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BUS 355 Exam 2
Terms in this set (71)
The capability of a worker, a machine, a work-center, a plant, or an organization to produce output in a time period.
Factors that could affect capacity
Number of lines used
Number of shifts operating
Number of temporary workers used
Number of public storage facilities used
Product variations on line
Examples of Capacity in Different Organizations
The maximum output capability, allowing for no adjustments for preventive maintenance, unplanned downtime, or the like.
Lead capacity strategy
A capacity strategy in which capacity is added in anticipation of demand.
Advantages and Disadvantages:
Ensures adequate capacity to meet all demand even during periods of high growth, important if availability of product is crucial
Can preempt competitors that might be planning to expand their own capacity
Can be very risky if demand is unpredictable
Lag capacity strategy
A capacity strategy in which capacity is added only after demand has materialized.
Advantages and Disadvantages:
Reduced risk of over building, greater productivity due to higher utilization levels and the ability to put off large capital investments for as long as possible.
Match capacity strategy
A capacity strategy that strikes a balance between the lead and lag capacity strategies by avoiding period of high under or over utilization.
The expenses an organization incurs regardless of the level of business activity (mortgages, lease payments, maintenance, utilities, etc.).
Expenses directly tied to the level of business activity (material and component costs).
TC = FC + VC * X
TC = Total Cost
FC = Fixed Cost
VC = Variable cost per unit of business activity
X = amount of business activity
The volume level for a business at which total revenues cover total costs.
Break-even point Formula
BEP = FC / (R-VC)
BEP = Break-even point
FC = Fixed Codt
VC = Variable cost per unit of business activity
R = revenue per unit of business activity
Theory of Constraints
An approach to visualizing and managing capacity which recognizes that nearly all products and services are created through a series of linked processes, and in every case, there is at least one process step that limits throughput for the entire chain. (bottle neck problem)
Solving the Theory of Constraints
Identify the constraint - which can be anywhere in the supply chain, upstream or downstream, internal or external
Exploit the constraint - Manage to ensure an uninterrupted flow, Keep it busy!
Subordinate everything to the constraint - Make supporting it the overall priority, remember it is the constraint that determines throughput.
Elevate the constraint - Try to increase its capacity — more hours, improved quality, reliability, speed, etc.
Find the new constraint and repeat - As one step is removed as a constraint, a new one will emerge.
Firms compete against..
their competitors' supply chains.
Cost of goods sold
The purchased cost of goods from outside suppliers.
The ratio of earnings to sales for a given time period.
Profit Margin Formula
= 100% x (Earnings / Sales)
Return on assets (ROA)
A measure of financial performance generally defined as Earnings/Total Assets
Return on assets formula
= 100% x (Earnings / Assets)
Profit leverage effect
A term used to describe the effect of $1 in cost savings increasing pretax profits by $1 and a $1 increase in sales increasing pretax profits only by $1 multiplied by the pretax profit margin.
The application of quantitative techniques to purchasing data in an effort to better understand spending patterns and identify opportunities for improvement.
The use of resources within the firm to provide products or services.
The use of supply chain partners to provide products or services.
Total cost analysis
A process by which a firm seeks to identify and quantify all of the major costs associated with various sourcing options.
Costs tied directly to the level of operations or supply chain activities.
Costs that are not tied directly to the level of operations or supply chain activity.
Direct Costs (Insourcing and Outsourcing)
Insourcing: Direct material, Direct labor, Freight costs, Variable overhead
Outsourcing: Price (from invoice), Freight costs
Indirect Costs (Insourcing and Outsourcing)
Insourcing: Supervision, Administrative support, Supplies, Maintenance costs, Equipment depreciation, Utilities, Building lease, Fixed overhead
Outsourcing: Purchasing, Receiving, Quality control
The buying firm depends on a single company for all or nearly all of an item or service. (a lot of eggs in one basket or stronger relationships with access to engineering capabilities)
The buying firm shares its business across multiple suppliers. (Spreads the risk or may reduce supplier loyalty and increase costs over time)
Using a single supplier for a certain part or service and another supplier with the same capabilities for a similar part. (new business can be awarded based on performance or held as a back up supplier)
Using two suppliers for the same purchased product or service. (one is threatened not to mess up while the other stays hungry for more)
Stated price does not change, regardless of fluctuations in overall economic demand, supply levels, market prices, etc.
Price of the good or service is tied to the cost of some other key input(s) or other economic factors (interest rates, price of oil).
Six Activities that make up Logistics
3. Material handling
5. Inventory management
6. Logistics information systems
A transportation solution that seeks to exploit the strengths of multiple transportation modes through physical, information, and monetary flows that are as seamless as possible.
Five Transportation Modes
Strengths: Flexibility to deliver where and when needed.Often the best balance among cost, flexibility, and reliability/ speed of delivery.
Weaknesses: Neither the fastest nor the cheapest option.
Strengths: Highly cost-effective for bulky items, Most effective when linked to a multimodal system.
Weaknesses: Limited locations.
Strengths: Quickest mode of delivery. Flexible, especially when linked to the highway mode.
Weaknesses: Often the most expensive mode on a per-pound basis
Strengths: Highly cost-effective for bulky items. Can be most effective when linked to a multimodal system.
Weaknesses: Limited locations, although less so than with water. Not as fast as highway, but improving over time.
Shipment made with no stops
Less than truckload (LTL)
Smaller shipment combined with other loads
A form of warehousing that pulls together shipments from a number of sources in the same geographic area and combines them into larger and more economical loads.
A form of warehousing in which strategically placed hubs are used as sorting or transfer facilities.
A form of warehousing that combines classic warehouse operations with light manufacturing and packaging duties to allow firms to put off final assembly or packaging of goods until the last possible moment.
Spot stock warehouses
A form of warehousing that attempts to position seasonal goods close to the marketplace.
Third-party logistics provider (3PL)
A service firm that handles all of the logistics requirements for other companies. Using 3PLs allows companies to focus on their core competencies yet still enjoy access to state-of-the-art logistics capabilities.
A term used to refer to the timely, error-free provision of a product or service in good condition.
The cost of a product plus all costs driven by logistics activities, such as transportation, warehousing, handling, customs fees, etc. A term generally associated with imported goods
Reverse logistics system
A complete supply chain dedicated to the reverse flow of products and materials for the purpose of returns, repair, remanufacture, and/or recycling. Forward logistics systems typically aren't set up to handle reverse logistics flows. It's a different flow, just one that needs to be created.
Demand, Supply, Price
Overall market demand
US demand for hybrid vehicles to reach 10 million in 2016
what is your share ....vehicles, components, spare parts, etc.
4 Laws of Forecasting
Law 1: Forecasts Are Almost Always Wrong (But They Are Still Useful). Goal is to get a close estimate
Law 2: Forecasts for the Near Term Tend To Be More Accurate. Just like the weather
Law 3: Forecasts for Groups of Products or Services Tend to Be More Accurate. Total car sales vs. sales for each particular color
Law 4: Forecasts Are No Substitute For Calculated Values. Cross department communication pg 253
Qualitative Forecasting Methods
Market surveys, Build-up forecasts, Life-cycle analogy method, Panel consensus forecasting, and Delphi method
structured questions submitted to potential customers to solicit opinions (can be expensive and time consuming but if structured correctly and sent to a representative sample of the target population, you can get good data)
individual market segments aggregated up
Life-cycle analogy method
Often used with NEW items. Base the forecast of the NEW off of the actual history of a similar product
Panel consensus forecasting
panel of experts working together jointly
panel of experts working independently and then the results shared, the process is then repeated until a consensus is reached
Unpredictable movement from one time period to the next.
Long-term movement up or down in a time series.
A repeated pattern of spikes or drops in a time series associated with certain times of the year.
Moving average model
A time series forecasting model that derives a forecast by taking an average of recent demand values.
Weighted moving average model
A form of the moving average model that allows the actual weights applied to past observations to differ.
Exponential smoothing model
A special form of the moving average model in which the forecast for the next period is calculated as the weighted average of the current period's actual value and forecast.
Mean Absolute Deviation (MAD)
tracks the average size of the errors, regardless of direction.
Mean Absolute Percentage Error (MAPE)
MAPE is similar to MAD in that it considers the absolute value of the forecast errors. By dividing the absolute forecast error in each period by the actual period demand, also gives us an indication of the magnitude of the errors.
Collaborative Planning, Forecasting, and Replenishment (CPFR)
A set of business processes, backed up by information technology, in which supply chain partners agree to mutual business objectives and measures, develop joint sales and operational plans, and collaborate to generate and update sales forecasts and replenishment plans.