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MGMT 3240 Chp 7 & 8

Independent demand: demand for items that are considered end items that go directly to a customer, and for which demand is influenced by market conditions and not related to inventory decisions for any other item
What demand are considered end items that go directly to a customer? Independent demand
Which demand is influenced by market conditions and not related to inventory decisions for any other item? Independent demand
Example of Independent demand. Items such as toothpaste, books, televisions, and refrigerators are independent demand items for which we must forecast the sales.
Dependent demand: demand for items that are used to make another item or are considered to be parts of another item
What demand are considered to be parts of another item? Dependent demand
Example of dependent demand: A refrigerator is an independent demand item, but the door, the motor, and each of the drawers that are required to produce it are dependent demand items.
Material requirements planning (MRP) a computer-based system that develops plans for ordering and producing dependent demand items.
What system is used to develop plans for ordering and producing dependent demand items? Material requirements planning (MRP)
How many basic principles those MRP utilizes? TWO
MRP utilizes two basic principles: Requirements for dependent demand items are derived from the production schedule for their parents (the items that are assembled from component parts), and the production order is offset to account for the lead time.
MRP is a technique that has been employed since the 1940s and 1950s.
What technique gained prominence in the mid-1970s with the development of more powerful computers, which have become irreplaceable operating tools in many companies? MRP
Leading pioneers of MRP include Joseph Orlicky, an engineer for IBM who first coded an MRP system for the JI Case Company in Racine, Wisconsin;
Who first coded an MRP SYSTEM? Joseph Orlicky, an engineer for IBM
During the 1990s, MRP II evolved to become enterprise resource planning (ERP), which integrates all functional areas of a business.
A bill of materials database, a master schedule, and an inventory records database are three key inputs to what system? An MRP system
How many key inputs those MRP system relies on? THREE
An MRP system relies on three key inputs: a bill of materials database, a master schedule, and an inventory records database.
Material requirements plan a plan that specifies the timing and size of new production orders, adjustments to existing order quantities, and expediting or delay of late/ early orders
What plan specifies the timing and size of new production orders? Material requirements plan
What plan specifies adjustments to existing order quantities, and expediting or delay of late/ early orders? Material requirements plan
The process of developing the material requirements plan is called MRP explosion.
MRP explosion is a technique for converting the requirements of final products into a material requirements plan that specifies the production/order quantities and timing for all subassemblies, components, and raw materials needed by final products.
What technique used for converting the requirements of final products into a material requirements plan? MRP explosion.
What technique used to specifies the production/order quantities and timing for all subassemblies, components, and raw materials needed by final products? MRP explosion.
Master schedule (MS) a document that details the quantity of end items to be produced within a specified period of time
What breaks a higher-level aggregate plan into smaller time buckets for specific products (time buckets can be months, weeks, days, or hours? Master schedule (MS)
The master schedule seeks to minimize total cost and provides a way of assessing the impact of new orders and providing delivery dates for accepted orders.
The MS is usually frozen or unchangeable in the near term (the next few days or weeks), slushy or slightly changeable in the middle term, and liquid or very changeable in the long term.
What is frozen or unchangeable in the near term (the next few days or weeks)? Master schedule (MS)
What is slushy or slightly changeable in the middle term? Master schedule (MS)
What is liquid or very changeable in the long term? Master schedule (MS)
What is the goal of MS? The goal is to plan production but allow some flexibility to change orders as demand or customer requirements change.
The master schedule several key aspects of master scheduling: • The sums of the quantities in the MS must equal those in the aggregate production plan. • Aggregate production quantities should be planned efficiently over time in order to minimize setup, production, and inventory costs. • Capacity limitations mus
Bill of materials (BOM) a document that specifies all assemblies, subassemblies,' parts, and raw materials that are required to produce one unit of the finished product
Common parts: parts that are used in more than one place in a single product or in more than one product
Low-level coding involves assigning a part to the lowest level at which it appears anywhere in the BOM
The third major input to an MRP system is an inventory record of transactions
Inventory record a document that specifies order/lot size policy and lead time and records all transactions made for parts, assemblies, and components
Inventory transaction any change in the quantity of a specific part or material
Transactions include receipt of new orders, shipment of complete orders, scrapping of defective parts, release of new orders, adjustment of due dates for scheduled receipts, cancellation of orders, and confirmation of scrap losses and returns.
The inventory record includes transactions both from manufacturing within an organization and from purchasing items from external suppliers.
Recording inventory transactions accurately and promptly is a critical component of an effective MRP system.
Every MRP record includes three planning factors, lot size, lead time, and safety stock, which are parameters that are chosen by managers utilizing the MRP system.
Lot size the quantity of a part to be produced or ordered when additional inventory is required
Lead time the time between when an order is placed and when it is expected to arrive or be finished
Safety stock excess inventory that a company holds to guard against uncertainty in demand, lead time, and Supply
The planning factors for an MRP record are fairly constant—they are entered into the system once and then may not be updated or changed for months or years.
One of the primary purposes of an MRP system is to update, calculate, and track several other pieces of information on a more frequent or daily basis.
Time buckets are the periods of time into which an MRP record is divided
Planning horizon the time period in the future that the MRP system Plans for Beginning inventory
Gross requirements the total number of units of a part or material derived from all parent production plans
Scheduled receipts orders that have been placed but not yet received or completed
Projected on-hand inventory the estimated inventory that will be available after the gross requirements have been satisfied, plus any planned or scheduled receipts for that time bucket
The goal of MRP is to avoid such shortages or backorders
Planned receipts future orders that have not yet been released but are planned in order to avoid a shortage or backlog of inventory
Planned order release when an order must be released in order to offset for the lead time so that the order will be received when planned
MRP record includes three planning factors: lead time, lot size, and safety stock.
For purchased items, the lead time is the estimated time for the supplier to prepare or produce the order plus shipping time.
Lot size rules are important because they determine the frequency of setups and the inventory holding costs for an item.
Fixed order quantity (FOQ) a lot size rule with a constant order size where the same quantity is ordered every time
Periodic order quantity (POQ) a lot size rule with a variable lot size designed to order exactly the amount required for a specified period of time
Lot for lot (L4L) a lot size rule that is a special case of the periodic order quantity with the period equal to 1
Advantages/Disadvantages of Lot Size Rules: The choice of lot size rule has a large impact on the efficacy of the MRP system. Lot size choice affects inventory and setup/order costs and also has an impact on capacity availability.
The L4L rule always has the lowest average inventory because of the ability to order exactly what is needed for a single period, but this comes at the cost of more frequent orders.
The FOQ rule has the highest average inventory because its fixed nature creates inventory remnants.
The POQ rule reduces the amount of OH inventory by matching gross requirements with planned receipts.
The L4L rule always minimizes inventory, but also requires more frequent setups/orders. This rule works well for expensive items and for items with low setup/ordering costs.
Both the POQ and L4L rules are prone to instability—if the gross requirements for a parent item change, then the lot size may change.
MRP nervousness a situation in MRP planning where a change at one part level ripples down to affect lower- Level parts
MRP systems provide a wealth of data, including reports, schedules, and notices, to help managers control the flow of inventory and ensure efficient and accurate operations.
The goal of these systems (MRP) is to make the processing of data and information simple and easy for the humans who use the system.
MRP explosion the process of translating MRP inputs into a plan that specifies required quantities and timing of all subassemblies, components, and raw materials required to produce parent items
The gross requirements for an item are derived from three sources: • The MS for immediate parents that are end items • The planned order releases for parents that are below the MS level • Any other requirements, typically for spare parts
Action notice a notice that is generated when an order needs to be released or placed or when the quantity or timing of an order needs to be changed
MRP is a dynamic system—as orders are received, forecast or the master schedule is updated, and so on; the MRP records are also changed.
MRP records are updated using one of two approaches: periodic update and net change update
MRP records are updated using one of two approaches.
A periodic update involves collecting all new or updated information and processing it once a week or once a day.
A net change update makes changes as soon as they occur.
A net change update makes changes as soon as they occur. TRUE
Twenty or thirty years ago, it was common to have _____________ because a large amount of computer power was necessary to perform the thousands of calculations necessary for a company with hundreds of products and parts. Periodic updates
Some companies still use periodic updates because they provide greater stability, and it is easy to know when things are going to change.
In contrast, net change updates are much more responsive to changes but may be disruptive in some cases.
MRP systems typically have a planning horizon that is as long as or longer than the longest lead time for all parts in the BOM.
The MRP system does not include capacity constraints when developing the production plan, instead assuming that whatever is needed can be produced.
A critical role for managers is to evaluate the production plan developed by the MRP system and assess where capacity constraints might pose problems.
There are three approaches for managing capacity and ensuring that the MRP plan is feasible: • Capacity requirements planning • Finite capacity scheduling • Input/output reports
Capacity requirements planning the process of determining short-range capacity requirements based on a tentative MRP plan
Short range generally refers to the next one to three months.
Changing production schedules can become very challenging because one change may have unintended consequences in another area of the plant.
The master schedule can be changed • by moving order quantities forward or backward in time, • by changing the size of orders, by changing the routing of parts, • by changing safety stock requirements.
Master schedule and the MRP plan are usually generated primarily by looking at what is needed to support sales, rather than what is possible.
Once an MRP plan without major capacity problems is developed, then the first few periods of the MRP plan may be frozen, meaning that no changes can then be made to that portion of the schedule.
The load report shows the planned hours of work, estimated from the MRP system for all future orders that will need to be routed through that grinding machine.
Load report a report for a department or work center that projects already scheduled and expected future capacity requirements against capacity availability
The load report highlights where demand will exceed available capacity. Based on this report, the manager for this department might (a) schedule some over- time for the weeks where there is insufficient capacity, (b) make a change to the MRP records to distribute demand more evenly, or (c) change the routing of some items.
Manufacturing resource planning (MRP II) a system that links the basic MRP system to other company systems, including finance, accounting, purchasing, and logistics
MRP II employed a common database and an integrated platform where sales, inventory, and purchasing trans- actions were updated in both inventory and accounting applications
Two substantial problems with using separate stand-alone systems were the duplication of data entry (the same data often had to be entered multiple times into multiple systems) and errors in communication caused by mistakes when reentering data.
MRP II provided an integrated system that reduced data entry and provided relatively quick access to data.
The primary limitation of MRP II was the manual linkage between operational activities and matching accounting transactions.
ERP allows manufacturing to see new orders as soon as marketing or sales enters them into the system.
Maintenance, repair, and operating supplies (MRO) items that a store or business requires to run the business
Yield management a management technique that offers customers incentives to shape their demand patterns
Customer relationship management (CRN) is a system of planning and control activities and information systems that link an organization with its down- stream customers.
CRM consists of three components that can be implemented independently of each other or in an integrated fashion.
Operational CRM supports front-office business processes such as sales, marketing, and service. Soft
Collaborative CRM supports direct interaction with customers using a variety of contact channels, including the Internet, email and automated phone. Often this type of CRM is employed to allow self-service by customers and to reduce cost.
Analytical CRM facilitates the analysis of customer data to maximize marketing effectiveness; to support product and service design and to improve customer acquisition, cross-selling, and retention.
Three key factors contribute to success: 1) hardware and software. 2) employees trained. 3) data need to be close to 100 percent accurate because MRP will magnify any inconsistencies.
Pixar's animated movie projects typically go through four stages: (1) The development stage, or creation of the story line; (2) The preproduction stage, which includes troubleshooting the technical aspects; (3) The production stage; which means the making of the actual movie; and (4) The postproduction stage, whic
Pixar's animated movie projects typically go through four stages: The development stage, The preproduction stage, The production stage, and The postproduction stage
Project a set of interrelated activities necessary to achieve established goals using a specified amount of time, budget, and resources
The primary characteristics of a project can be listed as • A well-defined goal or objective • Composed of a set of interrelated activities • A specified beginning and ending time • Specified resource and personnel requirements • A specified budget • Uniqueness (i.e., something that has not been done b
Supplementary characteristics for projects can be identified as the following: • Projects typically include prespecified deliverables after completion. • Because projects are defined to have specific objectives, they also have pre-established limits and exclusions. • Projects generally have specific intermediate goals or perform
Some examples of operations management projects include • The development of new product and service offerings • Quality improvement projects such as implementation of Six Sigma projects at a large service organization like American Express. • The opening of a new production or customer service facility
Project management can be defined as the application of the knowledge, skills, tools, and techniques necessary to successfully complete a project.
Project management includes planning, directing, scheduling, and controlling resources (people, equipment, and material) to meet the technical, cost, and time constraints of the project.
The phrase project management was initially developed about fifty years ago (during the 1950s and early 1960s), when the size, scope, and duration of and the resources required for new government and commercial projects started becoming so large that these projects required more analy
According to the Project Management Institute (, the body of knowledge of project management can be divided into five categories: initiation planning, execution, control, and closure.
Detailed planning begins during the second phase (project planning).
(Project planning). This involves the creation of a number of planning documents such as those described here: The project plan, The resource plan, The financial plan, Quality plans, The communications plan, The risk plan
(Project planning). This involves the creation of a number of planning documents such as those described here: • The project plan outlines the activities, their interdependencies, and time estimates. • The resource plan lists the labor, equipment, other resources, components, and raw materials required to complete the project activities. • The financial plan re
The project execution phase involves the actual completion of all activities that are part of the projects.
The project deliverables can be sequenced in series so that neither the project team nor the recipient is overburdened by them.
Project control means real-time assessment of the execution of a planned project.
Project control requires time, cost, quality, resource, risk, and change management skills.
Project manager the person responsible for delivering the goals of a project
The project manager is responsible for successfully meeting three inter-related project constraints: time, cost, and scope.
Project time the amount of time available to complete a project
Project cost the budgeted amount available for the project
Project scope the activities that must be completed to achieve a project's end goal
An increased scope typically means increased time and increased cost, a short time constraint could mean increased costs and reduced scope, and a limited budget could mean increased time and reduced scope.
Work breakdown structure (WBS) an approach that defines a project in terms of its sub- projects, tasks, and activities
The work breakdown structure (WBS) is the most fundamental technique defining and organizing the total scope of a project.
Activity the smallest work package that can be assigned to a single worker or a team
Precedence relationship analysis identification of the relationships and the sequence of activities within a project
A Gantt chart (named after Henry Gantt, who originally developed the chart in the 1910s) is a special type of horizontal bar chart that displays the schedule for the entire project.
A Gantt chart with different color codes can also be used to track performance while the project is in Progress.
A network diagram is used to show the precedence relationship among different activities.
There are two conventions for building a network diagram: activity on node (AON) approach and activity on arrow (AOA) convention
The activity on node (AON) approach shows each activity as a circle (or a node) and connects the activities with arrows.
The direction of an arrow indicates the project direction.
The AOA convention is opposite to AON:
Network diagram a diagram with arrows and nodes (circles) created to display a sequence of activities within a project
Activity on node (AON) approach a network diagram that shows each activity as a circle (or a node) and connects the activities with arrows
Activity on arrow (AOA) convention a network diagram in which each activity is represented by an arrow, and the nodes are used to show the beginning and end points
The critical path method (CPM) is an algorithm for scheduling the activities within a project to achieve the fastest and most efficient execution of that project.
The algorithm, originally developed by DuPont and Remington Rand Corporation in the 1950s, is an essential project management technique.
The CPM algorithm estimates the time necessary to complete each part of the project.
The path that takes the longest time to complete is known as the critical path.
Critical path (also known as the bottleneck path or the binding constraint) dictates the project's duration.
The activities making up a critical path are known as critical activities.
Any delay in the execution of a critical activity results in delaying the entire project.
Critical path method an algorithm for scheduling activities within a project for the fastest and most efficient execution
Critical path the path within a project that takes the longest time to complete
Critical activities the project activities making up a critical path
Slack is the estimate of the maximum amount of time that a noncritical activity can be delayed without affecting the entire project Schedule
A systematic algorithm is used to calculate the critical path and identify slack for each activity.
A systematic algorithm is also necessary to implement the CPM approach on a computer for very big projects because they contain a large number of paths and activities.
Slack the amount of flexibility in scheduling an activity within a project
The four parameters (ES, EF; LS; and LF) for each project activity
Early start time (ES): the earliest time at which an activity can start, consider- ing the beginning and ending times for each of the preceding activities.
Early finish time (EF): the sum of the early start time (ES) and the time re- quired to complete the activity.
Late start time (LS): the latest time at which an activity can start, considering all the precedence relationships, without delaying the completion time for the project.
Late finish time (LF): the sum of the late start time and the time required to complete the activity.
The implementation of the CPM algorithm begins by first identifying ES and EF for all activities.
The calculation of ES and EF for each activity provides the information about the earliest time a project can be completed.
The calculation of LS and LF starts from the very last activity in a project.
However, the calculation of the late start time (LS) and late finish time (LF) is necessary to calculate slack and to identify the critical path.
The difference between the LS and the ES or the difference between the LF and the EF is known as slack because it represents the potential flexibility in starting an activity without affecting the project duration.
Slack = LS - ES = LF – EF
The activities with zero slack are critical activities because there is no fit flexibility with
On the other hand, if additional resources are assigned to speed up the project schedule, a cost and time tradeoff analysis (also known as crashing) is conducted.
Crashing a way to identify the lowest-cost approach for reducing the project duration
The program evaluation and review technique (PERT) was developed jointly by the U.S. Department of Defense and Booz Allen Hamilton during the development of the Polaris ballistic missile project in the late 1950s.
PERT is a technique for addressing the impact of uncertainties in activity time estimates on the duration of the entire project duration.
While it was originally developed for a government project, PERT has found many applications in a variety of commercial projects across a wide range of industries.
PERT analysis is very similar to CPM analysis with respect to several concepts
Optimistic time (to): the minimum possible time required to complete an activity, assuming that everything proceeds better than is normally expected.
Pessimistic time (tp): the maximum possible time required to complete an activity, assuming that everything proceeds at the slowest possible pace.
Most likely time (tm): the best estimate of the time required to accomplish a task, assuming that everything proceeds normally.
Expected time (te): the best estimate of the time required to accomplish an activity, considering the potential impact of tm, and tp.
A resource breakdown structure (RBS) is a standardized list of personnel required to complete various activities in a project. This technique is often used in combination with the work breakdown structure.
Resource leveling is an approach to reduce the amount of fluctuations in day- to-day resource requirements within an organization.
Resource leveling is especially useful when employees in an organization work on multiple projects simultaneously.
The risks associated with projects can be divided into four broad categories • Financial resource risk, such as cash overruns, budget shortfalls, and cash flow problems • Human resource risk, such as changes in project personnel • Supply risk, such as suppliers not providing the required materials on time • Quality risk, or
Critical Factors in Project Failure 1 • Change in initial project expectations • Change in the overall project importance to the organization • Change in the need for the project by the organization • Change in overall complexity
Critical Factors in Project Failure 2 • Change in overall time to completion • Change in user needs • Change in overall project resources (people, materials, funds) • Change in technical difficulties
Critical Factors in Project Failure 3 • Change in funding source • Change in regulatory problems • Internal politics within the organization • External politics to the organization • Change in commitment by project champion
How to Successfully FAIL in a Project 1 • Ignore the project environment (including stakeholders) • Push a new technology to market too quickly • Don't bother building a fallback option • When problems occur, shoot the one most visible
How to Successfully FAIL in a Project 2 • Let new ideas starve to death from inertia • Don't bother conducting feasibility studies • Never admit that a project is a failure • Overmanage project managers and their teams
How to Successfully FAIL in a Project 3 • Never, never conduct postfailure analysis • Never bother to understand project tradeoffs • Allow political expediency and infighting to dictate crucial project decisions • Make sure the project is run by a weak leader
The identified problems can be classified according to the following criteria: • Severity: What percentage of the project's scope will be affected by a problem? • Probability: What are the chances that a specific problem will occur? • Timing: At what point in the project is the specific problem likely to appear? • Dynamic risk:
The project manager should attempt to quantify the impact of each potential problem on a common basis, such as time delays or cost overruns. TRUE
Once the risks are presented on the same scale, a prioritization scheme can developed to minimize the probability that a particular problem will occur. . TRUE
The project team should develop a contingency plan in case the identified problems do occur during the project execution. . TRUE
The project manager should also develop a potential upside for the project if the potential problem is avoided. TRUE
Successful execution of a project requires a strong project leadership. TRUE
The project manager must focus on meeting the three constraints: scope, time, and budget. TRUE
A successful project means that all deliverables are completed on time, within budget, and at a level of quality that is acceptable to the project's sponsors and stakeholders. TRUE
Because projects are finite endeavors with limited time, money, and other resources available, they must be kept moving toward completion. TRUE
Guidelines for Developing an Aggregate Project Plan: STEP 1: Define project types as either breakthrough, platform, derivative, R&D, or partnered projects
Guidelines for Developing an Aggregate Project Plan: STEP 2: Identify existing projects and classify by project type
Guidelines for Developing an Aggregate Project Plan: STEP 3: Estimate the average time and resources needed for each project type based on past experience
Guidelines for Developing an Aggregate Project Plan: STEP 4: Identify existing resource capacity
Guidelines for Developing an Aggregate Project Plan: STEP 5: Determine the desired mix of projects
Guidelines for Developing an Aggregate Project Plan: STEP 6: Estimate the number of projects that existing resources can support
Guidelines for Developing an Aggregate Project Plan: STEP 7: Decide which specific projects to purse
Guidelines for Developing an Aggregate Project Plan: STEP 8: Work to improve development capabilities
Created by: kizito



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