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96 Cards in this Set

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What are the 3 types of inventory?

1) Raw Materials

2) Work-in-Process

3) Finished Goods

What are the 3 purposes of Inventory?

1) Smoothing Production

2) Economies of Scale

3) Protection against Uncertainty

TC= D/Q x S + Q/2 xH

What does each Stand for?

TC= Total Costs

H= holding costs

D= Demand

S= Set up cost

Q= order size

TC= D/Q x S + Q/2 xH

What does each D/Q x S equal?

annual order costs

TC= D/Q x S + Q/2 xH

What does Q/2 x H equal?

annual holding costs

TC= D/Q x S + Q/2 xH

What does Q/2 equal?

average inventory level

How do you find the best order size for EOQ?

Q= Square root of ( 2 x D x S/ H)

How do you find how many times a year you would order under EOQ?


How do you find the length of the order cycle for EOQ?

Q/D x 250 Business days

How do you find the reordering point?

= Daily Demand x Order time

What is the reordering point?

an inventory level, not a point in time

Why are we concerned about the reordering point?

at this point we should place an order; it allows us to have enough inventory to satisfy demand while considering the amount of lead time it takes for the next order to come in.

When is comes to the sawtooth diagram for EPQ, what are the teeth split into?

Phase 1: Production and consumption phase

Phase 2: Consumption Phase

TC= D/Q x S + Q/2 (P-d/P) xH

What does each stand for?

TC= Total Costs

D= Demand

Q= production size

P= Production rate

S= Set up costs

H= Holding Costs

d= daily demand

TC= D/Q x S + Q/2 (P-d/P) xH

What does D/ Q equal?

times to set up production

TC= D/Q x S + Q/2 (P-d/P) xH

What does Q/2 (P-d/P) xH equal?

annual holding costs

TC= D/Q x S + Q/2 (P-d/P) xH

What does Q/2 (P-d/P) equal?

average inventory level

How do you find the best production quantity for EPQ?

Square Root of (2 x D x S/ H) x Square Root of (P/p-d)

How do you find how much time will pass between production set ups?

Q/D x 250 business days

How do you find the most inventory you'd have in EPQ?

Q x (P-d/P)

How do you find the run time of the ordering policy is EPQ? How do you find how long you spend producing a single order?


How do you find the portion of time you actually produce the SKU?

run time/ ordering cycl

if P>d

you are producing faster than daily demand

How do you find ROP for EPQ?

daily demand x lead time

Service level

probability you have enough inventory; probability that the demand will not exceed supply during the lead time

Safety stock

extra units have for uncertainty; stock held in excess of expected demand; "blanket" is sawtooth diagram on top

When looking at the normal distribution curve, what is the service level?

the left side, the shaded area that included probability

How do you find the service level?

z= x- mean/ standard deviation

look on z chart for probability

Aggregate Planning

devising a strategy to meet changing demands on the system; medium-term capacity planning (less than 1 year); for companies that only produce 1 product

How do you find ending inventory in aggregate planning

= Beginning Inventory + Production - Demand

What are the 3 inputs of MRP?

1) Bill of Materials

2) Master Production Schedule

3) Current Inventory REcords

Bill of Materials

how you build you materials; dependent demand

Finished Good?

A) Has no parent

B) Has no children


Raw Materials?

A) Has no parent

B) Has no children


How is MPS different from the aggregate plan?

MPS results from aggregate planning


not enough time to respond to problem; short planning horizon


MPS policy where there is no changes after finalized


a technique where you change and things change the entire plan; very sensitive

What are the advantages of MRP?


What are the disadvantages of MRP?

1) Nervous technique

2) Bling to capacity constraints

Kanban Card

permission to produce; never leaves producing work center

If there are more kanban cards in a system what does that mean?

1) more inventory

2) more holding costs

If there are less cards in kanban cards in a system what does that mean

1) Less inventory

2) high risk of stock out

How do you find the number of Kanban cards in a system?

N= D x T x (1+X)/ C

N= D x T x (1+X)/ C

What does everything stand for?

D= usage rate of consuming center

T= lead time

C= Container size

X= policy variable (always between 0 and 1)

N= D x T x (1+X)/ C

What is the safety stock?

1+ X

N= D x T x (1-X)/ C

Which part tells you how many cards you need in your system?

D x T/ C

How do you make your system leaner?

if you can reduce ordering costs

Allegory of Lake: What does the boat symbolize?

production system

Allegory of Lake: What does water level symbolize?

inventory level

Allegory of Lake: What do the rocks symbolize?

source of uncertainty in system; problems

What are some things that you should do in the allegory of the lake?

1) reduce water level

2) hit big rocks 1st which are biggest problem, deal with right away to solve

What does JIT run well with?

level production

What does JIT deal with?

only WIP and raw materials

What are the 5 general principals of JIT?

1) Reduce lot size and ordering costs

2) No more safety stock

3) Smooth production

4) Improve material handling and facility layout

5) Reduce the number of outside vendors you deal with

When is planning called scheduling and scheduling called planning?

when you have a longer-term planning you call it planning, when you have shorter-term planning you call it scheduling


length of time job stays in the system

How do you find the flow time?

add up the duration of each job


due date - flow time of job

What does the rule of shortest processing time do?

tends to minimize flow time

Critical ratio

= time remaining/ work remaining

= due date/ duration

When the critical ratio is greater than 1 what does that mean?

you have enough time

When the critical ratio is between 0 and 1 what does that mean?

it is not late yet, but will be when finished

When the critical ratio is less than 0 what does that mean?

the job is already late

What does the rule of earliest due date do?

tends to minimize tadiness

What does Johnson's Rule do?

minimize makespan


how long it takes you to finish every job

How do you apply Johnson's Rule?

Select the job with the shortest time in any work center. If that time refers to the first work center, schedule that job first. If that job refers to the second work center schedule that job last. Repeat until all jobs are scheduled

Old definition of quality

conformance to specification

Newer definition of quality

ability of product or service to meet or exceed customer specification

= customer perception - customer expectation

What are sources of lower customer perception?

1) facility is messy

2) service is bad/rude

3) instruction is not clear

What are sources of higher customer expectation?

1) previous experience

2) Price

3) advertising

4) New product

What is a tool that helps inspect raw materials and finished goods?

acceptance sampling

what is a tool that helps inspect WIP?

control chart


statistical process control

If a company use traditional Approach what do they do?

1) Heavily rely on inspection; hire full time inspectors

2) Believe there is an ideal amount of inspection (based on economies argument)

Type II error

you think something is right but is wrong (customer risk)

Type I error

think something is wrong but it is right

What are the 5 TQM elements?

1) everyone is a quality control inspector

2) The customer defines quality

3) Fix problems at their source

4) Involve suppliers in quality control program

5) The commitment of top management

Poka Yoke

mistak proofing; trying to make desired outcome inevitable in system

What is TQM?

continuous improvement; never stop checking quality

What does a Fishbone diagram help with?

fixing problems at their source

Random variation

is natural variation from the process of manufacturing; cannot be avoided, based on normal distribution

Assignable Variation

a variation which can be traced back to a specific source

Where does natural variation lie on a control chart?

between the upper a lower control limit

Where does assignable variation lie on a control chart?


If something is truly random what should you see?

you should not see a pattern.

What is type 1 error related to?

producers eros

What is type 2 error related to

customer risk

When should you use a smaller z value for control charts?

when you are picky, creates a smaller control area

When should you use a larger z value for control charts?

if you are not picky; larger control area

If you know the probability of what you want the control chart to be what do you do to find the upper and lower limits?

take the probability and divide by 2. Then find on the Z chart

If you know the percentage of type 1 error you allow what do you do to find the upper and lower limits?

Divide that percentage in half. Take the result and subtract from 0.5. Then find on z chart

How do you find the probability of a type 1 error with a control chart?

1- prob. of within control limits

What is sample range?

difference between smallest one and largest one in sample

When using P charts how do you find the proportion?

take the number of the sample/ sample size