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X = X i
n i=1
+ Sample Range: (for R-Chart)
TC=PD+
R=Max ( X i) Min ( X i )
Control Charts:
+ Centre Line represents the expected performance, i.e.
expected mean x-bar or range R
+ Upper and Lower Control Limits (UCL, LCL)
define the range of acceptable variation
Purpose: to monitor process outputs to see if it is
- In control all data points randomly fall between
the UCL and LCL
- Out of control stop the process and correct it
Types of Control Chart to detect shifts:
- X-bar Chart
- R-Chart
A process is out of control if:
- A point outside the 3 control limits
- A point near either 3 control limits; gather more data
- A run (up, down, or on either side of the centreline
[expected value]) of 7 points in a row
- Cycles or other non-random patterns
- 2 out of 3 points in a row outside of either 2 limits
- 4 out of 5 points in a row outside of either 1 limits
- Specifications: Range of acceptable values established
by engineering design or customer requirements (note:
different from UCL and LSL)
- Process variability: Natural or inherent variability
- Process capability: Process variability relative to
specifications (comparison)
Cp (Process Capability Index): compares what we
need/want (upper specifications USL and lower
specifications LSL) to what we can do (the actual 3
process spread)
Process is capable (meets specification) Cp 1.33
Improve process capability: reduce variability
Cp can be misleading if the mean is not centred
between the upper and lower limits
Cpk is used when a process is not centred
Capable to meet specifications when Cpk 1.33
6 Quality: USL and LSL are each 6 from mean
- Having no more than 3.4 defects per million
- Program designed to reduce defects, to an extent that
US-LS captures +/- 6 Sigma. That is,
Cp=12Sigma/6Sigma=2.0
- Improving quality, reducing costs, and increasing
customer satisfaction
4 Sigma 99.5% Defect Free
- a common thing of Six Sigma is that when a process
achieves 6 Sigma, its defect rate will be 3.4 ppm, Why
isnt this 1.98 ppb? To allow a drift of 1.5 Sigma
ISO 9000 Quality Standards
- Monitored by International Standards Organization
- document processes and monitor quality that follows
the PDCA cycle (Plan-Do-Check-Act)
- ensures consistency in processes not quality products
= mean
= standard deviation
If F(.) is Discrete, use the given cumulative F(.)
If F(.) is Poisson, find Q* using Poisson Distribution
Function Table
If F(.) is Uniform Dist. between a and b
Q = a+SLx(b-a)
ASSUMPTIONS
1. Only one product
2. Demand is random with known probability
distribution, i.e. F(.)
3. Product is salvaged after the selling period
4. Order arrives in single batch before selling period
e.g. Newsboy in retail:
D= random demand with mean and standard deviation
and probability distribution F(.)
w = unit wholesale price
p = unit retail price
v = markdown price (salvage value) for leftovers
Q =
D
Q
S+ H
Q
2
2 DS
H
TCC = 2 DSH
TC = 2 DSH + PD
Assumptions:
1. Demand known and constant
2. No shortages/stock outs allowed
3. Lead time known and constant
4. One batch delivery (instantaneous delivery)
5. Unit purchase cost does not change with order
quantity
6. All other costs remain unchanged (constant)
Reorder Point:
1. If T >= L
ROP=
L
Q=L D
T
2. If T < L
ROP=F
[ ]
L
Q
T
I max
2
3. Total Cost:
TC=PD+
Q =
SD
Q
+H
Q
2
2 DS
H
p
pu
( pu )
TCC = 2 DSH 1
F ( Q )=F ( z ) =SL=
C
C s +C
If F(.) is Normal,
LECTURE 7: Inventory Management II
Q = +z,
where z can be found in the Standard Normal
Distribution N(, ) Function Table F(z) = SL = CR,
and Q* Q (due to round ups)
Globalization
- Global supply chains
Input from overseas, outsourcing, sell pdt overseas
- Complexities
Language/cultural differences, currency fluctuations,
political instability, high transport costs & lead time
Supplier Management
- Choosing suppliers
Supplier audits, certification
- Supplier relationship management
Long, short- term
- Supplier partnerships (contracts)
CPFR: Collaborative Planning, Forecasting, and
Replenishment
>A supply chain initiative that focuses on information
sharing among supply chain trading partners in planning,
forecasting, and inventory replenishment
Strategic partnering
>VMI (Vendor-Managed Inventory
- Trust among trading partners
- Effective communications
- Supply chain visibility
- Event-management capability
- Performance metrics
The role of Distribution centres:
(1) reduction in transportation links (e.g. 100 suppliers
for 100 customers 100x100links, after using
distribution center 100+100 links)
(2) demand aggregation: The Square Root Law cost
decrease in proportion to the square root of num
aggregated
Advantages:
(+) lower inventory cost
(+) ability to offer a large product selection
Disadvantages:
(-) inventory further away from customers
(-) high delivery cost and time, less responsive
(-) cannot customize for regional preferences
LECTURE 10: JIT/Lean Production System
Justintime: Pull system (just as needed)
JIT is characteristic of lean production systems
Minimal inventories & continuous improvements
Elimination of waste
Big JIT broad focus
Vendor, human relations
Technology, materials and inventory management
Little JIT
narrow
focus
Scheduling
materials,
production
Ultimate
Goal:
balanced,
rapid flow of
inventories
Supporting Goals:
- Eliminate disruptions, facilitating production flow
- Make system flexible by reducing setup times and lead
times, leading to small lot production
- Eliminate waste, especially excess inventory
Sources of Waste
- Waste from overproduction
- Waste of waiting time / Transportation waste
- Inventory waste / Processing waste
- Waste of motion /Waste from product defects
JIT Benefits
- Reduced inventory levels
- High quality products
- Reduced lead times; better flexibility & responsiveness
- Increased productivity and equipment utilization
- Reduced scrap, rework and space requirements
- Pressure for good vendor relationships
- Reduced need for indirect labor
JIT Limitations
- JIT is not suitable for fluctuationg demand
- Cannot handle large spikes in demand
- Cannot handle vastly different product mixes