Operational Efficiency

Just-In-Time inventory management systems are based on a manufacturing

philosophy that combines purchasing, production and inventory control into
one function. The goal of a JIT system is to minimize the level of inventories
that are held in the plant at all stages of production, including raw materials,
work-in-process and finished goods inventories while meeting customer
demand in a timely manner with high-quality products at the lowest possible
.cost

The advantage of a JIT system is reduction in the cost of carrying the inventory.
The cost savings include reduction in the risk of damage, theft, loss, or a lack of
.ability to sell the finished goods

? How to implement JIT

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Lean production ( the factory should reorganized to permit what
.is often called lean production )

The plant layout is arranged by manufacturing cells or work cells -

.that produce a product or product type
Each worker in each cell knows how to operate all the machines in that cell -
and can perform supporting tasks within that cell. This reduces the downtime
.resulting from breakdowns or employee absences

Employee empowerment helps achieve continuous improvement and zero -

.defect

Jit requirements
The company must have a very close relationship with its suppliers to make -
certain that the supplier makes frequent deliveries of smaller amounts of
.inventory (long term contract with a few carefully chosen suppliers)

Benefits of a JIT
It is also critical that the inventory is of the required quality because there is -
.no extra to use in place of any defective units

.Responsibility for quality inspection goes with the supplier -

The focus of quality control shifts from the discovery of defective parts -
.through prevention of quality problems

Zero machine breakdowns through preventive maintenance and zero -

.breakdowns are ultimate goals

.Higher quality and lower inventory go together-

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Lower inventory levels in a JIT system eliminate the need for certain internal
controls

Kanban system
Kanban is a Japanese inventory system. The word “kanban” means “card” or
“sign” or “visual record” in Japanese. Kanban is an integral part of a JIT
system. Kanban provides the physical inventory control cues that signal the
.need to move raw materials from the previous process

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Q- How is stock viewed in a just-in-time system?
Stock promotes stronger supplier relationships. A
Stock is a waste of resources. B
Stock requires more coordination between functional areas. C
Stock reduces manufacturing setup times. D
Answered B is Correct
Stock is considered a waste of resources that should be eliminated. Stock is generally
indicative of other problems that should be tackled and solved.

Q- Basic Products Company has a plant that focuses on manufacturing Widget 1 and Widget
2. Widget 1 is sold for $90 and Widget 2 is sold for $115. Material X is the only raw material
in both products. Widget 1 requires $35 of Material X and Widget 2 requires $55 of Material
X. The widgets are largely built by hand using five employees. The employee names and
their production times per product are provided below.

Widget 2 Widget 1
18 minutes 15 minutes Tim
16 minutes 9 minutes Trina
11 minutes 11 minutes Tracy
15 minutes 12 minutes Trish
13 minutes 9 minutes Tom

Basic Products Company allows only six hours of overtime a week. Hence, each employee
has the capacity to work 46 hours (2,760 minutes) per week. Currently, the market demand
for Widget 1 is 100 per week. Similarly, the demand for Widget 2 is 100 per week.

Which of the following represents the correct throughput per bottleneck minute for Widget 1
and Widget 2?

Widget 1: $3.33; Widget 2: $3.67 A

Widget 1: $3.67; Widget 2: $3.33 B
Widget 1: $4.58; Widget 2: $4.00 C
Widget 1: $4.00; Widget 2: $4.58 D
Answer B is Correct

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Basic Products Company: Constraint Analysis
(2,760 available (100 sales Minutes (100 sales Minutes
minutes) volume) Total per Widget volume) Total per Widget Time
Capacity Use Minutes Needed 2 Minutes Needed 1 (Minutes)
119.6% 1,800 18 1,500 15 Tim
90.6% 1,600 16 900 9 Trina
79.7% 1,100 11 1,100 11 Tracy
97.8% 1,500 15 1,200 12 Trish
79.7% 1,300 13 900 9 Tom

Based on market demand and required production times, Tim is clearly the operation
constraint (i.e., the bottleneck).

To exploit the bottleneck, Basic Products Company should emphasize the production of
Widget 1 based on the analysis below using throughput margin per unit divided by time
required on the bottleneck.

Widget 1: ($90 – $35) ÷ 15 minutes = $3.67 (rounded) throughput per bottleneck minute

Widget 2: ($115 – $55) ÷ 18 minutes = $3.33 (rounded) throughput per bottleneck minute

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 Materials Requirements Planning (MRP)
Materials requirements planning (MRP, also known as material resource
planning) is an approach that uses computer software to help manage a
manufacturing process. It is a system for ordering and scheduling of
dependent demand inventories.

MRP is a “push” inventory management system. Finished goods are

manufactured for inventory on the basis of demand forecasts. MRP makes it
possible to have the needed materials available when they are needed and
.where they are needed

MRP and Making Calculations in Manufacturing

MRP uses the following information in order to determine what outputs

will be necessary at each stage of production and when to place orders for
each needed component:
• Demand forecasts for finished goods.
• A Bill of Materials for each finished product. The Bill of Materials gives
all the materials, components, and subassemblies that are required for the
product
• The quantities of the materials, components, and finished products
inventory presently on hand.

Objective of MRP

 Arrival of right part.

 At right quantity.
 At right time.

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?Q- Which of the following is a limitation of a materials requirement planning (MRP) system

Relies on demand forecasts A

Minimizes machine setup time B
Additional inventory on hand to cover orders should product be damaged or lost C
Potential inventory accumulation D
Answer D is Correct
Since MRP is used to plan production and inventory levels based upon sales forecasts and
forecasts are subject to variability, there is always the possibility that the system will lead to
overproduction of products and/or to purchasing too much raw materials and too many
purchased parts.

Q-Which one of the following statements best describes material requirements planning (MRP)?
:MRP is

a software tool that is used to forecast the ordering quantities of inventories that tend to be
A
subject to a variable and continual demand.
a planning system that is used to determine the amount and timing of inventories that are
B
dependent on the demand for finished goods.
a software tool that is used to forecast the schedule of material purchases that tend to be
C
subject to a variable and continual demand.
a planning system that is used to determine the amount and timing of the optimal inventory
D
level.
Answer B is Correct
:An MRP system is an integrated production and inventory control system used to determine
what to make, when to make it , and how much to make; and .1
.what to purchase, when to purchase it, and how much to purchase .2
.Therefore, it helps determine optimal inventory levels

Q- A push system that manufactures finished goods for inventory on the basis of demand forecasts is
:referred to as

economic order quantity. A

just-in-time purchasing. B
relevant total cots. C
materials requirements planning
D
(MRP).
Answer D is Correct
:MRP is an integrated production and control system that has three objectives
Ensuring materials are available for production and products are available for customers at .1
;the proper time and in the right quantities
Maintaining the lowest possible levels of inventory; and .2
.planning manufacturing activities, delivery schedules, and purchasing activities .3

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 Outsourcing

:Advantages
.Enable the company to focus on its core business
.Reliable service
.Reduce cost
.Access to technology
.Avoidance of the risk of obsolescence

Disadvantages
.Dependence on outside party
.Loss of control
.Need to disclose proprietary information

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Theory of Constraints (TOC) was developed by Eliyahu M. Goldratt in the 1980s as a means
of making decisions at the operational level that will impact a company’s profitability
positively. For a company to be competitive, it needs to be able to respond quickly to
customer orders. Theory of Constraints is an important way for a company to speed up its
manufacturing time so it can improve its customer response time and thus its
.competitiveness and its profitability

Constraints are the activities that slow down the product’s total cycle time
.while areas and people performing other activities have slack time

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Q- An organization will directly gain all of the following benefits from the theory of
constraints (TOC) methodology except:
reduced bottlenecks. A
increased profitability. B
improved quality of products and services. C
assessment of long-term product profitability. D
Answered D is Correct
The TOC attempts to improve throughput in an organization's processes. TOC considers how
to improve short-term profitability by focusing on production constraints and plausible short-
term product-mix adjustments. TOC, with its short-term orientation, does not focus on long-
.term costing and profitability

Q- Which of the five steps for the theory of constraints (TOC) is based on making all other
operations and their capacities secondary to the needs of the bottleneck?
Step 1: Identify the constraint. A
Step 4: Elevate the constraint. B
Step 3: Subordinate all other operations to the constraint. C
Step 2: Determine how to exploit the constraint. D
Answer C is Correct
Correct. Step 3 is when all other operations and their capacities become secondary to the
needs of the bottleneck. This takes place once the organization determines how the constraint
is to be exploited to maximize throughput for the organization.

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It is maximizing the value created within an organization starts with understanding the
.nature and capabilities of all company's resources

:Effective capacity cost management requires the following

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Q- All of the following are operational benefits of implementing lean manufacturing except:
Unnecessary movement of inventory and people is reduced. A
Waste in the production process is eliminated. B
Time spent waiting on the production process is reduced. C
Processing that is not desired by the customer is reduced. D
This Answer B is Correct
Correct. In many manufacturing processes it is impossible to completely eliminate waste.
.However, lean manufacturing focuses on eliminating as much waste as possible

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Steps in Value Chain Analysis
There are three steps in value chain analysis:
1) Identify the activities that add value to the finished product.
These activities depend upon the industry and what the company does
(manufacturing, resale, etc.). They will be whatever activities this firm
and firms in its industry perform in the processes of designing a product
or service, manufacturing the product, marketing it and providing
customer service after the sale.
2) determine how each value adding activity can produce a
competitive advantage for the firm.
3) Identify activities that are non value adding.

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Q- What is the purpose of supply chain management (SCM) systems?
To computerize inventory control A
To automate customer service and support B
Production planning C
To organize activities between a company and its suppliers, distributors, and customers D
Answer D is Correct
Correct. Supply Chain Management strives to maximize the efficiency of purchasing raw
.materials from suppliers and entering the raw materials into production

Q-Which of the following statements best characterizes value-chain analysis (VCA)?

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It examines a firm's hierarchal structure. A
It emphasizes a firm's functions. B
It promotes formulating a generic strategy. C
It adopts a process perspective. D
Answer D is Correct
VCA adopts a process perspective. Because a value chain desegregates the firm into distinct
strategic activities, organizations are able to use VCA to determine where in the operations,
from design to distribution and customer service, customer value can be enhanced and costs
lowered. In this way, VCA helps to identify sources of profitability and to understand the
costs of the related activities and processes. VCA looks at activities differently than do the
formal hierarchy of existing functions. Also, it should support implementing the firm's
generic strategy, not formulating it.

Q-All of the following are support activities in value chain analysis except:
service. A
technology. B
HR Management. C
firm infrastructure. D
Answer A is Correct
Correct. Service is a primary activity, not a support activity.

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There are four different costs of quality and they are classified into two
larger categories, which are the costs of conformance and the costs of
nonconformance. There are two subcategories of costs within each of
these two larger categories.
The costs of conformance are the costs to produce a quality product, and
they can be broken down into prevention costs and appraisal costs.
The costs of non-conformance are the costs of not producing a quality
product, and they can be broken down into internal failure costs and
external failure costs.

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