material requirement planning
a software application that has been available since the 1970s; it performs an analysis of the firms existing internal conditions and reports back what the production an purchase requirements are for a given finished product manufacturing schedule. coverts ends items from the master production schedule into a set of time phased component part requirements.
aggregate production planning
a long-range production plan; it sets the aggregate output rate, workforce size, utilization, inventory, and backlog levels for a plant
master production schedule
a medium-range production plan that is more detailed than the aggregate production plan. shows the quantity and them timing of the end items that will be produced.
enterprise resource planning
a packaged business software system that lets a company automate and integrate the majority of its business processes, share common data and practices across the enterprise and produce and access information in a real time environment.
unprocessed purchase inputs or materials that are used to manufacture finished goods.
work in process
partially processed materials not yet ready for sale
products ready for shipment
maintenance, repair, and operating MPO
materials used in production (spare parts, cleaners, brooms)
goods in transit
to warehouse or customers (pipeline inventory)
service industry inventory
tour bus service
1. to meet anticipated customer demands
2. protect against stock outs (safety stock)
3. to guard against price increases
4. to take advantage of quality discounts
management has two basic functions concerning inventory
1. establish a system for tracking items inventory
2. make decisions ( when to make order and how much)
classifying inventory according to some measure of importance, and allocating control efforts accordingly. a way of managing inventory
is used to find a fixed order quantity that will minimize total annual inventory costs. quantity discounts
the total cost curve reaches its minimum where the carrying and ordering costs are equal
lead capacity strategy
a proactive approach that adds or subtracts capacity in anticipation of future market condition and deman
lag capacity strategy
a reactive approach that adjusts capacity in response to demand
tracking capacity strategy
similar to following, but adds capacity in small increments to keep up with increasing demand
the number of customers per day that a firms service delivery systems are designed to serve, although it could also be some other period of time such as customers per hour or customers per shift.
inventory turnover ratio
a widely used measure to analyze how efficiently a firm uses its inventory to generate revenue
the purchase cost, order cost, and carrying cost
bills of materials
an engineering document that shows an inclusive listing of all component parts and assemblies making up the final product. independent and dependent demand
the final product, level 0, an ATV.
all items is level one and below. the engine assembly, suspension and brake, transmission.
advantages of ERP
-significant competitive advantage
-fully utilize capacity
-accurately schedule production
-meet delivery due dates
-enhance efficiency and effectiveness of supply chain
-uses a single database
-takes advantage of internet technology
-reductions of bullwhip effect
disadvantages of ERP
-capital investment is needed to implement system
-designed around a specific business model
-adopting firm must restructure its processes to be compatible with ERP
Challenges to implementing ERP systems
-most erp systems are written based on the best practices of selected firms, so the users business must conform to these approaches.
-lack of top management commitment
-lack of adequate resources
-lack of proper training
-lack of communications
-incompatible system environment
a production strategy that is adjusts output to match the demand pattern during each production period
a production strategy that relies on a constant output rate and capacity while varying inventory and backlog levels to handle the fluctuating demand pattern
a situation where a small change in the upper level production plan causes a major change in the lowel level production plan.
is when uncertainty is not included in its characteristics. know exactly what customer wants. rare
incorporates uncertainty by using probability distributions. where z core comes in
is stable demand
varies over time
physical count of items in inventory made at periodic intervals. count cases of coke every thursday in a restaurant
-reviews physical inventory at specific points in time but require higher level of safety stock
perpetual inventory system
system that keeps track of removals from inventory continuously, thus monitoring current levels of each item. forever keep checking inventory, never stop. grocery store scanner, inventory being tracked and reduced.
-costly to conduct but requires less safety stock
when the quantity on hand of an item drops to this amount, the item is recorded. the lowest inventory level at which a new order must be placed to avoid a stockout.
-demand and delivery lead time are never certain and require safety stock
determinants of the reorder point
1. the rate of demand
2. the lead time
3. the extent of demand and or lead time variability
4. the degree of stockout risk acceptable to management
stock that is held in excess of expected demand due to variable demand and or lead time
single period model
model for ordering perishables and other items with limited useful lives.
characteristics of decisions that are suitable for using decision theory
-a set of possible future conditions that will have a bearing on the results of the decision (interest rates, demand)
-a list of alternatives from which to choose
-a known payoff for each alternative under each possible future condition
mathematical representations of constrained optimization problems
a mathematical statement of profit or cost for a given solution or other metric measurements (time)
amounts of either inputs or outputs
limitations that restrict the available alternatives
a schematic representation of the available alternatives and their possible consequences
-useful for analyzing sequential decisions
economies of scale
If output rate is less than the optimal level, increasing the output rate results in decreasing average per unit costs
reasons for diseconomies of scale
· Distribution costs increase due to traffic congestion and shipping from a centralized facility rather than multiple smaller facilities
· Complexity increases costs
· Inflexibility can be an issue
· Additional levels of bureaucracy
· Overtime costs
maintains stable core workforce while using other short-term means such as overtime, an additional shift, subcontracting, or the hiring of part-time and temporary workers to manage short-term high demand.
§ The firms will then schedule preventive maintenance, produce complementary products that require similar resources but different demand cycles, or continue to produce, the end items, holding these finished goods inventory during the off-peak demand periods.
§ The mixed strategy uses overtime and subcontracting to cope with the high demand periods.
§ Firms with multiple products and with customers seeking both low-cost and make-to-order items may opt for the mixed production strategy to minimize stock outs and cycle time.
Tracking capacity strategy-
or match strategy is a moderate strategy that adjusts capacity in small amounts in response to demand and changing market conditions.
§ Similar to the following(lag)strategy, but adds capacity in relatively small increments to keep pace with increasing demand
Service Capacity Challenges
-need to be near customers -inability to store services -volatility in degree of demand (volume/timing of demand, time required to service customers)