• a key subsystem of a value chain
that focuses primarily on the physical movement of
goods and materials along with supporting
information through the supply, production, and
• Key Functions: Purchasing and procurement of
materials and supplies, sales and order processing,
operations, inventory and materials management,
transportation and distribution, information
management, finance, and customer service.
Supply Chain Mgmt
The management of all activities that facilitate the
fulfillment of a customer order for a
manufactured good to achieve satisfied
customers at a reasonable cost
a network of processes
A supply chain is a key subsystem of a value chain
produces goods in advance of
customer demand using a forecast of sales and
moves them through supply chain to points of
sale where they are stored as finished goods
produces only what is needed at
upstream stages in the supply chain in response
to customer demand signals from downstream
Sustainable supply chain
"the process of using environmentally
friendly inputs and transforming these inputs
through change agents—whose byproducts can
improve or be recycled within the existing
Substantially decreasing scrap, packaging, and material losses.
• Adopting paperless practices for information processing.
• Lowering expenses associated with hazardous materials.
• Increasing revenues by converting wastes to by-products.
• Reducing water and energy requirements.
• Decreasing the use and waste of solvents, paints, cleaning
fluids, and other chemicals.
• Selecting suppliers that support sustainability.
• Recovering valuable materials and assets through efficient
product take-back and recycle programs.
"60 to 70 percent of a company's
carbon footprint is found along
their supply chain"
The bullwhip effect
results from order
amplification in the supply chain: a
phenomenon that occurs when each member of
a supply chain "orders up" to buffer its own
• Many firms counteract this phenomenon by
using common data from the point of the
supply chain closest to the customer, smaller
order sizes, stabilizing price fluctuations, and sharing information.
Center of Gravity
determines the location for a single facility.
- Takes into account locations, demand, and
transportation costs to arrive at the best location.
the capability of a manufacturing or service resource such as a facility, process, workstation, or piece of equipment to accomplish its purpose over a specified time period.
determined by the resources available to the organization—facilities, equipment, and labor— how they are organized, and their efficiency as determined by specific work methods.
How capacity is viewed
1. As the maximum rate of output per unit of time, or
2. As units of resource availability.
Long-term capacity decisions
Complementary goods or services balance
seasonal demand cycles and therefore use the
excess capacity available
Four basic strategies:
1. One large capacity increase.
2. Small capacity increases that match average
3. Small capacity increases that lead demand.
4. Small capacity increases that lag demand.
Short-term capacity decisions
Add or share equipment, sell unused capacity, Change labor capacity and schedules (overtime), Change labor skill mix (Hire the right people), Shift work to slack periods (Example: Build up inventory during
slack times and hold for peak demand times)
Vary the price of goods or services, Provide customers with information, Advertising and promotion, Add peripheral goods and/or services, Provide reservations
A revenue management system (RMS) consists
of dynamic methods to forecast demand, allocate
perishable assets across market segments, decide
when to overbook and by how much, and determine
what price to charge different customer (price)
Economies of scale
achieved when the average unit cost of a good or service decreases as the capacity and/or volume of throughput increases.
Diseconomies of scale
occur when the average unit cost of the good or service begins to increase as the capacity and/or volume of throughput increases
Capacity Measurement in Job Shop
Capacity Required (Ci) = Setup Time (Si) + [Processing Time (Pi) x Order Size (Qi)]
= Si + [(Pi)(Qi)]
The Theory of Constraints (TOC)
is a set of principles that focuses on increasing total process throughput by maximizing the utilization of all bottleneck work activities and workstations.
• Throughput: Amount of money generated per
time period through actual sales.
• Constraint: Anything that limits an organization
from moving toward or achieving its goal
bottleneck work activity
effectively limits capacity of the entire process.
nonbottleneck work activity
one in which idle capacity exists
Break-even analysis PROBLEM
QBEP = fixed costs/(selling price-unit cost)
the process of projecting the values of one or more variables into the future. planning & timing
Types of forcasting
• Long-range forecasts in total sales dollars (top
• Aggregate forecasts of sales volume (middle
• Forecasts of individual units (operational level)
a set of observations measured at successive points in time or over successive periods of time.
5 characteristics of a time series
• A trend is the underlying pattern of growth or decline in a time series.
• Seasonal patterns are characterized by repeatable
periods of ups and downs over short periods of time.
• Cyclical patterns are regular patterns in a data series
that take place over longer periods of time.
• Random variation (sometimes called noise) is the
unexplained deviation of a time series from a predictable pattern, such as a trend, seasonal, or cyclical pattern.
• Irregular variation is a one-time variation that is
linear decreasing trend, linear increasing trend, nonlinear increasing trend, non-linear decreasing trend
any asset held for future use or sale.
- Maintain sufficient inventory
- Incur lowest possible cost
Shortage costs or stockout costs are the
costs associated with a SKU (stock keeping unit[ is a single item or asset stored at a particular location]) being unavailable
when needed to meet demand.
price paid for purchased goods
or the internal cost of producing them.
- A stockout is the inability to satisfy demand
for an item.
- A backorder occurs when a customer is
willing to wait for an item.
- A lost sale occurs when the customer is
unwilling to wait and purchases the item
ABC inventory analysis
categorizes SKUs into three
groups according to their total annual dollar usage.
1. "A" items account for a large dollar value but a
relatively small percentage of total items.
2. "C" items account for a small dollar value but a
large percentage of total items.
3. "B" items are between A and C
partially finished products in various stages of completion that are awaiting further processing
an additional amount of inventory that is kept over and above the average amount required to meet demand.
Ordering costs or setup costs
a result of the work involved in placing purchase
orders with suppliers or configuring tools,
equipment, and machines within a factory to
produce an item.
are the expenses associated with carrying inventory
Static, dynamic, deterministic, and stochastic demand
Static- stable demand
dynamic- varies over time
Independent demand - is demand for an SKU that
is unrelated to the demand for other SKUs and
needs to be forecast.
Dependent demand - is demand directly related to
the demand for other SKUs and can be calculated
without needing to be forecast.
Demand can either be constant (deterministic) or
Economic Order Quantity (EOQ) model
minimizes total cost, which is
the sum of the inventory-holding cost and the
(1/2)(av inventory)(annual holding cost per unit)+[(number of orders)(cost per order)]
development of long-term output and resource plan in aggregate units of measure ex)industry forecasts, resource costs
Aggregate Planning Options
- Production-rate changes
- Workforce changes
- Inventory smoothing
- Facilities, equipment, and transportation
the process of translating aggregate plans into short-term operational plans that provide the basis for weekly and daily schedules and detailed resource requirements
Dependent demand is demand that is directly related to the demand of other SKUs and can be calculated without needing to be forecasted.
capacity requirements and formula
C=(shifts/day x 5 days/week) X (impressions/shift) X (4 weeks/month)
refers to the assignment of start and completion times to particular jobs, people, or equipment.
- Examples: Scheduling restaurant employees,
airline crews and planes, sports teams, factory
refers to determining the order in
which jobs or tasks are processed.
- Examples: Emergency room patients, automobile
models on an assembly line, outgoing flights on
the time needed to process a given set of
jobs. (=completion time of last job in the group - start time of first job in the group)
the difference between the completion time
and the due date (either positive or negative)
the amount of time by which the completion time exceeds the due dat
Flow time is the amount of time a job spent in the
shop or factory.
Fi = ∑pij + ∑wij = Ci - Ri
Fi= Flow time of job i
∑pij= Sum of all processing times of job i at workstation or area j (run + setup times)
∑wij= Sum of all waiting times of job i at workstation or area j
Ci = Completion time of job i
Ri = Ready time for job i where all materials, specifications, and so on are available
Shortest Processing Time (SPT)
maximizes resource utilization
and minimizes average flow time and work-in process inventory.
Earliest Due Date (EDD)
EDD minimizes the maximum job tardiness and
useful tools for monitoring
schedules. This helps to track jobs that are
behind, on, or ahead of schedule.
concept and definition of quality
refers to systematic
policies, methods, and procedures used to
ensure that goods and services are produced
with appropriate levels of quality to meet the
needs of customers.
W. Edwards Deming
Focused on bringing about improvements in product
and service quality by reducing uncertainty and
variability in goods and services design.
Higher quality leads to higher productivity and lower
costs, which leads to improved market share and
long-term competitive strength.
1: Create a Vision and Demonstrate Commitment
2: Learn the Philosophy
3: Understand Inspection
4: Stop Making Decisions Purely on the Basis of Cost
5: Improve Constantly and Forever
6: Institute Training
7: Institute Leadership
8: Drive Out Fear
9: Optimize the Efforts of Teams
10: Eliminate Exhortations
11: Eliminate Numerical Quotas
12: Remove Barriers to Pride in Work
13: Encourage Education and Self-Improvement
14: Take Action
• Defined quality as "fitness for use."
• Advocated use of quality cost measurement.
• Quality Trilogy: Quality planning, quality control,
and quality improvement.
• Focused on defect elimination using statistical
Philip B. Crosby
• Wrote Quality is Free in 1979, which brought quality to the
attention of top corporate managers in the U.S.
• Absolutes of Quality Management:
- Quality means conformance to requirements, not elegance.
- There is no such thing as a quality problem.
- There is no such thing as the economics of quality; doing
the job right the first time is always cheaper.
- The only performance measurement is the cost of quality,
which is the expense of nonconformance.
- The only performance standard is Zero Defects (ZD)
the GAP model
People view quality by comparing features and
characteristics of goods and services to a set of
•Gap 1 is the discrepancy between customer expectations and management perceptions of those expectations.
• Gap 2 is the discrepancy between management perceptions of what features constitute a target level of quality and the task of translating these perceptions into executable specifications.
• Gap 3 is the discrepancy between quality specifications documented in operating and training manuals and plans and their implementation.
• Gap 4 is the discrepancy between actual manufacturing and service delivery system performance and external communications to the customers.
• Gap 5 is the difference between the customer's expectations and perceptions.
to improve product quality, improve the quality of operation's processes, and provide confidence to organizations and customers that quality system requirements are fulfilled
Based on eight principles:
1. Customer-Focused Organization
3. Involvement of People
4. Process Approach
5. System Approach to Management
6. Continual Improvement
7. Factual Approach to Decision Making
8. Mutually Beneficial Supplier Relationships
a business improvement approach that seeks to find and eliminate causes of defects and errors in manufacturing and service processes by focusing on outputs that are critical to customers and results in a clear financial return for the organization
errors per million opportunities—epmo or
defects per million opportunities (dpmo) = (Number of defects discovered/opportunities for error) X 1,000,000
What does Six Sigma mean numerically?
Key Concepts to Six Sigma
• Emphasizing dpmo or epmo as a standard metric that can be applied to all parts of an organization.
• Providing extensive training followed by project team
• Focusing on corporate sponsors responsible for supporting team activities.
• Creating highly qualified process improvement experts.
• Ensuring that appropriate metrics are identified early in the process and that they focus on business results.
• Setting stretch objectives for improvement.
1. Define: Identify customers and their priorities;
identify and define a suitable project; identify CTQs
(critical to quality characteristics).
2. Measure: Determine how to measure the process
and how it is performing; identify key internal
processes that influence CTQs and measure current
3. Analyze: Determine likely causes of defects and
understand why defects are generated by identifying
key variables that cause process variation.
4. Improve: Identify means to remove causes of
defects; confirm key variables; modify the process to
stay within acceptable range.
5. Control: Determine how to maintain improvements;
put tools in place to ensure that key variables remain
within acceptable ranges under the modified
7 QC (quality control) tools
1. Flowcharts: Process mapping to identify the sequence of activities or flow of materials/information in a process.
2. Run Charts and Control Charts: A run chart is a line graph with data plotted over time; control charts include control limits.
3. Checksheets: Simple tools for data collection, ensure completeness.
4. Histograms: Graphically represent frequency of
values within a specified group.
5. Pareto Diagrams: Separate the vital few from the
trivial many causes; provide direction for selecting
projects for improvement.
6. Cause-and-Effect Diagrams: Represent chain of
relationships; often called a fishbone diagram.
7. Scatter Diagrams: Graphical component of
(mistake-proofing) is an approach for mistakeproofing processes using automatic devices or methods to avoid simple human error.
understanding quality control principles
ensure that good/service meets specifications and customer requirements by measuring processes and making adjustments to maintain a high level of performance
QC practices in manufacturing
• Supplier Certification and Management:
Ensures conformance to requirements before
value-adding operations begin.
• In-Process Control: Ensures that defective
outputs do not leave the process and prevents
defects in the first place.
• Finished Goods Control: Verifies that product
meets customer requirements.
quality at the source
people responsible for the work control the quality of their processes by identifying and correcting any defects or errors when they are first recognized
chart used to make sure quality is in control through data collection, trial control limits and anaylsis
the natural variation in a process that results from common causes
Principles of Lean Operating Systems
1. Eliminate Waste: Eliminate any activities that do not
add value in an organization. Includes overproduction,
waiting time, transportation, processing, inventory.
2. Increase Speed and Response: Better process
designs allow efficient responses to customers' needs
and the competitive environment.
3. Improve Quality: Poor quality reduces yields,
requiring extra inventory, processing time, and space
for scrap and rework.
4. Reduce Cost: Simplifying processes and improving
efficiency translates to reduced costs.
5 categories of waste
overproduction, waiting time, transportation, processing, inventory
• Sort: Each item is in the proper place.
• Set in order: Arrange materials so that they are
easy to find and use.
• Shine: Clean work area.
• Standardize: Formalize procedures and practices.
• Sustain: Keep the process going.
indicators for operating
activities that are placed in plain sight of all
employees so that everyone can quickly and easily
understand the status and performance of the work
system. (paint where pallets should go)
focuses on small, gradual, frequent improvements over the long term with minimum financial investment and with participation by everyone in the organization
total productive maintenance, ensuring that operating systems will perform their intended function reliably ex) max equipt effectiveness and eliminate unplanned downtime
just in time systems, pull-production, synchronizing the entire manufacturing process to the final assembly schedule ex) preventative maintenance, mistake-proof job, clean workspace
a flag or a piece of paper that contains
all relevant information for an order: part number,
description, process area used, time of delivery,
quantity available, quantity delivered, production
quantity, and so on.