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358 Cards in this Set
- Front
- Back
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What are four types of manufacturing inventory?
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-Raw material -Work in process (WIP) -Finished goods and distribution inventories -Maintenance, repair and operating (MRO) supplies |
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____ are purchased items or extracted materials that are converted into components and products during the manufacturing process.
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Raw materials
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____ are the lowest-level components in a bill of material (BOM).
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Raw materials
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Production transforms raw materials into finished products in a series of discrete steps which results in _____ |
WIP inventory
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What are goods in various stages of completion in a production process?
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WIP inventory
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What does WIP include?
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-Raw material that has been released for initial processing -Semifinished stock and components -Completely processed materials awaiting final inspection and acceptance as finished goods inventory |
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What is a product sold by a company as a completed item?
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Finished good or end item
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What supports general operations and maintenance?
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MRO supplies
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What are 5 sub-classifications of manufacturing inventory?
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-Operating -Excess -Inactive -Obsolete -Scrap |
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Any inventory in the system that exceeds the minimum amount necessary to achieve the desired throughput rate at the constraint or that exceeds the minimum amount necessary to achieve the desired due date. Total inventory = productive inventory + protective inventory + __________
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Excess inventory
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Buffers, inventory buffers and return goods are all examples of ______
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Other manufacturing inventory
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Stock that has exceeded consumption, or demand, within a defined period of time or has not been used for a defined period. An asset from an accounting perspective but entails ongoing carrying costs. Often is the direct result of inventory not being used within 12 to 18 months with no foreseeable future use.
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Inactive inventory
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Typically is not used or sold at full value because the products are no longer produced or supported.
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Obsolete inventory
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Material that is outside of specifications and is not practical to rework.
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Scrap inventory
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Quantity of raw materials or semifinished goods requiring further processing, often purposely maintained at a work center to achieve desired throughput.
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Buffer inventory
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Applies to inventory used to protect the throughput of an operation or the schedule from delays in delivery, quality problems, and delivery of incorrect quantities.
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Inventory buffer
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A class of goods handled by reverse logistics.
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Return goods
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What reasons are return goods returned and accepted?
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-Failure to meet customer quality demands -Damaged or defective condition -Over-forecasting of demand -Seasonal nature of demand for inventory -Obsolete inventory -Repair and manufacturing |
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What are some ways return goods can be disposed of?
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-Correct defects -Replace -Return to inventory for resale -Repair or remanufacture (refurbish) for resale -Sale into other markets -Convert to resuable components -Reuse in current form |
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What are three types of aggregate inventory policies? |
-Resolving sales and operational conflicts -Inventory valuation -Performance metrics |
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What type of management is establishing the overall level of inventory desired and implementing controls to achieve this goal? |
Aggregate inventory management |
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What are two types of inventory policies? |
-Aggregate -Item level |
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These policies are associated with materials and operations planning and execution. |
Item-level policies |
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What are some areas in which a manufacturer must make choices regarding business strategy? |
-Manufacturing strategy or production environment -Manufacturing process |
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What are business strategy choices influenced by? |
Product and process design, technology requirements, level of expected demand, product variety and volume, geographic scope of the market, life cycle and environmental cost of purchased materials and customer expectations about order fulfillment speed and location. |
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What are the conflicting objectives that business strategy choices and decisions need to balance? |
-High customer service levels -Efficient plant operations -Minimum inventory investment -Real cost of materials |
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What are some approaches in resolving conflicts? |
-Eliminate wasteful procedures from the production process -Ensure one-piece continuous flow of material -Empower employees -Constraint buffers to ensure full utilization -Just-in-Time delivery of raw materials to factory point of use |
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What do the various approaches in resolving conflicts accomplish? |
-faster throughput -shorter manufacturing lead times -enables company to lessen it's dependence on forecasts & to produce customer orders -reduces amount of inventory needed -lowers production costs |
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____ often is the largest asset on a company's balance sheet. Most companies consider it a short-term current asset. Includes raw materials, WIP, & finished goods owned by the company. |
Inventory |
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____ ____ not included as assets; they are considered expenses. |
MRO supplies |
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Why is it beneficial to value inventory? |
-determine impact of inventory on financial condition of the business -provides info necessary for strategic and policy decisions (i.e. inventory turns and performance metrics) -determining operational approaches to order quantities, safety stock & replenishment |
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What are the 3 most popular cost accumulation methods for inventory valuation in a manufacturing environment? |
-Project -Process -Job order costing |
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What are the 3 costs accumulated in the project, process and job order costing accumulation methods? |
-labor -material -factory overhead |
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___ is an accounting method of assigning valuations based on services performed on a project basis. |
Project costing |
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What type of manufacturing companies tend to use job cost which helps them know the cost accumulation of each different job? |
-Custom engineer-to-order -Make-to-order job shop |
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What type of manufacturing process of a company uses a process costing system, which enables them to capture the cost to process a batch or group of items? |
Flow production |
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What are the types of inventory valuation? |
-Specific identification -average cost -standard cost -actual cost -transfer cost -FIFO -LIFO |
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When a freight cost is added to the acquisition cost. Freight cost can be tracked easily to the item being bought. The resulting cost is listed as an asset on the balance sheet until the item is sold. |
Landed cost |
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___ costs become the cost of goods sold once the item is sold, thus reducing profit in the period sold. |
Acquisition |
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____ organizations carry material inventories which are consumed as operating supplies and not tracked as cost of goods sold. Some provide tangible goods in addition to the service. These parts are carried in inventory as an asset, issued to the job as required, and tracked as cost of goods sold when the service is provided. |
Service |
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A ____ company converts raw material and purchased components into finished goods. Cost of sales includes conversion costs (labor and overhead) and raw materials and component costs of the goods it sells. |
Manufacturing |
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What are 3 types of inventory accounts for a manufacturer? |
-Materials -WIP -Finished goods |
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This type of inventory valuation method keeps track of the units from the beginning inventory and the units purchased, resulting in identification of the purchase cost of each item. Tracking can be done by coding or serial number identification. Best used for expensive items. Can be used to determine actual cost. |
Specific identification method |
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In this type of inventory valuation method, the cost of goods sold and ending inventory are based on the average of the actual costs paid for each unit produced or purchased. It applies to all of the items available for sale during the period. |
Average cost method |
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In this type of cost system, a single value is selected for an inventory item that's reasonable and often based on historical or anticipated costs. Consistently reports the inventory asset and cost of goods sold at the same value. |
Standard cost |
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Type of cost system that can be used when there is a means of tracking the specific cost of each item, to a specific purchase order or production run. |
Actual cost |
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This type of cost system is important in the transfer of goods between sister companies or divisions. |
Transfer cost and price |
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This type of cost system assumes the oldest items in inventory are the first ones issued from inventory. It keeps the total inventory value on the balance sheet close to the current market value in a period of increasing costs. Charges cost of goods sold at the older and lower cost values. |
FIFO |
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This method assumes that the latest items in inventory are the first ones being issued to production or sales. Assigns cost of goods sold based on the most recent cost incurred. Tend to understate the total inventory value on the balance sheet |
LIFO |
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What are 4 aggregate inventory metrics? |
-Inventory turns -Days of supply -Cash-to-cash cycle -Customer service |
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What is a measure of how effectively inventory is being used. = Annual cost of goods sold/ Average inventory in dollars |
Inventory turns |
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What is a desirable ratio for inventory turns and days of supply? |
High inventory turns Low days of supply |
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Companies use ____ to evaluate sales-to-inventory performance - how many days of inventory are being carried to support annual sales. =Inventory on hand/ average daily usage |
Days of supply |
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=Annual sales/ annual calendar days |
Average daily usage |
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Measures the timespan between paying for raw materials and getting paid for the product. =inventory days of supply + days of sales outstanding - days of payables outstanding |
Cash-to-cash cycle |
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What are two types of performance metrics for customer service? |
Operational metrics Customer satisfaction metrics |
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Type of customer service metric that focuses on excellence in meeting customer requirements (i.e. orders shipped on time, low number of back orders, and ordering periods without a stockout). |
Operational metrics |
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Type of customer service metric that focuses on how a supplier supports its customers' business goals and requirements; it can be subjective. Important for aggregate inventory management level (i.e. total cycle time from order placement to dock on customer site, focus on requested receipt date by customer as opposed to commitment date, cycle time to respond to customer request, total deliveries of units compared to RMAs that have occurred because of quality or business processes, or product that has been incorrectly entered and shipped, metrics that support the total customer experience. |
Customer satisfaction metrics |
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What are lot-sizing decision factors? |
-Order qty constraints and modifiers -Inventory carrying cost -Ordering cost |
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What are lot-sizing techniques? |
-Economic order qty (EOQ) -Fixed order qty (FOQ) -Lot for lot -Order n periods of supply -Period order quantity (POQ) |
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What must there be an understanding of when determining the quantity that is consistent with a company's investment and customer service targets? |
Various order quantity constraints and modifiers, inventory carrying costs, and ordering costs |
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What do order quantity constraints provide? |
Upper and lower order quantity limits |
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What is the objective of upper order quantity constraints? |
To control inventory investment and carrying costs. |
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What is the objective of lower order quantity constraints? |
To prevent numerous orders for low-cost items, which can be lead to excessive ordering costs. |
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What do order quantity modifiers enable? |
necessary adjustments to quantities that might be outside the order constraints |
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What are some examples of order quantity modifiers? |
-Adjust quantities to supplier lot-size requirements -Adjust quantities for price breaks -Adjust quantities to cover an entire period's supply -Adjust order quantities for scrap or yield factors |
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Why do constraints take precedence over modifiers? |
They are established first and any order quantity must conform to the constraint. |
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What are different methods that order quantity decisions are based on? |
-Manufacturing environment -Production systems and methods |
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When using an ERP system, a time-phased record is created that permits developing discrete lot sizes supporting which methods? |
-L4L (lot-for-lot) -POQ |
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For project and make-to-order manufacturers, the majority of customer orders will be purchased or manufactured for each order as ___. To account for costs of each order and to minimize residuals, items are obtained only for each order. |
the schedule dictates |
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In lean and repetitive environments, the ___ method makes sense because the theme is to only produce what is needed. |
L4L |
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What are two categories of cost affect order quantity decisions? |
Inventory carrying cost Ordering cost |
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What is the cost of holding inventory? |
Inventory carrying cost |
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What is the cost of placing an order, the cost of receiving and handling, and setup costs as applicable for orders placed internally to manufacturing? |
Ordering cost |
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What are three categories of inventory carrying costs? |
-Opportunity costs -Storage costs (labor & equipment; space) -Risk costs (obsolescence, damage, deterioration caused by spoilage or shelf-life policies, lost and stolen goods, insurance and taxes on inventory. |
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What is also referred to as company's cost of capital? This cost of capital represents the rate of return the company could earn from its best investment opportunities. |
Opportunity cost |
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Inventory carrying cost usually is expressed as a percentage of ______ for a chosen period |
average inventory |
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These costs apply to purchase orders and manufacturing orders: |
Ordering costs |
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What do ordering costs consist of? |
-Costs to prepare and place an order to suppliers or the factory -Setup costs for internal manufacturing -Costs of receiving, handling, and inspection |
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The cost of carrying inventory rises at a ____ rate with order or lot size, while ordering cost decreases with increases in lot size at a ____ rate. |
constant; geometric |
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What assumptions is the EOQ based on? |
-Demand is relatively constant and known -Ordering and inventory carrying costs are constant and known -Replenishment occurs all at once |
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Regardless of demand variability, suppliers receive consistent orders with consistent order quantities but at a variable frequency using this lot-sizing technique. |
FOQ |
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What is the L4L rule characterized by? |
-Items are ordered from suppliers and the factory in the amounts necessary, when they are needed -Order quantities change as requirements change -No unused lot-size inventory is created |
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This lot sizing technique starts with an EOQ calculation. Contrary to the FOQ, the order quantity may vary but the interval between orders remains fixed. The lot size is equal to the net requirements for a given number of periods. It consolidates L4L requirements for a number of periods to reduce ordering and handling costs |
POQ |
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How do you calculate a POQ? |
Total demand in planning horizing/ number of periods in planning horizon = average demand during a period EOQ/ average demand during period = given number of periods for which net requirements will be calculated Add net requirements for these number of periods to determine lot size. |
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1) in general, a quantity of stock planned to be in inventory to protect against fluctuations in demand or supply 2) in the context of master production scheduling, the additional inventory and capacity planned as protection against forecast errors and short-term changes in the backlog. -Used in both demand and supply situations -Applicable in services -carrying extra inventory to achieve desired levels of customer service and is an example of tradeoff between inventory investment and customer service |
Safety stock |
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What are the 2 ways that safety stock that support customer service objectives? |
-Provides an incremental quantity of finished goods to protect against fluctuations in independent customer demand and especially is important in forecasting make-to-stock products at the master production schedule level -Provides an incremental quantity of purchased raw materials and components, which is dependent demand |
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In what areas does safety stock contribute to customer service objectives? |
-Orders shipped on the original committed date -Line items of orders shipped on the original committed dates -Dollar volume shipped on the original committed date -Ordering periods without a stockout -The number of backorders |
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What are 3 safety stock methods? |
-Statistical -Time period -Fixed |
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What is the premise of the statistical safety stock method? |
-Safety stock levels can be determined mathematically -Historical demand is assumed to be a valid indicator of future demand -Deviations of historical demand in past periods -Standard deviation measures the tightness of the variations from the mean -A safety stock value can be derived from the sigma. MAD can be converted into a standard deviation equivalent as well -Calculated by: determining the standard deviation or sigma in physical units; deciding on a customer service level; using a safety table to locate the safety factor for the desired service level; multiplying the sigma by the safety factor |
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This type of safety stock provides an even amount of safety stock, equal to the estimated usage, over a designated time frame. Varies directly with the change in independent or dependent demand. |
Time period safety stock |
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=Forecast monthly usage X safety stock time period |
Time period safety stock |
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This type of safety stock enables the planning of a safety stock quantity for parts that require special oversight. Generally applied when a new part is being phased in or a part is being phased out. |
Fixed safety stock |
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A cost accounting system in which costs are assigned to specific objectives |
Job costing |
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The amount of time an item may be held in inventory before it becomes unusable |
Shelf life |
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A method often associated with the management of inventory risk -- manufacturers and retailers that experience high variability in demand for their products can pool together common inventory components |
Risk pooling |
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A cost system that collects costs historically as they are applied to production and allocates indirect costs to products based on the specific costs and achieved volume of the products |
Actual cost system |
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The target costs of an operation, process, or product including direct material, direct labor, and overhead charges |
Standard costs |
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A quantity of stock planned to be in inventory to protect against fluctuations in demand or supply |
Safety stock |
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Stock designated as in excess of consumption within a defined period or stocks of items that have not been used for a defined period |
Inactive inventory |
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The average of the absolute values of the deviations of observed values from some expected value |
Mean absolute deviation |
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A lot-sizing technique under which the lot size is equal to the net requirements for a given number of periods; for example, weeks into the future |
Period order quantity |
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Inventory items that have met the obsolescence criteria established by the organization |
Obsolete inventory |
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A lot-sizing technique in MRP or inventory management that will always cause planned or actual orders to be generated for a predetermined fixed quantity, or multiples therefore, if net requirements for the period exceed the fixed order quantity |
Fixed order quantity |
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A method of inventory valuation for accounting purposes -- the accounting assumption is that the most recently received in (last in) is the first to be used or sold (first out) for costing purposes, but there is no necessary relationship with the actual physical movement of specific items |
LIFO |
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If carrying costs were adjusted upward for all items, with all other parameters remaining the same, economic order quantities would tend to do which of the following as compared to those for the current period? |
Decrease and remain the same until the carrying cost is revised again |
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What set of manufacturing objectives is balanced? |
High customer service, efficient plant operations, and minimum inventory investment |
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What are the objectives of buffer inventories in a lean or TOC environment? |
Maintain desired throughput |
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Which inventory valuation method will cause asset values to most closely resemble current market value during a period of inflation? |
FIFO |
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Adding safety lead time when demand is relatively continuous has the same effect as which of the following? |
Increasing the level of inventory |
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Excess inventories are caused by |
Overproducing or buying more than needed |
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Manufacturing inventories that typically can be found in both conventional job shop and lean environments are |
WIP |
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Which of the following inventory types most likely requires safety stock in a process environment? |
Raw materials |
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A higher finished goods turns means a |
smaller risk of obsolescence |
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What are the different order review methods or ordering systems? |
To help determine purchase order and work order schedules and quantities applicable to the types of inventory they manage |
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What are the 2 kinds of demand inventories reflect? |
Dependent and independent |
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What are independent demand items? |
Items forecasted or ordered by customers |
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What are dependent demand items? |
Planned orders based on the BOM structure for parent items |
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Are MRO supplies scheduled separately or in conjunction with independent or dependent demand items? |
Separately |
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The inventory method that places an order for a lot whenever the quantity on hand is reduced to a predetermined level known as the order point. |
Order point system |
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What are the uses for order point system? |
-For independent demand items when demand is likely to be stable and continuous -For dependent demand items such as raw materials when demand is stable and continuous -Not for high-value class A items (using ABC) because of inventory costs -For limiting lot sizes when there are constraints on shipping and storage capacity |
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A type of independent demand management model in which an order is placed every n time units. The order quantity is variable and essentially replaces items consumed during the current time period. |
Periodic review system or the fixed-interval order system |
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What is the formula for determining the quantity to order using the PRS? |
Q = T - I Quantity to order = Q Target inventory level = T I = inventory on hand |
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In what ways is the PRS (periodic review system) advantageous? |
-Receiving deliveries of many different items from one source at one time is economical -Tracking and posting transactions of many small issues from inventory is expensive -It's safe to assume that sufficient inventory has been ordered to last until the next review interval -Items have a limited shelf life -Ordering costs are low; ordering once a week or month is not a cost issue |
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What are 2 systems used to replenish both independent and dependent demand? |
VMI and consignment inventory |
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What type of inventory occurs when a supplier provides a customer with inventory for use but retains ownership of the product until it's used or sold? |
Consignment inventory |
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What is VMI? |
Vendor-managed inventory |
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This type of planning is used for the reverse flow of products and components through the supply chain |
Reverse logistics planning |
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What are the key processes in reverse logistics planning? |
-Return goods handling -Repair -Remanufacture -Recycling |
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In what ways is reverse logistics planning similar to normal manufacturing? |
-Efficient operations require demand forecasting and advanced planning -Material requirements need to be planned in advance of need -Labor and equipment are limited and need to be offset for lead time. -Capacity usually is limited -Data required for repair and remanufacturing planning and control include BOMs, routing files, inventory status information, an work-=center capacity |
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In what ways is reverse logistics planning different from normal manufacturing? |
-Fully functional components can be obtained through repair, especially if repair is more economical than purchasing a new component -Need for material, labor, machines and set of operations are probabilistic, as exact requirements aren't known until inspection determines the extent of repair needed -Inspection may show that the end item is irreparable, uneconomical to repair, or can be returned to service without repair. |
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What is the job of MRP? |
To plan the release of orders to purchase, make, and assemble components of dependent demand items which go into independent demand items. |
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What type of planning is applicable to service activities of manufacturers as well as service industry companies? It also does the following: -Determines materials (dependent demand) needed to meet master service schedule due dates -Determines labor (dependent demand) needed to meet master service schedule due dates -Offsets planned order releases for materials based on purchasing and delivery lead times -Creates work schedules, taking into account labor requirements and service due dates -Makes recommendations for rescheduling when due dates can't be met |
Service requirements planning |
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Where the order point is based on looking at the quantity on hand. It assumes that min and max levels have been established. When the min is reached, inventory is replenished to the max level. Applicable to relatively low-value items in both services and manufacturing situations |
Visual review |
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A signal to an upstream workstation to start producing parts. Equivalent of a work order. |
Kanban |
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Does S&OP correspond with aggregate or disaggregate planning? |
Aggregate |
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Does master scheduling correspond with aggregate or disaggregate planning? |
Disaggregate |
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What are the 3 principles for shortening lead time? |
-Put a max cap o amount of WIP to predict lead time -Maintain supply chain velocity by sustaining an even flow of WIP and ensuring that WIP is related to current demand -Release material into the line in amounts consistent with appropriate batch sizes to prevent excess WIP |
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What are 3 steps organizations can take to reduce WIP and therefore leadtime? |
-Use a pull system -Determine the strategic, or finished goods, buffer -Increase flexibility to deal with product line complexity -Implement synchronous flow |
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Uses takt time to control the velocity of flow and reduce overall lead times. Operation times must be known and standardized. Completion of an assembly at one workstation triggers prdouction of an assembly at the upstream workstation and throughout the production process |
Synchronous pull |
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What are the 5 principles of lean? |
-Value -Value stream -Flow -Pull -Perfection |
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What are 4 major lean improvement tools? |
-Value stream mapping -Pull system -Setup reduction -Total productive maintenance |
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What are 3 important types of information that must be accurate for inventory? This accuracy contributes to ensure: -accurate, effective priority planning system -High levels of customer service -Effective and efficient operations |
-Part description of part number -Quantity -Location |
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What are costs of inventory inaccuracy? |
-Lost sales -Excess production -Low productivity -Excessive expediting -High inventory levels -Shortages -Missed schedules -Late delivery -Excess freight costs -High levels of obsolescence |
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What are the inventory accuracy goals? |
100%: -inventory accuracy - of parts - of the time |
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Establish tolerances for inventory accuracy since it's not practical to achieve 100%. |
-Value of item -Critical nature of the item -Ability to stop production -Lead time Difficulty of precise measurement |
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What are 2 methods of verifying inventory record data? |
-Periodic inventories -Cycle counting |
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What are 3 diff types of item data used in the scheduling of components for end items on the MPS? |
-Planning factors -Inventory status data -Historical demand and usage data |
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What are 4 inventory planning factors? |
-Lot size (order quantity) -Lead time -Safety stock -Scrap |
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What are 3 types of inventory status data? |
-On-hand balance -Allocations -Scheduled receipts |
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What can historical demand usage rates be used to evaluate? |
Order policies and methods and improve planning decisions |
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What are the data elements that support the material planning process? |
-Item number -Item description -Stock locations -On-hand balances at each stock location -On-order information by due date -Reorder and safety stock information -Financial information -Usage -Unit of measure -Classification method (ABC) -Source code -Lead time |
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What are some principles of item numbering? |
-Use unique item numbers -Use only one set of item numbers within an org. -Assign responsibility for item number creation -Do not reassign item numbers no longer in use -Use short item numbers -Keep item numbers uniform -Avoid confusing characters -Allow room for expansion |
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What are advantages of significant codes? |
-Easier to understand, work with and recall -easier recognition of part identity increases organization efficiency -Easier to detect miscoded items using size or color info -Easier to interpret using hyphens or symbols |
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What are advantages of nonsignificant codes? |
-Shorter codes are faster to input or write -Numerical codes are easier and faster to input -Random or sequential number assignment is better at accommodating the growth of item numbers -Nonsignificant codes can be automatically generated by software |
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A technique that schedules materials before equipment or capacity. |
Material-dominated scheduling |
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A technique that schedules equipment and capacity first. |
Processor-dominated scheduling |
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What characteristics do project and engineer-to-order environments have? |
-Demand is lumpy; product volume is low -Projects often are unique, generally large, and of lengthy duration |
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What are the project planning tools a project or engineer-to-order environment uses? |
-work packages -BOM format -Materials are time-phased -List of materials to purchasing -Release of orders offset from due dates per lead times -Project management software control of schedule and material plan |
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What are some characteristics of a process flow environment? |
-Vol is high and usually MTS based on forecasts -Heavy capital investment -Routings are similar & continuous flow through stages -Production schedules authorize work; no work orders -Processor-dominated scheduling: Finite schedules for capacity first, then materials are planned and scheduled to fit -Material-dominated scheduling: as inventory falls below set min, production is scheduled to target or max -Long-range contracts with suppliers exist |
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What are some characteristics of a lean environment? |
-Demand is stable and continuous; product variety is low -Products are standard and not complex -Rate of production (takt time) is determined by rate of demand -Compliance with takt time is a productivity measure -Kanban pull system moves materials; there are no work orders -Suppliers constantly are updated on supply requirements; long-term agreements exist -Unnecessary production and inventories are eliminated, which simplifies material planning |
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What are some characteristics of an MRP environment? |
-An MRP system can be used in either a push or pull system -It's widely used when demand is discontinuous: -job shop & batch production - low vol, high variety -assemble-to-order repetitive flow -- med-high vol, low-high variety -Complex req for time-phased component due dates are based on irregular demand for end items. |
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What are the 4 inputs into the MRP model? |
-Planning factors -Inventory data -Master production schedule -BOMs |
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What are 3 major outputs of the MRP model? |
-Planned order releases for purchased items -Planned order releases for manufactured items -Exception reports and action message generated by the ERP system to advise planners and schedulers of sig. events |
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What are the functions of MRP? |
-Plan and control inventories -Plan and control order releases -Provide accurate planned order loading for capacity requirements planning |
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An approach in which the material requirements plan is continually retained in the computer. Whenever a change is needed in requirements, open order inventory status, or BOM, a partial explosion and netting is made for only those parts affected by change. |
Net change MRP |
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The characteristic in an MRP system when minor changes in higher level (such as 0 or 1) records or the MPS cause significant timing or quantity changes in lower level (such as 5 or 6) schedules and orders. |
Nervousness |
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The relationship between the components at the same level in the BOM, in which all must be available at the same time and in sufficient quantity to manufacture the parent assembly. |
Horizontal dependency |
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An MRP processing approach in which the MPS is totally exploded down through all BOMs to maintain valid priorities |
Regeneration MRP |
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What happens when the planning horizon is shorter than an item's cumulative lead time? |
-Lower level items cannot be planned |
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An open order can be defined as: |
An order released to production |
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The master production schedule is used to: |
Define what the company plans to produce |
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A key interface with MRP is: |
Capacity requirements planning |
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What is a principal function of MRP? |
It plans and controls orders released to the factory floor to ensure that valid due dates are met |
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A major input to MRP is: |
Master production schedule |
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What are the inputs to MRP? |
Planning factors -Lot size -lead time -safety stock -scrap and yield Inventory or stock status data -On-hand balance -Allocations -Scheduled receipts BOMs MPS |
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The item is coded at the lowest level in which it is used when considering all the BOMs being processed. A number that identifies the lowest level in the BOM at which the item appears. |
Low-level coding |
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How are level codes assigned? |
-End-item parents are level 0 -Items one level down from the end-item parent are assigned a 1 -Items at the next level are assigned a 2, and so on |
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What is the logic and sequence of the MRP process? |
Starts at the end-item level of the product structure (level 0), and explodes down to the lowest level > Calculates gross and net requirements for end items and their components Based on the net requirements for each item, creates planned order receipts and releases for components |
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The raw material, part, or subassembly that goes into a higher level assembly, compound, or other item. |
Component |
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An inventory balance projected into the future |
PAB |
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The quantity shown in the inventory records as being physically in stock |
On-hand balance |
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A technique used in MRP where a planned order receipt in one time period will require the release of that order in an earlier time period based on the lead time for that item |
lead-time offset |
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in MRP, the ____ for a part or an assembly are derived as a result of applying gross requirements and allocations against inventory on hand, scheduled receipts, and safety stock. |
Net requirements |
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Purchased items or extracted materials that are converted via the manufacturing process into components and products |
Raw material |
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The total of independent and dependent demand for a component before the netting of on-hand inventory and scheduled receipts. |
Gross requirement |
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The need or requirement for a component to be sold by itself, as opposed to being used in production to make a higher level product |
Service parts demand |
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A row on an MRP table that is derived from planned order receipts by taking the planned receipt quantity and offsetting to the left by the appropriate lead time. |
Planned order release |
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The quantity planned to be received at a future date as a result of a planned order release |
Planned order receipt |
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The process of calculating the demand for the components of a parent item by multiplying the parent item requirements by the component usage quantity specified in the BOM. |
Requirements explosion |
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A number that identifies the lowest level in any BOM at which a particular component appears |
Low level code |
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(1) the classification of quantities of items that have been assigned to specific orders but have not yet been released from the stockroom to production; (2) a process used to distribute material in short supply |
Allocation |
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The item produced from one or more components |
Parent item |
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An open order that has an assigned due date |
Scheduled receipt |
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The process of calculating net requirements |
Netting |
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Inventory data used by MRP is |
scheduled receipts |
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During MRP record balancing where no safety stock is specified, the first net requirement is triggered for a period when the PAB |
first becomes negative |
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What is true of safety stock in MRP mechanics? |
MRP generates planned orders to maintain safety stock levels |
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What are the various reasons material plans need to be updated? |
-Update of MPS for new orders -Receipt of parts into inventory and completion of production -Changes to customer order due dates and quantities -Changes to scheduled receipts for purchases and manufacturing orders, such as due date and quantity changes -Inventory balance corrections -Engineering changes |
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What are some actions taken by planners due to exception reports from MRP software? |
-Release planned order -Expedite order -Delay an order or scheduled receipt -Cancel a scheduled receipt |
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What are some planning parameters for material planning? |
-Lead time -Lot size -Safety stock -Safety lead time -Scrap factor -Kanban -Cycle time |
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What are some factors that can cause planning parameters to change? |
-Changes in supply and demand conditions -Improvements in business planning processes and business strategy -Shorter product life cycles -Ongoing process improvements -Other factors such as a change in shrinkage. |
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What is the formula for calculating the planned order release adjusted for scrap factor? |
Planned order release = (planned order receipt)/(1-scrap factor) |
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An MRP or other time-phased system in which all time-phased data are processed, stored, and usually displayed using dated records rather than defined time periods. |
Bucketless system |
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A requirement that shows the next-level parent item (or customer order) as the source of demand |
Pegged requirement |
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In MRP, the process of using pegging data to solve material availability or other problems |
Bottom-up replanning |
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A network planning technique for the analysis of a project's completion time; used for planning and controlling the activities in a project |
Critical path method |
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The longest sequence of dependent events through a project network, considering both technical and resource dependencies |
Critical chain |
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In project management, a hierarchical description of a project in which each lower level is more detailed |
Work breakdown structure |
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An element of time added to time to protect against fluctuations in lead time so that an order can be completed before its real need date |
Safety lead time |
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Reductions of actual quantities of items in stock, in process, or in transit |
Shrinkage |
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In project management, a network analysis technique in which each activity is assigned a pessimistic, most likely, and optimistic estimate of its duration |
PERT (Program evaluation and review technique) |
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The ability of a system to automatically trace requirements for a given component all the way up to its ultimate end item, customer or contract number |
Full pegging |
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The work breakdown structure should actually reflect: |
Work to be done |
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What are the general attributes of detailed capacity? |
-Most detailed level in the capacity planning process -Determines capacity requirements when material is planned first -Determines resource utilization when capacity is planned first Prepares the operating plan for execution |
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What are 3 related influences on detailed capacity planning? |
-Flexibility of capacity and scheduling -Planning of material or capacity first -Manufacturing environment |
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A resource that is not a constraint but will become a constraint unless scheduled carefully |
Capacity constrained resource |
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A waiting line; in manufacturing, the jobs at a given work center waiting to be processed |
Queue |
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A display of future capacity requirements based on released or planned orders over a given span of time |
Load profile |
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A technique that schedules materials before processors (equipment or capacity) |
Material dominated scheduling |
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A measure of how intensively a resource is being used to produce a good or service. |
Utilization |
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Proven capacity calculated from actual performance data, usually expressed as the average number of items produced multiplied by the standard hours per item |
Demonstrated capacity |
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Assigning no more work to a work center than the work center can be expected to execute in a given time period |
Finite loading |
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A measurement of the actual output to the standard output expected |
Efficiency |
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The total of setup and run time for a specific task |
Operation time |
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Calculation of the capacity required at work centers in the time periods required regardless of the capacity available to perform this work |
Infinite loading |
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The max output capability, allowing no adjustments for preventative maintenance, unplanned downtime, shutdown, and so forth |
Theoretical capacity |
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The time when operators or resources aren't producing product because of setup, maintenance, lack of material, lack of tooling or lack of scheduling |
Idle time |
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The time between the completion of one operation and the start of the next |
Interoperation time |
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spreading orders out in time or rescheduling operations so that the amount of work to be done in sequential time periods tends to be distributed evenly and is achievable |
Load leveling |
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Which element of lead time consumes the most time in a job shop with intermittent production? |
Queue |
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What action will increase the output of products in a factory system? |
Improving utilization and efficiency |
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In a labor-intensive assembly work center, capacity and load normally are computed in terms of |
Standard labor hours |
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A manufacturing routing would typically contain which data items? |
Standard setup time and run time per piece |
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The primary purpose of detailed capacity planning is to evaluate what factors? |
Load and capcity |
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Describe infinite loaeding |
Loads in each period for a work center are accumulated without regard to capacity |
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Short lead time is favorably affected by? |
small run quantities and short queues |
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For finite loading, what is considered a prerequisite? |
Reliable capacity and load data |
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In a job shop environment, short lead time is favorably affected by which of the following? |
Short setup times and small setup costs High capacity efficiency |
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What are the 5/6 steps of the CRP model? |
-Determine load on resources over a period of time -Simulate scheduling of load at work centers by period -Create work center load reports -Resolve load-capacity imbalances -(Revise MPS if not resolved) |
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A single raw material such as crude oil can be transformed into a large number of different products. |
Divergent product structure |
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In what situations should processor-dominated scheduling be used? |
-Capacity is relatively expensive -There is a bottleneck in the stage -Setups are expensive |
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In what situations should processor-dominated scheduling be used? |
-Capacity is relatively expensive -There's a bottleneck in the stage -Setups are expensive |
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In what situations should material-dominated scheduling be used? |
-Materials are relatively expensive -Excess capacity exists -Setup costs are insignificant -The stage consists of some job shop-type operations |
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Which type of scheduling (reverse, forward, and mixed flow) supports demand-based planning in which the scheduling technique is material-dominated. |
Reverse flow scheduling (3, 2, 1) |
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Which type of scheduling (reverse, forward, and mixed flow) supports supply-constrained planning, such as the growing and harvest cycle in the food industry in which the scheduling technique is processor-dominated. |
Forward flow scheduling (1, 2, 3) |
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Which type of scheduling (reverse, forward, and mixed flow) supports planning when Stage 2 is the logical focus of attention for scheduling because of processing capacity or material supply constraints. |
Mixed flow scheduling (2, 1, 3 or 2, 3 1) Same as central-point scheduling |
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What are some key process flow scheduling concepts? |
-batch processes -line production -packaging |
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Why does line balancing belong in the "plan materials first" category, rather than "plan capacity first?" |
-It's due-date driven -It's an assembly-oriented process that reflects the structure of a product and not the process by which it's made. |
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In what ways can operations managers increase or decrease service capacity? |
-Changing the level of the workforce -Cross-training employees -Hiring part-time workers -Increasing customer participation -Renting equipment -Expanding or renovating facilities -Employing automation -Extending service hours -Better scheduling tools and practices |
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What are the three different perspectives of performance measures? |
-Conventional MRP -Synchronized and theory of constraints production -Lean |
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What are key performance measures? |
-Efficiency and utilization -Performance to schedule -Zero defects -Dollar days -Stability of schedule |
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Value of a good multiplied by the days until expected sale. |
Dollar day |
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The accumulation by workstation, machine, or machine group of the hours generated from the scheduling of operations for released orders by time period |
Machine loading |
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Dividing a lot into 2 or more sublots and simultaneously processing each sublot on identical or very similar facilities as separate lots, usually to compress lead time or to expedite a small quantity |
Lot splitting |
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A work center that performs the first operation of a particular routing sequence |
Gateway work center |
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A display of future capacity requirements based on released or planned orders over a given span of time |
Load profile |
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A production area consisting of one or more machines that can be considered as one unit for capacity requirements planning and detailed scheduling |
Machine center |
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In TOC, the planned amount by which the available capacity exceeds current productive capacity |
Safety capacity |
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A procedure for building process train schedules that starts with the first stage and proceeds sequentially through the process structure until the last stage is scheduled |
Forward flow scheduling |
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The process of changing order or operation due dates, usually as a result of their being out of phase with when they are needed |
Rescheduling |
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A routing that usually is less preferred than the primary routing but results in an identical item |
Alternate routing |
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A technique for short-term planning of actual jobs to be run in each work center based upon capacity and priorities |
Operations sequencing |
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A representation of the flow of materials through a process industry manufacturing system that shows equipment and inventories |
Process train |
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A procedure used in some process industries for building process train schedules that start at an initial stage and work toward the terminal process stages |
Mixed flow scheduling |
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What is CRP used in conjunction with? |
MRP |
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What is a direct input to CRP? |
Routing data |
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What is an output of CRP |
Work center load report |
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Methods for increasing capacity include: |
-adding shifts -scheduling overtime -adding equipment |
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In process flow scheduling, revising schedules when materials exceed targets is an example of: |
material-dominated scheduling |
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What is an advantage of CRP? |
It provides time-phased visibility of load and capacity imbalances. |
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Processor-dominated scheduling is best used in which situations? |
-Capacity is relatively expensive -Due date is flexible |
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Material-dominated scheduling is best used in which situations? |
-Material is relatively expensive -Capacity is flexible |
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In process flow scheduling, process trains are scheduled using reverse, forward or mixed flow scheduling. Mixed flow scheduling means: |
An intermediate stage is scheduled first when the main bottleneck moves to a processor in that stage |
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The formal process train representation: |
-illustrates generalized definition of resources -illustrates divergent product structure -supports stage-by-stage scheduling -supports continuous flow within a stage |
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What are 2 categories that supply relationships can be divided into? |
-Arm's length (lower value-added relationships) -Collaborative (higher value-added relationships) |
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What are the principles that supply relationships are based on? |
Compatibility of interests Mutual need |
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What are the additional principles for supply relationships that are higher value-added? |
Openness Trust |
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When making a decision to make or buy, what are the cost components for make? |
-Delivered material costs -Direct labor costs -Inventory carrying costs -Variable and fixed factory overhead costs -Production management costs -Capital costs |
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When making a decision to make or buy, what are the cost components for buy? |
-Purchase price -Transportation costs -Receiving and inspection costs -Purchasing (transaction costs) -Purchasing management costs |
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What are the 4 components of the supply risk and profit impact model? |
-Bottleneck items (low profit impact/ high supply risk) -Strategic items (high profit impact/ high supply risk) -Noncritical item (low profit impact/ low supply risk) -Leverage items (high profit impact/ low supply risk) |
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Regarding which risk analysis criteria is it suggested to use strategic sourcing when it's "unbounded increases/ decreases, foreign currency" and tactical buying when it's "stable, changes limited, local currency?" |
Price |
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Regarding which risk analysis criteria is it suggested to use strategic sourcing when it's "available, critical to production, unacceptable on-time delivery performance, inventory level control, long lead times, new VMI arranagements" and tactical buying when it's "available, noncritical to production, good on-time deliver performance, electronic data interchange, blanket orders, vendor-managed inventory?" |
Service |
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Regarding which risk analysis criteria is it suggested to use strategic sourcing when it's "new suppliers, unacceptable quality history" and tactical buying when it's "good quality audit results, good quality history" |
Quality |
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Regarding which risk analysis criteria is it suggested to use strategic sourcing when it's "specification variations desired, patents, joint (technology) developments" and tactical buying when it's "no variations to specifications required?" |
Technology |
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Regarding which risk analysis criteria is it suggested to use strategic sourcing when it's "volatile, unpredictable, competitors' trends within market" and tactical buying when it's "stable, flat, predictable?" |
Market trends |
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What is the significance of financial viability? |
Supplier capability Supplier reliability |
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What are 4 major categories of ratios used in assessing financial and operational viability? |
-Liquidity -Profitability -Debt -Activity |
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Where can the data for the assessment of financial and operational viability be found? |
-Company balance sheets & income statements -Data reported to regulatory agencies -Data available from financial rating services |
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What ratios are used to measure liquidity and what are their formulas? |
-Current ratio = current assets/ current liabilities -Quick ratio = (current assets - inventory)/ current liabilities ..... low indicates cash flow problems; high indicates asset management problems |
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What ratios are used to measure activity and what are their formulas? |
-Inventory turns = cost of goods sold/ average inventory... low indicates cash flow problems -Days sales outstanding = (receivables x 365)/ sales... if higher than payment terms, cash flow is slow; too low indicates restrictive credit terms |
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What ratios are used to measure profitability and what are their formulas? |
-Return on sales = net income/ net sales ... after tax return -Return on assets = (net income + interest expense)/ average total assets ... measures asset utilization success -Return on equity = (net income + interest expense)/ equity ... measures return on shareholder investment |
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What ratios are used to measure debt and what are their formulas? |
-Debt to equity = total liabilities/ equity ... high ratio = high long-term financial risk -Times-interest earned (coverage) = income from operations/ interest expense... should be > 3.0; measures ability to pay interest expenses |
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What are 2 types of collaborative relationships? |
-Strategic alliances -Supplier partnerships |
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What are 4 types of strategic alliances? |
-Technical and operational partnering -Distributor integration -3rd party logistics (3PL) -Retailer-supplier partnerships (RSP) |
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A measure of a firm's financial stability defined as: (current assets - inventory)/ current liabilities. A value greater than one is desirable. |
Quick asset ratio |
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An operating cost that varies directly with a change of one unit in the production volume. |
Variable cost |
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A relationship formed by two or more organizations that share proprietary information, participate in joint investments, and develop linked and common processes to increase the performance of both companies. |
Strategic alliance |
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The establishment of a working relationship with a supplier organization whereby two organizations act as one |
Supplier partnership |
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The purchasing process focused on transactions and nonstrategic material buying |
Tactical buying |
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An item that is traded in commerce |
Commodity |
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The amount of bonds and preferred stocks relative to the owners' equity position |
Debt-to-equity ratio |
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A company that is selected to have 100% of the business for a part although alternate suppliers are available. |
Single-source supplier |
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All manufacturing costs, other than direct labor and direct materials, that vary directly with production volume. |
Variable overhead |
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The act of deciding whether to produce an item internally or buy it from an outside supplier |
Make-or-buy decision |
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The only supplier capable of meeting the usually technical requirements for an item |
Soul source supplier |
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A status awarded to a supplier who consistently meets predetermined quality, cost, delivery, financial, and count objectives. |
Certified supplier |
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What are the principles of partnerships with suppliers? |
Mutual need Trust Compatibility of Interests |
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Tactical buying is used for which type of materials? |
Nonstrategic |
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Supplier partnerships are best suited to items with: |
high supply risk for strategic items |
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What is a disadvantage of single sourcing? |
Catastrophic event at the supplier |
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What best describes strategic sourcing? |
It considers the supply risk of items critical to profitability |
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Entering into a strategic relationship has what impact? |
It increases the need for planning |
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Concurrent engineering is best described as? |
Doing several development tasks in parallel |
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When should suppliers be involved in the product development process? |
As soon as possible |
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What applies to make-or-buy decisions? |
They need to be re-evaluated periodically |
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A type of engineering that follows a serial approach; departments (functions) review design, make inputs, pass it on; there is a late resolution of issues. |
Conventional` |
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A type of engineering in which inputs of different functions are considered simultaneously; cross-functional teams include customers and suppliers |
Concurrent |
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What are some purchasing approaches? |
-Purchase orders -Blanket orders -Lean -Consignment inventory -Vendor-managed inventory (VMI) |
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What are the various types of purchasing contracts? |
-Buy-back contracts -Revenue-sharing contracts -Pay-back contracts -Cost-sharing contracts -Pricing agreements -Capacity reservation contracts |
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Which type of purchasing contract being used when the seller gives the buyer the incentive to order more units by agreeing to buy back unsold goods at a negotiated price that is higher than salvage value but lower than full purchase price? Both parties hedge their risk. |
Buy-back contracts |
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Which type of purchasing contract is used when a buyer shares some of the revenue from its sales with its supplier as a condition for a discounted wholesale price from the supplier? |
Revenue-sharing contract |
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Which type of purchasing contract is it when the buyer, such as the distributor, consents to an agreed-upon price for items it doesn't purchase from the manufacturer. The manufacturer's risk is cushioned at a price the distributor is willing to pay to avoid stockouts. |
Pay-back contracts |
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Which type of purchasing contract is used when the distributor is willing to share some production costs with a manufacturer in return for a discount on the wholesale price. Production costs are high, and the buyer is willing to give the manufacturer some incentive to produce more units in order to buffer against a stockout. |
Cost-sharing contracts |
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Which type of purchasing contract is used when the buyer is allowed to buy items from a price list or catalog at a negotiated discount during a contract period? |
Pricing agreements |
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Which type of purchasing contract is it when the manufacturer reveals its forecast of business activity by paying to reserve a given level of capacity at its supplier. |
Capacity reservation contracts |
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When businesses source and sell materials, products and services outside their home countries. |
Global sourcing |
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In supply chain management, the sum of all costs associated with every activity of the supply stream. The main insight that it offers is the understanding that the acquisition cost often is a very small portion of this. |
TCO (Total cost of ownership) |
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What are some specific costs within TCO? |
-Acquisition costs -Usage costs -End-of-life costs |
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What are some acquisition costs? |
-The sale price of a product, service, or capital equipment -Ordering and administrative costs -Transportation and taxes |
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What are some usage cost? |
-Inventory carrying cost, including opportunity cost -Transformation from raw material to finished goods -Scrap -Return or disposal of packaging materials -Training -Installation -Warranty |
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What are some end-of-life costs (net of revenue from the sale of equipment and remaining products)? |
-Obsolescence -Disposal -Other termination costs |
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What are benefits of partnership goals? |
-Lead-time reduction -Inventory and stockout reduction -Better customer service -Better demand visibility and forecasting -Cost reductions -Elimination of redundant assets and processes -Customer and marketplace insight -New market penetration -Faster time to market -Damage and loss prevention |
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Supplier and customer training supports the customer-supplier relationship and improves alignment. What are some training areas? |
-Product design -Quality requirements -Related technologies -Delivery processes -Accounting processes -Sustainability practices |
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What is the role of engineering in new product and process design? |
-Design new products and processes -Manage engineering changes -Coordinate supplier input to product and process design |
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What are five components of operational execution systems that provide the data, transaction processing, user access, and infrastructure for running a company? |
-SRM (Supplier relationship management) -Enterprise resource planning -Customer relationship management -Supply chain management -Transportation |
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A comprehensive approach to managing an enterprise's interactions with the organizations that supply the goods and services the enterprises uses. The goal of it is to streamline and make more effective the processes between an enterprise and its suppliers. It's often associated with automating procure-to-pay business processes, evaluating supplier performance, and exchanging information with suppliers. An e-procurement system often comes under the umbrella of this family of applications. |
Supplier relationship management (SRM) |
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What are 5 delivery approaches? |
-Quick response -3rd party logistics (3PL) -Cross docking -Delivery to point of use and point of fit -VMI |
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|
What are 5 supplier rating system requirements? |
-Positively influence behavior -Provide quantitative data -Lead to process and performance improvement -Use metrics that meet the needs of the customer -Help solve the root causes of problems |
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|
What are 3 major types of supplier rating systems? |
-Quantitative measurement systems for key supplier performance characteristics -Systems that measure supplier performance in contributing to supply chain speed and efficiency -Systems for monitoring supplier conformance with environmental and social goals |
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|
What are some standards for quantitative rating systems? |
-Certification level (supplier earns points for certification level) -Product quality (zero defects; meets specifications) -Delivery performance (on-time delivery and lead time) -Cost performance (return cost, pricing, freight, other) -Cooperation (Response time, quality of relations with partner) -Quantity (accuracy, percent delivered to order) |
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The use of computer and telecommunication technologies to conduct business via electronic transfer of data and documents. |
Electronic commerce (e-commerce) |
|
|
The concept of packing products on the incoming shipments so they can be easily sorted at intermediate warehouses or for outgoing shipments based on final destination |
Cross-docking |
|
|
Direct delivery of material to a specified location on a plant floor near the operation where it's to be used |
Point-of-use delivery |
|
|
The purchaser's authorization used to formalize a purchase transaction with a supplier |
Purchase order |
|
|
A message that is used to release a quantity from a blanket order |
Blanket order release |
|
|
In supply chain management, the sum of all the costs associated with every activity of the supply stream. |
Total cost of ownership |
|
|
A company that manages all or part of another company's product delivery operations |
Third-party logistics company |
|
|
A system of linking final retail sales with production and shipping schedules back through the chain of supply; employs point-of-sale scanning and electronic data interchange, and may use direct shipment from a factory to a retailer |
Quick response program |
|
|
A concept that refers to the simultaneous participation of all the functional areas of the firm in the product design activity; synonym: participative design/ engineering |
Concurrent engineering |
|
|
The ability of supply chain partners to access demand and production information from trading partners |
Supply chain visibility |
|
|
The total time required to design, build, and deliver a product -- timed from concept to delivery |
Time-to-market |
|
|
An authorization to the purchasing department to purchase specified materials in specified quantities within a specified time. |
Purchase requisition |
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|
When would the buyer consider the use of blanket orders? |
When minimizing clerical paperwork |
|
|
In a calculation of the total costs of ownership, what would be included? |
-Salvage value -Cost of returning packaging material -Warranty costs |
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|
Which purchasing method assumes the lowest level of operational integration between supplier and customer? |
Purchase order |
|
|
What is true of the supplier rating system? |
It should provide objective measurable data |
|
|
If a supplier is first-to-market with a new product, what is the supplier most likely to realize? |
-High initial profit margins -Early market share leadership |
