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Purposes of Inventory:

-meet anticipated demand
-decouple (separate) various parts of the production process
-take advantage of quantity discounts
-hedge against inflation

Disadvantages of Inventory:

-higher costs
-difficult to control (due to variability)
-hides production problems (quality problems)

holding costs

the cost to keep/carry inventory in stock
-also include costs related to storage
*often understated

Fixed Order Quantity System

when inventory decreases to the Order Point (OP), you put in an order
-the same fixed amount is added to inventory every time an order for an item is placed
-perpetual inventory system (continuously monitored)
*also known as the 2 bin system

Fixed Order Period System

reviews inventory level at "fixed time intervals"
-order enough materials to bring the inventory to a predetermined level
*on-hand inventory only counted at the end of a given time period

ABC Analysis

divides on-hand inventory into 3 classes based on annual dollar value (class A, B & C)
-applies Pareto principle

Policies based on ABC analysis

-develop class A (items of which annual dollar volume is high) suppliers more
-give tighter physical control of A items
-forecast A items more carefully

Classifying Itens as ABC

Class A: 70-80% $ Vol, 15% items
Class B: 15-25% $ Vol, 30% items
Class C: 5% $ Volume, 55% items

The purpose of ABC analysis is to:

determine which items in inventory should be monitored with most intensity

Cycle Counting

corrects on-hand inventory balances before they cause problems in plant operations
ex. weekly cycle counting for A items, monthly for B

Economic Order Quantity (EOQ)

fixed order quantity model
-minimizes the total of ordering and holding costs

EOQ Assumptions:

-known & constant demand
-known & constant lead time
-instantaneous receipt of material (inventory from an order arrives in one batch at one time)
-no quantity discounts
-only order (setup) costs & holding costs
-no stockouts

look at EOQ graphs in course packet


size of 1st bin (EOQ)

quantity between average inventory level and reorder point (ROP)

size of 2nd bin (EOQ)

quantity between ROP and 0

under EOQ, as the order quantity increases:

holding costs increase

Production Order Quantity Model

-answers how much to order & when to order
-allows partial receipt of material
-lower holding cost than EOQ model
-simultaneous production & consumption

Short-Term Scheduling

deals with job sequences, specific assignments of personnel, materials and machinery

Forward Scheduling

scheduling that begins the schedule as soon as the job requirements are known
ex. scheduling patients at a walk-in clinic

Backward Scheduling

scheduling that begins with the due date and schedules the final operation first and the other job steps in reverse
ex. scheduling the delivery of parts for assembly

*"how many cars do we need?" tells you how many tires, seats, etc. you need

Choosing a Scheduling Method: Qualitative criteria

-number and variety of jobs (do low volume jobs last)
-complexity of jobs (easier jobs first)
-nature of operations (training before field work)

Choosing a Scheduling Method: Quantitative criteria

-average completion time (do short jobs first)
-utilization (% of time facility is used)
-WIP inventory (avg # jobs in system)
-customer waiting time (average lateness)

Product-Focused Process Scheduling

high volume, low variety
-generate forward-looking schedule that can meet a reasonably stable demand with the existing fixed capacity
-capacity, set-up time & run-time usually known

Shop Loading

-assigning jobs to work centers
-minimizes costs, idle time or completion time

Shop Loading Considerations

1. job priority (ex. due date)
2. capacity (work center hours available, hours needed for job)

Shop Loading Approaches

1. gnatt charts
2. assignment method

Assignment Method

-assigns tasks or jobs to resources
-type of Linear Programming model
*objective is to minimize total cost, time, etc.

Constraint of Assignment Method:

1 job per resource (ex. machine), 1 resource (ex. machine) per job
*ship only 1 unit from each source going to the destination


specifies order jobs will be worked
FCFS, SPT, EDD, LPT, CR, Johnson's Rule

First Come, First Serve (FCFS)

-process first job to arrive at a work center first
-preferred sequencing group when providing services
-appears "fair" and reasonable to customers

Shortest Processing Time (SPT) Rule

-process job with shortest processing time first

SPT is best rule for minimizing:

1. completion (flow) time
2. WIP inventory (avg # jobs in system)

Disadvantages of SPT

longer jobs get pushed back in sequence
*bad for customer relations

Earliest Due Date (EDD) Rule

process job with earliest due date first (ex. maternity patients)
-performs poorly on many scheduling criteria
*minimizes tardiness
-widely used by many companies if Material Requirements Planning (MRP) is used
-due dates updated by each MRP run

Critical Ratio (CR)

ratio of time remaining to work time remaining
*process job with smallest CR first
*dynamic and easily updated (unlike SPT, FCFS, EDD)

Which sequencing rule is generally the best for minimizing completion time?


Assigning jobs to work centers is referred to as:


Which sequencing rule is more important in the service than the manufacturing sector?

first come, first served (FCFS)

Johnson's Rule

used to sequence N jobs through 2 machines in the same order
*minimizes the processing time & total idle time on the two machines

Johnson's Rule Ordering

Find shortest activity time, if it belongs to 1st machine then schedule it first, if it belongs to 2nd machine then schedule it last. cross that activity off. repeat the process until every task is scheduled.

Theory of Constraints

deals with factors limiting company's ability to achieve goals

Types of Constraints

-physical (machines, raw materials)
-nonphysical (morale, training)

What helps to alleviate a bottleneck?

-increasing capacity of the constraint
-developing alternative routing, processing procedures, or subcontractors
-scheduling throughput to match the capacity of the bottleneck

What sequencing rule is generally best for minimizing tardiness?

Earliest Due Date (EDD)

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