BulletPoints summary with Operations and Supply chain Management The Core by Jacobs and Chase

Chapter 1: Introduction to operations and supply chain management

  • Operations = manufacturing and service processes that are used to transform the resources employed by a firm into products desired by customers.

  • A Supply Chain encompasses all activities associated with the flow and transformation of goods and services from the raw materials stage through to the end-user, as well as the associated information flows.

  • Operations and supply chain management = the design, operation, and improvement of the systems that create and deliver the firm’s primary goods and services.

  • Operations and supply chain processes = one or more activities that transform inputs into outputs. Operations and supply processes can be categorized as follows: planning, sourcing, making, delivering and returning.

  • There are five major differences between goods and services:

  1. Tangible vs. intangible

  2. Degree of interaction

  3. Homogeneous vs. heterogeneous

  4. Services are perishable and time dependent (can’t be stored)

  5. The specifications of service can be defined as a package of features

  • Efficiency = Doing something at the lowest possible cost. Effectiveness = Doing the things that will create the most value for the customer. Value = The attractiveness of a product relative to its cost.

  • Some efficiency-related ratios: net income per employee, revenue per employee, receivable turnover, which is annual credit sales divided by average account receivable > Efficiency in collecting sales on credit, inventory turnover, which is cost of goods sold divided by the average inventory value > Efficiency in turning inventory into sales and asset turnover, which is revenue divided by total assets > Efficiency at using assets in generating sales revenues.

  • Coordination between mutually supportive but separate organizations, optimization of global supplier, production, and distribution networks, management of customer touch points, raising senior management awareness of operations as a significant competitive weapon and sustainability and the triple bottom line are some issues that global enterprises face in the field of operations and supply management.

Chapter 2: Strategy and sustainability

  • OSCM strategy should describe how a firm intends to create and sustain value for its current shareholders. Sustainability = the ability to meet current resource needs without compromising the ability of future generations to meet their needs.

  • Shareholders own one or more shares of stock in the company whereas stakeholders are indirectly or directly influenced by the activities of the firm.

  • The Triple Bottom line captures an expanded spectrum of values by evaluating a firm against the following criteria: social, economic and environmental.

  • A planning strategy involves a set of repeating activities, which are performed in different time intervals and in a closed-loop process: develop/refine the strategy (yearly), translate the strategy (quarterly) and plan operations and supply (monthly).

  • There are seven major competitive dimensions forming the competitive position of a firm: cost or price, quality, delivery speed, delivery reliability, coping with changes in demand, flexibility and new-product introduction speed and other product-specific criteria.

  • Trade-offs occur when activities are incompatible so that more of one thing necessitates less of another (e.g. high quality is viewed as a trade-off to low cost). Straddling occurs when a company seeks to match the benefits of a successful position while maintaining its existing position.

  • The screening criterion that permits a firm’s production to even be considered as possible candidates for purchase by customers is called order qualifier. As the order qualifier wins the bid or customers’ purchase it become an order winner. This criterion differentiates the products or services of one firm from those of another.

  • Productivity measures of how well resources are used. To start with a basic formula we can extend more; productivity = outputs divided by inputs. This is also called single factor productivity. Input factors: labour, capital, management. Example: 1000 units produced in 250 hours  single factor productivity: 1000/250 = 4 units per hour.

  • Multifactor productivity includes all inputs, so again outputs divided by all needed inputs, instead of just one input. Example: Costs for staff: 640 euro/day; Costs system: 800 euro/day; Output: 14 units  multifactor productivity: 14/(640+800) = 0.0097 units/dollar.

Chapter 3: Forecasting

  • Strategic Forecasts are medium and long-term forecasts used for decisionmaking about strategy and total demand.
    Tactical forecasts are short-term forecasts used for daily decisionmaking to meet demand. There are four basic type forecasts: qualitative, time series analysis, causal relations and simulation.

  • In most circumstances the demand for products or services can be seperated into six components: the average demand for the period, the trend, a seasonal effect component, cyclical elements, random variations and autocorrelation.

  • When demand for a product is stable and without seasonal characteristics, a moving average can be used: forecasting on the basis of average demand in the past using the following formula:

    Ft= (At-1+ At-2+ At-3+ ... + At-n) / n

  • A Weighted moving average allows elements to have different “weights” as long as the total sum of the elements amounts to 1. The formula:

    Ft= w1At-1+ w2At-2+ ... + wnAt-n

  • Exponential Smoothing uses “weights” for historical data which exponentially decreases (1 – α). The formula:

Ft= Ft-1+ α (At-1– Ft-1)

  • The formulas for calculating the Forecast Including the Trend (FIT) are:

    Ft= FITt-1+ α (At-1– FITt-1)

    Tt= Tt-1+ δ(Ft– FITt-1)

    FITt= Ft+ Tt

  • Linear regression is a special category of regression wherein the relations between variables form a straight line. Formula category: Y = a + bt

  • Decomposition of a time series means identifying and separating the time series in different components. This can be done by using the least squares regression method. The least squares method follows this procedure: (1) separate the time series into different components, and (2) make a forecast for the future value(s) of every separate component.

  • There are two types of seasonal effect variation: (1) Additive seasonal effect variation: forecast including trend and season = Trend + season effect.

    (2) multiplicative seasonal effect variation: forecasting including trend and seasonal = Trend x Seasonal factor

  • The forecast error is the difference between actual demand and what was forecast. These errors are called residuals. Sources of error: errors can come from a variety of sources. Errors can be classified as bias or random.

  • Measurement of error: there are terms to describe the degree of error: standard error, mean squared error (or variance) and mean absolute deviation. MAD = () / n

  • When the errors that occur in the forecast are normally distributed (the usual case), the MAD relates to the standard deviation as:

    1 standard deviation = x MAD, or approximately 1.25 MAD

  • Another measure of error is the mean absolute percent error (MAPE). This measures the average error as a percentage of average demand. MAPE = MAD / Average demand

  • A tracking signal (TS) is a measurement that indicates whether the forecast average is keeping pace with any genuine upward or downward changes in demand. This is used to detect forecast bias. TS = RSFE / MAD

  • Causal relationship forecasting involves using independent variables other than time to predict future demand. Multiple regression analysis is another forecasting method, in which a number of variables are considered, together with the effects of every variable on the item of interest. Formula: S = B + Bm (M) + Bh (H) + Bi (I) + Bt (T)

Chapter 4: Process design and strategic capacity management

  • Capacity Management in Operations = the ability to hold, receive, store or accommodate a number of customers in a system. Capacity is the amount of resource inputs available relative to output requirements over a particular period of time.

  • Strategic capacity planning = finding the overall capacity level of capital-intensive resources to best support the firm’s long-term strategy.

  • The Best Operating Level = a level of capacity for which the process was designed and thus is the volume of output at which average unit cost is minimized. A measure to reveal how close a firm is to its best operation level is by calculating the capacity utilization rate, which is determined by dividing the capacity used by the best operating level.

  • Economies of scale = a cost advantage for companies as the volume increases, the average cost per unit of output drops. Economies of scope = reduction in average costs by combining multiple production and producing at one facility.

  • When a production facility works best when it focuses on a fairly limited set of production objectives is it called a focused factory. This concept is focused on the capacity by operationalizing the mechanism by plant within a plant (PWP).

  • The term capacity cushion refers to the amount of capacity in excess of expected demand. It is the reserve capacity that handles sudden increases in demand or temporary losses of production capacity.

  • Design capacity is the theoretical maximum output of a system or process in a given period. Effective capacity is the capacity that can be expected given the product mix, methods of scheduling, maintenance and standards of quality.

  • Interarrival time is the time between two subsequent arrivals of products at their entrance in the process whereas the arrival rate is the number of products that arrive per time unit (e.g. number of products that arrive per hour).

  • Throughput time is the time that passes between the moment at which the customer/product enters the system and the moment at which the customer/product is ready. Deterministic throughput times can be estimated by adding up the expected processing times of the different processes.

  • Departure rate is number of products that leave the system per time unit.

  • A bottleneck is an operation that limits output in the system and are constraints that limit output of production. If none of the machines/workers/etc. in the system is a bottleneck, then we say that the arrival process is the bottleneck.

  • There are three methods to calculate the capacity: deterministic performance estimation, analytical modelling (such as waiting lines) and simulation (approximation of reality).

  • In deterministic performance estimation we assume there is no uncertainty but overly optimism. Therefore, the deterministic estimate will be too low for throughput times and too low for WIP, but quite good for the departure rate and the utilisation rate.


Chapter 5: Projects


  • A project is a series of related jobs, usually directed toward some major output and requiring a significant period of time to perform. Projects can be categorized in four major areas: product change, process change, research and development, and alliance and partnership.

  • Project management is planning, directing and controlling resources (people, equipment, material) to meet the technical, cost and time constraints of a project.

  • There are three types of projects:

  1. Pure projects: a structure for organizing a project where a self-contained team works full time on the project.

  2. Functional project: a structure where team members are assigned from the functional units of the organization. The team members remain a part of their functional units and typically are not dedicated to the project.

  3. Matrix project: a structure that blends the functional and pure project structures. Each project uses people from different functional areas. A dedicated project manager decides what tasks need to be performed and when, but the functional manager control which people to use.

  • A project starts out as a statement of work (SOW): a description of the objectives to be achieved, with a brief statement of the work to be done and a proposed schedule specifying the start and completion dates. A task is a further subdivision of the project. A subtask can be used if needed, to further subdivide the project into more meaningful pieces. A work package is a group of activities combined to be assignable to a single organizational unit.

  • A project milestone is a specific event in a project. The work breakdown structure (WBS) defines the hierarchy of project tasks, subtasks and work packages. Activities are pieces of work within a project that consume time.

  • A Gannt chart (also bar chart) is a graphic representation of the amount of time involved and the sequence in which activities can be performed

  • Earned value management (EVM) is a technique that combines measures of scope, schedule and cost for evaluating project progress.

  • A critical path of activities is the sequence(s) of activities in a project that forms the longest chain in terms of their time to complete. If one of the activities in the critical path is delayed, then the entire project is delayed. The critical path method (CPM) can be used for scheduling a project.

  • An early start schedule is a project schedule that lists all activities by their early start times. A late start schedule is a project schedule that lists all activities by their late start times. This schedule may attribute to savings by postponing purchases of material and other costs.

  • If a single estimate of the time required to complete an activity is not reliable, the best procedure is to use three time estimates

  • Time-cost models are an extension of the critical path models that considers the trade-off between the time required to complete an activity and cost. This is often referred to as “crashing” the project. The basic assumption is that there is a relationship between activity completion time and the cost of a project. Crashing means the time to complete the project is compressed or shortened.

  • Costs that are associated with expediting activities are activity direct costs and add to the project direct cost. Costs that are associated with sustaining the project are project indirect costs: overhead, facilities and resource opportunity costs. Between these two costs, there is a trade-off and therefore also a minimum point.

Chapter 6: Production Processes

  • Lead time = the time needed to respond to a customer order.

  • The customer order decoupling point (CODP) determines where inventory is positioned to allow process or entities in the supply chain to operate independently. It separates order-driven activities from forecast-driven activities. As closer the decoupling point is to the customer, the quicker the customer can be served. Make-to-stock are firms that serve customers from finished goods inventory. Assemble-to-order is used by those firms that combine a number of preassembled modules to meet a customer’s specification. Make-to-order are used by firms that make the customer’s product from raw materials, parts and components. Engineer-to-order are used by firms working with the customer to design the product, and then make it from purchased materials, parts and components.

  • There are forces which influence the position of the decoupling point: process constraints, delivery service requirements, product-market constraints and inventory cost consideration.

  • Process selection refers to which kind of production process to use to produce a product or provide a service. There are different formats by which a facility can be arranged. The five basic structures are project layout, workcenter/job shop, manufacturing cell layout/batch, assembly line and continuous process.

  • Workstation cycle time = the time between successive units coming off the end of an assembly line. It is used in the assembly-line design: at each workstation employees either add parts or complete the assembly. Total work to be performed at a workstation is equal to the sum of the tasks assigned to that workstation. The assembly-line balancing problem is referred to assigning all tasks to a series of workstations in order that each workstation has no more than can be done in the work station cycle time. The steps in balancing an assembly line:

  1. Specify the sequential relationships among tasks using a diagram;

  2. Determine the workstation cycling time (C);

  3. Determine the theoretical minimum number of workstations (Nt) required to satisfy the workstation cycle time constraint;

  4. Select a primary rule by which tasks are to be assigned to workstations and a secondary rule to break ties;

  5. Assign tasks, one at a time, to the first workstation until the sum of the task times is equal to the workstation cycle time or no other tasks are feasible because of time or sequence restrictions;

  6. Evaluate the efficiency of the balance and

  7. If the efficiency is unsatisfactory, rebalance.

  • A measure to calculate the inventory is Little’s law that says that there is a long-term relationship between the inventory, throughput, and flow time of a production system in steady state. Inventory = Throughput rate * Flow time

  • Throughput rate is the long-term average rate that items are flowing through the process. The Flow time is the time it takes a unit to flow through the process from beginning to end.

Chapter 7: Service processes

  • Services can be defined as activities that typically produce an intangible product, such as education, lodging, entertainment, government, financial and health services.

  • There are different degrees of customer/server contact, where customer contact refers to the physical presence of the customer in the system, creation of the service refers to the work process involved in providing the service itself and the extent of contact may be the percentage of time the customer must be in the system relative to the total time it takes to perform the customer service.

  • Service encounters can be configured in a number of different ways. The service-system design matrix in exhibit 7.1 on page 212 in the book shows six different alternatives, based on the degree of customer service contact, which is subdivided into buffered core, permeable system and reactive system. There are six possibilities: mail contact, internet and on-site technology, phone contact, face-to-face tight specs, face-to-face loose specs and face-to-face total customization.

  • Service blueprint = a standard tool for service process design. It emphases the importance of process design and sets a distinction between the high customer contact aspects of the service and those activities that the customer does not see (shown with a line of visibility). Poka-yokes (translated as avoid mistakes) are procedures that block the inevitable mistake from becoming a service defect.

  • A main problem in service setting is the management of waiting lines. The manager has to measure out the cost of waiting against the added cost of providing more service. Managing queues, the following suggestions are made: segment the customers, train your servers to be friendly, inform your customers of what to expect, try to divert the customer’s attention while waiting and encourage customers to come during slack periods.

  • The queuing system consists of three major components: the source population/the way customers arrive at the time, the servicing system and the condition of the customers exiting the system. The source population can be divided into two parts: finite population and infinite population. Arrival rate = the expected number of customers that arrive each period of time.

  • The servicing system can be identified by different factors: length, number of lines, queue discipline, service rate and line structure.

  • To solve an exam question step by step, follow these steps:

  1. Identify the appropriate waiting line model.

  2. Determine λ and m. (λ = Mean number of arrivals per time period, µ = Mean number of people (or items) served per time period.)

  3. Identify the appropriate performance measure.

  4. Find the correct formula.

  5. Fill out the formula.

  • To Identify the appropriate waiting line model, there are two options given: M/M/1 (refers the arrival process) and M/D/1(refers to the service process). M/M/1: The first letter M means “Poisson distributed” arrivals and the second letter „negative exponential“ (random) service times. M/D/1: The first letter M means “Poisson distributed” arrivals and D means “deterministic” (constant) service times. The third number refers to the number of service channels. See for the formulas the summary!

  • λ = Mean number of arrivals per time period. µ = Mean number of people (or items) served per time period.

  • F(t) = λeλt . Pt(n) = ((λT)n * e-λT)/n!


Chapter 8: Sales and Operations Planning

  • Sales and operations planning is a process that helps firms to better manage demand of the customer. An aggregate operations plan can be prepared for this: a plan for labour and production for the intermediate term, with the objective to minimize the cost of resources needed to meet demand.

    • Aggregate is the management of major groups of products.

    • Sales and operations planning (S&OP) is the process that companies use to keep demand and supply in balance and to coordinate distribution, marketing and financial plans.

    • Long-range planning is generally done annually, and focuses on a horizon greater than one year.

    • Intermediate-range planning covers mostly a period from 3 to 18 months.

    • Short-range planning focuses from one day to six months.

  • The main purpose of an aggregate plan is to specify the optimal combination of production rate, workforce level and inventory on hand. Production rate is the number of units completed per unit of time. Workforce level refers to the number of workers needed for production (production = production rate x workforce level). Inventory on hand is unused inventory carried over from the previous period.

  • Production planning strategies are plans for meeting demand that involve trade-offs in the number of workers employed, work hours, inventory and shortages. These strategies can be helpful in managing demand. There are three different strategies:

    1. Chase strategy: match the production rate to the order rate by hiring and laying off employees as the order rate varies.

    2. Stable workforce – variable work hours: vary the output by varying the number of hours worked through flexible work schedules or overtime.

    3. Level strategy: work with a stable workforce and a constant output rate.

  • If one of these strategies is used to manage demand, a pure strategy is used. If more than one strategy is used, a mixed strategy is used.

  • There are four costs relevant to the aggregate production plan:

    1. Basic production costs

    2. Costs associated with changes in the production rate

    3. Inventory holding costs

    4. Backordering costs

  • Companies often use a cut-and-try method to develop an aggregate plan. This involves drafting several alternatives and singling out the the first-rate option.

  • Yield management is the process of allocating the right type of capacity to the right type of customer at the right price and time to maximize revenue or yield, given that capacity is limited. Yield management can be used to making demand more predictable. From an operational perspective, yield management is most effective when:

    1. Demand can be segmented by the customer; 2. Fixed costs are high and variable costs are low; 3. Inventory is perishable; 4. Product can be sold in advance; 5. Demand is highly variable.

  • Yield management only works if pricing structures appear logic to the customer and justify the different prices. Such justification, also called rate fences, may have either a physical basis (a room with a view) or a nonphysical basis (unrestricted access to the Internet). Pricing should also depend on capacity.

  • A second issue in yield management is handling variability in arrival or starting times, durations and time between customers. This entails using forecasting methods. A third issue relates to managing the service process. A last and most critical issue is training workers and managers to work in an environment where overbooking and price changes are standard occurrences that directly impact the customer.

  • The essence of yield management is the ability to manage demand. Kimes and Chase suggest two strategic levers that can be used to accomplish this goal: pricing and duration control. If these are thought of in matrix form, with fixed or variable price and predictable or unpredictable duration, a framework arises for a firm to identify its position and the necessary actions to manage yield.



Chapter 9: Planning material requirements


  • Enterprise resource planning (ERP) is a computer system that integrates application programs in accounting, sales, manufacturing and the other functions in a firm.

  • The emphasis is on material requirements planning (MRP), which is the logic for determining the number of parts, components and materials needed to produce a product.

  • A master production schedule (MPS) is a time-phased plan specifying how many and when the firm plans to build each end item. MPS states when the end items need to be finished. This can be used as an input to the MRP process, except if the end item is quite large or expensive. Making a MPS is dependent on the pressures from various functional areas and deadlines that are set. To ensure a good MPS, the master scheduler (the person) must:

    • Include all demands from product sales, warehouse replenishment, spares and interplant requirements;

    • Never lose sight of the aggregate plan;

    • Be involved with customer order promising;

    • Be visible to all levels of management;

    • Objectively trade off manufacturing, marketing and engineering conflicts;

    • Identify and communicate all problems.

  • The procedure should follow the following steps: First, an aggregate operations plan need to be made, secondly a MPS and finally the MRP program can be used.

  • A time fence is a period in which the customer enjoys a specified level of opportunity to make changes.

  • Available to promise is a feature of MRP systems that identifies the difference between the numbers of units currently included in the master schedule and the actual (firm) customer orders.

  • A Bill of Materials(BOF) identifies the specific materials necessary to produce each item and the correct amounts needed for this. The invertorylijsts contain data sucha as the available units and the ones on order. These three sources are the input for the MRP

  • Planned order past due (POPD) An order receipt is planned in week t. However such cannot be released in this week. t – LT therefore is before the first week in the table.

  • Rescheduled In: A scheduled receipt arrives too late; in the previous period a net requirement has lead to a POPD. There should therefore always be a POPD before a Reschedule In, but not nessecarily a Reschedule In after every POPD: This is only the case when after the POPD there are still scheduled receipts left.

  • Rescheduled out: a Scheduled Receipt in period t is unnecessarily early. In this period is Projected Available ≥ Q (batch size) /

  • Solutions for a POPD:

    1. Use Safety Stock (SS): discuss with sales;

    2. Accelerate (a part of) the Scheduled Receipt: discuss with production;

    3. Rush order in stead of current Planned Order;

    4. Adjust Gross Requirements;

  • The determination of lot sizes in an MRP system is complex and difficult. Lot sizes are the part quantities issued in the planned order receipt and planned order release sections of an MRP schedule. There are different techniques. These are discussed from p. 289 on, have a look at the example! The different forms are:Lot-for-lot; Economic Order Quantity; Least Total Cost; and Least Unit Cost.


    Chapter 10: Total Quality Management

    • Total Quality Management = the management of an entire organization including all dimensions of products and services that are important to the customer. There are two elementary goals: careful design of the product/service and ensuring that the organization’s systems can consistently produce the design.

    • Design quality = the inherent value of the product in the marketplace in thus a strategic decision for the firm. The dimensions of design quality are performance, features, reliability/durability, serviceability, aesthetics and perceived quality.

    • Conformance quality = the degree to which the product or service design specifications are met. Quality at the source = making the person who does the work responsible for ensuring that specifications are met. Dimensions of quality = criteria by which quality is measured.

    • The Cost of Quality (COQ) analysis is one of the primary functions of thee QC departments. The COQ can be classified into four types: appraisal cost, prevention cost, internal failure cost and external failure cost.

    • ISO 9000 and ISO 14000 involve a series of standards agreed upon by the International Organization for Standardization (ISO). ISO 9000 is based on eight quality management principles focusing on business processes related to different areas in the firm. ISO 14000 addresses the need to be environmental responsible.

    • Six Sigma = the method companies use to eliminate defects in their products and processes. It seeks to reduce variation in the processes that lead to product defects. The term Six Sigma refers to the variation that exists within plus or minus three standard deviations of the process output. The calculation requires three pieces of data: Unit, Defect and Opportunity. The methodology side of Six-Sigma are project-oriented through the Define, Measure, Analyse, Improve, and Control (DMAIC) cycle.

    • Assignable variation = deviation in the output of a process that van be clearly identified and managed. Common variation = deviation in the output of a process that is random and inherent in the process itself.

    • Upper and lower specification limits = range of values in a measure associated with a process that is allowable given the intended use of the product or service.

    • Every process displays variation in performance: normal or abnormal. Process capability = the ability of a process to produce output within specification limits. This concept only holds meaning for processes that are in state of statistical control. Capability index = shows how well the parts being produced fit into the range specified by the design specification limits.

    • Statistical process control (SPC) involves testing a random sample of output from a process to determine whether the process in producing items within a preselected range. Attributes, then, are quality characteristics that are classified as either conforming or not conforming to specification.

    • Process control using p-charts, c-charts, X-bar and R charts: see the summary for the formulas!



    Chapter 11: Inventory management

    There are three main inventory management models:

    1. The single-period model: used when a one-time purchase of an item is made.

    2. Fixed-order quantity model: used when we want to maintain an item in-stock, and when the item is resupplied, a certain number of units must be ordered each time.

    3. Fixed-time period model: also used when the item should be in-stock and ready to use, but the difference is that the item is ordered at certain intervals of time.

    • Inventory is the stock of any item or resource used in an organization. In making decisions that affects inventory size, the following costs must be considered:
    • Holding or carrying costs: all costs for holding goods and the storage facilities, taxes, insurance etc.

    • Setup (production change) costs: the costs of making each different product.

    • Ordering costs: the managerial and clerical costs to prepare the purchase or production order.

    • Shortage costs: the costs of having a stock out

    • An inventory system provides the organizational structure and the operating policies for maintaining and controlling goods to be stocked.

    • In a single-period inventory model, a decision is just a one-time purchasing decision where the purchase is designed to cover a fixed period of time and the item will not be reordered. The optimal stocking level occurs at the point where the expected benefits derived from carrying the next unit are less than the expected costs for that unit. Formula:

      P(Co) ≤ (1 – P)Cu . P is: P ≤ Cu/ (Co+ Cu)

    • Multiperiod inventory systems involves items that will be purchased periodically where inventory should be kept in stock to be used on demand. There are two types of systems.

    1. The fixed-order quantity model (EOQ/Q-model) is an inventory control model where the amount requisitioned is fixed and the actual ordering is triggered by inventory dropping to a specified level of inventory.

    2. The fixed-time period model (P-model) is an inventory control model that specifies inventory is ordered at the end of a predetermined time period.


    • This fixed-order quantity model tries to determine the specific point R at which an order will be placed and the size of that order, Q. Order point R is always a specified number of units. The inventory position is the amount on-hand plus on-order minus backordered quantities. In the case where inventory has been allocated for special purposes, the inventory position is reduced by these allocated amounts.

    • Price-break models are used for products where the selling price of an item varies with the order size.

    • ABC inventory classification divides inventory into dollar volume categories that map into strategies appropriate for the category. A means high dollar volume, B moderate dollar volume and C low dollar volume. By using this classification, not every inventory needs to go through counting; the focus can be on the most important items in stock. This is related to the Pareto principle: the few having the greatest importance.

    • Cycle counting is a physical inventory-taking technique in which inventory is counted on a frequent basis rather than once or twice a year.


    Chapter 12: Lean production

    • Lean production = an integrated set of activities designed to achieve high-volume production using minimal inventories (raw materials, work in process, and finished goods). It involves the elimination of waste in production effort and the timing of production resources. Each step in the supply chain should create value (value chain) for what the customer is willing to pay (customer value). Anything that does not add value from the customer’s perspective is considered as waste.

    • A value stream = value-adding and non-value-adding activities required to design, order and provide a product from concept to launch, order to delivery, and raw materials to customers. Waste reduction = the optimization of value-adding activities and elimination of non-value-adding activities that are part of the value stream.

    • Lean suppliers are those who are able to respond to changes. They value the efficient of lean processes as it lowers the price. Lean procurement is the use of software that removes human interaction and integrates with the financial reporting of the firm. Lean manufacturing systems produce what the consumer wants and in what quantity they want it and when they want it with minimum resources. Lean warehousing relates to waste in product storage processes. Lean logistics is about the movement of materials through the system. Routes should be optimized for example. Lean customers have specific and meaningful requirements and have a great understanding of their business needs.

    • Lean layouts; requires the plant to be designed as such that there is a balanced work flow with minimum Work in Process inventory. Preventive maintenance = periodic inspection and repair that is designed to keep the equipment reliable.

    • Group technology = a philosophy in which similar parts are grouped into families and the processes required to make the parts are arranged in a specialized workcell Quality at the source = philosophy of making factory workers personally responsible for the quality of their output. Workers are expected to make the part correctly the first time and to stop the process immediately if there is a problem. JIT production = producing what is needed when needed and no more. Anything above the minimum amount necessary is waste.

    • Stable schedules are accomplished by level scheduling = schedule that pulls materials into final assembly at a constant rate, freeze windows = the period of time during which the schedule is fixed and no further changes are possible and backflush = calculating how many of each part were used in production and using these calculations to adjust actual on-hand inventory balances.

    • Uniform plant loading = smoothing the production flow to dampen schedule variation. Kanban production control systems = an inventory or production control system that uses a signalling device to regulate JIT flows. Determining number of Kanbans needed = expected demand during lead time plus safety stock divided by the size of the container. Other: , where D = average number of units demanded per period, L = lead time to replenish an order, S = safety stock expressed as a percentage of demand during the lead time and C = container size. Minimized set-up times; the reductions in setup and changeover times are needed to create a smooth flow.

    • Concepts that can contribute to a lean supply chain: specialized plants, collaboration with suppliers and building a lean supply chain.

    • Value stream mapping (VSM) distinguishes value added and non-value added activities. Kaizen = a Japanese philosophy that focuses on continuous improvement.

    Chapter 13: Global sourcing

    • Strategic sourcing = obtaining products and services in such a way that adds to fulfilling the strategic aims of the company.

    • Depending on the contract duration, transaction costs and specificity of the product, a firm’s purchasing can be classified into types of processes: strategic alliance, spot purchase, request for proposal (RFP), reverse auction, request for bid, vendor managed inventory and electronic catalogue.

    • The Bullwhip Effect describes the phenomenon of variability magnification as we move from the customer to the producer in the supply chain. It indicates a lack of synchronization among supply chain members and in fact means that if there is a bit volatility in consumer sales, retailers blow up this volatility by reacting heavily in their orders to the wholesaler, the wholesaler then heavily reacts in his order to the manufacturer, et cetera. The causes of the bullwhip effect are order synchronization, order batching, trade promotions and forward buying, reactive and over-reactive ordering and shortage gaming. The consequences of the bullwhip effect are inefficient production or excessive inventory, low utilization of the distribution channel, necessity to have capacity far exceeding average demand, high transportation costs and poor customer service due to stock outs.

    • Fisher developed a framework (see exhibit 13.3, page 438 in the book) to help managers in understanding the nature of demand for their products and then adapt their supply chains in order to best satisfy that demand. The root cause of supply chain problems, according to Fisher, is a mismatch between the type of product and the type of supply chain.

    • Functional products = staples that people buy in a wide range of retail outlets, such as grocery stores and gas stations. Such products satisfy basic needs and its demand is thus quite predictable and stable. Innovative products = products such as fashionable clothes and personal computers that typically have a life cycle of just a few months. Imitators quickly enter the market, making new innovations a must.

    • The concept of Hau Lee aligns the supply chains (sc) with the uncertainties revolving around the supply process side of supply chains, it is an expansion of Fisher’s framework. His framework is illustrated in a two by two matrix resulting from low/high uncertainty and low/high demand uncertainty. For visualization refer to page 439, exhibit 13.4.

    • There are four types of supply chain strategies: supply chains that are efficient, risk-hedging, responsive and agile.

    • Outsourcing is the act of moving a firm’s internal activities and decision responsibility to outside providers. This allows a company to create a competitive advantage while reducing cost.

    • Factors evaluating whether to outsource or not are the following: coordination, strategic control and intellectual property.

    • Green sourcing refers to the finding of new environmentally friendly technologies and the increasing the use of recyclable materials. It helps to reduce drive cost in a variety of ways: product content substitution, waste reduction, and lower usage.

    • Total Cost of Ownership (TCO) = a financial estimate of the cost of an item, which determines direct and indirect costs of a product or system. It includes all the costs related to the procurements and use of items, including any related costs in disposing of the item after it is no longer useful. The costs can be categorized into three broad areas: acquisition costs, ownership costs and post-ownership costs.

    • To evaluate supply chain efficiency, two common measures are used: inventory turnover and weeks-of-supply. Inventory turnover = cost of goods sold/average aggregate inventory value. Weeks-of-supply = cost of goods sold/average aggregate inventory value * 52.

    Chapter 14: Logistics

    • Logistics = a part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods/service. Global logistics is concerned with managing logistics internationally.

    • The Logistics-System Design Matrix in exhibit 14.1 on page 362 depicts the basic alternatives for transportation: highway, water, air, rail, pipelines and hand delivery.

    • Cross-docking = an approach used in consolidation warehouses where, rather than making larger shipments, large shipments are broken down into small shipments for local delivery in an area. Hub-and-spoke systems = systems that combine the idea of consolidation and that of cross-docking. Here, the warehouses is referred to as a hub and its sole purpose is sorting goods. Hubs are located in strategic locations near the geographic center of the region they are to serve in order to diminish the distance a good must travel.

    • Criteria that influence manufacturing plant and warehouse location planning are proximity to customers, business climate, total costs, infrastructure, quality of labour, suppliers, other facilities, free trade zones, political risk, government barriers, trading blocs, environmental regulation, host community and competitive advantage.

    • There are three different types of techniques in locating a plant:

    1. Factor rating system = an approach for selecting a facility location by combining a diverse set of factors. Point scales are developed for each criterion. Each potential site is then evaluated on each criterion and the points are combined to calculate a rating for the site.

    2. Transportation method = a special linear programming method that is useful for solving problems involving transporting products from several sources to several destinations. Two common objectives of such problems: minimizing costs of shipping n units to m destinations and maximizing profits of shipping n units to m destinations.

    3. Centroid method = a technique for locating single facilities that considers the existing facilities, the distances between them, and the volumes of goods to be shipped. The centroid method finds a simple mathematical point. Once it is found, the problem should consider qualitative factors such as geography, roads and utilities to find an exact location. The centroid is found by calculating X and Y coordinates that result in the minimal transportation cost. Formulas:Cx,y = X,Y coordinate of the centroid. Dix,y = X,Y coordinate of the ith location. Vi = volume of goods moved to or from the ith location.


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