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159 Cards in this Set

  • Front
  • Back

What is the Operations Function concerned with ?

Operations management is concerned with activities that produce goods and/or deliver services.

1. What are the three core functions almost all organisations have ?

2. Which supporting functions are common ?

1. Most organisations have the following core functions:

- Marketing Function
- Product/Service development Function
- Operations Function

2. Supporting functions which enable the core function to work efficiently are:

- Accounting and Finance Function
- Human Resource Function

What describes the "Transformation model" ?
"Transformed resources" and "Transforming resources" are used as Input resources for the "Transformation Process" that creates Products and/or Services as Output.

What are

1. Input Resources
2. Transformed Resources
3. Transforming Resources

1. Input Resources:
Input Resources are used to transform something or getting transformed themselves into output of products or services. They consists of Transformed Resources and Transforming Resources.

2. Transformed Resources:
The Resources that are transformed/converted during the process into output (Materials, Information, Customers).

3. Transforming Resources:
Resources which are necessary to carry out the transformation. They are NOT Part of the output (Facilities, Staff).

What is meant by "Tangibility" ?

Tangibility is the main characteristics that distinguishes products from services.

What does the term "Processes" mean in the Operations Function ?

In operations it is the mechanism that transforms inputs to outputs. All functions manages processes!

For what does the Operations Function use the idea of the "Input-Transformation-Output" Model ?

The "Input-Transformation-Output" Model can be used by the Oparations Function to analyse businesses on three levels.

1. SUPPLY NETWORK -> Flow between operations!

The network of supplier and customer operations that have relationships with an operation.
- Internal Supplier (One process supplies another process)
- Internal Customer (One process is customer of another process)

2. OPERATION -> Flow between processes!

Operations as an arrangement of interconnected processes. Operations can be distinguished between two meanings
- Operations as Function (Part of production)
- Operations as activity (Managing the process in any function)

3. PROCESS -> Flow between resources (people and facilities)

Operations as an arrangement of interconnected resources.
- End to End Process -> Processes that totally fulfil a defined external customers need
- Business Process Reengineering (Redesign of processes)

What are the four V's of Operations ?

All operations transform input resources into output of products and services, but they differ in a number of ways.

Four are particularly important:

How many products or services are made ?

This is influenced by Repeatability (Extent to which an activity does not vary) and Systemisation (Extent to which standard procedures are made explicit)

How many different types of products or services are made ?

Standardisation is the degree to which processes, products or services are prevented from varying over time.

How much does the level of demand change over time ?

How much of the operations internal working is exposed to its customers ?

Example; Front-Office or Back-Office

What implications do the four V's of Operations have ?

All four dimensions (Volume, Variety, Variation, Visibility) have an implication for the cost of creating the products or services.

High Volume, low Variety, low Variation and low Customer Contact help to keep cost down!

An organisations strategy is the means by which it tries to achieve its purpose.

Which questions adresses the Operations Functions contribution to the organisations strategy ?

The operations Function adresses its contribution to the organisational strategy by the following questions:

1. What strategic role does the operations function play within the organisation ?

2. What are the specific performance objectives of the operations function ?

Why can the Operations Function "make or break" any business ?
1. The operations function is large and represents the bulk of assets and people

2. It makes the business competitive by providing the ability to respond to customers and by developing the capabilities that will keep the business ahead its competitors.

If any operations function cannot produce efficiently, it could break the business by handicapping its performance.

Operations managers are expected to improve over time to support and drive the organisations strategy.

What are the roles (3) of the operations function ?

by putting the organisations strategy into practice.

by development of capabilities that allow the organisation to improve and refine strategic goals

by giving a long-term and unique advantage
(e.g. long-term relationship with customers and suppliers)

What is Hayes and Wheelwright's "FOUR-STAGE" model ?

The FOUR-STAGE model categorises the degree to which operations management has a positive influence on the overall organisations strategy.

It evaluates the role and contribution of the operations function and traces the progression of the operations function from what is largely negative role of stage 1 to the central element of competitive strategy in excellent stage 4 in operations.

STAGE 1 - Internal neutrality :
Lowest level. The operations function is holding back the company from competing efficiently. Improvement by avoiding mistakes

STAGE 2 - External neutrality :
The operations function begins comparing itself with familiar companies and tries to implement "best practice"

STAGE 3 - Internally supportive :
Operations are the best in their market by gaining a clear view of the companies competitive and strategic goals and supporting it by developing appropriate operations resources.

STAGE 4 - Externally supportive:
Similar to stage 3, but operations look into the long-term by forecasting in changes in markets and supply. Operations are innovative, creative and proactive and are driving the companies strategy.

What are the 5 basic PERFORMANCE OBJECTIVES of the operations function ?

There are five basic performance objectives that apply to all kind of businesses:

"Doing things right" signifies conforming consistently to customers expectations.

Externally: Quality enhances the product and service
Internally: Quality decreases cost and increases dependability

"Doing things fast" signifies minimising time between customers requests and receiving them.

Externally: Speed can enhance the value of the product to customer (e.g.. customer service)
Internally: Speed reduces inventories by reducing throughput timing delaying commitment of resources.

"Doing things on time" involves delivering at the time promised to the customer.

Externally: Dependability enhances customer service and avoids complaints
Internally: Dependability saves time and money that would otherwise been taken up in solving reliability problems and gives stability to the operation.

"Changing what you do" signifies the degree to which an operations process can change what, how and when it does things.

Externally: Flexibilty enables the organisation to introduce new products frequently (product flexilility), offer a wide rage of products (mix flexibility), deliver different quantities (volume flexibility) and deliver at different time (delivery flexibility).
Internally: Flexibility can help to speed up response time, save time wasted in changeovers and maintain dependability.

"Doing things cheaply" involves the ability to reduce the cost of the goods produced.

Externally: Low cost allow organisations to reduce their prices in order to gain higher volumes or increase their profitability
Internally: Cost performance is helped by good performance in other performance objectives

What are the benefits of the 5 basic performance objectives ?

The benefits offered by each of the five basic performance objectives can externally provide a COMPETITIVE ADVANTAGE from:

- Superior products that conform to specifications (QUALITY)
- Short lead time (SPEED)
- On-time deliveries (DEPENDABILITY)
- Innovate products, product range, adjusting volume and timing (FLEXIBILITY)
- Low prices (COST)

To archieve a competitive advantage there is no need to excel at all five operations performance objectives. But there my be relationships between the objectives.

What is OPERATIONS STRATEGY concerned with ?

OPERATIONS STRATEGY concerns the pattern of strategic decisions and actions which set the role, objectives and activities of operations.

The process of operations strategy is the method that is used to make the specific "content decisions".

What is meant by TRADE-OFF in terms of operations strategy ?

In operations strategy TRADE-OFFS are the way in which one performance objective is sacrificed to achieve excellence in another.

The idea is that an organisation must decide which operations performance objective has priority in its operations strategy.

1. What are the generic process types in production ? (5)

2. What are the generic service process types ? (3)

1. Generic process types:

- Project (discrete, highly customised prducts)
- Jobbing (high variety of low volumes)
- Batch (Batches of products together were each batch has its own process route)
- Mass (Production in high volume and low variety)
- Continuous (Production in high volume in an endless flow)

2. Generic service process types:

- Professional Services (knowledge based service with high customer contact)
- Service Shops (Medium level of volume and customisation - e.g. banks, insurances)
- Mass Services (Processes with a high number of transactions and a limited number of customisation e.g. call center)

Different operations may adopt different types of processes.

Organisations have often the choice of what type of process to employ. Each choice will have consequences to the operations, especially in terms of cost and flexibility.

The PRODUCT-PROCESS-MATRIX shows the interrelation of cost and flexibility.

Most operations stick to the natural diagonal of the matrix, which is the lowest-cost position for an operation.
1. Why is new PRODUCT-DESIGN important ?

2. What is the nature of new product design ?
1. To be successful organisations have to offer new/updated products of products and services to the market place from time to time. Operations managers should have a close involvement into this development process.

2. All products and services can be considered as having three aspects:

Which is the understanding of the nature, use and value of the service or product - a clear articulation of the outline specification including the nature, use and value of the product against the stages of the product design and the resulting product can be assessed.

A package of "component" products and services that provide those benefits defines in the concept (core and supporting products/services or customer experiences)

Which defines the way in which the component products and services will be created and delivered.

This design activity itself is a process which conforms to the "input-transformation-output" model. Therefore it has to be designed and managed like any other process.

What are the STAGES OF DESIGN - from concept to specification ?

Fully specified designs are made in several key stages:
Stages of design: How can concepts for new product/service designs be generated (CONCEPT GENERATION) ?

The ideas for a new product or service concept can come from sources inside and outside the organisation.

- Ideas from customers
- Listening to customers
- Ideas from competitors
- Ideas from staff
. Ideas from research and development

Stages of design: What is meant with CONCEPT-SCREENING as a stage of design ?

Not all concepts that are generated will necessary be capable of further development. Design need to be selective in which concept generated progresses to the next design stage.

For decision making there are three main broad categories of design criteria:

1. FEASIBILITY of the design option
"Can we do it ?" (Skills, finance,capacity)

2. ACCEPTABILITY of the design option
"Do we want to do it ?" (Is it attractive ?)

3. VULNERABILITY of the design option
"Do we want to take the risk ?"

Applying this criteria reduces the number of options which will move on to the next step, the final design.

Stages of design: What does the stage PRELIMINARY DESIGN mean ?

Having generated an acceptable, feasible and viable product/service concept, the next stage is to create a preliminary design with the objective to have a first attempt at both specifying the component products and services in the package and defining the processes to generate the package.

1. The first task is to SPECIFY THE COMPONENTS OF THE PACKAGE to define exactly whats inside the product or service.

2. The second task is to REDUCE THE DESIGN COMPLEXITY because too complex designs may increase cost.

There are three common approaches to complexity reduction:

- STANDARDISATION (The degree which processes, products/services are prevented from varying over time

- COMMONALITY (The degree to which a range of products/services incorporate identical components)

- MODULARISATION (The use of standardised sub-components of a product/service that can be put together

Stages of design: What happens at the design stage DESIGN EVALUATION AND IMPROVEMENT ?

The purpose of this stage is to take the preliminary design and see wether it can be improved before the product/service is tested in the market.

There are three common techniques:

A technique to ensure that the eventual design actually meets the customers needs

A approach to cost reduction in product design that examines the purpose of the product and its basic functions

A design technique that uses design combinations to test the robustness of the design

Stages of design: What happens at the PROTOTYPING stage ?

Prototyping is frequently in the final stages of design.

This invokes the construction of some kind of mock-up of the new product/service to be tested before committing to a real launch. Here more often virtual reality is used.

What is meant by the term NETWORK PERSPECTIVE ?

A SUPPLY NETWORK PERSPECTIVE means setting an operation in the context of all the other operations which with it interacts - some are suppliers and customers.

(No operation exist in isolation and there has been a tendency for organisations to outsource more of their activities)


1. Supply network

2. Supply side

3. Demand side

4. First tier

5. Second tier

6. Immediate supply network

7. Total supply network


The network of supplier nd customer operations that have relationship with an operation


The chains of suppliers, suppliers suppliers, etc., that provide parts, information or services to an operation


The chains of customers, customers customers, etc. that receive the products and services by an operation


The description applied to suppliers and customers who are in immediate relationship with an operation with NO intermediate operations


The description applied to suppliers and customers who are separated from the operation only by first-tier suppliers and consumers


The suppliers and customers who have direct contact with an operation


All the suppliers and customers who are involved in supply chains that "pass through" an operation

Which important reasons for adopting the SUPPLY NETWORK PERSPECTIVE exists ?

1. It helps an understanding of competititiveness

Immediate customers and immediate suppliers are the main concern to competitively minded companies

2. It helps to identify significant links in the network

The key understanding supply networks lies in identifying the parts of the network which contribute to those performance objectives valued by end customers.

Here we distinguish between DOWNSTREAM that are other supplier in the supply chain between the operation an the end customer


UPSTREAM which are the other operations in a supply chain that are towards the supply side of the operation.

3. it helps to focus on long-term issues

There are times when circumstances render parts of an supply network waker than its adjacent links. A long-term supply network view would be to weigh advantage to be gained from assisting or replacing weak links

The supply network view is useful because it prompts three important and most strategic design decisions.

Which ?

The following design decisions have a particularly significant impact on the strategy of the organisation. They set the context in which all other design decisions are made:

1. How should the network be configured ?

a) How can an operation influence the shape which the network might take

b) Outsourcing! How much of the network should the operation own (vertical integration)?

2. Where should each part of the network owned by the company be located ?

(e.g. new factory near suppliers or customers)

3. What physical capacity should each part of the network owned by the company have at any point in time ?

(long-term capacity management)

All three decisions rely on assumptions regarding the level of future demand.


1. Outsourcing

2. Vertical Integration

3. Location

4. Long-term capacity management

1. Outsourcing

The practice of contracting out to a supplier work previously done within the operation.

2. Vertical Integration

The extent to which an operation chooses to own the network of processes that produces products over services - the term is ofter associated with the "do or buy decision"

3. Location

The geographical position of an operation or process

4. Long-term capacity management

The set of decision that determine the level of physical capacity of an operation in whatever the operation considers to be long-term.

Define "Disintermediation"

The emergence of an operation in a supply chain network that separates two operations that were previously in direct contact.

This is another trend in some supply networks to cut out "the middle men" in the supply network.

What is meant by "Co-opetition"

One approach to thinking about supply networks sees any business as being surrounded by four types of players (suppliers, customers, competitors, complementors).

Complementors enable ones products to be valued more by customers because they can also have the complementary products and services.

Competitors make customers value of the product less, but sometimes be a complement.

ALL the players in the network can be both, fiends and enemies at different times.

What are the reasons for a "vertical integration" decision ?

Vertical integration is the extent to which an organisation owns the (supply) network of which it is apart.

No business does everything that is required for its own production. There are always other businesses that can do certain tasks better.

This is the reason why most companies have always outsourced some of its activities. This is often referred to "business process outsourcing (BPO).

The main reason is often primarily to reduce cost and sometimes a gain in flexibility and quality.

Vertical integration can be defined in terms of three factors. Which ?

Vertical integration can be defined by the following factors:

1. The direction of vertical integration

Should an operation expand by buying one of its suppliers or by buying one of its customers ?

- Supply side expansion of network is backward/upstream vertical integration

- Demand side expansion of the network is forward/downstream vertical integration

2. The extent of vertical integration

How far should an operation take the extent of its vertical integration ?

3. The balance among stages

It is not strictly about the ownership of the network, but rather the exclusivity of the relationship between operations.

A totally balanced network relationship is one where one operation produces only for the next stage in the network and totally satisfies its requirements. Less than full balance allows each operation to sell is output to other companies or to bus in some of its supplies from other companies.

What are the key points that need to be considered in the decision making process of vertical-integration/outsourcing ?

Vertical integration is a strategic decision. There are several effects of outsourcing on the operations performance objective, that companies companies need to consider. 


1. Is the activity of strategic importance ?

2. Does compan...

Vertical integration is a strategic decision. There are several effects of outsourcing on the operations performance objective, that companies companies need to consider.

1. Is the activity of strategic importance ?

2. Does company have specialised knowledge ?

3. Is companies operations superior ?

4. Is significant operations performance improvement likely ?

If any of this questions answers questions is YES, them keeping this activity in-house is advisable.

If all questions can be answered with no, outsourcing can be an option!

What stimuli for a change in the location decision exist ?

1. Changes in the demand for the goods and services


- Labour skills

- Site suitability

2. Changes in supply


- Labour cost

- Land cost

- Energy cost

- Transportation cost

- Community factors (local tax, environmental restrictions...)

What techniques can help in the location decision process ?

Although operations managers must exercise considerable judgement in the choice of alternative locations, there are systematic and quantitative techniques which can help the decision process:

1. Weighted-score method

A technique for comparing the attractiveness of alternative locations that allocates a score to the factors that are significant in the decision and weights each score by the significance of the factor.

2. Centre-of gravity method

A technique that uses the physical analogy of balance to determine geographical location that balances the weighted importance of the other operations with wich the one being located has a direct relationship.

Explain how the "Weighted-score" method works as a technique for the location finding process.

The procedure of the "Weighted-score" method involves


1. Identifying the criteria which will be used to evaluate the various locations.


2. Then establishing the relative importance of each criterion and giving weighting facto...

The procedure of the "Weighted-score" method involves

1. Identifying the criteria which will be used to evaluate the various locations.

2. Then establishing the relative importance of each criterion and giving weighting factors to them.

3. Rating each location according to each criterion.

The scale of the score is arbitrary. For example 0 is the worst possible score and 100 is the best.

Explain how the "Centre-of-gravity" method works as a technique for the location finding process.

The "Centre-of-gravity" method is used to find a location which minimises transportation costs!

It is based on the idea that all possible locations have a value which is the sum of all transportation costs to and from that location.

The best location is represented by what in physically analogy would be the weighted centre of gravity of all points to and from which goods are transported.

How it is calculated see page 38 in the notebook or page 162 in the textbook.

Organisations seek to make best use of the technology in managing business processes. It can be used in all process types (e.g. material processing, customer processing, information processing) to improve both efficiency and effectiveness.

What are the main concerns of the operations function with regard to technology ?

The main concerns of the operations function with regard to technology are:

1. Determining what technology would be best for any given process

2. Making best use of that technology


1. Process technology

2. Indirect process technology

1. Process technology

The machines and devices that create and/or deliver goods and services

2. Indirect process technology

The technology that assists in the management of processes rather than directly contributes to the creation of products and services.

(eg. information technology that schedules activities)

What is meant by the term "Integrating technologies" ?

The distinction between material, information and customer processing technologies is for convenience only because many newer technologies with greater information-processing capabilities process combination of materials, people and customer.

e.g. Electronic point to sale technology records sales and payment transactions as when

1. Operations managers are continually involved in the management of process technology. For decision making in terms of implementing/maintaining a process technology they need to be able to know the following questions:

2. What are the main technology types ?

1. The questions are:

- What does the technology do ?

- How does it do it ?

- What advantage does it give ?

- What constraints does it impose ?

2. The main technology types are

- Materials processing technology

- Information processing technology

- Customer processing technology

What is meant by "Materials processing technology" ?

Technological advantages have meant that the ways in which metals, plastic, fabric and other materials are processed have improved over time.

There is not the precipice material-forming technology, but there are some most common materials materials processing technologies.

1. Computer numerically controlled machine tools (CNC)

Machines that use a computer to control their activities, as opposed to those controlled directly by human intervention

2. Robots

Automatic manipulation of transformed resources whose movement can be programmed

3. Automated guided vehicles (AVGs)

Small indepentenly powered vehicles that move material to and from value adding operations

4. Flexible manufacturing systems (FMSss)

Manufacturing systems that bring together several technologies into a coherent system, such as metal cutting, that are controlled by a single governing computer

5. Computer integrated manufacturing (MCIM)

A term used to describe the integration of computerbased monitoring and control of all aspects of a manufacturing process

Define "information technology" (IF)

Information technology:

Any device - or collection of devices - that collects, manipulates, stores or distributes information, nearly always used to mean computer-based devices.

What is "distributed processing" ?

Distributed processing is a term used in information technology to indicate the use of smaller computer distributed around an operation and linked together so that they can communicate with each other, the opposite of centralised information processing.

Such computer can be linked by Network (LAN) and Ethernet.


1. Network (LAN)

2. Ethernet

1. Network (LAN)

A communications network that operates usually over a limited distance to connect devices.

2. Ethernet

A technology that facilitates local area networks that allows any device attached to a single cable to communicate with any other devices attached to the same cable.

In terms of telecommunications and information technology, define:

1. World Wide Web (WWW)

2. Extranet

3. E-Business

4. E-Commerce

1. World Wide Web (WWW)

The protocols and standards that are used on the internet for formatting, retrieving, storing and displaying information

2. Extranet

Computer networks that link organisations together and connect each organisations internal network

3. E-Business

The use of internet-based technologies either to support existing business processes or to create entirely new business opportunities

4. E-Commerce

The use of the internet to facilitate buying and selling activities.

1. What is Customer-Processing technology used for ?

2. What are the main types of customer-processing technologies ?

1. Customer-Processing technology is being used to give an acceptable level of service while significantly reducing cost to the operations.

2. Common types of Customer-Processing technology are:

a) Active interaction technologies

Customer interacts directly with the technology (i.e. cash machines)

b) Passive interactive technologies

Customer processing technology over which a customer has no, or very limited, control

(ie. moving walkways, cinemas)

c) Hidden technologies

The technology is "aware" of customers but not the other way around

(ie monitoring technologies)

Sometimes interaction with technology is done by intermediaries. What does this mean ?

When customers of an airline check in at the airport, they collect their boarding pass. They may do this at an automatic ticketing machine or they choose an intermediary like airline staff.

Why can customer training in connection with customer processing technologies be necessary ?

If customers are to have direct contact with technology, they must have some idea of how to operate it. Where customers have an active interaction with technology, the limitations of their understanding of the technology can be the main constraint of its use.

What is "Planning and Control" ?

Planning and control are two interrelated terms associated with activities aimed at reconciling the supply from an operation with the demand for its outputs.

Planing and control is concerned with the reconciliation between what the market requires and what operations resources can deliver.

Planning and control activities provide the systems, procedures and decisions which bring together different aspects of supply and demand.

1. What is Planning concerned with ?

2. What is Control concerned with ?

3. What is the difference between both ?

1. Planning is concerned with deciding:

- What activities should take place in the operation ?

- When they should take place ?

- What resources should be allocated ?

2. Control is concerned with:

- Understanding what is actually happening in an operation ?

- Deciding whether there is an significant deviation from what should be happening

- (If there is deviation) Changing resources in order to affect the operations activities.

3. The difference between planning and control

Planning concerns what should happen in the future. Control scopes with changes. The process of monitoring operations actively ans coping with any deviations from the plan; usually involves elements of replanning.


1. Long-term planning and control.

2. Medium-term planning and control

3. Short-term planning and control.

The nature of planning and control activities change over time.

1. Long-term planning and control

In the very long term, operations managers make plans concerned what they intent to do, what resources they need and what objectives they hope to achieve. The emphasis is on planning rather than control, because there is little to control as such.

2. Medium-term planning and control

Medium-term planning and control is more detailed. It looks ahead to assess the overall demand which the operation must meet in a partially disagreed manner.

3. Short-term planning and control

In short-term planning and control, many of the resources will have been set and it will be difficult to make large changes - but short-term interventions are possible, if things are not going to plan. By this time, demand will be assessed on a totally disaggregated basis.

What will operations managers do, if in short-term, things are not going to plan as planned ?

(Planning and control)

In making short-term interventions and changes to the plan, operations managers will be attempting to balance the 5 performance objectives (quality, speed, dependability, flexibility, cost) of their operations an ad hoc basis.

It is unlikely that they will have the time to carry out detailed calculations of the effects of their short-term planning and control decisions on all these objectives, but a general understanding of priorities will form the background of their decision making.

Why does the significance on control increases and planing decreases the closer the time of event lies ?

Explain the volume-variety effect on planning and control

Operations which produce a high variety of products and services in relatively low volume will clearly have customers who require a different set of factors and use processes which have a different set of needs from those operations which create s...

Operations which produce a high variety of products and services in relatively low volume will clearly have customers who require a different set of factors and use processes which have a different set of needs from those operations which create standardised products or services in high volume.

Uncertainty makes planning and control more difficult. Some operations can predict demand with more certainty than others.

Explain the terms:

1. Dependent demand

2. Independent demand

1. Dependent demand

Demand that is relatively predictable because it is derived from other known factor.

The process of demand forecasting is relatively straightforward.

2. Independent demand

Demand that is not obviously or directly dependent on the demand for another product.

Operations will supply demand without having any firm forward visibility of customer orders. Planning and control decisions are based on experiences.

Dependent and independent demand concept are closely related to how operations choose to respond to demand.

Define the following terms:

1. Resource to order

2. Create to order / Make to order

3. Produce to stock

4. Part produce to order

In conditions of dependent demand, an operation will start the process of producing only when it needs to. Each order triggers the planning and control activities to organise their production.

1. Resource to order

Operations that buy in resources AND produce only when they are demanded by specific customers

2. Create to order / Make to order

Operations that produce products only when they are demanded by specific customers.

3. Produce to stock

Operations that produce prior to their being demanded by customers.

4. Part produce to order

Operations that produce work in progress prior to outputs being demanded by customers

This four distinctive ways in which operations can respond to demand are best thought of as a continuum rater being clear cut.

What are "P:D ratios" used for ?

P:D ratio:

A ratio that contrasts

the total length of time customers have to wait between asking for a product or service and receiving it (D)


the total throughput time to produce the product or service (P)

It is another way of characterising the graduation between resource-to-order planning and control and make-to-stock planning and control.

At an resource to order operation D equals P.

Why does P:D ratios are an indicator for the degree of speculation in planning and control ?

Reducing total throughput time (P) will have varying effects on the time the customer has to wait for the demand to be fulfilled.

In resource-to-order operations P equals D. Speeding up any part of P will reduce customers waiting time D.

In produce-to-stock operations, customers would see reduced D time only if the "deliver" part of P were reduced.

For most companies D is smaller than P! How much smaller is important, because it indicates the proportion of the operations activities which is speculative, that is, carried out on the expectation of eventually receiving a firm order for its efforts.

The large P is compares with D, the higher the proportion of speculative activity in the operation and the greater the risk the operation carries.

Resource-to-order reduces the P:D ratio to 1 thereby minimising the risk.

Which interrelated sets of activities need to be untertaken in order to plan and control the volumes and timing of outputs of an operation ? (4)

1. Loading

Allocating work to each stage of an operation (amount)

2. Sequencing

Deciding on the order in which work is to be performed

3. Scheduling

Producing a detailed timetable showing when each work activity should start and end

4. Monitoring and controlling

Checking any deviation from what has been planned and taking corrective action required

What is "Monitoring and controlling" used for in an operation ?

Having created a plan for the operation through loading, sequencing and scheduling, each part of the operation has to be monitored to ensure that planned activities are indeed happening.

Any deviation from the plans can then be rectified through some kind of intervention and probably replanning.

What is meant by:

1. Push control

2. Pull control

1. Push control

A term used in planning and control to indicate that work is being sent forward to workstations as soon as it is finished on the previous workstation.

2. Pull control

A term used in planning an control to indicate that a workstation requests work from previous stations only when required - one of the fundamental principles of "just-in-time" planning and control.

What is "Push and pull control" used in planning and control ?

One element of control is periodic intervention into the activities of the operation. An important decision is how this intervention takes place.

The key distinction between intervention signals which push work through the process within the operation and those which pull work only when it is needed.

What are the consequences push systems of operations activities often occur ?

In a push system of control, activities are scheduled by means of a central system and completed in line with central instructions. Each work centre pushes out work without considering whether the succeeding work centre can make use of it.

As a consequence, middle time, inventory and quest often characterise push systems.

1. What is "Capacity management" concerned with ?

2. How is Capacity management also called ?

1. The demand for the output of an operation usually varies over time. The challenge for an operations manager is how to manage the resources at their disposal to scope with such fluctuations in demand - satisfying customers while meeting organisational objectives.

2. Capacity management is also known as "Aggregate planning and control"

Define "Capacity"


The maximum level of value adding activity that an operation, or process, or facility is capable of over a period of time.

What are the constraints of capacity ?

Many operations operate at below their maximum processing capacity, either because there is insufficient demand or as deliberate policy, so that the operation can respond quickly to every new order.

Often organisations find themselves with some parts of their operation below their capacity while other parts are at their capacity "ceiling".

its the part of the operation that are operating at their capacity ceiling which are the capacity constraint for the whole operation.

What is meant with "Capacity planning and control" ?

Capacity planning and control is the task of setting the effective capacity of the operation so that it can respond to the demands placed upon it. This usually means deciding how the operation should react to fluctuations in demand.

Capacity decisions are being made largely within the constraints of physical capacity limits set by the operations long-term capacity strategy in a shorter time scale.

How is Medium- and Short-term capacity is planned ?

Having established long-term capacity, operations managers must decide how to adjust the capacity of the operation in the medium-term.

This usually involves an assessment of the demand forecast over a period of 2-18 month ahead, during which time is planned output can be varied, for example by changing the number of hours the equipment is used.

Operations managers also have to make short-term capacity adjustments which enable them to flex output for a short period, either on a predicted basis or at short notice.

Define "Aggregate planning and control"

Aggregate planning and control:

A term used to indicate medium-term capacity planning that aggregates different products and services together in order to get a broad view of demand and capacity.

The important characteristics of capacity planning and control is that it is concerned with setting capacity levels over the medium- and short-terms in aggregated terms. That is, it is making overall, broad capacity decisions, but not concerned with all of detail of the individual products and services offered.

The ultimate aggregate measure is money (e.g. revenue per month, number of items bought)

What are the objectives of capacity planning and control ? (7)

The decisions operations managers taken in devising their capacity plans will affect several different aspects of performance:

- Costs

- Revenues

- Working capital

- Quality

- Speed

- Dependability

- Flexibility

Explain the different aspects of performance, operations managers have to take into account while making decisions concerning capacity planning and control ?

1. Costs

Costs will be affected by the balance between capacity and demand. Capacity levels in excess of demand could mean under-utilisation of capacity and therefore high costs.

2. Revenues

Revenues will be affected by the balance between capacity and demand. Capacity equal or higher than demand will ensure demand is satisfied.

3. Working capital

Working capital will be affected if an operation decides to build up finished goods inventory prior to demand. This might allow demand to be satisfied, but the organisation will have to fund it.

4. Quality

Quality of goods and services might be affected by a capacity plan which involves large fluctuations in capacity levels by hiring temporary staff

5. Speed

Speed of response to customer demand would be enhanced, either by build-up of inventories or by deliberate provisions of surplus capacity to avoid queuing

6. Dependability

Dependability of supply will be affected by how close demand levels are to capacity

7. Flexibility

Especially volume flexibility will be enhanced b surplus capacity. If demand and capacity are in balance, the operation will not be able to respond to any unexpected increase in demand.

What are the steps of capacity planning and control ?

The challenge of capacity planning is to determine how to manage capacity over time in response to fluctuations in changes in demand.

This planning involves 3 steps:

1. Measure aggregate demand and capacity

2. Identify alternative capacity plans

3. Choosing the most appropriate plan

Determining what is the most appropriate capacity plan will depend on the objectives that the organisation requires of its operations function.

Capacity plans can affect an organisations cost, revenues, working capital, quality, speed, dependability and flexibility.

Normally demand forecasting is the responsibility of the sales and marketing function. But to some degree forecasting future demand is also important for capacity planning and control.

What are the requirements for the capacity planning and control of future demand ? (3)

1. It is expected in terms which are useful for capacity planning and control.

2. It is as accurate as possible

3. It gives an indication of relative uncertainty

Some reasons of fluctuation in demand are the seasonality of demand, weekly and daily fluctuations.

Which capacity measures exist ?

The main problem with measuring the capacity is the complexity of most operations. Only when the operation is highly standardised and repetitive is capacity ease to define.

The two capacity measures are:

1. Input measure of capacity

2. Output measure of capacity

Almost every operation could use a mixture of both input and output measures, but in practice most choose to use one alone.


1. Design capacity

2. Effective capacity

The theoretical capacity of an operation cannot always be achieved in practice.

1. Design capacity

The capacity of a process or facility as it is designed to be, often greater than the effective capacity.

2. Effective capacity

The useful capacity of a process or operation after maintenance, changeover and other stoppages and loading has been accounted for.

Define in terms of capacity planning and control

1. Utilisation

2. Efficiency

The ratio of the output actually achieved by an operation to its design capacity and the ratio to effective capacity are called utilisation and the efficiency of the plant.

1. Utilisation

The ratio of the actual output from a process or facility to its design capacity:

Utilisation = actual output / design capacity

2. Efficiency

Efficiency = actual output / effective capacity

What is the overall equipment effectiveness (OEE) ?

The overall equipment effectiveness (OEE) is an increasingly popular method of judging the effectiveness of operations equipment.

It is based on three aspects of performance:

- The TIME that equipment is available to operate

- The QUALITY of the product or service it produces

- The SPEED or throughput rate of the equipment


Overal equipement effectiveness is calculated by

OEE = a * q * p

a = Availability rate = total operating time / loading time

q = Quality rate = valuable operating time / net operating time

p = Performance rate = net operating time / total operating time

What three dimensions for a reduction in capacity exist ?

They are needed for the calculation of the Overall Equipment Effectiveness (OEE) calculation.

a) Time losses

Some of the reduction in available capacity of a piece of equipment (or any process) is caused by TIME LOSSES such as set-up time and changeover losses (when the equipment or process is being prepared for its next activity), and breakdown failures when machines are being repaired

b) Speed losses

Some capacity is lost through SPEED LOSSES such as when equipment is fiddling (for example when it is temporarily waiting for work from another process) and when equiptment is being run below its optimum work rate.

c) Quality losses

Some capacity is lost through QUALITY LOSSES (not all processes work error free)

For equipment to operate effectively, it needs to achieve high levels of performance agains all three of these dimensions. Viewed in isolation, there individual metrics are important indicators of plant performance, but the do not give a complete picture of the machines overall effectiveness.

All the losses to the OEE performance can be expresses in terms of units of time - the design cycle time to produce a good part.


With an understanding of both demand and capacity, the next step is to consider the alternative methods of responding to demand fluctuations.

Which "pure" options are available ? (3)

1. Level capacity plan

Ignore the fluctuations and keep the activity constant

2. Chase demand plan

Adjust capacity to reflect the fluctuations in demand

3. Demand management

Attempt to change demand to fit capacity availability

Describe the LEVEL CAPACITY PLAN as one of the alternative methods of responding to demand fluctuations

In a level of capacity plan, the processing capacity is set at a uniform level throughput the planning period, regardless of the fluctuations in forecast demand.

Level capacity plans can achieve the objectives of

- stable employment patterns

- high process utilisation

- usually high productivity with low unit costs

The biggest problem is that decisions have to be taken as to produce for inventory rather for immediate sale. This method is not suitable for perishing products like foods...

Describe the CHASE DEMAND PLAN as one of the alternative methods of responding to demand fluctuations

The CHASE DEMAND PLAN attempts to match capacity closely to the varying levels of forecast demand.

When organisations try to adopt the CHASE DEMAND PLAN as the alternative method of responding to demand fluctuations, which methods of adjusting the capacity exist ? (4)

The CHASE DEMAND PLAN approach requires that capacity is adjusted by some means. There are a number of different methods for achieving this, although they may not all be feasible for all types of businesses.

1. Overtime and Idle time

Often the quickest and most convenient method of adjusting capacity is by varying the number of productive hours worked by the staff in the operation.

2. Varying the size of workforce

If capacity is largely governed by workforce size, one ways to adjust is to adjust the size of the workforce (hire and fire). But costs for recruitment, training and lower productivity should be taken into account.

3. Using part time staff

A variation on the previous strategy is to recruit part-time for less than the working day

4. Sub-contracting

In periods of high demand, an operation might buy capacity from other organisation, called sub-contracting.

What are the most obvious mechanisms to MANAGE DEMAND as the alternative method of responding to demand fluctuations ? (3)

1. Change demand through price

This is more common for products than services.

2. Appropriate advertising

To smooth out off-peak demand fluctuations timed advertising may help.

3. Alternative products and services

This more radical approach can fill periods with low demand by developing products with different demand pattern.

Why are organisations using a mix of the "pure" alternative capacity strategies to respond to demand fluctuations ?

Each of the "pure" plans is applied only where its advantages outweigh its disadvantages.

For many organisations these "pure" approaches do not match their required combinations of competitive and operational objectives.

Most operations managers are required to reduce costs AND inventory at the same time to minimise capital investment get to provide responsive and customer-oriented approach at all times.

For this reason most organisations follow a mixture of the three operations.

Define "Inventory"

Inventory is also known as stock, the stored accumulation of transformed resources in a process ; usually applies to material resources but may also be used for inventories of information, inventories of customers or customers of customers are usually queues.

Why inventories exist ?

Inventories exist because there is a difference in the timing or rate of supply and demand.

If the supply of any item occurred exactly when it was demanded, the item would never be stored. When the rate of supply exceeds the rate of demand, inventory increases; when the rate of demand exceeds the rate of supply, inventory decreases.

So if an operation can match supply and demand rates, it will also succeed in reducing its inventory levels.

What types of inventory exist ? (5)

The reasons for an imbalance between the rates of supply and the rates of demand at different points in any operation lead to different types of inventory:

1. Buffer inventory / Safety inventory

An inventory that compensates for unexpected fluctuations in supply and demand.

2. Cycle inventory

Inventory that occurs when one stage in a process cannot supply all the items it produces simultaneously and so has to build up inventory of one item while it processes others.

(This only results from the need to produce in batches and the amount depends on volume decisions.

3. De-coupling inventory

The inventory that is used to allow work enters or processes to operate independently.

Each batch of work joins a queue, awaiting its turn in the schedule for the next processing stage.

4. Anticipating inventory

Inventory that is accumulated to cope with expected future demand or interruptions in supply -> Production in advance

5. Pipeline inventory

The inventory that exists because material cannot be transported instantaneously (between point of supply and the point of demand.

What are the disadvantages of holding inventory ?

Although inventory plays an important role in many operations performance, there are a number of negative aspects:

- Inventory ties up money

- Inventory occurs storage costs

- Inventory many render obsolete or get damaged

- Inventory incurs administrative and insurance cost

Which types of inventory exist in terms of its position in the transformation process ?

1. Raw material and components

2. Work in progress

3. Finished goods

At each point in the inventory system, operations managers need to manage the day to day tasks of running the system.

What are the main types of decision ?

Orders will be received from internal or external customers; these will be despatched and demand will gradually deplete the inventory.

Operations managers are involved in three major types of decision:

1. How much to order ?

2. When to order ?

3. How to control the system ?

Decisions about how much to order are usually depicted as attempts to balance the costs associated with placing an order with the costs of holding stocks/inventory.

Which costs are directly associated with order size ?

In making a decision on how much to purchase, operations managers must try to identify the costs which will be affected by their decision.

Some costs are directly associated with order size:

1. Cost of placing the order

Preparing order, documentation, payment...

2. Price discount cost

Small orders cost more in terms of price

3. Stock-out costs

Costs if inventory runs out incurred by middle time

4. Working capital costs

Costs of funding inventory (order <-> selling)

5. Storage costs

6. Obsolete costs

7. Operations inefficiency costs

High inventory levels prevents seeing other problems

Some of the costs will decrease as order increased (1-3) while the other costs increase as order size increased.


An inventory profile is a visually representation of the inventory level over time. Every time an order is placed, Q items are ordered. The replenishment order arrived in one batch instantaneously.


Demand for the item is the steadily an...

An inventory profile is a visually representation of the inventory level over time. Every time an order is placed, Q items are ordered. The replenishment order arrived in one batch instantaneously.

Demand for the item is the steadily and predictable at a rate of D units per month. When demand has depleted the stock of the items entirely another order of Q items arrives.

Under this circumstances:

Average inventory = Q / 2

Time interval between deliveries = Q / D

Frequency of delivery = the reciprocal if the time interval = D / Q


The quantity of items to order that supposedly minimises the total costs of inventory management, derived from various EOQ formulae.

EOQ = Economic order quantity


The most common approach t deciding how much of any particular item to order when stock needs replenishing is called Economic order quantity /EOQ.


This attempts to find the best balance between the advantages and disadvantages of holdin...

The most common approach t deciding how much of any particular item to order when stock needs replenishing is called Economic order quantity /EOQ.

This attempts to find the best balance between the advantages and disadvantages of holding stock.

The figure shows two alternative order-quantity policies for an item.

Plan A represented by the big line, involves ordering in quantities of 500 at a time. Demand in this case is running at 1000 units per year.

Plan B uses smaller but more frequent replenishment orders, This time only 100 are ordered at a time, with orders being placed five times as often, but the average inventory plan B is one fifth of that of plan A.

To find out whether either of these plans minimises the total cost of stocking the item, we need information of the TOTAL HOLDING COSTS one input in stock for a period of time (Ch) and the TOTAL ORDERING COSTS (Co).

TOTAL HOLDING COSTS = holding costs per unit * average inventory = Ch * (Q/2)

TOTAL ORDERING COSTS = ordering costs + number of orders per period = Co + (D/Q)

TOTAL COSTS = Ct = ((Ch + Q) /2) + ((Co * D) / Q)


Demand (D) = 1000 units per year

Ordering costs (Co) = 20 per order

Holding costs (Ch) = 1 per item per year

1. Calculate the EOQ

2. Using the EOQ calculate the time between orders

3. Using EOQ calculate the order frequency

1. EOQ


EOQ = (SQRT(2 x 20 x 1000))  / 1 = 200 units


2. Time between orders


EOQ / D = 200 / 1000 = 0,2


3. Order frequency 


D / EOQ = 1000 / 200 = 5 per period


1. EOQ

EOQ = (SQRT(2 x 20 x 1000)) / 1 = 200 units

2. Time between orders

EOQ / D = 200 / 1000 = 0,2

3. Order frequency

D / EOQ = 1000 / 200 = 5 per period

To keep the EOQ-type models relatively straightforward, it was necessary to make assumptions, which are sometimes criticised.

Which are those assumptions ?

- Stability on demand

- The existence of a fixed and identifiable ordering cost

- The cost of stock holding can be expressed by a linear function

- Shortage cost which are identifiable

and so on....

The problem in terms of inventory timing is, that replenishment orders do not arrive instantaneously - there is a lag between the order being placed and its arrival in the inventory.

The timing of a replacement can be calculated.

What are the two important indicators for a reorder that can be calculated ? (2)

1. Re-order point

The point in time at which more items are ordered, usually calculated to ensure that inventory does not run out before the next batch of inventories arrives.

2. Re-order level

The level of inventory at which more items are ordered, usually calculated to ensure that inventories does not run out before the next batch arrives.

To define the Re-order level, it assumes that both the demand and the order lead time are perfectly predictable. This varies in most cases.

Is there a solution for this ?

In this cases it is necessary to make the replenishment order somewhat earlier that it would be in the pure deterministic case.

This is the Buffer (safety) stock!

The earlier the replenishment order is placed, the higher will be the expected level of safety stocks (s)

What approaches for replenishment timing decisions exist ? (2)

1. Continuous review

2. Periodic review

Describe the CONTINUOUS REVIEW approach for the inventory replenishment timing decision ?

The CONTINUOUS REVIEW approach for inventory replenishment timing implements a process that reviews the stock level of each item continuously and then places an order when the stock level reaches the Re-order level.

Although the timing of orders may be irregular, the order size (Q) stays constant and can be set at the Optimum Economic Order Quantity (EOQ)!

Describe the PERIODIC REVIEW approach for the inventory replenishment timing decision ?

This approach sacrifices the use of a fixed order quantity.

Here the PERIODIC REVIEW approach orders at a fixed and regular time interval- The stock level of an item could be found for example at the end of every month and replenished order placed to bring the stock up to a predetermined level.

This level is calculated to cover demand between the replenishment order being placed and the following replenishment order arriving.

How can the optimum time interval for the PERIODIC REVIEW approach for inventory replenishment orders be calculated ?

The interval between placing orders is usually calculated on a deterministic basis and derived from the EOQ.



The interval between placing orders is usually calculated on a deterministic basis and derived from the EOQ.

Which system helps keeping track of inventory levels - especially when using the continuous review approach?

Two-bin and Three-bin systems

Keeping track of inventory levels is especially important in continuous relies approaches to re-ordering.

The simple two-bin system involves storing the r-order point quantity PLUS safety inventory in the second bin and using parts from the first bin for production.

When the first bin empties, it is th signal to order the next re-order quantity.

Sometimes the safety inventory is stored in a third bin, so it is clear when demand is exceeding that which was expected.

Inventory analysis and control:

Explain the ABC inventory control system.

In any inventory which contains more than one stocked item, some items will be more important than others.

One way is to rank the items by usage values (their usage rate multiplied by their individual value).

Items with a particularly high usage value are deemed to warrant the most careful control. Generally a relatively small proportion of the total range of items contained in an inventory will account for a large proportion of the total usage value. This phenomena is known as the "Pareto law", sometimes referred to as the 80/20 rule because typically 80% of an operations sales are accounted for by only 20% of all stocked items.

The ABC inventory control allows inventory managers to classify different types of items.

Class A

Those 20% or of so high usage value items which account for around 80% of the total usage

Class B

Items of medium-usage, usually the next 30% which often accounts for 10% of the total usage.

Class C

Low-usage value items, which comprising around 50% of the total types of items stocked account for about 10% of the total usage.

In connection with Inventory control define:

1. Usage Value

2. Pareto law

3. ABC inventory control

1. Usage Value

This term indicated the quantity of items used or sold multiplied by their value or price

2. Pareto law

A general law found to operate in many situations that indicated that 20% of something causes 80% of something else, often used in inventory management (20% of products produced accounts for 80% of sales value) and improvement activities (20% of types of problems produce 80% of disruption)

3. ABC inventory control

An approach to inventory control that classes inventory by its usage value and varies the approach to managing it accordingly

Define "Supply chain management"

Supply chain management is the management of the interconnection of organisations that relate to each other through upstream and downstream linkages between the processes that produce value to the ultimate consumer in the form of products and services.

Describe the following terms:

1. Supply network

2. Supply chain

3. Supply chain pipeline

1. Supply network

The network of supplier and customer operations that have relationships with an operation

2. Supply chain

A linkage or strand of operations that provide goods and services through to end customers within a supply network. Several supply chains will cross through an individual operation.

3. Supply chain pipeline

Same as supply chain!

What is the objective of supply chain management ?

All supply chain management charges one common objective: to satisfy the end customer.

This means that the objective is to meet the requirements of end customers by supplying appropriate products when they are needed at a competitive cost.

All organisations buy some of their resource inputs from external suppliers. The responsibility for this usually falls upon the purchasing function, which is often part of the operations functions.

What are the activities of the supply chain management here ? (5)

1. Supply chain management

It coordinates all the operations on the supply side and the demand side

2. Purchase and supply management

This deals with the operations interface with supply markets

3. Physical distribution management

Its the activity of supplying immediate customers.

4. Logistics

Logistics is an expression of physical distribution management usually refers to the management of materials and information flow

5. Materials management

Materials management refers to the management of the flow of materials and information through the immediate supplychain

Describe "purchasing" (procurement) and supply management

At the supply end of the business, purchasing buys in materials and services from suppliers. Typically the volume and value of the purchases are increasing as organisations concentrate on their "core tasks".

Purchasing managers provide a vital link between the operation itself and its suppliers. They must understand the requirements of all the processes within the operation and also the capabilities of the suppliers who could potentially provide products and services for the operation.

When the operation requests products or services, purchasing uses its knowledge of the market to identify potential suppliers.

The purchasing function requests for quotations (offers), selects the suppliers and prepares the purchase order. The supplier produce and deliver to the operations.

Purchasing can have a significant impact on operations costs and therefore profits!!!

Most businesses find it best to adopt some kind of supplier scoring or assessment procedures for the supplier selection.

What factors for rating alternative suppliers exist ?

1. Short-term ability so supply

- Range of products provided

- Quality of products

- Responsiveness

- Dependability

- Delivery and volume flexibility

- Total cost

2. Long-term ability to supply

- Potential for innovation

- Ease of doing business

- Willingness to share risks

- Long-term commitment to supply

- Ability to transfer knowledge

- Technical, financial, operations capabilities

Choosing supplies should involve evaluating the relative importance of all these factors using the weighted score scheme!

Describe Single and Multi sourcing

An important decision facing most purchasing managers is whether to source each individual product or service from one or more suppliers.


The practice of obtaining the same one type of input, component or service from a single supplier


The practice of obtaining the same type of input, product, component or service from more than one supplier in order to maintain bargain power or continually supply.

Describe E-procurement

The use of the internet to organise purchasing, this may include identifying potential suppliers and auctions as well as the administrative tasks of issuing orders.

The scope of e-procurement

The influence of the internet on purchasing behaviour is not confined to when the trade actually takes place over the internet. It is also an important source of purchasing information, even if the purchase is actually made by more traditionally methods.

What are the general benefits od E-procurement ?


- provides efficiency improvements an the purchasing process

- reduces the transaction costs

- improves commercial relationships

- opens up the marketplace for more competition

- improves the ability to manage its supply chain more efficiently

Deciding whether to invest in e-procurement applications depends on what is being bought, because e-procurement can be expensive

Which four questions seem to influence the decision inf e-procurement is appropriate ?

1. Is the value of the spend high or low ?

2. Is the product or commodity highly substitutable ?

3. Is there a lot of competition ?

4. How efficient are the internal processes ?

1. What is meant by "Global Sourcing" ?

2. What are the problems of global sourcing ?

1. Global Sourcing

Global Sourcing is the process of identifying, evaluating, negotiating and configuring supply across multiple geographies.

2. Problems of Global Sourcing are:

- Rist of increased complexity and distance need managing carefully.

- High risk of delay

- More difficult communications caused by different language

What are some of the risk factors to be concerned for Global Sourcing decisions ?

- Purchase price

- Transportation cost

- Taxes/Tarriffs

- Supply performance

- Supply and operational risks

Describe "Merchandising"

Merchandising is a term to describe a role in retail operations management that often combines inventory management and purchasing with organising the layout of the shop floor.

What categories of business relationships in the supply chain exist ?

What is a "Traditional market supply relationship" ?

The very opposite from performing an operation in-house is to purchase goods and services from outside in a "pure" market fashion. Each transaction becomes a separate decision. The relationship between buyer and seller can be very short-term.

What are the advantages of the "Traditional market supplier relationship" ?

What are the disadvantages ?

1. Advantages

- They maintain traditional competition between alternative suppliers

- Increased flexibility caused by demand changes

- Innovations can be exploited no matter who they were originated

- They help concentrating on core activities

2. Disadvanatges

- Supply uncertainties

- Choosing who to buy from takes time and effect

Short term relationships can be used on a trial basis for new supply companies.

Define "Virtual operation"

A Virtual Operation performs few, if any, value adding activities itself. Rather it organises a network of supplier operations, seen as ultimate in outsourcing.

The advantage is their flexibility and the fact that the risks of investment in production facilities are far lower than in conventional operations.

Describe "Partnership supply relationships"

Partnership relationships in supply chains are sometimes seen as a compromise between vertical integration on the one hand and the pure market relationship on the other.

Pertner relationships are not only a mixture of vertical integration and market trading.

Suppliers and customers are expected to cooperate, even to the extent of sharing skills and resources, to achieve joint benefits beyond those they could have achieved alone.

What are some factors that influence the degree of a "Partnership supply relationship"

At the heart of the concept of partnerships lies the issue of the closeness of the relationship. Partnerships are close relationships, the degree of which is influenced by a number of factors:

- Sharing success

- Long-term expectations

- Multiple points of contact

- Joint learning

- Few relationships

- Joint coordination

- Joint problem solving

- Trust

Many operations rely on these kinds of close collaborate working relationships to satisfy their customers.

What is customer relationship management (CRM) ?

Customer relationship management (CRM) is a method of learning more about customers needs and behaviours in order to develop stronger relationships.

Although CRM usually depends on information technology it is misleading to see it as a technology - rather it is a process that helps to understand customers needs and develop ways of meeting those needs while maximising profitability.

CRM brings together all the disparate information about customers so as to gain insight into their behaviour and their value to the business.

Customer Relationship Management (CRM) helps to sell products and services more efficiently and increase revenues. How ?

- Providing services and products that are exactly what the customers want

- Retaining existing customers and discover new ones

- Offering better customer services

- Cross selling products more efficiently

What options for supply chain improvement exist ? (4)

1. Information sharing

With information available and shared throughout the chain, it is unlikely that wild fluctuations occur. It is possible to try to transmit information throughout the chain that all operations can monitor true demand.

2. Channel alignment

Channel alignment means that adjustment of scheduling, materials movement, stock levels, pricing and the sales strategies so as to bring all operations in the chain into a line with each other.

3. Operational efficiency

This means the efforts that each operation in the chain can make to reduce its own complexity, reduce the cost of doing businesses with other operations in the chain and reduce throughput time.

4. Supply chain vulnerability

The concept includes the consideration of how the supply chains have to cope with common disruptions such as late deliveries, quality problems, incorrect information....

What is the key principle of LEAN OPERATIONS ?

The key principle of lean operations means moving towards the elimination of all waste in order to develop an operation that is faster, more dependable, produces higher quality products and services and operates at low cost.

The term "Lean operation" is often used interchangeable with "Just-in.time".

Define "Just-In.Time" (JITD)

Just-in-time is a method of planning and control AND an philosophy that aims to meet demand instantaneously with perfect quality and no waste.

At its most basic, JIT can be takes literally:

It means producing goods and services exactly when they are needed - not before they are needed, so that they wait as inventory; nor after they are needed o that it is the customers who have to wait.

In addition to the time based element of JIT the requirements of quality and efficiency are added. JIT describes a state that it help working towards to.

How can the traditional approach of operations to JIT can be graphically shown ?

Using JIT, the items are worked on and then passed directly to the next stage just-in-time. Problems at any stage have very different effects in such a process. Therefore JIT uses the view of exposure of processes to problems can make them more ev...

Using JIT, the items are worked on and then passed directly to the next stage just-in-time. Problems at any stage have very different effects in such a process. Therefore JIT uses the view of exposure of processes to problems can make them more evident and change the "motivation structure" of the whole system.


Just-in-time sacrifices its capacity utilisation. What does that mean ?

When stoppages in the traditional system occur, the (safety-)buffer allow each stage to continue working thus archive high capacity utilisation.

In JIT this stoppage will stop the whole process!

Lean operations can be viewed as a philosophy of operations management. The techniques are just-in-time.

What are the main elements of the lean philosophy ? (3)

1. Eliminate waste

2. Involve everyone (team based approach)

3. Continuous improvement (in small steps to expose and eliminate waste)

Lean operations knows seven forms of waste.

Which are they ?

- Over production

- Waiting time

- Transport

- Process

- Inventory

- Motion

- Defectives

What are the 5S in lean manufacturing ?

1. Sort

Eliminate what is not needed - keep what is needed

2. Straighten

Position things in an easy reachable manner

3. Shine

Keep things clean

4. Standardise

5. Sustain

Develop commitment for keeping standards

5S is a system to reduce waste and optimize productivity through maintaining an orderly workplace and using visual cues to achieve more consistent operational results. Implementation of this method "cleans up" and organizes the workplace basically in its existing configuration, and it is typically the first lean method which organizations implement.

What is the term "Kaizen" used for ?

Kaizen stands for continuous improvement and is part of the lean philosophy.

In terms of planning and control, what system employs Just-in-time (JIT) ?

JIT planning and control is a pull system!

Can JIT be used in service operations ?

Many of the principles and techniques of just in time are also applicable to service settings. Instead of material (inventory), an operation has to deal with queues of customers.

Why is quality control important in an organisation ?

Organisations often fail to deliver the quality that their customers want. If customers are satisfied, they will come back for more or recommend the organisation to others.

There exist two views:

1. The operations view

2. The customers view

Describe the operations view to quality

There is a need to meet a clear specification; ensuring a product or service that conforms to specification is a key operations task. The materials, facilities and processes have been designed and then controlled to ensure that product or service meets the specification using a set of measurable product or service characteristics.

Describe the customers view to quality

One problem with bashing the definition of quality on customers expectations is that an individual customers expectation may be different, because every customer perceive it in different ways.

Describe the quality gaps model.

If the product or service of a product matches customers expectations then perceived quality of the product or service is seen as acceptable.


If that is not the case, a gap between the customers expectations and customers perceptions oc...

If the product or service of a product matches customers expectations then perceived quality of the product or service is seen as acceptable.

If that is not the case, a gap between the customers expectations and customers perceptions occur:

Which gaps can help explaining/diagnosing a perceived quality gap between customers perceptions and expectations ? (4)

The gaps can help diagnosing quality problems. The existence of any of these gaps is a result of a mismatch between customers expectations and perceptions:


Gap 1: The customers specification-operations specifications gap



The gaps can help diagnosing quality problems. The existence of any of these gaps is a result of a mismatch between customers expectations and perceptions:

Gap 1: The customers specification-operations specifications gap

Perceived quality could be poor because there may be a mismatch between the organisations own internal quality specification and the specification expected by the customer.

Gap 2: The concept-specification gap

Perceived quality could be poor because there is a mismatch between the product or service concept and the way organisation has specified the quality internally.

Gap 3: The quality specification-actual quality gap

Perceived quality could be poor because there is a mismatch between the actual quality of the service or product provided by the operation and its internal quality specification.

Gap 4:The actual quality-communicated image gap

Perceived quality could be poor because there is a gap between the organisations external communication or market image and the actual quality of the service or product delivered - marketing sets unachievable expectations.

The QUALITY PLANNING AND CONTROL is used to create products and services that conform to specification.

This is realised by six steps. What are the first 4 ?

Quality planning and control steps:

Stept 1: Define the quality characteristics of the product or service

Step 2: Decide how to measure each characteristic

Stept 3: Set quality standards

Step 4: Control quality against those standards


Quality characteristics:

The various elements within the concept of quality, such as functionality, appearance, reliability, durability, recovery and contact.

Using QUALITY PLANNING AND CONTROL, describe Step 2: "Decide how to measure each characteristics"

To enable to measure the defined characteristics, the general characteristics need to be broken into its constitutend elements.

Operations use two measures to describe quality characteristics:

1. Variables (measurable)

2. Attributes

Using QUALITY PLANNING AND CONTROL, describe Step 3: "Set quality standards"

When managers have identified how any quality characteristic can be measured, they need a quality standard agains which it can be checked.

The quality standard is that level of quality which defines the boundary between acceptable and unacceptable.

Using QUALITY PLANNING AND CONTROL, describe Step 4: "Control quality against those standards"

After setting up appropriate standards, the operation then need to check that the products and services conform to those standards.

As far operations managers are concerned, it involves three decisions:

1. Where should the check take place ?

(Critical control points during production)

2. Check every product and service or take a sample (quality sampling)

There are two types of errors:

Type I error: Those errors which occurs when a decision was made to do something and the situation did not warrant it (e.g. cross a street at red traffic lights)

Type II errors: Those errors which occur when nothing was done to prevent an error (e.g. do nothing even something should have been done)

3. How should the checks be performed ?

In practice most operations will use some form of sampling to check the quality. Two main proctored to adopt are:

a) Statistical process control (SPC)

Monitor during production and distinguish between normal and natural variations and unusual causes of variation.

b) Acceptance sampling

Decide whether to accept a whole batch of products on the basis of a sample. It shows the business willingness to take risk to accept bad batches.

What is Total Quality Management (TQM) ?

TQM is a philosophy about how organisations should set about managing quality. It does not have a fixed list of activities or techniques. Rather it is a wide range of activities, tools and techniques that organisations may find useful to pursuit TQM.

TQM means meeting the expectations of customers, that means seeing things from a customers point of view. This involves the whole organisation in understanding the central importance of customers to its success and even to its survival. Customers are seen not as being external to the organisation but as the most important part of it.

The most powerful aspects to emerge from TQM is the concept of the "Internal Customer" and the "External Customer".

1. Define Internal Customer

2. Define Internal Supplier

3. What are the implications of this ?

1. Intermal Customer

Internal customers are processes or individuals within an operation who are the customers for another internal process or individual operation.

2. Internal Supplier

Internal suppliers are processes or individuals within an operation that supply products or services to other processes or individuals within the operation.

3. Implications

The implication of this is that errors in the service provided within an organisation will eventually affect the product or service which reaches the external customer.


So, one of the best ways to ensure that external customers are satisfied is to establish the idea that every part of the organisation contributes to external customers satisfaction by satisfying its own internal customers!!!!

TQM utilises the concept of the internal supplier and internal customer by stressing that each process is an operation that has a responsibility to manage these internal customer-supplier relationship.

This requires a definition to the requirements. How is this done ?

Organisations do this primarily by defining as clearly as possible what their own and their customers requirements are.

In effect this means defining what constitutes "error-free" service:

- the speed

- the quality

- the dependability

- the flexibility (required by internal customers)

Why is the internal customers concept in TQM useful ?

The internal customer concept is useful because it impacts on the "upstream" parts of the internal supply network. For example, in manufacturing operations the product design department may make an error in the basic concept of a product -> At this stage the error is relatively inexpensive to ciookrect - in later stages its correction will increase cost.

Some Organisations bring a degree of formality to the internal customer concept of TQM by encouraging different parts of the operations to agree to "Service level agreements" (SLA's)

Define them

Service-level agreements (SLA's)

Service level agreements are formal definitions of the dimensions and levels of service that should be provided by one process or operation to another.

Boundaries of responsibility and appropriate performance measures could also be agreed.

Using TQM - what does "Every person in the organisation contributes to quality" ?

Everyone has the ability to impair quality and therefore the ability to improve quality - if only not to make mistakes.

Individuals are expected to bring something positive to the way they perform their jobs. Everyone is capable of improving the way in which they do their own jobs and practically everyone is capable of helping others in the organisation to improve theirs.

The costs of controlling quality may not be small, whether the responsibility lies with each individual or a dedicated quality control department.

It is therefore necessary to examine all the costs and benefits associated with quality.

Using TQM, there are four types of cost to be considered.

Which ?

- Prevention costs

- Appraisal costs

- Internal appraisal costs

- External appraisal costs