Operations and Supply Chain Management 1. (10 points) Auckland Milford Yacht Manufacturing Ltd (AMYML) operations manager is concerned that workers -

Operations and Supply Chain Management

1. (10 points) Auckland Milford Yacht Manufacturing Ltd (AMYML) operations manager is concerned that workers create more operations problem at the very beginning and end of a work shift than at other times of their eight-hour workday. You are asked to draw a scatter diagram by using the data collected last week, then justify if the manager has the right concern or not?

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Operations and Supply Chain Management 1. (10 points) Auckland Milford Yacht Manufacturing Ltd (AMYML) operations manager is concerned that workers

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Number of Operations Problems

Monday

Tuesday

Wednesday

Thursday

Friday

8am-9am at work

9am-10am at work

10am-11am at work

11am-12pm at work

12:30pm-13:30pm at work

13:30pm-14:30pm at work

14:30pm-15:30pm at work

15:30pm-16:30pm at work

2. (10 points) Auckland Milford Yacht Manufacturing Ltd (AMYML) faces the challenge to choose one of the following options to improve its business management.
Option 1. Apply marketing strategy to increase sales (and costs) by 50%.
Option 2. Apply supplier management to decrease 10% of the cost of inputs.
Option 3. Apply operations management to reduce production costs by 18%.
If you were the manager of AMYML, which option will you apply based on the following information? (9 points)
In addition, comment on the feasibility of each option. (1 points)

Business Function

Cost of Inputs

Production Costs

Revenue

Current Value

$60,000

$36,000

$100,000

3. (10 points) In Auckland Milford Yacht Manufacturing Ltd (AMYML) the operations manager’s staff has compiled the information below for four manufacturing alternatives (A, B, C and D) that vary by production technology and the capacity of the machinery. All choices enable the same level of total production and have the same lifetime. The four states of nature represent four levels of consumer acceptance of the firm’s products. Values in the table are net present value of future profits in millions of dollars. Forecasts indicate that there is a 0.1 probability of acceptance level 1, 0.2 chance of acceptance level 2, 0.4 chance of acceptance level 3, and 0.3 change of acceptance level 4.

States of Nature

Alternative A

Alternative F

130

Alternative G

Alternative H

-140

-10

150

220

Using the criterion of expected monetary value, which production alternative should be chosen?

4. (10 points) Auckland Milford Yacht Manufacturing Ltd (AMYML) needs to us the following items for its production. The operations manager needs you to help him to do an ABC analysis based on the given information below. You need to (1) clarify which items can be classified into A, or B, or C (each 2 points); (2) explain why you classified them into A, B, or C (4 points)

Item

Annual Demand

Unit Cost

AM101

800

BN102

100

$90

CO103

450

DP104

400

$100

EQ105

$2,000

FR106

250

$320

GS107

500

$75

HT108

100

$75

5. (15 points) Auckland Milford Yacht Manufacturing Ltd (AMYML) has a daily demand of 400 units of item GS707 for its production, a setup cost per production run of $100, a daily holding cost per unit of $0.20, and an annual production rate of 219,000 units. AMYML operates and experiences demand 365 days per year.
Suppose that management mistakenly used the basic EOQ model to calculate the batch size instead of using the production order quantity model.
How much money per year has that mistake cost AMYML?

6. (20 points) Auckland Milford Yacht Manufacturing Ltd (AMYML) sells yachts to a European customer at $57,000 each. The monthly sales of yachts for 2019 were:

Month

Jan

Feb

Mar

Apr

May

June

July

Aug

Sep

Oct

Nov

Dec

Sales

825

756

808

950

678

875

695

589

690

890

1030

1525

1) Compute a 3-month moving average demand forecast for each month from June through December. (Round all forecasts to the nearest whole unit.) (5 points)
2) Compute a 5-month moving average demand forecast for each month from June through December. (Round all forecasts to the nearest whole unit.) (5 points)
3) Calculate the MSE covering June through December for both methods. (4 points for each MSE)
4) Which method is more likely to have a better forecast performance? (2 points)

7. (25 points) Auckland Milford Yacht Manufacturing Ltd (AMYML) needs to shorten 8 hours from its project (refer to the information below).
1) Draw the critical path of the project (5 points)
2) Using the information below work out the crash cost for 8 hours of time-savings. (10 points)
3) Suppose AMYML has a $45 crash budget. Is the budget enough to crash 5 hours of time? (10 points)

Activity

Normal
Duration (hours)

Normal
Cost ($)

Crash
Duration (hours)

Crash
Cost (S)

Immediate
Predecessors

None

C, E

100

124

D, G

2 Logistics Management
Objective is to obtain efficient operations through the integration of all material acquisition, movement, and storage activities
Is a frequent candidate for outsourcing
Allows competitive advantage to be gained through reduced costs and improved customer service

Distribution Management
The outbound flow of products
Rapid response
Product choice
Service
Increasing the number of facilities generally improves response time and customer satisfaction
Total costs are important
Inventory costs
Transportation costs
Facility costs
Total logistics costs

Ethics and Sustainable Supply Chain Management
Personal ethics
Critical to long-term success of an organization
Supply chains particularly susceptible
Ethics within the supply chain
Ethical behavior regarding the environment

Establishing Sustainability in Supply Chains
Return or reverse logistics
Sending returned products back up the supply chain for resale, repair, reuse, remanufacture, recycling, or disposal
Closed-loop supply chain
Proactive design of a supply chain that tries to optimize all forward and reverse flows
Prepares for returns prior to product introduction

Measuring Supply-ChainPerformance
Assets committed to inventory

Home Depot had $12.5b inventory, total assets of $42.9b

Inventory as Percentage of Total Assets (with examples of exceptional performance)

Manufacturer (Toyota 5%) 15%

Wholesale (Coca-Cola 2.9%) 34%

Restaurants (McDonalds .05%) 2.9%

Retail (Home Depot 25.7%) 27%

Measuring Supply-Chain Performance

Net revenue Blank $63.5

Cost of goods sold Blank $28.7

Inventory: Blank Blank

Raw material inventory $1.32 Blank

Work-in-process inventory $.15 Blank

Finished goods inventory $1.26 Blank

Total inventory investment Blank $2.73

Measuring Supply-Chain Performance
Weeks of supply

For PepsiCo
Inventory investment = $2.73b
Average weekly cost of goods sold = $28.7b / 52 = $.55b
Weeks of supply = 2.73 / .55 = 4.96 weeks

Examples of Annual Inventory Turnover

Benchmarking the Supply Chain
Comparison with benchmark firms
Supply Chain Metrics in the Consumer Packaged Goods Industry

Blank TYPICAL FIRMS BENCHMARK FIRMS

Order fill rate 71% 98%

Order fulfillment lead time (days) 7 3

Cash-to-cash cycle time (days) 100 30

Inventory days of supply 50 20

Exercise:
Q1. A grocery chain is interested in exploring the impact effective supply chain management would have. Suppose that for every $1 of sales, 4% is profit, 50% is spent in the supply chain, and the remaining 46% is evenly divided between fixed and production costs. If the chain can save $1 in the supply chain it would take how many dollars of increased sales to have the same increase in profit? Assume that fixed costs are fixed so that the portion of increased sales allocated to fixed costs is instead profit (27% profit margin combined now).
Answer:
$3.70 of increased sales yields an additional $1 of profit

Exercise
Q2. A manufacturing plant averaged $540 of raw materials, $230 of work-in-process inventory, and $1230 of finished goods inventory during the month. If the cost of goods sold this month amounted to $12,000, what is the inventory turnover for the month?
Answer: 6

Exercise

Answer
(a) Percentage invested in inventory = ($150,000 + $50,000 + $330,000)/$1,170,000 = 45.30%
(b) Inventory turnover = $700,000/($150,000 + $50,000 + $330,000) = 1.32
(c) Weeks of supply = ($150,000 + $50,000 + $330,000)/($700,000/52) = 39.37

Copyright 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved
Percentage
Average inventory investment
invested in100
Total assets
inventory

Percentage
12.5
invested in10029.1%
42.9
inventory

28.7
Inventory
10.5
turnover
2.73
==
Cost of goods sold
Inventory
turnover
Average inventory investment

Average inventory investment
Weeks of
supply
Annual cost of goods sold
52 weeks
=

Operations Management: Sustainability and Supply Chain Management
Thirteenth Edition
Week 6
Supply Chain Management

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1

SCM
SCM is planning and controlling all of the business processesfrom end-customer to raw material suppliersthat link together partners in a supply chain in order to serve the needs of the end-customer.
Logistics is the task of coordinating materials flow and information flow across the supply chain.

Supply Chain vs. Sales Strategy
Hau Lee Furniture
Plan: Increase profits to $15,000 (50%)
Strategy 1: using sales strategy
Strategy 2: using supply chain strategy

Blank CURRENT SITUATION SUPPLY CHAIN STRATEGY SALES
STRATEGY

Sales $100,000 $100,000 $125,000

Cost of materials $60,000 (60%) $55,000 (55%) $75,000 (60%)

Production costs $20,000 (20%) $20,000 (20%) $25,000 (20%)

Fixed costs $10,000 (10%) $10,000 (10%) $10,000 (8%)

Profit $10,000 (10%) $15,000 (15%) $15,000 (12%)

Six Sourcing Strategies
Many suppliers
Few suppliers
Vertical integration
Joint ventures
Keiretsu networks
Virtual companies

Many Suppliers
Commonly used for commodity products
Purchasing is typically based on price
Suppliers compete with one another
Supplier is responsible for technology, expertise, forecasting, cost, quality, and delivery

Few Suppliers
Buyer forms long-term relationships with fewer suppliers
Create value through economies of scale and learning curve improvements
Suppliers more willing to participate in J I T programs and contribute design and technological expertise
Cost of changing suppliers is huge
Trade secrets and other alliances may be at risk

Vertical Integration

Keiretsu Networks
A middle ground between few suppliers and vertical integration
Supplier becomes part of the company coalition
Often provide financial support for suppliers through ownership or loans
Members expect long-term relationships and provide technical expertise and stable deliveries
May extend through several levels of the supply chain

Supply Chain Risk
More reliance on supply chains means more risk
Fewer suppliers increase dependence
Compounded by globalization and logistical complexity
Vendor reliability and quality risks
Political and currency risks

Risk and Mitigation Tactics
Research and assess possible risks
Innovative planning
Reduce potential disruptions
Prepare responses to negative events
Flexible, secure supply chains
Diversified supplier base
Cross-

Managing the Integrated Supply chain
Issues
Local optimization can magnify fluctuations
Incentives push merchandise into the supply chain for sales that have not occurred
Large lots reduce shipping and production costs but increase inventory holding and do not reflect actual sales
Bullwhip effect occurs when orders are relayed through the supply chain with fluctuations increasing at each step

Building the Supply Base (1 of 5)
Supplier evaluation
Finding potential suppliers
Determine likelihood of their becoming good suppliers
Supplier certification
Qualification
Education
Certification

Building the Supply Base (2 of 5)
Supplier development
Integrate the supplier into the system
Quality requirements
Product specifications
Schedules and delivery
Procurement policies
Training
Engineering and production help
Information transfer procedures

Building the Supply Base (3 of 5)
Negotiation
A significant element in purchasing
Highly valued skills
Cost-based price model
Supplier opens books
Market-based price model
Based on published, auction, or indexed prices
Competitive bidding
Common policy for many purchases
Does not generally foster long-term relationships

Building the Supply Base (4 of 5)
Contracting
Share risks, benefits, create incentives
Centralized purchasing
Leverage volume
Develop specialized staff
Develop supplier relationships
Maintain professional control
Devote resources to selection and negotiation
Reduce duplication of tasks
Promote standardization

Building the Supply Base (5 of 5)
E-Procurement
Speeds purchasing, reduces costs, integrates supply chain
Online catalogs and exchanges
Standard items or industry-specific web sites
Online auctions
Low barriers to entry
Reverse auctions for buyers
Price not always the most important factor

16 BSYS841 Operations & SCM
Week 3 Quality Management
Part III Tools of TQM

Seven T Q M Tools
Three tools for generating ideas
Check Sheet
Scatter Diagram
Cause-and-Effect Diagram
Two tools to organize the data
Pareto Chart
Flowchart (Process Diagram)
Two tools for identifying problems
Histogram
Statistical process control chart

Three tools for generating ideas (1 of 3)
(a) Check Sheet: An organized method of recording data

(b) Scatter Diagram: A graph of the value of one variable vs. another variable

Three tools for generating ideas (2 of 3)

Three tools for generating ideas (3 of 3)
Fishbone example of a basketball quality control problem

Cause-and-Effect Diagrams
Figure 6.7

Two tools to organize the data (1 of 2)
(d) Pareto Chart: A graph to identify and plot problems or defects in descending order of frequency

Two tools to organize the data (2 of 2)
(e) Flowchart (Process Diagram): A chart that describes the steps in a process

Two tools for identifying problems (1 of 2)
(f) Histogram: A distribution showing the frequency of occurrences of a variable

Two tools for identifying problems (2 of 2)
(g) Statistical Process Control Chart: A chart with time on the horizontal axis to plot values of a statistic

Pareto Charts

Flow Charts
MRI (Magnetic Resonance Imaging) Flowchart
Physician schedules MRI
Patient taken to MRI
Patient signs in
Patient is prepped
Technician carries out MRI
Technician inspects film
If unsatisfactory, repeat
Patient taken back to room
MRI read by radiologist
MRI report transferred to physician
Patient and physician discuss

Statistical Process Control (S P C)
Uses statistics and control charts to tell when to take corrective action
Drives process improvement
Four key steps
Measure the process
When a change is indicated, find the assignable cause
Eliminate or incorporate the cause
Restart the revised process

Control Charts
Figure 6.8

14 Operations Management: Sustainability and Supply Chain Management
Week 5

Module A: Decision-Making Tools

Learning Objectives
1 Create a simple decision tree
2 Build a decision table
3 Explain when to use three types of decision-making environments
4 Calculate an expected monetary value (E M V)
5 Compute the expected value of perfect information (E V P I)
6 Evaluate the nodes in a decision tree
7 Create a decision tree with sequential decisions

The Decision Process in Operations
Clearly define the problem and the factors that influence it
Develop specific and measurable objectives
Develop a model
Evaluate each alternative solution
Select the best alternative
Implement the decision and set a timetable for completion

Fundamentals of Decision Making
Symbols used in a decision tree:
Decision node from which one of several alternatives may be selected.
A state-of-nature node out of which one state of nature will occur

Terms:
Alternative a course of action or strategy that may be chosen by the decision maker
State of nature an occurrence or a situation over which the decision maker has little or no control

Decision Tree Example

Decision Table Example
Decision Table with Conditional Values for

Decision-Making Environments
Three types
Decision making under uncertainty
Complete uncertainty as to which state of nature may occur
Cannot assess probabilities for each possible outcome
Decision making under risk
Several states of nature may occur
Each has a probability of occurring
Decision making under certainty
State of nature is known

Uncertainty

Maximax Maximin Equally likely

Find the alternative that maximizes the maximum outcome for every alternative Find the alternative that maximizes the minimum outcome for every alternative Find the alternative with the highest average outcome

Pick the outcome with the maximum number Pick the outcome with the minimum number Pick the outcome with the maximum number

Highest possible gain Least possible loss Assumes each state of nature is equally likely to occur

This has been called an optimistic decision criteria This has been called a pessimistic decision criteria

Type 1: Decision Table Under Uncertainty

Maximax choice is to construct a large plant
Maximin choice is to do nothing
Equally likely choice is to construct a small plant

Type 2: Decision Making Under Risk
Each possible state of nature has an assumed probability
States of nature are mutually exclusive
Probabilities must sum to 1
Determine the expected monetary value (E M V) for each alternative

Expected Monetary Value

EMV (Alternative i) = (Payoff of 1st state of nature) (Probability of 1st state of nature)

Blank + (Payoff of 2nd state of nature) (Probability of 2nd state of nature)

Blank
+ + (Payoff of last state of nature) (Probability of last state of nature)

Decision Table Example

Best Option

Type 3: Decision Making Under Certainty

Expected value with perfect information
(EVwPI) = (Best outcome or consequence for 1st state of nature) (Probability of 1st state of nature)

Blank + Best outcome for 2nd state of nature)
(Probability of 2nd state of nature)

Blank + + Best outcome for last state of nature)
(Probability of last state of nature)

Is the cost of perfect information worth it?
Determine the expected value of perfect information (E V P I)
EVPI = the payoff under certainty – the payoff under risk
EVPI = expected value with perfect information Maximum EMV

E V P I Example
The best outcome for the state of nature “favorable market” is

“build a large facility” with a payoff of $200,000.
The best outcome for “unfavorable is
“do nothing” with a payoff of $0.

The maximum E M V is $52,000, which is the expected outcome without perfect information. Thus:
The most the company should pay for perfect information is

$68,000

15 Operations Management: Sustainability and Supply Chain Management
Thirteenth Edition
Week 3
Chapter 6
Managing Quality

Outline
Global Company Profile: Arnold Palmer Hospital
Quality and Strategy
Defining Quality
Total Quality Management
Tools of T Q M
The Role of Inspection
T Q M in Services

Managing Quality Provides a Competitive Advantage
Arnold Palmer Hospital
Delivers over 14,000 babies annually
Virtually every type of quality tool is employed
Continuous improvement
Employee empowerment
Benchmarking
Just-in-time (J I T)
Quality tools

Learning Objectives
When you complete this chapter you should be able to:
6.1 Define quality and TQ M
6.2 Describe the I S O international quality standards
6.3 Explain Six Sigma
6.4 Explain how benchmarking is used in T Q M
6.5 Explain quality robust products and
Taguchi concepts
6.6 Use the seven tools of T Q M

Quality and Strategy
Managing quality supports differentiation, low cost, and response strategies
Quality helps firms increase sales and reduce costs
Building a quality organization is a demanding task

Two Ways Quality Improves Profitability

The Flow of Activities

Defining Quality
An operations managers objective is to build a total quality management system that identifies and satisfies customer needs
The totality of features and characteristics of a product or service that bears on its ability to satisfy stated or implied needs
American Society for Quality
Different Views
User based: better performance, more features
Manufacturing based: conformance to standards, making it right the first time
Product based: specific and measurable attributes of the product

Implications of Quality
Company reputation
Perception of new products
Employment practices
Supplier relations
Product liability
Reduce risk
Global implications
Improved ability to compete

Malcolm Baldrige National Quality Award
Established in 1988 by the U.S. government
Designed to promote T Q M practices
Recent winners include
Bristol Tennessee Essential Services, Stellar Solutions, Adventist Health Castle, MidwayUSA, Charter School of San Diego, Mid-America Transplant Services, Hill Country Memorial, Elevations Credit Union, MESA Products Inc.

Baldrige Criteria
Applicants are evaluated on:

CATEGORIES POINTS

Leadership 120

Strategic Planning 85

Customer Focus 85

Measurement, Analysis, and Knowledge Management 90

Workforce Focus 85

Operations Focus 85

Results 450

I S O 9000 International Quality Standards (1 of 2)
International recognition
Encourages quality management procedures, detailed documentation, work instructions, and recordkeeping
2015 revision gives greater emphasis to risk-based thinking
Over 1.6 million certifications in 201 countries
Critical for global business

I S O 9000 International Quality Standards (2 of 2)
Management principles
Top management leadership
Customer satisfaction
Continual improvement
Involvement of people
Process analysis
Use of data-driven decision making
A systems approach to management
Mutually beneficial supplier relationships

Costs of Quality
Appraisal costs – evaluating products, parts, and services
Prevention costs – reducing the potential for defects
Internal failure costs – producing defective parts or service before delivery
External failure costs – defects discovered after delivery

Takumi
A Japanese character that symbolizes
a broader dimension than quality,
a deeper process than education,
a more perfect method than persistence

Leaders in Quality (1 of 2)

LEADER PHILOSOPHY/CONTRIBUTION

W. Edwards Deming Deming insisted management accept responsibility for building good systems.
The employee cannot produce products that on average exceed the quality of what the process is capable of producing.
His 14 points for implementing quality improvement are presented in this chapter.

Joseph M. Juran A pioneer in teaching the Japanese how to improve quality.
Juran believed strongly in top-management commitment, support, and involvement in the quality effort.
He was also a believer in teams that continually seek to raise quality standards.
Juran varies from Deming somewhat in focusing on the customer and defining quality as fitness for use, not necessarily the written specifications.

Leaders in Quality (2 of 2)

LEADER PHILOSOPHY/CONTRIBUTION

Armand Feigenbaum His 1961 book Total Quality Control laid out 40 steps to quality improvement processes.
He viewed quality not as a set of tools but as a total field that integrated the processes of a company.
His work in how people learn from each others successes led to the field of cross-functional teamwork.

Philip B. Crosby Quality Is Free was Crosbys attention-getting book published in 1979.
Crosby believed that in the traditional trade-off between the cost of improving quality and the cost of poor quality, the cost of poor quality is understated.
The cost of poor quality should include all of the things that are involved in not doing the job right the first time.
Crosby coined the term zero defects and stated, There is absolutely no reason for having errors or defects in any product or service.

Ethics and Quality Management
Operations managers must deliver healthy, safe, quality products and services
Poor quality risks injuries, lawsuits, recalls, and regulation
Ethical conduct must dictate response to problems
All stakeholders must be considered
Total Quality Management
Encompasses entire organization from supplier to customer
Stresses a commitment by management to have a continuing companywide drive toward excellence in all aspects of products and services that are important to the customer

Deming’s Fourteen Points (1 of 2)

1. Create consistency of purpose

2. Lead to promote change

3. Build quality into the product; stop depending on inspections to catch problems

4. Build long-term relationships based on performance instead of awarding business on price

5. Continuously improve product, quality, and service

6. Start training

7. Emphasize leadership

Deming’s Fourteen Points (2 of 2)

8. Drive out fear

9. Break down barriers between departments

10. Stop haranguing workers

11. Support, help, and improve

12. Remove barriers to pride in work

13. Institute a vigorous program of education and self-improvement

14. Put everyone in the company to work on the transformation

Seven Concepts of T Q M
Continuous improvement
Six Sigma
Employee empowerment
Benchmarking
Just-in-time (J I T)
Taguchi concepts
Knowledge of T Q M tools

Related Questions:

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