LICEO DE CAGAYAN UNIVERSITY

COLLEGE OF BUSINESS AND ACCOUNTANCY

PRODUCTION MANAGEMENT

FINAL EXAM

SUBMITTED BY: Joe Auddie B. Abenes

SUBMITTED TO: Ms. ANA MARIA S. CORTES

CHAPTER 11

1. AVOIDANCE-Refers to finding ways to minimize the number of returned items.

2. BULLWHIP EFFECT-Inventory oscillations become progressively larger looking
backward through the supply chain.
3. CENTRALIZED PURCHASING-Purchasing is handled by one special department.
4. COLLABORATIVE PLANNING,FORECASTING AND REPLENISHMENT-A
supply chain initiative that focuses on information sharing among the supply chain
trading partners in supplying,forecasting and inventory replenishment.
5. CROSS DOCKING-A technique whereby goods delivered by a supplier is
transferred onto an outbound truck, thereby avoiding house storage.
6. DECENTRALIZED PURCHASING-Individual or separate departments hand their
own purchasing requirements.
7. DELAYED DIFFERENTIATION-Production of standard components & sub-
assemblies,which are held until late in the process to add differentiating features.
8. DISINTERMEDIATION-Reducing one or more steps in supply chain by cutting one
or more intermediaries.
9. DISTRIBUTION REQUIREMENTS PLANNING-A system for inventory
management and distribution planning.
10. E-BUSINESS-Involves the use of internet to transact business.
11. EVENT MANAGEMENT-The ability to detect and respond to unplanned events.
12. FILL RATE-The percentage filled from stock on hand.
13. GATEKEEPING-Screening returned goods to prevent incorrect acceptance of
goods.
14. INVENTORY VELOCITY-The rate which inventory goes through the supply chain.
15. INFORMATION VELOCITY-The rate which information is communicated in a
supply chain.
16. LOGISTICS-The movement of material,services,cash, and information in a supply
chain.
17. OUTSOURCING-Buying goods instead of producing them.
18. REVERSE LOGISTICS- The backward flow of goods returned to the supply chain
from their final destination.
19. RADIO FREQUENCY IDENTIFICATION-A technology that uses radio waves to
identify goods such as goods in the supply chain.
20. STRATEGIC PARTNERING-Two or more business organization have
complementary products/services join to realize strategic benefit.
21. SUPPLY CHAIN-A sequence of of organization-their facilities,functions and
activities-that are involved in manufacturing or delivering service.
22. SUPPLY CHAIN MANAGEMENT-Strategic coordination of the supply chain for the
purpose of integrating supply and demand management.
23. SUPPLY CHAIN VISIBILITY-A major trading partner can connect to it’s supply
chain to access data in realtime.
 24. THIRD PARTY LOGISTICS-Outsourcing of logistics management.
25. TRAFFIC MANAGEMENTS-Overseeing the shipment of incoming and outgoing
goods.
26. VENDOR ANALYSIS-Evaluating the sources of supply in terms of
price,quality,reputation and service.
27. VENDOR MANAGED INVENTORY-Vendors monitor goods and replenish retail
inventories when supply are low.
28. PURCHASING CYCLES-Series of steps that begin with a request for purchase
and end with notification of shipment received in satisfactory condition.

DISCUSSION AND REVIEW QUESTIONS

What is a supply chain?

- A sequence of of organization-their facilities,functions and activities-that are involved in

manufacturing or delivering service.

What are some potential benefits of managing the supply chain?

- Quality Assurance
Many manufacturers in the U.S. have relocated their operations to countries such as
China, India and Russia in an effort to cut production costs. This has caused experienced
domestic personnel to opt for other job assignments. As a result, product quality within
the supply chain has become a pressing issue.

What are the elements of supply chain management?

- Demand Management
Demand management is an essential element in supply chain management, focusing
companies and their partners on meeting the needs of customers, rather than the
production process.

- Communication
Effective communication helps the entire supply chain improve the efficiency and
productivity of its operations by enabling all members to share the same demand and
operational information.

- Integration
Integrating supply chain processes helps each member reduce its inventory costs – a key
to successful chain management.

-Collaboration in the supply chain strengthens relationships between members, improving

teamwork and helping all members increase their business.
What are the strategic,tactical operations issues in a supply chain management?

The Supply Chain Continuum

-The supply chain begins with acquiring the goods or materials needed to satisfy the end
product. Businesses must choose vendors, freight carriers, and possibly warehouse
solutions.
- Strategic Planning

Every effective supply chain strategy begins with solid long-term decision-making. The
strategy level lays the groundwork for the entire supply chain process, from beginning to
end, and is an essential part of supply chain management.
- Tactical Management

Businesses make short-term decisions involving the supply chain at the tactical level. At
the strategy level, general planning begins, but processes are actually defined at the
tactical level.
What is bullwwhip effect and why does it occur and how to be overcome?
-BULLWHIP EFFECT-Inventory oscillations become progressively larger looking
backward through the supply chain.

Explain the increasing importance of purchasing

- Purchasing refers to a business or organization attempting to

acquire goods or services to accomplish the goals of its enterprise. Though there are
several organizations that attempt to set standards in the purchasing process, processes
can vary greatly between organizations.

What is inventory velocity and why is it important?

- INVENTORY VELOCITY-The rate which inventory goes through the supply chain.

Management consultants often emphasize that if one can measure, one can improve.
Unfortunately, measuring inventory turns alone does not provide the means to improve
inventory velocity. Inventory turns are measured at both the corporate and division levels
while inventory velocity is measured at the individual item level.

Explain strategic partnering?

- A strategic partnership is a formal alliance between two commercial enterprises,

usually formalized by one or more business contracts but falls short of forming a
legal partnership or, agency, or corporate affiliate relationship.

What impact has E-business on supply chain management?

-Since it uses the internet and transactions can be fast, we have to manage the supply
chain to avoid run outs.

What are some advantages of E-business?

- The internet and the emergence of e-business has provided entrepreneurs with many
new advantages and opportunities. The internet has created a business environment in
which time and distance are less important, people have access to more information to
help them make decisions and consumers have better access to a broader range of
products and services.

What are some trade offs that might be a factor in designing a supply chain?

- Lot size-inventory trade off, Inventory-transportation cost trade-off, Lead time-

transportation trade-off, Product variety-inventory trade-off, Cost-customer service trade-
off .

What is reverse logisctics and why is it important to retail firms?

- The backward flow of goods returned to the supply chain from their final destination.

Reverse logistics (RL) refers to a set of programs or competencies aimed at moving

products in the reverse direction in the supply chain (i.e., from consumer to producer). It
entails more than the mere re-use of containers and the recycling of packaging materials.
It is the process of moving a product from the point of consumption to another point for
the purpose of recapturing the remaining value, or for the eventual proper disposal of the
product. The state of development of RL is analogous to that of inbound logistics between
10 and 20 years ago.

Explain the importance of supply chain visibility?

1. Reduce business and supply chain risk

2. Improve lead times and performance
3. Identify shortage and quality problems along the supply chain

Describe CPFR?

- Collaborative Planning, Forecasting and Replenishment (CPFR, a trademark of the

Voluntary Interindustry Commerce Standards (VICS) Association), is a concept that aims
to enhance supply chain integration by supporting and assisting joint practices.

Describe what purchasing managers do?

- A purchasing manager buys products for organizations to use or resell. They evaluate
suppliers, negotiate contracts, review product quality, and often
supervise purchasing agents and buyers. In smaller companies, the purchasing
manager may also act as the agent or buyer.

Describe how purchasing interacts with two other functional areas of an organization?

- Most major companies and even some government organizations have a purchasing or
procurement department as part of everyday operations. These departments provide a
service that is the backbone of many manufacturing, retail, military and other industrial
organizations. Many individuals, even some who work for these companies, are unaware
of what the purchasing department does, why it exists or what purposes it serves. To
understand better what the role of the purchasing department is, consider some functions
it performs.

Describe the importance of RFID for supply chain management?

- Thus, supply chain management covers all these steps in combination with marketing
decisions, customer demand, in alignment with general corporate strategy and goals.
Usually considered as a complex and knowledge intensive process, management of
supply chain can benefit significantly from the implementation of RFID technology.

Describe centralization versus decentralization?

- Purchasing is handled by one special department whil DECENTRALIZED

PURCHASING-Individual or separate departments hand their own purchasing
requirements.

Describe vendor analysis?

- VENDOR ANALYSIS-Evaluating the sources of supply in terms of

price,quality,reputation and service. It is of great importance for any firm to be satisfied
with the quality of goods and services delivered.

Describe supplier certification and it’s importance?

- Supplier Certification is a one-day seminar designed for quality, materials

management,professional and technical personnel who want to improve quality and
customer-supplier relationships in their companies. It is important to know that the
supplier’s organization is commited to quality and thus in the process obtains the said
certificate.

Compare viewing suppliers as adversaries with viewing them as partners?

-Our suppliers are business partners who provide our system with materials,
including ingredients, packaging and machinery, as well as goods and services. Our
Company's Supplier Guiding Principles (SGP) communicate our values and
expectations, emphasizing the importance of responsible environmental and
workplace policies and practices. Viewing the as partners gives an advantage to the
organization since they will also know that they are of great importance.

Chapter 12

What are the primary reasons for holding inventory?

- Inventory is a necessary evil that every organization would have to maintain for
various purposes. Optimum inventory management is the goal of every inventory
planner. Over inventory or under inventory both cause financial impact and health of the
business as well as effect business opportunities.

What are the requirements of effective inventory management?

- Requirements for Effective Inventory Management. A system to keep track of

theinventory on hand and on order. A reliable forecast of demand, including forecast
error. Knowledge of lead times and variability. Estimates of holding, ordering and
shortage costs.

Briefly describe each of the cost asscociated with inventory?

- Ordering Cost

Cost of procurement and inbound logistics costs form a part of Ordering Cost. Ordering
Cost is dependant and varies based on two factors - The cost of ordering excess and
the Cost of ordering too less.

- Carrying Cost

Inventory storage and maintenance involves various types of costs namely:

 Inventory Storage Cost

 Cost of Capital

What are the potential benefits and risk of RFID tags for inventory management.

- Reduce warehouse and distribution labor costs -- Replace the point and read
labor-intensive operation of tracking pallets, cases, cartons and individual products with
sensors that can track these items anywhere in the facility with pin-point accuracy. This
can reduce the high labor costs and service fees of regular stock management and
store shelf inventory.

-Reduce point-of-sale labor costs -- With RFID-enabled products, checkout can be

completed with a quick scan of all items in cart helping to reduce point-of-sale labor
costs. The current scan-it-yourself component of self-service checkout can be improved,
helping to improve adoption, reduce self-service checkout times and reduce fraud.

-Reduce theft -- Losses due to theft are estimated to cost retailers over $30 billion per
year and are estimated conservatively at 1.5% of overall sales. With RFID, products can
be tracked through the supply chain to pinpoint where a product is and eliminate
inventory errors that can cause shipments to go missing, or to better find where and
when in the process the product was lost. Within the retail store, RFID can and has
been successfully deployed, particularly on higher margin items, to help prevent theft.
-Reduce out-of stock conditions -- When an item is out of stock the customer is often
left disappointed, either avoiding the purchase altogether -- common in grocery stores
where as much as 4% of their revenue is lost each year due to out-of-stock conditions --
or worse, the customer moves on to a competitor in order to source the product.

Why might it be inappropriate to use inventory turnover ratios to compare inventory

performance of companies in different industries?

-The inventory turnover ratio is an efficiency ratio that shows how effectively inventory is
managed by comparing cost of goods sold with average inventory for a period. It is not
advisable to compare them because each industry has it’s own constraints.

List the major assupmtions of EOQ?

 The cost of the ordering remains constant.

 The demand rate for the year is known and evenly spread throughout the year.
 The lead time is not fluctuating (lead time is the latency time it takes a process to
initiate and complete).
 No cash or settlement discounts are available, and the purchase price is constant
for every item.
 The optimal plan is calculated for only one product.
 There is no delay in the replenishment of the stock, and the order is delivered in the
quantity that was demanded, i.e. in whole batch.

How would you respond to the criticism that EOQ model tend to prove misleading
results because values of D,S and H are, at best.

-The variables are the limitations of the supplies in hand so if they have not reached the
threshold, then it is quite safe.

Explain briefly how a higher carrying cost can result to a decrease in the inventory?

-Higher cost in the stocking the goods would mean that you are spending more on a
product/raw material that could possibly be hard to maintain in terms of it’s quality after
stocking. Though you might not have problems of run outs, you might have problem in
preserving them in their best possible state to be used in production or consumption.

What is a safety stock and it’s puropose?

Safety Stock is the quantity of stock held to satisfy unexpectedly high requirements in
the stocking-up period. The purpose of the safety stock is to prevent a material shortage
from occurring.
Under what circumstances would the amount of safety stock held be?

It depends upon the consumption or it’s usage in production or how fast it could possibly
run out.

Generally speaking, What is service level?

-Service level measures the performance of a system. Certain goals are defined and
the service level gives the percentage to which those goals should be achieved.
Examples of service level: Percentage of calls answered in a call center.

Describe briefly the A-B-C approach to inventory control

-In materials management, the ABC analysis (or Selective Inventory Control) is
an inventory categorization technique. ABC analysis divides an inventory into three
categories- "A items" with very tight control and accurate records, "B items" with less
tightly controlled and good records, and "C items" with the simplest controls possible
and minimal records.

The ABC analysis provides a mechanism for identifying items that will have a significant
impact on overall inventory cost,while also providing a mechanism for identifying
different categories of stock that will require different management and controls.

The ABC analysis suggests that inventories of an organization are not of equal
value.Thus, the inventory is grouped into three categories (A, B, and C) in order of their
estimated importance.

Explain how a decrease in setup time can lead to a decrease in the average amount of
inventory a firm holds and why would it be benefitial?

-Reducing the setup time enables the company to lessen or eliminate inventory for
“changeover” time. The tool involved herein is SMED (single-minute exchange of dies).

What is single period model and when is it appropriate?

-A single period inventory model is used to identify the amount of inventory to purchase
given a perishable good or single opportunity to purchase.

The amount of the single order is based on balancing the cost of over- and under-
estimating demand. This is a very common problem in areas such as:

 Overbooking of airline seats or hotel rooms

 Ordering of fashion items
 Any type of one-time order (t-shirts for a sporting event)
Can the optimal stocking level in the single period model ever be less than expected
demand?

It should be more than the expected or at least equal since you would not want to have
run outs even though it is for one time use.

What are some ways in which a company can reduce the need for inventories?

Companies today must be fast and nimble enough to react quickly to changes in
customer demand and do it with little inventory. Gone are the days when manufacturers
could stockpile large quantities of raw materials, load up the shop floor with work-in-
process and pack warehouses with finished goods. The old ways caused erratic and
long lead times, high costs and required too much cash for working capital.

Chapter 15
Activity based-costing- Activity-based costing (ABC) is a costing methodology that
identifies activities in an organization and assigns the cost of each activity with
resources to all products and services according to the actual consumption by each.

Andon-System of lights used at each workstation to signal problems or slowdowns

Autonomation-Automatic detection of detects in production.

Heijunka-Variations in production lead to waste.

Housekeeping-Maintaining a workplace that is clean and free of unnecessary materials

Jidoka-Quality at the source.Each worker is expected to perform ongoing quality

assurance.

Just in time-Coordinated processing system in which goods move through the system,
and services are performed,just as they are needed.

Kanban-A manual system used for controlling the movement of parts and materials that
respond to signals of the need for delivery of parts or materials.

Kaizen-Countinuous improvement of the system.

Lean operation-A highly coordinated system that uses minimal resources and produces
high quality goods or services.

Muda-Waste and inefficiency.Perhaps the driving philosophy.

Poka-yoke-Safeguards built into a process to reduce the possibilty of committing an

error.

Preventive maintenance-Maintaining equipment in good operating condition and

replacing parts that have a tendency to fail before they do.

Pull system-A workstation pulls output from the preceeding station as it is needed.

Push system-Work is pushed to next station as it is completed.

Single-minute exchange of die-A system for reducing changeover time.

Takt time-The cycle time needed to match customer demand for final product.

According to table 15.3 water is symbolized by inventory and as the water is lowered
rocks appear which is the problem. As the water is lowered the more rocks or problems
appear.

What is the ultimate goal of JIT?What are the supporting goals?What are bldg. Blocks?
- Just In Time system provides an organization a
robust structure by improving the relationship between

the organization and the supplier by constituting a strategic alliance network between
the organization
and the suppliers. At the intra organization level, JIT forms a healthy alliance between
the management
and the workforce, all this contributes in elimination of waste.
Eliminate disruptions,make system flexible,eliminate waste especially excess
inventories.
Manufacturing planning and control, Personnel/organizational elements Process design
& Product design
Describe the philosophy of jit system?

 - Many have said that JIT revolves around wastes: "At its core, JIT is a waste-
elimination philosophy . Among the earliest writings on the matter, Shingo lists, as
the "7 wastes," the wastes of: over-production, waiting, transportation, processing
itself, stocks [inventories], motion, and making defective products.

 Others have equated JIT production with kanban. For example, one book has both
kanban and just-in-time in its main title.

 Still others assert that JIT's main aim is elimination of inventories, although Murray
maintains that "JIT is defined as 'NOT an inventory control system--but a way of
thinking, working and management to eliminate wastes in the manufacturing
process'.In keeping with that view, JIT manufacturing has often been referred to in
contrast to the more conventional just-in-case(JIC) mode: JIC keeps extra
inventories to be used in case of disruptions (e.g., scrap, rework, equipment
breakdowns, late deliveries), whereas JIT continually reduces such inventory buffers
by continually attacking causes of disruptions.Zero Inventories is the title of a 1983
book by Hall,but the book actually does not suggest that JIT is mainly about
inventory; rather the book features quick setup, cells (group technology), kanban,
and so on, and zero inventory is posed only as an unattainable ideal, one that is
easy to see and count.
- Management may not be as committed to change or devoted to giving up resources
thatare needed to convert. Workers/managements may not be cooperative to the
change.Culture may be difficult to change due to the conversion. Supplier resistance.

- Customers and suppliers have the same goal—to satisfy end user. The better the supplier quality,
the better the supplier’s long-term position, because the customer will have better quality. Because
both the customer and suppliers have limited resources, they must work together as partners to
maximize their return on investment.
 There have been number of forces that have changed supplier relations. Prior to the 1980s,
procurement decisions were typically based on price, thereby awarding contracts to lowest bidder. As
a result, quality and timely delivery were sacrificed. One force, Deming’s fourth point, addressed this
problem. He stated that customers must stop awarding business based on the low bidder because
price has no basis without quality. In addition, he advocated single suppliers for each items to help
develop a long-term relationship of loyalty and trust. These actions will lead to improved products and
services.

Another force changing supplier relations was the introduction of the just-in-time (JIT) concept. It calls
for raw materials and components to reach the production operations in small quantities when they are
needed and not before. The benefits of JIT is that inventory-related costs are kept to minimum.
Procurement lots are small and delivery is frequent. As a result, the supplier have many more process
setups, thus becoming a JIT organization itself. The supplier must drastically reduce setup time or its
cost will increase. Before there is little or no inventory, the quality incoming material must be very good
or the production line will be shut down. To be successful, JIT requires exceptional quality and reduced
setup time.

- An assembly line is a manufacturing process in which interchangeable parts are added

to a product in a sequential manner to create an end product. In most cases, a
manufacturing assembly line is a semi-automated system through which a product
moves. At each station along the line some part of the production process takes place.
The workers and machinery used to produce the item are stationary along the line and
the product moves through the cycle, from start to finish and Computer power has
enabled tracking systems to become more sophisticated and this, in turn, has made it
possible to reduce the costs associated with holding inventories. Just-in-time (JIT)
manufacturing methods have been developed to reduce the cost of carrying parts and
supplies as inventory. Under a JIT system, manufacturing plants carry only one or a few
days' worth of inventory in the plant, relying on suppliers to provide parts and materials
on an "as needed" basis.

-Kanban is A manual system used for controlling the movement of parts and materials
that respond to signals of the need for delivery of parts or materials. Since JIT method is
applied then the movement of parts and materials is important for customers to have
what they want in time.

Contrast push and pull method of moving goods and materials in production system?

-Pull system is a workstation pulls output from the preceeding station as it is needed
while Push system means work is pushed to next station as it is completed.

What are the main benefits of JIT system?

 - There should be minimal amounts of inventory obsolescence, since the high rate of inventory turnover keeps any

items from remaining in stock and becoming obsolete.

 Since production runs are very short, it is easier to halt production of one product type and switch to a different

product to meet changes in customer demand.

 The very low inventory levels mean that inventory holding costs (such as warehouse space) are minimized.

 The company is investing far less cash in its inventory, since less inventory is needed.

 Less inventory can be damaged within the company, since it is not held long enough for storage-related accidents to

arise. Also, having less inventory gives materials handlers more room to maneuver, so they are less likely to run into

any inventory and cause damage.

 Production mistakes can be spotted more quickly and corrected, which results in fewer products being produced that

contain defects.

What are the benefits and risk of small lot sizes?

- Reduced inventory, lower carrying costs

* Less space required to store inventory
* Less rework if defects occur
* Less inventory to “work off” before implementing product improvements
* Increased visibility of problems
* Increased production flexibility
* Increased ease of balancing operations
* Holding cost could be deemed to be high because cost is based on the average
inventory