BA2 – Chapter 11, 12 and 13 Formula for Little’s Law:

– Work-in-process = Throughput x Flow time

Chapter 11: Process Analysis & Resource – Can be expressed as: Eq. 11.3 WIP = R x T
Utilization Managing Waiting Lines

 Utilization – is the fraction of time a workstation or  A queue - is a waiting line

individual is busy over the long run.
– Understanding queues allows us to analyze current
– It is difficult to achieve 100% utilization. and alternative process designs to understand their
behavior, predict process performance, and better
– Job shops: 65-90%
allocate resources
– Flow shops: 80-95%
 Queueing system - consists of customers that arrive
– Continuous flow: above 95% for service, one or more servers that provide the
service, and a queue (waiting line) of entities that
wait for service if the server is busy.

Three common queueing configurations are

1. One or more parallel servers fed by a single queue.

2. Several parallel servers fed by their own queues.

3. A combination of several queues in series.

Queueing Theory (QT)

 Queueing Theory – is the analytical study of waiting

lines
 QT for Process Analysis - Analyzing queueing
systems can be performed with analytical models or
simulation models.
 The simplest queueing model, called a single server
 Throughput – is the number of units or tasks that queueing model
are completed per unit time from a process. Multiple Server Queueing Model
– Throughput might be measured as parts per day, - In many practical situations, it is possible to have
transactions per minute, or customers per hour, multiple servers in which customers wait in a single
depending on the context. serpentine line and move to the next available server.
 Bottleneck – is the work activity that effectively
limits the throughput of the entire process.

- Identifying and breaking process bottlenecks is an

important part of process design and improvement

Breaking bottlenecks will:

• Reduce waiting

• Reduce work-in-process inventory

• Enhance customer service

• Allow efficient use of resources  Fixed-Time Simulation Model

- simulation model that increments time in fixed

Little’s Law
intervals.
At any moment, people, orders, jobs, documents,
 Theory of Constraints (TOC)
money, and other entities that flow through processes
are in various stages of completion and may be waiting – is a set of principles that focuses on increasing total
in queues. process throughput by maximizing the utilization of all
bottleneck work activities and workstations.
 Flow time (cycle time) – is the average time it takes
to complete one cycle of a process.  Constraints - is anything in an organization that
 Little’s Law – is a simple equation that explains the limits it from moving toward or achieving its goal.
relationship among flow time (T), throughput (R),
and work-in process (WIP) - determine the throughput of a facility because they
limit production output to their own capacity.

 Two basic type of constraints:

 • Physical  Lead time – Time between placement of an order
• Nonphysical and its receipt
 Stockouts – Inability to satisfy the demand for an
 Non-bottleneck work activity – is one in which idle item
capacity exists.  Backorder - Occurs when a customer is willing to
 Nonphysical constraint – is environmental or wait for an item
organizational, such as low product demand or an  Lost sale: Occurs when the customer is unwilling
inefficient management policy or procedure. to wait and purchases the item elsewhere

Chapter 12: Managing Inventories in ABC INVENTORY ANALYSIS

Supply Chains • Categorizes SKUs into groups according to their total
annual dollar usage
 Inventory Management - involves planning,
coordinating, and controlling – Total dollar usage = Item usage (volume) x Item's
dollar value (unit cost)
…Acquisition, storage, handling, movement,
distribution, and possible sale of raw materials –  A items - Account for a large dollar value but a
Component parts and subassemblies relatively small percentage of total items
 C items - Account for a small dollar value but a large
 TYPES OF INVENTORY
percentage of total items
• Raw materials, component parts, subassemblies, and  B items - Items between A and C
supplies – Inputs to manufacturing and service-delivery
processes
 Fixed-Quantity System (FQS) - Deals with a fixed
• Work-in-process (WIP) inventory – Partially finished
order quantity or lot size
products in various stages of completion that are
awaiting further processing – Same quantity is ordered every time, and it does not
have to be economically determined
• Finished-goods inventory – Completed products
ready for distribution or sale to customers • Managed using:

• Safety stock inventory – Additional amount of – Inventory position (IP) - On-hand quantity (OH) plus
inventory kept over and above the average amount any orders placed that have not arrived (scheduled
required to meet demand receipts, SR), minus any backorders (BO)

 CATEGORIES OF INVENTORY COSTS Eq. 12.1 IP = OH + SR – BO

 Ordering costs or setup costs
MANAGING FIXED-QUANTITY INVENTORY SYSTEMS
- Results of the work involved in placing
purchase orders with suppliers – When IP falls at or below a certain value (reorder
 Inventory-holding costs or inventory-carrying point), a new order is placed
cost
- Expenses associated with carrying inventory  Reorder point (r): Value of the inventory position
 Shortage costs or stock out costs that triggers a new order
- associated with inventory being unavailable to  Economic Order Quantity (EOQ) Model - Classic
meet demand economic model that minimizes the total cost
 Unit cost – Total cost is the sum of the inventory-holding cost
– Price paid for purchased goods or the internal and the ordering cost
cost of producing them
 Cycle inventory (order or lot size inventory)
INVENTORY CHARACTERISTICS – Results from purchasing or producing in larger lots
 Number of items – Each item is assigned a unique than are needed for immediate consumption or sale
identifier, called a stock-keeping unit (SKU)
 Stock-keeping unit (SKU): Single item or asset
stored at a particular location
 Nature of demand
 Independent demand - Demand for an SKU that is
unrelated to the demand for other SKUs and
needs to be forecasted
 Dependent demand - Directly related to the
demand of other SKUs and can be calculated Annual holding cost per unit (Ch )
without needing to be forecasted
 Static demand - is stable in nature • Ch = (I)(C)
 Dynamic demand varies over time
Where:
 Number and Duration of Time Periods –
• I - Annual inventory-holding charge expressed as a
Inventory requirements are planned over an
percent of unit cost
extended number of time periods (single/multiple)
• C - Unit cost of the inventory item or SKU
Annual Inventory-holding Cost:

=(Ave. Inv.) x (Annual holding cost per unit) = 1/ 2 QCh

Annual Ordering Cost:

= (Number or Orders per Year) x (Cost per Order)

= 𝐷/𝑄 C0

Where –

D - Annual demand for the product

– Q - Number of items ordered
– C0 - Cost of placing one order

 Single-Period Inventory Model

• Used in situations involving seasonal or perishable

items that cannot be carried in inventory and sold in the
future

• Known as newsvendor problem

• Solved using marginal economic analysis

– Compares the cost or loss of ordering one additional

item with the cost or loss of not ordering one additional
item

 Quantity Discount Model

- Discounts offered for large quantities ordered

- To incorporate quantity discounts in the EOQ model,

purchase cost of the item in the total cost equation is
included

 AVOIDING STOCKOUTS IN A FIXED-ORDER-

QUANTITY SYSTEM
 Safety stock - additional, planned on-hand
inventory that acts as a buffer to reduce the risk
of a stockout
 Service level- desired probability of not having a
stockout during a lead-time period SUMMARY
 Fixed-Period System (FPS)
• Inventory is an asset held for future use or sale
- Inventory position is checked only at fixed intervals of
time, T, rather than on a continuous basis • Economic order quantity (EOQ) model minimizes the
total cost

• In a fixed-period system (FPS), inventory position is

checked only at fixed intervals of time, T

• Single-period models are used in situations involving

items that cannot be carried in inventory and sold in
future periods

Chapter 13: Supply Chain Management & Logistics

 Supply Chain Management (SCM)

• Management of all activities that facilitate the

fulfillment of a customer order for a manufactured good
– To achieve customer satisfaction at reasonable cost

 Logistics - Component of supply chain management

• Management of the flow of materials and • Developing a win-win relationship through long-term
transportation activities – To ensure adequate customer partnership rather than as adversaries
service at reasonable cost • Establishing trust through openness and honesty, thus
•Vital to satisfy customers' needs and expectations leading to mutual advantages
• Leads to efficiency in supply chain performance
 Supply and Value Chain Integration
 Functions of Logistics
1. Selecting transportation carriers  Supply chain integration: Coordinating the physical
2. Managing company-owned fleets of vehicles, flow of materials
distribution centers, and warehouses – Ensures that the right parts are available at various
3. Controlling efficient interplant movement of stages of the supply chain
materials and goods within supply chains  Value chain integration: Managing information,
4. Ensuring that goods are delivered to customers physical goods, and services
– Ensures their availability at the right place, time, cost,
 The Supply Chain Operations Reference (SCOR) and quantity and with the highest attention to quality
Model
• Framework for understanding the scope of SCM based  Primary Responsibilities of Logistics Managers
on functions involved in managing a supply chain 1. Purchasing transportation services
– Plan – Source – Make – Deliver – Return 2. Managing the transportation of materials and
• Requires a clear understanding of the interactions goods through the supply chain
among all parts of a system 3. Managing inventories
• Helps managers identify important performance
metrics to manage and monitor their processes  Purchase of Transportation Services
• Involves:
 Sourcing – Selecting appropriate modes of shipment and mix of
• Key activity in manufacturing – Obtaining raw specific carriers
materials, manufactured components, and – Contracting with suppliers for domestic and global
subassemblies transportation services
Sourcing options for services
– Employment agencies – Equipment maintenance and  Modes of Shipment
repair companies – Information systems providers – 1. Rail
Third-party logistic firms – Engineering services – Health 2. Air
services – Retirement providers 3. Trucks
 Global sourcing - Seeks to balance various 4. Ships and barges
economic factors with delivery performance and 5. Backhaul
quantity requirements
6. Pipelines
 Purchasing (Procurement) –
• Responsible for acquiring raw materials, component
 Critical Factors to Consider:
parts, tools, services, and other items required from
1. Speed
external suppliers
• Acts as an interface between suppliers and the 2. Accessibility
production function in goods producing firms 3. Cost
• Buys the goods necessary to perform services in 4. Capability
service firms
 INVENTORY MANAGEMENT
 Purchasing Goals –  Vendor-Managed Inventory (VMI) - Vendor
• Supporting key internal customers monitors and manages inventory for the customer
• Ensuring quality, delivery performance, low cost, and • Advantages
technical support – Optimization of production operations
• Seeking new suppliers and products continually – Better control on inventory and capacity
• Being able to evaluate the strategic, market, and the – Reduction in total supply chain costs
economic potential of new suppliers and products to • Disadvantage – Substitutable products from
the company
competing manufacturers are not accounted for,
resulting in higher than necessary customer inventories
 Purchasing Department Responsibilities
• Managing the flow of goods through warehouses and
• Learning the material needs of the organization
• Aggregating orders shipping directly to retail stores and customers
• Selecting qualified suppliers and negotiating price and • Filing claims for damaged goods
contracts ---  Bullwhip Effect
• Inventories exhibit wild swings up and down
 Principles for Working with Suppliers • Results from order amplification in a supply chain
- • Recognizing suppliers' strategic importance in Order amplification: Occurs when each member of a
accomplishing business objectives supply chain orders up to buffer its own inventory
 Steps to Counteract Bullwhip Effect
1. Modify the supply chain infrastructure and
operational processes-use demand data closest
to the customer
2. Use smaller order sizes
3. Stabilize price fluctuations
4. Share information on sales, capacity, and
inventory data among the members of the
supply chain

 Risk Management
1. Identify risks that can occur
2. Assessing the likelihood that they will occur
3. Determining the impact on the firm and its
customers
4. Identifying steps to mitigate the risks

 Tactical Supply Chain Risks and Possible

Management Actions

Strategic Supply Chain Risks and Possible Management

Actions

SUPPLIER CERTIFICATION

 Certified supplier
– Supplies material of such quality that routine testing
on each lot received is unnecessary
– Provides recognition for high-quality suppliers, which
motivates them to improve continuously and attract
more business
– Driven by performance measurement and rating
 Supply Chains in E-Commerce processes
• Government value chains use ecommerce to provide
better service for citizens, control waste and fraud, and  Green Sustainable Supply Chain
minimize costs - Uses environmentally friendly inputs and transforms
these inputs through change agents
– Byproducts can improve or be recycled within the  Cost-based – considered implicitly in process and
existing environment due-date criteria
– Resulting outputs can be reclaimed and reused at the
end of their life-cycle PROCESS-FOCUSED PERFORMANCE CRITERIA
MEASURES
 Manufactured Goods Recovery  Flow time - is the amount of time a job spends in
- Recovering manufactured goods that will be discarded the shop or factory.
or unusable  Makespan – is the time needed to process a given
– Reuse or resell an equipment set of jobs;
– Repair and refurbish a manufactured good – A short makespan aims to achieve high equipment
– Remanufacture a good utilization and resources by getting all jobs out of
the shop quickly
 Reverse Logistics
• Manages the flow of finished goods, materials, or DUE-DATE CRITERIA MEASURES
components that are unusable or discarded  Lateness - Difference between the completion time
• Uses supply chain from customers toward either and the due date (either positive or negative).
suppliers, distributors, or manufacturers  Tardiness - Amount of time by which the
– Purpose - Reuse, resale, or disposal completion time exceeds the due date
• Activities - Logistics, marketing/sales,  Sequencing Rules,
accounting/finance, call center service, and • For prioritizing jobs that arrive intermittently
legal/regulatory compliance  First come, first served (FCFS)
• Used in service-delivery systems
Chapter 15 – Operations Scheduling & Sequencing • Focuses only on the time of arrival for the
 Scheduling – assignment of start and completion customer or job – Fewest number of operations
times to particular jobs, people, or equipment remaining (FNO) Solved Prob. 15.9
 Sequencing – Determination of the order in which • Does not consider the length of time for each
jobs or tasks are processed operation
 Scheduling • For prioritizing jobs in the short term
- applies to all aspects of a value chain  Shortest processing time (SPT)
- software applications • Tends to minimize average flow time and WIP
 Staff Scheduling inventory and maximize resource utilization
- Attempts to match available personnel with the Sequencing Rules, Part 1 Sequencing Rules, Part 2
needs of the organization by:  Earliest due date (EDD)
- Accurately forecasting demand and translating it • Minimizes the maximum of jobs past the due date
into the quantity and timing of work to be done • Does not perform well on average flow time, WIP
- Determining the staffing required to perform the inventory, or resource utilization – Least work
work by time period remaining (LWR)
- Determining the personnel available and the full- • Sum of all processing times for operations not yet
and part-time mix performed
- Matching capacity to demand requirements, and  Two-Resource Sequencing Problem
developing a work schedule that maximizes service  Exists for flow shop with only two resources or
and minimizes costs workstations
 Appointments  • Solved by finding a minimum makespan schedule
- Reservation of service time and capacity • Johnson’s algorithm
- Help maximize the use of time-dependent service – Step 1 - List the jobs and their processing times on
capacity and reduce the risk of no-shows Resources #1 and #2
- Reduce the cost of providing services as the – Step 2 - Find the job with the shortest processing
service providers are idle less each workday time
- Try to accommodate customers and forecast their – Step 3 - If this time corresponds to Resource #1,
behavior sequence the job first; if it corresponds to resource
#2, sequence the job last
Sequencing Performance Criteria (Single Processor) – Step 4 - Repeat steps 2 and 3 using the next-
shortest processing time
 Process-focused performance – pertains to data • Work inward from both ends of the sequence
about the start and end of jobs; focuses on shop until all jobs have been scheduled
performance such as equipment utilization and  Schedule Monitoring and Control
work-in-process (WIP) inventory Necessary for rapidly changing scheduling
 Customer-focused due date – pertains to environments in service and goods manufacturing
customers’ required due dates or internally industries
determined shipping dates  Vehicle Routing and Scheduling Approaches
 - Complete enumeration is carried out for all • Evaluates the quality of both goods and services
possible routes to find the best route plan and • Identifies where to focus design and improvement
shortest total delivery time efforts

 Clarke–Wright Heuristic Method - Assumes that  ISO 9000 Standards - Define quality system
each customer is serviced individually from the standards, based on the premise that management
depot practices can be standardized
- Seeks to combine customers into longer routes to  ISO 9000 Principles
reduce the total travel time and remain within  Principle 1 - Customer Focus
capacity restrictions  Principle 2 – Leadership
 Principle 3 – Engagement of People
CHAPTER 16: Quality Management  Principle 4 – Process Approach
 Principle 5 – Improvement
 Quality Management - Systematic policies,  Principle 6 – Evidence-based Decision
methods, and procedures Making
– Used to ensure that goods and services are  Principle 7 – Relationship Management
produced with appropriate levels of quality to meet  SIX SIGMA - Business improvement approach –
the needs of customers Seeks to find and eliminate causes of defects and
 Quality - Meeting or exceeding customers' errors in manufacturing and service processes
expectations • Focuses on outputs that are critical to customers
 Quality of conformance - Extent to which a process • Results in a clear financial return for the
is able to deliver outputs that conform to the design organization
specifications  DMAIC Process
 Specifications - Targets and tolerances determined  Define (D) – Identify customers and their priorities
by designers of goods and services  Measure (M) – Determine how to measure a
 Service Quality (SERVQUAL) - Consistently meeting process and how it is performing
or exceeding customer expectations and service  Analyze (A) – Determine likely causes of defects
delivery system performance criteria in all service  Improve (I) – Identify means to remove the causes
encounters. of defects; – Identify the maximum acceptable
 SERVQUAL - instrument for measuring customer ranges of key variables and a system for measuring
perceptions of service quality. deviations of the variables
 Dimensions  Control (C) – Determine how to maintain the
1. Reliability improvements
2. Responsiveness  4 Key Measures of Performance (in Services):
3. Tangibles 1. Accuracy
4. Assurance 2. Cycle time
5. Empathy 3. Cost
 Total Quality Principles 4. Customer Satisfaction
- Focus on customers and stakeholders  Cost-of-Quality Measurement
- Process focus supported by continuous  Cost of quality - Costs associated with avoiding poor
improvement and learning quality or those incurred as a result of poor quality
- Participation and teamwork by an organization’s  Categories of Quality Costs
employees  Prevention costs - Expended to keep
 Deming’s Qlty Mgt Philosophy nonconforming goods and services from being
• Quality products help somebody and enjoys a made and reaching the customer
good and sustainable market 1. Quality planning costs
• Focuses on improving product and service quality 2. Process-control costs
by reducing variability in goods and services design 3. Information-systems costs
 Joseph Duran’s Principle 4. Training and general management costs
• Defined quality as “fitness for use”  Appraisal costs - Help ascertain quality levels
• To improve quality – familiarity is key through measurement and data analysis to detect
• Sought to improve quality by working within a and correct problems
familiar cultural system (Plan, Control, & Improve) 1. Test and inspection costs
• Top - dollars; Workers – things 2. Instrument maintenance costs
 Crosby’s Absoluteness of QM 3. Process-measurement and process-control
• Quality means conformance to requirements, not costs
elegance  Internal failure costs - Incurred as a result of
• There is no such thing as a quality problem-it’s unsatisfactory quality that is found before the
functional in nature. delivery of a good or service
 GAP Model 1. Scrap and rework costs
 2. Costs of corrective action
3. Downgrading costs
4. Process failures

 External failure costs - Incurred after poor-quality Chapter 18 – Lean Operating Systems
goods or services reach the customer
1. Costs due to customer complaints and returns  Lean Thinking - Approaches that focus on: –
2. Goods and services recall costs and warranty Elimination of waste in all forms – Smooth, efficient
and service guarantee claims flow of materials and information throughout the
3. Product-liability costs value chain to:
 Lean Operating Systems – Manufacturing and
 Seven Quality Control (QC) Tools service operations that apply the principles of lean
1. Flowcharts – Identify the sequence of activities enterprise
or flow of materials and information in a  Lean Principles
process 1. Elimination of waste
2. Run charts and control charts – 2. Increased speed and response
Run chart – Line graph with data plotted over 3. Improved quality
time 4. Reduced cost
Control charts – include upper and lower  Lean Tools and Approaches
control limits 1. 5Ss
3. Checksheets – Data-collection forms where the 2. Visual Controls
results are interpreted directly on the forms 3. Single Minute Exchange of Dies (SMED)
without additional processing 4. Small batch and single-piece flow
4. Histograms – Graphically represent the 5. Quality and continuous improvement
frequency of values within a specified group 6. Total productive maintenance (TPM)
5. Pareto diagrams – Separate the vital few from
the trivial many causes; Provide direction for  5S Principles
selecting projects for improvement • Help maintain clean and well organized
6. Cause-and-effect (or fishbone) diagrams – workplaces
Present a chain of cause and effect • Derived from Japanese terms
7. Scatter diagrams – Graphical component of 1. Seiri (sort) - Each item is in the proper place
regression analysis 2. Seiton (set in order) - Arrange materials so that
 5-Why Technique of RCA -Helps redefine a problem they are easy to find and use
statement as a chain of causes and effects to 3. Seiso (shine) - Clean work area
identify the source of the symptoms – Asks why, 4. Seiketsu (standardize) - Formalize procedures
ideally five times and practices
 Kaizen Quality Improvement Approach 5. Shitsuke (sustain) - Keep the process going
• Focuses on small, gradual, and frequent through training, communication, and
improvements over a long term, with: organizational structures
– Minimum financial investment  Visual Controls - Indicators for operating activities
– Participated by everyone in the organization that are placed in plain sight of all employees
 Kaizen event - Intense and rapid improvement  Single Minute Exchange of Dies (SMED) - Quick
process – All resources of a team or a department setup or changeover of tooling and fixtures in
are directed into an improvement project over a processes
short time period
BATCHING & SINGLEPIECE FLOW
OTHER QUALITY IMPROVEMENT STRATEGIES
 Batching – process of producing large quantities of
 Breakthrough Improvement Approach - items as a group before transferring them to the
Discontinuous change, as opposed to the gradual, next operation
continuous improvement of kaizen  Single-piece flow – concept of ideally using batch
Aided by: series of one ; requires ability to change between
 Benchmarking - Search for industry best practices products quickly and inexpensively
that lead to superior performance  Transfer Batch - moving a portion of a completed
 Best Practices - Approaches that produce batch before the entire batch is finished
exceptional results, are usually innovative in terms  Quality & Continuous Improvement - – Inspection,
of the use of technology or human resources, and analysis, and controlling of work to guarantee that
are recognized by customers or industry experts. goods or services conform to specifications when
passed on to the next stage • Eliminates the
opportunities for waste
 Total Productive Maintenance (TPM) - Focused on
ensuring that operating systems will perform their
intended function reliably
 Lean Six Sigma
- Draws from the best practices of the lean tools
approach and Six Sigma
– Driven by customer requirements
– Focus on real dollar savings

 Lean Production vs. Six Sigma

 Lean Production – Addresses visible problems in
processes
- Focuses on efficiency by reducing waste and
improving process flow
- Tools are intuitive and easy to apply
 Six Sigma – Concerned with less visible problems
- foucses on effectiveness by reducing errors and
defects
- tools require advanced training and expertise of
specialists
 Just-in-Time (JIT) Systems - • Sometimes called
Kanban systems
• Introduced at Toyota as an alternate to the
traditional push system
 Push system - Produces finished-goods inventory in
advance of customer demand, using a forecast of
sales
 Pull system - Employees at a given operation go to
the source of the required parts and withdraw units
as they need them
 Kanban - Flag or a piece of paper that contains all
relevant information for an order
1. Part number
2. Description
3. Process area used
4. Time of delivery
5. Quantity available
6. Quantity delivered
7. Production quantity
 Kanban Cards - Circulated within the system to
initiate withdrawal and production items through
the production process

d
  Number of items – Each item is assigned a unique
KEY DEFINITIONS identifier, called a stock-keeping unit (SKU)
– Stock-keeping unit (SKU): Single item or asset stored
at a particular location
Chapter 11: Process Analysis & Resource Utilization
 Independent demand - Demand for an SKU that is
unrelated to the demand for other SKUs and needs
 Utilization - is the fraction of time a workstation or
to be forecasted
individual is busy over the long run.
– Dependent demand - Directly related to the demand
 Throughput – is the number of units or tasks that
of other SKUs and can be calculated without needing to
are completed per unit time from a process.
be forecasted
 Bottleneck – is the work activity y that effectively – Static demand - is stable in nature
limits the throughput of the entire process.
 Number and Duration of Time Periods – Inventory
 Flow time (cycle time) – is the average time it takes requirements are planned over an extended
to complete one cycle of a process. number of time periods (single/multiple)
 Little’s Law – is a simple equation that explains the
relationship among flow time (T), throughput (R), • Lead time – Time between placement of an order and
and work-inprocess (WIP) its receipt
 A queue - is a waiting line • Stockouts – Inability to satisfy the demand for an item
 Queueing system - consists of customers that arrive - Backorder: Occurs when a customer is willing to wait
for service, one or more servers that provide the for an item
service, and a queue (waiting line) of entities that - Lost sale: Occurs when the customer is unwilling to
wait for service if the server is busy. wait and purchases the item elsewhere
 Queueing Theory – is the analytical study of waiting  Fixed-Quantity System (FQS) - Deals with a fixed
lines order quantity or lot size.– Same quantity is ordered
 QT for Process Analysis - Analyzing queueing every time, and it does not have to be economically
systems can be performed with analytical models or determined
simulation models • Reorder point (r): Value of the inventory position that
 Fixed-Time Simulation Model - simulation model triggers a new order
that increments time in fixed intervals.  Economic Order Quantity (EOQ) Model - Classic
 Theory of Constraints (TOC) – is a set of principles economic model that minimizes the total cost
that focuses on increasing total process throughput  Cycle inventory (order or lot size inventory) –
by maximizing the utilization of all bottleneck work Results from purchasing or producing in larger lots
activities and workstations. than are needed for immediate consumption or sale
 Constraints - is anything in an organization that  Quantity Discount Model - Discounts offered for
limits it from moving toward or achieving its goal. large quantities ordered
 TWO BASIC TYPE OF CONSTRAINTS:  Safety stock - additional, planned on-hand
1. Physical inventory that acts as a buffer to reduce the risk of a
2. Nonphysical stockout
 Non-bottleneck work activity – is one in which idle  Service level- desired probability of not having a
capacity exists. stockout during a lead-time period
 Nonphysical constraint – is environmental or  Fixed-Period System (FPS) - Inventory position is
organizational, such as low product demand or an checked only at fixed intervals of time, T, rather
inefficient management policy or procedure. than on a continuous basis
 Single-Period Inventory Model - Used in situations
Chapter 12: Managing Inventories in Supply Chains involving seasonal or perishable items that cannot
be carried in inventory and sold in the future
 Inventory Management - involves planning,
coordinating, and controlling Chapter 13 - Supply Chain Management And Logistics
 TYPES OF INVENTORY:
1. Raw materials, component parts, subassemblies,  Supply Chain Management (SCM) - Management
and supplies of all activities that facilitate the fulfillment of a
2. Work-in-process (WIP) inventory customer order for a manufactured good
3. Finished-goods inventory  Logistics - Component of supply chain management
4. Safety stock inventory  The Supply Chain Operations Reference (SCOR)
 CATEGORIES OF INVENTORY COSTS Model - Framework for understanding the scope of
1. Ordering costs or setup costs SCM based on functions involved in managing a
2. Inventory-holding costs or inventory-carrying cost supply chain
3. Shortage costs or stockout costs – Plan – Source – Make – Deliver – Return
4. Unit cost
 Key activity in manufacturing – Obtaining raw
materials, manufactured components, and
subassemblies
 Global sourcing - Seeks to balance various
economic factors with delivery performance and
quantity requirements
 Purchasing (Procurement) – Responsible for
acquiring raw materials, component parts, tools,
services, and other items required from external
suppliers

 PRIMARY RESPONSIBILITIES OF LOGISTICS

MANAGERS
1. Purchasing transportation services
2. Managing the transportation of materials and goods
through the supply chain
3. Managing inventories
 MODES OF SHIPMENT
1. Rail
2. Air
3. Trucks
4. Ships and barges
5. Backhaul
6. Pipelines

 CRITICAL FACTORS TO CONSIDER:

1. Speed
2. Accessibility
3. Cost
4. Capability
 Vendor-Managed Inventory (VMI) - Vendor
monitors and manages inventory for the customer
 Bullwhip Effect - Inventories exhibit wild swings up
and down
– Order amplification: Occurs when each member of a
supply chain orders up to buffer its own inventory
 Risk Management
1. Identify risks that can occur
2. Assessing the likelihood that they will occur
3. Determining the impact on the firm and its
customers
4. Identifying steps to mitigate the risks

 Certified supplier – Supplies material of such quality

that routine testing on each lot received is
unnecessary
 Green Sustainable Supply Chain - Uses
environmentally friendly inputs and transforms
these inputs through change agents
 Manufactured Goods Recovery - Recovering
manufactured goods that will be discarded or
unusable
 Reverse Logistics - Manages the flow of finished
goods, materials, or components that are unusable
or discarded