Product strategy
Modular design to postpone differentiation
(Mass customization)
Reasons for Global Supply Chain
- Lower Cost
- Superior Quality
- Incentives (Tax, financial incentives)
- Unique product or service
- Increased capacity and availability of supply
- Need to meet the local requirements or demands (To sell products in the market, the local government may reqiure the use of local suppliers. e.g. local content law)
- requirement to fulfill current current marketing commitment (coutertrade)
requirement for a firm to reinvest a portion of its sales to a foreign country by purchasing goods and services from companies in that country.
Challenges of Global SC
- Leadtime
- HIdden Costs (so much longer to get supplies, more inventory to overcome the lag)
- Risks
- Culture
- Language
- Measurement
- Political risks
- Returns and repairs of defective products from foreign suppliers
Centralized Global Sourcing
A central purchasing group manages a few suppliers for each commodity, and these few suppliers provide all the company's requirements worldwide for that commodity.
Centralized Theory holds;
that the best vendor should supply the whole company.
Advantage: Economies of scale, supplier's committment
Regionalized Global Sourcing
purchasing activities are divided within the firm by region of the world. Each regional group is allowed to identify local suppliers and procure items according to their specialized needs.
Regional strategy holds that;
each plant knows its own needs best.
Advantage: Flexibility
The disturbances in the supply chain is caused by;
1. variability and delay in the flow of materials or information
2. Cost/Price fluctuation
3. imcomplete orders
4. forecast inacuracies
5. product/ process designs that fail to recognize supply chain considerations.
Variability and delay create;
uncertainly in the minds of decision makers who then react to triggering events or actions that they must interpret.
(events: a change in quantity, timing, mix or orders)
The disturbances in the SC consist the three elements;
1. cause
2. response
3. effect
Response to the uncertainty surrounding triggering events causes;
responses that are often detrimental to supply chain performance.
Responses are based on
how the firm processes the information from the event, the inventory policies it has in place, its planning and scheduling system, and the types and levels of buffers it uses for coping with these events.
The response of one firm can become a triggering event to another firm in the supply chain.
Effect of the triggering event (Disturbance or delay in SC)can be;
dampened, passed on, or amplified. Excess stock buffer might help the firm to avoid the effect amplified.
A small disturbance generated by a customer produces successively larger disturbances at each upstream stage in SC is called;
Bullwhip Effect
The amplification of variations through the stages of the supply chain.
The reason why small variations in demand at the customer end of the SC can produce massive variations in orders upstream is;
In absence of information, suppliers are likely to overreact to changes in order sizes.
Bullwhip effect is shaped by numerous factors such as;
- impact of planning factors
- the speed or delay with which each stage reacts
- process variability and failures, demand cycles and seasonality, and product design changes and introductions
- Internal focus lacking deep understanding of customers
- Inadequate information systems
- lack of organizational integration leading to local optimization
- ignoring the impact of variability and uncertainties
- poor scheduling and coordination
All of these deficiencies might cause;
delay or disturbances in SC which result in Bullwhip Effect
No measures for response time, lateness, or backorder profile.
No service measures for internal customers.
Inappropriate incentive systems.
Focus on internal operations only.
These are the symptoms of;
Internal focus lacking deep understanding of customers. This lead to the bullwhip effect.
Delays in providing delivery information.
Inaccurate delivery information.
Inadequate linkage among database at different sites.
Use of different systems to do the same function at different locations.
Data trasfer delay.
These are the symptoms of;
Inadequate information systmes that cause bullwhip effect.
Independent and disconnected individual sites.
Incomplete metrics.
Performance measures not tracked or not given attention.
No quantative basis for inventory holding cost assessments.
These are the symptoms of;
Lack of organizational integration leading to local optimization, which cause bullwhip effect.
Supplying divisions schedule deliveried independently.
No system information from multiple supplying divisions.
These are the symptoms of;
Poor scheduling and coordination, that cause bullwhip effect
Tactics for reducing the Bullwhip effect
1. Buffering
2. Postponement
3. Iformation sharing
4. Coordination
The most effective way to excel in attracting customers and keeping them is to;
Provide value.
Seek to improve customers' entire consumption experiences, including all aspects of the customer's product search, purchase, use, and disposal.
Adding Value activities includes;
1. Transformation
2. Problem solving
3. Mediation/Networking
(reduce risk and link customers together)
Product definition
the output of process, including the sum of all its associated goods and service s
One of the value-adding activites from which primary aspects of value come;
(in form, location, time, etc.)
Transforming of raw materials, components to finished goods, transporting to the locations, etc.
Technical support, decision support and consulting are the example of;
Problem solving, one of the the value-adding activities
Mediation/ Networking
One of the value-adding activities that link customers together and reduce risks or pool resources
e.g. Enhanced communication/transactions/ownership transfer
Value Definition
A customer's subjective evaluation, adjusted for cost, of how well a product meets or exceeds expectations.
According to the value equation, a value =
= Customer's evaluation of (benefits/total cost)
Value is
- determined by a customer
- different for different customers
- different at different times
- determined by a customer experience and logic
- involves expectations and perceptions
Product aspects evaluated as value;
1. quality
2. timeliness
3. total cost
Quality which lead to a customer's value is;
how fit a product is for customer use. How well the designed functionality and performance of the entire product-consumption experience meet the customer's specific needs and expectations.
Timeliness that provides value to a customer is;
availability of the product. The degree to which a product is delivered where the customer needs it exactly when the customer needs it.
Total cost is;
the sum of all cost incurred by the customer the customer during the consumption experience. Cost includes acquisition, use, maintenance, and disposal.
Contexts of Customers
1. Customer/End-user
2. Intermediate customer
3. internal customer

All of these customers are concerned with value
Concern to all companies in the supply chain.
Intermediate customer
The firm which is the next distination in the SC
retailers, distributors, manufacturers
Internal customer
the next distination within a firm
Suppliers' concens and value should always be;
Each intermediate and end customer's value and concerns.
what determines the product and also the prime concern to producer is;
End-user's demands and preference.
Producers never forget the end-users
8 primary dimensions of quality
1. Performance
2. Features
3. Reliability
4. Durability
5. Conformance
6. Support
7. Aesthetics(looks and feels)
8. Perceived quality (brands, etc)
the degree to which a product meets or exceeds certain universal operating characteristics.
e.g. cars
traits such as acceleration, handling, speed, and safety
characteristics that supplement basic functions.
total number of options
specific functions that meet a customer's need
a measure of HOW LONG a product performs before it fails.
The probability that a product will malfunction or fail within a certain time period or number of uses.
the degree to which a product meets established standards, that is, specifications.
A measure of product life or the amount of use one gets before a product deteriorates. Durability may be shorter or longer depending on the operating environment.
A measure of the competence of product support in terms of information, maintenace, or repair.
A subjective assessment of a product's look, feel, sonud, taste, or smell. Not an universal measurement, but totally dependent on each customer's preference.
Perceived quality
An assessment of quality based on images, advertising, brand names, the reputation of the firm, or other information that is not directly associated with a product's attributes.
Two operational aspects of Timeliness;
- Speed
- Reliability
Speed as an aspect of timeliness
how quickly activities are excecuted.
Reliability as an aspect of timeliness
A measure of how close an activity's completion time is to its expected completion time.
the amount of time that pases between the beginning and the ending of an activity or a set of activities.
Value tends to be enhanced when;
Lead time and lead time variability are reduced.
Managers should focus on;
reducing average lead time and then on reducing lead time variance.
Lead time categories involve;
1. Product design and development lead time
2. Order lead time
3. procurement lead time
4. production lead time
5. delivery lead time
estimate the customer's experienced order-to-delivery lead time for a product.
Major issue upon OTD
who-the customer, the firm, or the supplier- bear what portions of the total product fulfilment lead time and at what cost.
OTD (equation)
= f(design lead time, order lead time, procurement lead time, production lead time, delievry lead time)
Market orientations:
1. Engineer to order (ETO)
2. Make to order (MTO)
3. Assemble to order (ATO)
4. Make to stock (MTS)
The four categories describe how a firm processes customer orders as well as who bears the cost of lead time.
Two issues of lead time are
absolute speed
and reliability of the time.
Customer is always the one who determines the quality of lead time.
Total profuct fulfillment lead time = Customer experience + THe firm does
Engineer to Order
products require an entirely new design, it is difficult to reduce lead time by carrying inventory. Customer bears entire cost of the total product fulfillment lead time.
- custome-built house
- hand-built bicycle
- highly customized training program
These are examples of;
Make to Order
standard design, but cannot be stored economically. Subject to extensive user customization. All pure services are in essence MTO oerations because services cannot be stored.
- jet airplane
- boats
- a meal at a restaurant
These are examples of;
Assemble to Order
produced in wide varieties by combining standard inventoried components in different ways.
A customer bear the cost of assembly portion of production lead time.
Advantages of ATO
By postponing final assembly operations, manufacturers avoid having to hold large amounts and varieties of finished goods.
Configure to Order
The process of ensuring product integrity in ATO.
e.g. Dell's web-based ordering system flags incomparible module combinations
Make to stock
a seller keeps inventory in stock in order to have the product immediately available for purchase. Used in the anticipatory model since the firm must forecast the demands. Products are standarized, fairly mature products. The firm absorb nearly all of the costs of lead time.
Choice of Delivery lead time by customer = online purchase and store shopping
- Ability of a firm to respond to changes with little cost or time penalty.
- Changes in;
Range: The ability to produce different thinga
Mobility: The ability to change quickly
uniformity: The ability to do the above without increase in cost or loss in volume produced
Not a direct component of value but an important aspects of a firm's ability to deliver value
Time to Market
the total time that a firm takes to conceive, design, test, and ramp up a new or revised product for the market.
Fast to Market
A competitive advantage by getting their new proudcts to market more quickly than their competitors do.
Advantage of FTM
By shortening product development and launch time, FTM firms are able to produce a continuous stream of new product introductions. that capture market share and create greater market awareness.
Fast OTD Fulfillment
Competitive advantage by quickly responding to customer orders for existing products.
Advantages of OTD fulfillment strategy;
customers are willing to pay premium prices to get their purchases sooner, increasing profits for the fast-fulfillment supplier.
Strong relationship between lead time and the other dmensions of value
Reduction in lead time are correlated with
1. increases in quality
2. reductions in inventory
3. improvements in flexbility
4. reductions in cost
Reliable OTD Lead Time
Reliable product delivery is usually of great value to customers when they absorb costs due to delays or early delivery.
Just-in-time manufacturing philosophies have become the norm.
Fed Ex, UPS
The specific methods chosen to improve flexibility should;
reflect how the firm competes.
Strategy should be reflected on the method for flexibility
Enhancing flexibility requires;
cooperation both inside and outside the firm.
Improving flexibility affects;
all elements of value.
flaxibility relates aspects of quality, timeliness, and aspects of cost.
Firms have experienced beneficial effects from enhancing flexibility, including;
1. consistency with shorter product life cycle
2. niche marketing opportunity
3. premium prices for flexibility
4. reductions in lead time
5. reductions in cost
Niche marketing: individualized marketing rather than producing for broad-based markets.
Aspects of cost;
1. Acquisition costs
2. Repair costs
3. maintenance cost
4. operation costs
5. salvage / resale costs
6. disposal costs
Acquisition costs: purchase price

salvage/resale costs: the cost recovered on selling a product
= sales/costs
= Output quantity x Unit price/Input quantity
x Unit cost
= (Output quantity/input quantity)/(unit price/unit cost)
=productivity x price recovery factor
Costs reflect;
operating costs plus profit margin
Waste is
the antithesis of value
Waste exist at two levels;
1. effectiveness (strategic) level = doing the right things

2. efficiency (tactical) level
= doing things right
Waste in effectiveness level is;
any activity that adversely affects the value equation for the customer
Waste in efficiency level it;
anything that causes an excess of minimum amounts of materials, parts, equipment, facilities, labor, and time essential to produce and deliver the desired product and service to the customer.
System of activities using resources so transform inputs to valuable outputs
outputs of processes = products
Major types of business processes involve;
1. strategic planning
2. innovation
3. customer service
4. resource management
5. supply chain
6. performance measurement
Input & Output of Strategic Planning process;
Competitor data, market assessments, internal capability assessments, economic forecasts
Strategic vision, long-term objectives and plans
Input & Output of Innovation process
technological developments, customer needs, production capabiliies
new products, new production technologies
Input & Output of Customer service process
customer orders and requests, complaints, demand forecasts, priorities
entered orders, delivery, commitments, resolved problems
Input & Output of resource management process
strategic objectives, resource costs, availability of existing resources
capacity plans, hiring plans, facility plans
Input & Output of Supply Chain process
Supplier capabilities, raw materials, customer orders, demand forecasts
fulfilled orders, production schedules, goods and services
Input & Outputs of the Performance measurement process
raw information, benchmarks, standards
performance variances, trends
The entire firm can be viewed as;
The processes consist of;
smaller, and more focused subprocesses.
Between every pair of subprocesses, ______must be maintained.
an interface.
Often these interfaces cross departmental boundaries.
Managerial "black holes" are often caused by;
Deficient interfaces between subprocesses within a process.
lost order is often due to the interface problems.
Every process can be described in four different ways, which are;
1. process that should exist
2. process that actually exist
3. process that people think exist
4. process that is documented
Gaps in processes are;
1. Performance gap between Process that should exist and process that actually exits
2. Perception gap between the process that actually exist and the process that people think exists
3. Comunication gap between the process that people think exists and the process that is documented
4. Documentation gap between the process that's documented and the process that actually exists
4 gaps in process description
Gaps between process descriptions cause
- frustration and confusion, since people don't know which process is right.
- Increased Cost
- Increased lead time
- reduced capacity
The operation managers in the value-driven firms focus on;
- reducing waste and enhancing value underlie many of the activities.
- identify the value content of various activities, and reduce activities that do not contribute to value while enhancing the effectiveness and efficiency of activities that directly contribute to value.
5 major rudiments(dimensions) of a process are;
1. activities
2. inputs/outputs/flows
3. structure
4. resources
5. metrics
One of the first steps of process thinking is to;
recognize different types of activities in a process.
6 categories of activieis are;
1. Operation
2. decision
3. transportation
4. inspection
5. delay
6. storage
any activity that intentionally transforms an input.
This is usually the major source of value in OM systems
activities such as when physical change are made to an input, caluculations take place, or information is communicated are called;
a point (activity) in the process where the path that an input follows is determined by a choice r evaluation that someone in the process makes.
any activity that moves an object from one place to another without transforming its other characteristics.
checks or verifies the result of another activities.
delay occurs in an activity;
- when the flow of an object is unintentionally stopped as a result of interference.
- when objects have to wait because other inputs (information or materials) or resources that are needed to execute an operation are not available.
an activity where items are kept under formal control.
Distinctions between storage and delay are
1. storage is formal control system
2. storage is a planned activity while a delay is caused by unplanned factors.
the items acted upon by the process.
- materials
- energy
- people
- capital
the products or outcomes of the process
- goods, services, and information
- have value for customers
Most processes involve two basic flows:
1. information flows (form internal and external links)
2. Physical flows (flows that can be seen and touched)
Sequencing activities, positioning them with resources, and linking them.
a process that can operate only in one specific sequence is subject to;
Strict precedence
Sequencing determines;
the order in which activities are excecuted throughout the entire process.
organizes activities and resources in relationsion to each other.
- Sequential positioning
- parallel positioning
Sequential positioning
places activities in series, one after another.
Parallel positioning
overlaps activities so thatthey can occur simultaneously
The tightness of link between activities results from;
the relationships created through the activitity positioning.
Spatial link
the physical distance between two activities
physical links
tangible connections between related activities
What's used to perform activities.
Tools, manpower, machine capacity, pallets, carts, strage space, racks, bins, database.
Resources and inputs are distinctive in that;
Inputs are what's worked on / what had transformed to the form of outputs. Resources are what's used to perform activities during the activities in process.
Raw materials, components, people in the case of service process are the examples of;
tools, manpower, brainpower, storage spaces are the examples of;
The meaningful bridge established between the customers to be served and the processes that are to serve these customers is called;
Metrics provide;
standards and expectations against which we can assess the performance of a specific activity or a specific process.
Principles that guide the ways that processes are deisgned and operated;
1. Bottleneck activities limit process capacity
2. Variability destroys capacity
3. Structure follows preocess priorities
4. Metrics drive the process
Process Capacity
a rate describing the quantity of output generated per unmit of time.
Process's cycle time
the amount ot time that passes between the output of two successive units.
Maximum Capacity (design capacity)
the largest amount of outpout htat a process can possibl generate.
upper limit rather than a practical level of production.
Actual capacity
the output that a process truly attains in practice.
Always less than the maximimum capacity.
Process's resources;
limit its maximum capacity.
Maximum capacity can be increased by one of the three;
1. physically increase the level of resources in the process
2. change how we do the various activities (reduce the resources requirements per activity)
3. change the entire process by eliminating activities thus freeing up the resources previously consumed by those activities.
The bottleneck
is the activity in the process that has the least capacity, du to the limits on its available resources.
Throughput time
the time needed for a product to pass through the entire process.
The bottleneck activity affects bothe of the aspects of performance;
1. the maximum output of the entire process
2. theminimum throughput time for the process
The first place to invest in the process should be;
Bottleneck activity. Investing in any other activity other than bottleneck would be a waste of time and money becasue increasing the capacity of a nonbottleneck activity does not increase overall output.
Large differences in capacity across sequential activities,
work-in-process (WIP) inventory usually begins to grow, which cause increase in cost, money tied up in the inventory.
THe first victim of insufficient capacity is;
the quality. As inventory grows, more units are susceptible to damage, and problems, in production are not as easily detected.
destroys process capacity.
Variability can exist in;
intput, output, or the process activities.
Managing and responding to variabiliity;
1. reduce it (finding souces of variability in process activities and eliminating or controlling them)
2. buffer it (placing safety stock or buffer inventories before and after highly variable activities)
3. flexibility respond to it. (investing in flexible technologies and cross-training of labor can create processes that quickly react to unplanned situations.
Types of variability
- product variety
- schedule
- quality
- resource availability
- processing speed
- quality of supplies
- delivery of supplies
Structure follows;
process priorities. the sequencing, positionoing, and linking process activities should be closely tied tothe priorities that process managers place on various performance outcomes.
Highest potential output for a process or activity in a process: Short term, ideal conditions
Maximum Capacity
Process Performance Metrics;
-should be significantly nonfinancial in character
- should be simple and visual
- should not necessarily be identical across locations, units, or levels
- should provide the links between strategy and action
- should measure only what is important
- should make their own measurements obsolete
- should be consistent and attuned to the critical customer.
Several steps to ensure that metrics motivate process behaviors that increase customer value;
1. to identify and priotize the customers served by the process
2. to priotize the requirements of these critical customers, while not losing sight of less critical groups.
3. to pick a limited number of critical requiremnets and provide meaningful operational definitions for them.
Questions for improvements;
Why are we doing what we are doing?

Is there a standard process?

Where is the confusion?

Where is the complexity?

Where is the variability?

What activities that are currently done sequentially could be better done in parallel?
drive the process that increase customer value.
Elements of process choice:
1. Process Layout
2. Equipment (Flexibility)
3. Staffing and training (skill levels of workers)
4. scheduling and organization of work (Degree of change)
5. information systems
6. Product design (Variety of products that can be produced)
Process Choice affect;
1. the amount of volume (output) and product variety that can be produced efficiently
2. the capability of the production process
Two dimensions of product-process matrix are;
Y. Product Variety/ Equipment Flexibility/Unit Cost/Customer involvement/worker's skill level

X. Volume of output/ Capital investment/ Degree of machinery use
the manufacturing process characteristics
(Equipment Flexibility High --Low)
1. Project
2. Job Shop
3. Batc
4. Line Flow
5. Continuous Flow
A unique set of activities. A high degree of customization, a wide scope of activities, a high degree of customer involvement, and the use of primarily generalized tools and equipment characterize projects.
Job Shop
The process structure provides high flexibility to produce a variety of products in limited volumes
tends to be high, although not as high as for projects, while volume per product is fairly low.
the process structure is essentially a higher volume job shop, in which the same or similar products are produced repetitively.
ATS often use the process.
The variety of products in a batch process is significantly lower than in a job shop process.
Line Flow
The processes use dedicated resources to produce high volumes of standardized products.
The flow of products is organized around a single (or few) product(s). Workers at line tend to have poor understanding of final product.
MTS model uses Line Flow.
Continuous Flow
produce high volumes with low flexibility.
They work with nondiscrete items that are not divided into their final packages until the very end of production.
Workers' skill leves tend to vary, often high since they are in charge of monitoring and maintenance.
Facility size is large.
Very high volume output with very high speed.
Capital intensive, very standarized and very inflexible.
Service Process Matrix has two dimensions;
1. Labor Intensity
2. Customer involvement
Four types of sevice processes;
1. Service Factory: Low labor intensity and Low customer involvement
2. Mass Service: High labor intensity and low customer involvement
3. Service Shop: Low labor intensity and high customer involvement
4. Professional Service: High labor intensity and high customer involvement
Service Factory
Services with both low customer contact/ customization and a low degree of labor intensity.
(continuous flow in manufacturing process)
- Airline
- trucking companies
- transportation
- hotels
- fastfood
Service Shop
Services with low loabor intensity but high customer contact/customization.
(Job shop process for manufacturing)
Provide various types of customized services for their customers. high capital investment.
- Hospitals
- auto repair service
Mass Service
Low customer contact/ customization in combination with high labor intensity. Transactions are standarlized.
- retail companies
- wholesailing
- school
Processional Service
High customer contact/customization and a high degree of labor intensity.
- doctor
- lawyer
- architects
high skilled workers
Layout Types include;
- process layout
- product layout
- fixed-position layout
Process Layout
The layout group machines, equipment, or people with similar functions or goals together.
- large degree of variety in the jobs
- no standard set of equipment required for each job
- demand for each product is low
- high flexibility
- capacity utilization is high because of the ability to perform multiple jobs on each piece of equipment
- frequent changeovers
- high inventory level necessary to compensate for variable output rates
- long product throughput time
Product Layout
the layout dedicate equipment and workers to specific products on a linear route.
- volume for a particular product are high
- resources can be specialized and designed for a specific product.
- tasks are repetitive.
- faster processing rates
- lower inventories and faster throughput
- fewer changeovers, more efficient
- low flexibility
- low utilization for lower-volume products
Fixed Position Layout
The layout requires the product (due to its extreme weight or size) to remain at its location. Most associated with a project.
- airplane plants
- road construction
Hybrid Layout
the layout include group technology or cellular layouts, which attempt to combine the advantages of process and product layouts by grouping disparate machines into work centers or cells to work on products that have similar shapes and processing requirements.
Process Choice should support the firm's;
strategic differences.
- Low cost as value: choose of continuous flow, line flow, mass service, service factory model.
- Customization, full-service as value: job shop, professional service model.
Break-even analysis
Break-even analysis is a basic technique that allows a comparison of total costs for different process alternatives. This technique takes the fixed costs and variable costs and finds the break-even point for which the cost of two or more processes are equal in cost.
Breakeven analysis is only useful for;
comparing cost but it does not explain the other factors such as differences in quality, control, and efficiency.
Most SCM decision is not solely based on Breakeven Analysis.
a shift from a functional perspective of the business to a process-oriented perspective.
The goal is to identify core processes that add value to the finished product or service and eliminate steps that are inefficient or non-value adding.
- IS process
- SHOULD process flowcharting
graphically portraying the key elements, steps, participants, and materials of a process. This task provides a means of quickly conveying the key elements of a process (IS and SHOULD)
The goal is to reveal boundaries around the process;
1. see the sequence of steps,
2. draw boundaries around the process,
3. identify key players and functional groups within the bounded process,
4. identify handoffs between subprocesses
5. identify supplier/customer interfaces
Planning process include;
1. strategic planning
2. aggregate resource planning
3. detail planning and scheduling
Aggregate plan
the plan that aggregates demand across all products produced at a given plant or location.
The details of the individual product are ignored, as demand estimates a ear out are too difficult to forecast with any degree of accuracy at the individual product level.
Aggregate planning process is used to set the
production rate of the particular facility involved.
Production rate
the number of units per period produced in a manufacturing business
the number of people served (service rate) in a given period in a service firm.
Maximum Capacity
Peak Capacity
- the maximum output rate that a process or facility can achieve under ideal conditions in the short term.
effective capacity
the maximum output that the company or a process can economically sustain under nomal circumstance
the percentage of the available time that equipment, space, or labor is used.
Utilization Peak
= average output rate/ max capacity
Utilization effective =
= average output rate/ effective capacity
Capacity cushion
the difference between the maximum capacity and the effective capacity

= maximum capacity-effective capacity
Two levels of capacity decisions are;
1. strategic
2. Tactical
Strategic capacity
long-term, strategic business unit or divisional level planning.
- focus on market needs
- planning is the effort of top-management
- driven by the production plan and other strategic considerations
- everything is variable.
- constrained only by resource availability and finances
Tactical/Aggregate planning
Level of volume output (or input) per unit of time
Depends on “scarce” resources: skills, equipment, facilities
Can vary with product mix.
Capacity Strategy
several aspects of capacity management including the timing of expansion, the sizing of facilities and the linkage with marketing/business plans.
2 major capacityr planning strategies;
1. wait-and-see strategy
2. Aggressive expansion strategy
Wait-and-see strategy involves;
Postponing firm committments to building expensive, new facilities until after demand has already exceeded the capacity.
Capacity line is always under the demand line.
Aggressive expansion
capacity is built to exceed projected demand in the short term.

Anticipation: the demand will arise
Demand line under the capacity line
Disadvantage: excess capacity remained unused or idle
Demand Smoothing
- effort to reduce or remove the seasonality of a firm's products.
- effort to control the demand, adjusting production rates to respond to changes in demand or building inventories during the low-demand perods for use in high-demand periods is nevessary.
Production Smoothing
aggregate planning focusing to have a smooth or constant production rate, using inventory to abosorb demand fluctuation.
In a tap running water analogy;
the rate of water coming from the tap is analogous to the production rate.
the rate of water flow from the container valve is the demand rate.
The bathtab analogy explains that;
to maintain a proper level of inventory, a good aggregate plan must be devised and followed to ensure that costs are as planned and that customer demand is met.
Deamand smoothing is accomplised through;
counter-seasonal products and advertising and promotional activities to reduce the seasonal variations in demands.
Production planning is generally;
considered in the aggregate planning process after the demand smoothing has taken place
Aggregated planning is;
an integrated planning process that is usually carried out in conjunction with corporate budgeting.
Aggregate Planning Cost
- Inventory Holding Costs
- Workforce Change Costs
- Production Costs
- Backorder and Lost Sales Costs
- Subcontracting Costs
Demand Smoothing
reduce or remove the demand seasonality by controlling demand, adjusting production rates to desopnd to changes in demand. Often done in the strategtic planning.
Production Smoothing
Building inventories during low-demand periods for use in high-demand periods.
- Level Strategy (Build inventory)
- Chase strategy (Change prodction rate)
Planning Horizon is divided into
monthly periods.
- pland and budgets each month
Production Planning processes include;
- labor force adjustments
- overtime
- subcontracting
- layoffs
constrains for production planning involve;
- limit of the number of layoffs
- minimum inventory constraint
Aggregate Unit
a planning unit that is a surrogate for a number of products having the same general production characteristics
Labor aggregated as standard labor hours or FTEs (Fulltime equivalent). This is the application of;
aggregate unit.
= aggregate unit of labor represent the average productive worker
the production rate influence;
the aggregate workforce level, the aggregate production rate, aggregate inventory targets for each of the planning periods.
Aggregate planning costs involve;
Inventory holding costs
production costs
workforce level costs
backorder or lost sales cost
subcontracting costs
Inventory holding costs:
the cost of the capital invested in the inventory, the cost of the warehouses and the activities neede to maintain the inventory in storage, the costs of obsolescece and damage, and so forth.(15-35% of aggregate unit)
production costs
the average labor cost to produce an aggregate unit and any benefits that are a part of the pay package.
workforce level costs
hiring cost,cost related to recruiting, training, etc.
Backorder/lost sales costs
when demand can't be met in the period it is demanded, a firm must either backorder the demand or lose the sales for that demand. "badwill" cost which refer to the cost by not meeting demands.
Subcontracting costs:
when one firm makes products or completes a service for another firm, these costs are generally stated on a per-unit basis. The premium can be significant.
Chase Strategy
varying the production rate such that it matches the demand rate period-by-period.
- economical for firms that incur large per-unit inventory holding costs relative to their cost of changing the production rate.
- use of part-tme seasonal workers who can be hired during peak demand periods and laid off during low demand seasons.
- frequent layoffs and hiring
- overtime / undertime adjustment
- involves matching production to demand so that inventories aren't needed to meet demand in the peak periods.
Level strategy
plans that require the production rate to be kept constant.
- nice regular output pattern
- no changes in the workforce level
- build inventories during the low-demand period for the high-demand period
Constant workforce strategy
a plan to keep the workforce level constant, an option that can be too restrictive and too costly for some companies.
- the firm might change the production rate but by the way that do not require the change in workforce
Subcontracting strategy
The firm chase demand by using subcontractor, while maintaining a level workforce or production rate inside its own walls.
Demand focus of the Aggregate capacity planning options are;
1. counter-cyclical product (complementary product for the low-demand period)
- reduce need for the change in WF, holding inventory, and excess capacity.
- may not fit company's competitive advantage.

2. Marketing efforts
- reduces peaks and valleys
- demand smoothing
- may confuse customers
- can be expensive
Supply focus of the aggregate capacity planning options are;
1. Inventory (Inventory holding)
- less capacity investment
- higher inventory inveestment and more storage space
- level strategy
2. Production rate
- less inventory investment
- Changed in chase strategies
- higher capacity investment
- bear the inventory holding costs
3. Subcontracting
- less capacity investment
- loss of control of quality and deliver reliability
4. overtime/undertime/temporary workers