Outsourcing

1. What do you mean by outsourcing?

Outsourcing is the business practice of hiring a party outside a company to
perform services and create goods that traditionally were performed in-house by
the company's own employees and staff. Usually done as a cost-cutting
measure, it can affect jobs ranging from customer support to manufacturing to
the back office.

Outsourcing can help businesses reduce labor costs significantly by outsourcing

certain tasks. Businesses can also avoid expenses associated with overhead,
equipment and technology.

In addition to cost savings, companies can employ an outsourcing strategy to

better focus on core aspects of the business. Outsourcing non-core activities can
improve efficiency and productivity because another entity performs these
smaller tasks better than the firm itself. This strategy may also lead to faster
turnaround times, increased competitiveness within an industry and the cutting of
overall operational costs.

Outsourcing's biggest advantages are time and cost savings. A manufacturer of

personal computers might buy internal components for its machines from other
companies to save on production costs.

2. What is offshoring?

Offshoring is the relocation of a business process from one country to another

typically an operational process, such as manufacturing, or supporting
processes, such as accounting. Typically, this refers to a company business,
although state governments may also employ offshoring. More recently,
offshoring has been associated primarily with the outsourcing of technical and
administrative services supporting domestic and global operations from outside
the home country ("offshore outsourcing"), by means of internal (captive) or
external (outsourcing) delivery models.

3. What is Back Sourcing?

Backsourcing is the process of bringing previously outsourced jobs back under
the roof of the company to be performed internally.

It basically describes the process of when a firm recalls back in-house the
services that it previously outsourced to another company. The term is often
used interchangeably with the term “insourcing”, although insourcing can refer to
running a process “in-house” in general and not only to activities that had at
some point been outsourced
 4. What are the risks in outsourcing?

Outsourcing can be very risky, with roughly half of all outsourcing agreements
failing, because of inadequate planning and analysis. The major risks involved
are:

● Timely delivery and quality standards

● Underestimating increases in inventory and logistics costs
● When outsourcing overseas, risks like financial attractiveness, people
skills, availability and general business environment
● Political backlash that results from moving jobs to foreign countries
● Reduced employment levels
● Changes in facility requirements
● Potential adjustments to quality control systems and manufacturing
processes
● Expanded logistics issues, including insurance, tariffs, customs, and
timing

5. What are the advantages of Outsourcing?

The potential advantages of outsourcing are:

● Cost savings
● Gaining outside expertise that comes with specialization
● Improving operations and service
● Maintaining a focus on core competencies
● Accessing outside technology

6. What are the disadvantages of Outsourcing?

The potential disadvantages of outsourcing are:

● Increased logistics and inventory costs

● Loss of control (quality, delivery, etc.)
● Potential creation of future competition
● Negative impact on employees
● Risks may not manifest themselves for years

Capacity Planning
1. What is the difference between efficiency and effectiveness?
Ans. Effective capacity is the capacity firm expects to achieve given the existing
operating conditions. And design capacity is the capacity at an inventory theoretically
that is possible to achieve under ideal conditions.
Actual output = Effective capacity – lost output
Efficiency = actual output / effective capacity
Utilization = actual output / design capacity
2. What is Economies of Scale and Economies of Scope?
Ans. Economies of scale: Economies and diseconomies of scale often dictate an
optimal size for a facility. There is an inverse relationship between the volume of
output of goods and services and the fixed costs per unit to a company. Economies
of scale exist when average cost declines as size increases, whereas diseconomies
of scale occur when a larger size raises the average cost.

Economies of scope: Economy of scope states the average total cost of a company's
production decreases when there is an increasing variety of goods produced.
Economy of scope gives a cost advantage to a company when it produces a
complementary range of products while focusing on its core competencies. Economy
of scope is an easily misunderstood concept, especially since it appears to run
counter to the concepts of specialization and scale economies. One simple way to
think about economy of scope is to imagine that it's cheaper for two products to
share the same resource inputs (if possible) than for each of them to have separate
inputs.

3. Break-Even Analysis?
Ans. Break-even point is basically a point at which the cost of production is equal to
the revenue that is generated. Beyond which the company operates on profit corridor
and beneath which operates on loss corridor. A company’s position at any moment
must be beyond the breakeven point.
Location Strategies
1. What are the factors affecting location Decisions? Name the Factors and how
are they
important?
Ans.

Seven major factors that affect location decisions

a. ​Labor productivity​: Labor cost per day/Production (units per day) = Labor
cost per unit
Employees with poor training, poor education, or poor work habits may not be a
good buy
even at low wages. By the same token, employees who cannot or will not always
reach their
places of work are not much good to the organization, even at low wages.
b. ​Exchange Rates and Currency Risk​: Although wage rates and productivity
may make a country seem economical, unfavorable exchange rates may negate any
savings. Sometimes, though, firms can take advantage of a particularly favorable
exchange rate by relocating or exporting to a foreign country. However, the values of
foreign currencies continually rise and fall in most countries. Such changes could
well make what was a good location in 2015 a disastrous one in 2019.
c. ​ Costs:​ We can divide location costs into two categories, tangible and
intangible. Tangible costs are those costs that are readily identifiable and precisely
measured. They include utilities, labor, material, taxes, depreciation, and other costs
that the accounting department and management can identify.
Intangible costs are less easily quantified. They include quality of education, public
transportation facilities, community attitudes toward the industry and the company,
and quality and attitude of prospective employees. They also include quality-of-life
variables, such as climate and sports teams, that may influence personnel recruiting.
d. ​Political Risk, Values, and Culture​: The political risk associated with national,
state, and local governments’ attitudes toward private and intellectual property,
zoning, pollution, and employment stability may be in flux.
Worker values may also differ from country to country, region to region, and small
town to city. Worker views regarding turnover, unions, and absenteeism are all
relevant factors. In turn, these values can affect a company’s decision whether to
make offers to current workers if the firm relocates to a new location.
Cultural variations in punctuality by employees and suppliers make a marked
difference in production and delivery schedules. Bribery and other forms of
corruption also create substantial economic inefficiency, as well as ethical and legal
problems in the global arena.
e. ​Proximity to Markets​: For many firms, locating near customers is extremely
important. Particularly, service organizations, like drugstores, restaurants, post
offices, or barbers, find that demographics and proximity to market are the primary
location factors. Manufacturing firms find it useful to be close to customers when
transporting finished goods is expensive or difficult (perhaps because they are bulky,
heavy, or fragile).
f. ​Proximity to Suppliers​: Firms locate near their raw materials and suppliers
because of (1) perishability, (2) transportation costs, or (3) bulk. Bakeries, dairy
plants, and frozen seafood processors deal with perishable raw materials, so they
often locate close to suppliers. Companies dependent on inputs of heavy or bulky
raw materials (such as steel producers using coal and iron ore) face expensive
inbound transportation costs, so transportation costs become a major factor. And
goods for which there is a reduction in bulk during production (e.g., trees to lumber)
typically need facilities near the raw material.
g. ​Proximity to Competitors​: Both manufacturing and service organizations also
like to locate, somewhat surprisingly, near competitors. This tendency, called
clustering, often occurs when a major resource is found in that region. Such
resources include natural resources, information resources, venture capital
resources, and talent resources.
2. What is Clustering?
Ans. The location of competing companies near each other, often because of a
critical mass of information, talent, venture capital, or natural resources.

3. What are the methods of Evaluating location alternatives?

Ans. Factor-rating method, locational cost-volume analysis, center of gravity
method, and transportation model

4. What is Centre of Gravity method?

Ans. The center-of-gravity method is a mathematical technique used for finding the
location of a distribution center that will minimize distribution costs. The method
takes into account the location of markets, the volume of goods shipped to those
markets, and shipping costs in finding the best location for a distribution center.

5. What is GIS?
Ans. A geographic information system (GIS) stores, accesses, displays, and links
demographic information to a geographical location.
Here are some of the geographic databases available in many GISs:
◆​ Census data by block, tract, city, county, congressional district, metropolitan area,
state,
and zip code
◆​ Maps of every street, highway, bridge, and tunnel in the U.S.
◆​ Utilities such as electrical, water, and gas lines
◆​ All rivers, mountains, lakes, and forests
◆​ All major airports, colleges, and hospitals

6. What are the factors to be considered in Setting up a Warehouse in India? (For

each product- Biscuits, Laptops)
Ans. Factors for biscuits
a. Labor productivity of location
b. Costs involved from location
c. Work culture
d. Proximity to markets, since it’s a FMCG product, inventory turns will be high
e. Proximity to suppliers, since raw materials for biscuits are perishable in nature
Factors for laptops
a. Labor productivity
b. Costs
c. Exchange rates and currency risk
d. Political risk, values and culture
e. Proximity to markets (huge demand in emerging markets like China, India,
Brazil, etc.)
f. Proximity to suppliers (Critical integration of parts of a laptop like motherboard
from Intel)
g. Clustering (New Mexico or China)

Layout Strategies
1. What are the types of Layout? With examples.
There are 4 basic types of layout:
a. Product layout
b. Process layout
c. Fixed position layout
d. Cellular layout
e. Office layout
f. Retail layout
g. Warehouse layout
a. Product layout
This type of layout is generally used in systems where a product has to be
manufactured or assembled in large quantities. In product layout the machinery and
auxiliary services are located according to the processing sequence of the product
without any buffer storage within the line itself. Examples include automobile
manufacturing. Pictorial representation is shown:

b. Process Layout
In a process layout, (also referred to as a job shop layout) similar machines
and services are located together. Therefore, in a process type of layout all drills are
located in one area of the layout and all milling machines are located in another
area. A manufacturing example of a process layout is a machine shop. Process
layouts are also quite common in non-manufacturing environments. Examples
include hospitals, colleges, banks, auto repair shops, and public libraries. Pictorial
representation is shown:

c. Fixed position layout

In this type of layout, the product is kept at a fixed position and all other
material; components, tools, machines, workers, etc. are brought and arranged
around it. Then assembly or fabrication is carried out. The layout of the fixed material
location department involves the sequencing and placement of workstations around
the material or product. It is used in aircraft assembly, shipbuilding, and most
construction projects. Pictorial representation:

d. Cellular layout
Cellular manufacturing is a type of layout where machines are grouped
according to the process requirements for a set of similar items (part families) that
require similar processing. These groups are called cells. Therefore, a cellular layout
is an equipment layout configured to support cellular manufacturing. Processes are
grouped into cells using a technique known as group technology (GT). Group
technology involves identifying parts with similar design characteristics (size, shape,
and function) and similar process characteristics (type of processing required,
available machinery that performs this type of process, and processing sequence).
 e.Office layout
Office layouts require the grouping of workers, their equipment, and spaces
to provide for comfort, safety, and movement of information. The office layout is
based on the principle of division of labor. If the principle of division of labor is
applied, every job of an office can be divided into many sections. All the sections
may not be possible to accommodate in one room or on the same floor. Hence,
office layout ensures fully utilization of office space and the efficiency of operation is
high.
Here are two examples:
● When Deloitte & Touche found that 30% to 40% of desks were empty at any
given time, the firm developed its “hoteling programs.” Consultants lost their
permanent offices; anyone who plans to be in the building (rather than out
with clients) books an office through a “concierge,” who hangs that
consultant’s name on the door for the day and stocks the space with
requested supplies.
● Cisco Systems cut rent and workplace service costs by 37% and saw
productivity benefits of $2.4 billion per year by reducing square footage,
reconfiguring space, creating movable, everything-on-wheels offices, and
designing “get away from it all” innovation areas.

f.Retail layout
Retail layouts are based on the idea that sales and profitability vary directly
with customer exposure to products. Thus, most retail operations managers try to
expose customers to as many products as possible. Studies do show that the
greater the rate of exposure, the greater the sales and the higher the return on
investment. The main objective of retail layout is to maximize profitability per square
foot of floor space.
Example:
A critical element contributing to the bottom line at Hard Rock Cafe is the layout of
each cafe’s retail shop space. The retail space, from 600 to 1,300 square feet in
size, is laid out in conjunction with the restaurant area to create the maximum traffic
flow before and after eating. The payoffs for cafes like this one in London are huge.
Almost half of a cafe’s annual sales are generated from these small shops, which
have very high retail sales per square foot.

g.Warehouse layout
The objective of warehouse layout is to find the optimum trade-off between
handling cost and costs associated with warehouse space . Consequently,
management’s task is to maximize the utilization of the total “cube” of the
warehouse—that is, utilize its full volume while maintaining low material handling
costs. We define material handling costs as all the costs related to the transaction.
This consists of incoming transport, storage, and outgoing transport of the materials
to be warehoused. These costs include equipment, people, material, supervision,
insurance, and depreciation. Effective warehouse layouts do, of course, also
minimize the damage and spoilage of material within the warehouse.

2. What does good layout require to determine?

The objective of layout strategy is to develop an effective and efficient layout that will
meet the firm’s competitive requirements.
Good layout design must consider to achieve the following:
● Higher utilization of space, equipment, and people
● Improved flow of information, materials, and people
● Improved employee morale and safer working conditions
● Improved customer/client interaction
● Flexibility (whatever the layout is now, it will need to change)
In our increasingly short-life-cycle, mass-customized world, layout designs need to
be viewed as dynamic.This means considering small, movable, and flexible
equipment.

3. What is Office Layout?

The problem of layout relates to the arrangement in the space involved so that all the
equipment, supplies, procedures and personnel can function at maximum efficiency.
When a management decides to establish an office, it has to carefully define its plan
for systematic and scientific segmentation of various departments and equipment for
the office. The reason is that the systematic arrangement of office equipment leads
to availing of maximum benefit from the space available. The office layout is based
on the principle of division of labor. If the principle of division of labor is applied,
every job of an office can be divided into many sections. All the sections may not be
possible to accommodate in one room or on the same floor. Hence, office layout
ensures fully utilization of office space and the efficiency of operation is high.

Advantages of an efficient office layout:

1. No waste of time and energy of office personnel.

2. Promotes efficiency of staff.
3. Proper utilization of floor space.
4. Easy supervision.
5. Speed in inter – communication.
6. Better use of office machines and equipment.

4. What are slotting fees?

A slotting fee can be defined as a lump sum paid to a retailer by food and beverage
suppliers to have their products featured on its store shelves and stored in its
warehouse. This fee also covers the cost to enter product data in the retailer’s
inventory system and to program its computers to recognize the product’s unique
barcode. The term is synonymous with “slotting allowance”. Slotting fees are not the
same as pay-to-stay, promotional, stocking, and failure fees. Each of these are
separate costs that can be incurred by a supplier as a result of being granted retail
shelf space. ​While some big retailers have done away with slotting fees altogether,
many of the nation’s grocery giants, big box stores, and convenience stores still
require them. However, certain product types have traditionally been exempt from
paying. There are three major factors influencing the price negotiation: role of
logistics, driving growth through sales and marketing and demand for the brand.

5. What is a Servicescape? What are the factors to be considered?

Servicescape is the actual physical environment where the service is performed,

delivered and consumed. It is also the place where the firm and customer interact. It
is considered to have an impact on customer response, particularly perceptions
,evaluation and assessment. It helps in analysing the customer experience between
a fast-food restaurant and a family run small restaurant provided the quality of food
available in both the places are same the customer may perceive higher quality in
the family run restaurant based on the environment in which the food(service) is
provided.

Elements of Servicescape can be both external and internal:

Facility exterior
● Exterior design
● Singage
● Parking
● Landscape
 ● Surrounding environment
Facility interior
● Equipment
● Layout
● Air quality
● Music

Factors influencing the design of servicescape:

Complexity of the service
● Lean services - simple few elements, spaces and pieces of equipment for less
complex services. Eg: Hair cut, Mail
● Complex services - Elaborate for more complex services. Eg: Hotels,
Restaurants
Types
● Self-service(customer only) - ATM, golf course, fast food outlet
● Interpersonal service(customer & employee) - Hotel, restaurant
● Remote service(employee only) - Insurance company

Servicescape can act as a differentiating factor in most of the service based

businesses.

6. What is ASRS?
Automated Storage and Retrieval Systems (ASRS) ​consists of a variety of
computer-controlled systems for automatically placing and retrieving loads from
defined storage locations. Automated storage and retrieval systems (ASRS) are
typically used in applications where:
● There is a very high volume of loads being moved into and out of storage
● Storage density is important because of space constraints
● No value is added in this process (no processing, only storage and
transport)
● Accuracy is critical because of potential expensive damages to the load
The basic components of an ASRS are:
● Storage and retrieval machines
● Rack structure
● Conveyor (or AGV) interface
● Warehouse Control System
Storage and retrieval machines are designed to handle a wide range of load types,
but for the typical warehouse, this usually means pallet loads, individual cases or
totes, or both. An entire ASRS design is focused on the load handling (dimensions)
and speed of delivery for a particular load type. Key to the successful operation of
the system is the passing of load movement information between the existing
Warehouse Management System and the automated Warehouse Control System
(WCS). This WCS manages all of the automated equipment functions and tracks
load movements into and out of the system.
Benefits of ASRS include:
● Reducing the use of space and labour
● Consistent handling of product in a safe and secure manner
● Storage putaway rules managed by the WCS are always followed
● Real-time product tracking and identification is maintained
● Automated replenishment can facilitate order picking and consolidation
● Highly controlled storage environment, insuring no human access

7. What is the difference between Random and Cross Docking?

Cross-docking is a practice in logistics of unloading materials from an incoming
semi-trailer truck or railroad car and loading these materials directly into outbound
trucks, trailers, or rail cars, with little or no storage in between. This may be done to
change the type of conveyance, to sort material intended for different destinations, or
to combine material from different origins into transport vehicles (or containers) with
the same or similar destinations.

In the less-than-truckload (LTL) trucking industry, cross-docking is done by moving

cargo from one transport vehicle directly onto another, with minimal or no
warehousing. In retail practice, cross-docking operations may utilize staging areas
where inbound materials are sorted, consolidated, and stored until the outbound
shipment is complete and ready to ship.

Random stocking typically requires automatic identification systems (AISs) and

effective information systems. Random assignment of stocking locations allows
more efficient use of space. The key tasks involved are:
1. Maintain list of open locations
2. Maintain accurate records
3. Sequence items to minimize travel, pick time
4. Combine picking orders
5. Assign classes of items to particular areas

8. What is Process-Oriented Layout? Example

​· In a process layout, (also referred to as a job shop layout) similar

machines and services are located together.
· Therefore, in a process type of layout all drills are located in one
area of the layout and all milling machines are located in another
area. A manufacturing example of a process layout is a machine
shop.
· Process layouts are also quite common in non-manufacturing
environments. Examples include hospitals, colleges, banks, auto
repair shops, and public libraries

Advantages:

· Better machine utilization

· Highly flexible in allocating personnel and equipment because
general purpose machines are used.
· Diversity of tasks for personnel
· Greater incentives to individual worker
· Change in Product design and process design can be
incorporated easily
· More continuity of production in unforeseen conditions like
breakdown, shortages, absenteeism

Disadvantages:

· Increased material handling

· Increased work in process
· Longer production lines
 · Critical delays can occur if the part obtained from previous
operation is faulty
· Routing and scheduling pose continual challenges

9. What is Fixed-Position Layout? Example

· In this type of layout, the product is kept at a fixed position and all
other material; components, tools, machines, workers, etc. are brought
and arranged around it. Then assembly or fabrication is carried out.

· The layout of the fixed material location department involves the

sequencing and placement of workstations around the material or
product.

· It is used in aircraft assembly, shipbuilding, and most construction

projects.

Advantages:

· Material movement is reduced

· Promotes pride and quality because an individual can
complete the whole job
· Highly flexible; can accommodate changes in product design,
product mix, and production volume

Disadvantages:
 · May result in increase space and greater work in process
· Requires greater skill for personnel
· Personnel and equipment movement is increased
· Requires close control and coordination in production and
personnel scheduling

10. What are Job Lots?

Groups or batches of parts processed together.

11. What is a Work Cell? Advantages of it.

An arrangement of machines and personnel that focuses on making a

single product or family of related products.

A work cell reorganizes people and machines that would ordinarily be

dispersed in various departments into a group so that they can focus on
making a single product or a group of related products. Cellular work
arrangements are used when volume warrants a special arrangement of
machinery and equipment. These work cells are reconfigured as
product designs change or volume fluctuates.

The advantages of work cells are:

1. Reduced work-in-process inventory because the work cell is set up to

provide one-piece flow from machine to machine.
2. Less floor space required because less space is needed between
machines to accommodate work-in-process inventory.
3. Reduced raw material and finished goods inventories because less
work-in-process allows more rapid movement of materials through the
work cell.
4. Reduced direct labour cost because of improved communication
among employees, better material flow, and improved scheduling.
5. Heightened sense of employee participation in the organization and
the product: employees accept the added responsibility of product
quality because it is directly associated with them and their work cell.
 6. Increased equipment and machinery utilization because of better
scheduling and faster material flow.
7. Reduced investment in machinery and equipment because good
utilization reduces the number of machines and the amount of
equipment and tooling.

12. What is Takt Time and Cycle Time?

Takt Time:

It is the pace (frequency) of production units necessary (time per unit) to

meet customer orders.

Takt time = Total work time available/Units required

Cycle Time:

It is the maximum time allowed at each workstation if the production rate

is to be achieved.

Cycle time = Production time available per day / Units required per day

13. What is Fabrication, Assembly Line?

There are two types of a product-oriented layout :

1. Fabrication line
2. Assembly line

Fabrication line: A machine-paced, product-oriented facility for building

components. It builds components, such as automobile tires or metal parts for
a refrigerator, on a series of machines.
 Assembly line: An approach that puts fabricated parts together at a series of
workstations; used in repetitive processes.​ ​An assembly line puts the
fabricated parts together at a series of workstations.

Both are repetitive processes, and in both cases, the line must be “balanced”;
that is, the time spent to perform work on one machine must equal or
“balance” the time spent to perform work on the next machine in the
fabrication line, just as the time spent at one workstation by one
assembly-line employee must “balance” the time spent at the next
workstation by the next employee.

14. What is Customization in Warehouse Practices?

Warehouse customization is a particularly useful way to generate

competitive advantage in markets where products have multiple
configurations. For instance, a warehouse can be a place where
computer components are put together, software loaded, and repairs
made. Warehouses may also provide customized labeling and
packaging for retailers so items arrive ready for display.

Increasingly, this type of work goes on adjacent to major airports, in

facilities such as the FedEx terminal in Memphis. Adding value at
warehouses adjacent to major airports also facilitates overnight delivery.
For example, if your computer has failed, the replacement may be sent
to you from such a warehouse for delivery the next morning. When your
old machine arrives back at the warehouse, it is repaired and sent to
someone else. These value-added activities at “ quasi-warehouses”
contribute to strategies of differentiation, low cost, and rapid response.
SUPPLY CHAIN MANAGEMENT

7. What is Bull Whip Effect and Reasons for it.

Bullwhip is a pervasive supply chain problem whereby order variability grows as
demand signals propagate upstream.
Ex 1: P&G observed the bullwhip effect in the supply chain for pampers diapers. The
company found that raw material orders from P&G to its suppliers fluctuated
significantly over time. Farther down the chain, when sales at retail stores were
studied, the fluctuation, though present, were small
Ex 2: HP also found bullwhip effect as they moved from the the printer division to the
integrated circuit division. Although printer demand showed some variability, orders
placed with the integrated circuit division were much more variable. This made it
difficult for HP to fill orders on time and increased the cost of doing so.

A lack of coordination occurs either because different stages of the supply chain
have local objectives that conflict or because information moving between stages is
delayed and distorted.
​a) Different stages of a supply chain may have conflicting objectives if each
stage tries to maximize its own profits, resulting in actions that often diminish total
supply chain profits
b) Not only does each stage focus on its own objectives, but information is also
often distorted as it moves across the supply chain because complete information is
not shared between stages.

How to Counteract the Bullwhip Effect?

Current strategies adopted by organizations are:
1. Point of Sale (POS) information analysis and sharing this POS data across
the supply chain.
2. Designing a supply chain in which a single stage controls replenishment
decision for the entire supply chain can help diminish the bullwhip effect
3. Any change that reduces the incentive for a salesperson to push product to
the retailer reduces the bullwhip effect. Elimination of forward buying helps reduce
fluctuations in the order stream.
Going forward there is huge technology addition in terms of IOT (Internet Of Things)
which shall have substantial impact on Bullwhip

8. What do you mean by accurate pull Data?

Accurate sales data that initiate transactions to pull product through the supply chain.
Accurate pull data are generated by sharing
(1) point-of-sales (POS) information so that each member of the chain can schedule
effectively and
(2) computer-assisted ordering (CAO) - A Computer Assisted Ordering system uses
point-of-sale data to predict demand based on market factors, inventory on hand,
and outstanding orders. The system needs about three months of daily data to get a
good trend. The software also adjusts for seasonality. Then a net order is sent
directly to the supplier, who is responsible for maintaining the finished-goods
inventory​.

9. What do you mean by Lot Size Reduction?

Lot sizes are reduced through aggressive management. This may include
(1) developing economical shipments of less than truckload lots;
(2) providing discounts based on total annual volume rather than size of individual
shipments; and
(3) reducing the cost of ordering through techniques such as standing orders and
various forms of electronic purchasing.

10. What do you mean by Single Stage Control of Replenishment?

It means designating a member in the chain as responsible for monitoring and
managing inventory in the supply chain based on the “pull” from the end user. This
approach removes distorted information and multiple forecasts that create the
bullwhip effect.

The key cause of the bullwhip effect is the fact that each stage of the supply chain
uses orders from the previous stage as its historical demand. As a result, each stage
views its role as one of replenishing orders placed by the next stage. The key
replenishment is at the retailer, because that is where the final customer purchases.
When a single stage controls replenishment decision for the entire chain, the
problem of multiple forecasts is eliminated and coordination within the supply chain
follows.

Control may be in the hands of: A sophisticated retailer who understands demand
patterns. Walmart does this for some of its inventory with radio frequency ID (RFID)
tags.

11. What do you mean by VMI?

Vendor-managed inventory (VMI) is a family of business models in which the buyer
of a product provides information to the supplier (vendor) and the supplier takes full
responsibility for maintaining an agreed ​inventory​ of the material, usually at the
buyer's consumption location. As a symbiotic relationship, VMI makes it less likely
that a business will unintentionally become out of stock of a good and reduces
inventory in the supply chain.
This is one of the successful business models used by Walmart and many other big
box store retailers. Vendors benefit from more control of product displays and more
customer contact for their employees; retailers benefit from reduced risk, better store
staff knowledge (which builds brand loyalty for both the vendor and the retailer), and
reduced display maintenance outlays.

At the goods' manufacturing level, VMI helps prevent overflowing warehouses or

shortages, as well as costly labor, purchasing and accounting. With VMI, businesses
maintain a proper inventory, and optimized inventory leads to easy access and fast
processing with reduced labor costs.

12. What do you mean by Blanket Order?

A blanket order or blanket purchase agreement is a purchase order which a
customer places with its supplier to allow multiple delivery dates over a period of
time, often negotiated to take advantage of predetermined pricing. Blanket orders
are often used when a customer buys large quantities and has obtained special
discounts. Based on the blanket order, sales orders and invoice items can be
created as needed until the contract is fulfilled, the end of the order period is
reached, or a predetermined maximum order value is reached.

13. ​What is standardization?

Standardization is the process of developing and implementing technical standards. The
process establishes common agreement for engineering criteria, terms, principles, practices,
materials, items, processes, and equipment parts and components. An organization can
benefit from standardization because it:
· Enables mass production
· Enables customization
· Improves supplier coordination
· Improves quality
· Enables simplification
· Enables delayed differentiation
· Lowers inventories
14. ​What is postponement?
Postponement is a concept in ​supply chain management​ where the manufacturer produces
a generic product, which can be modified at the later stages before the final transport to the
customer. Take for example an umbrella manufacturer who does not know what the
demand will be for different coloured umbrellas. The manufacturer will manufacture all
white umbrellas and dye them later when umbrellas are in season and it is easier to predict
demand of each colour of umbrella. This way the manufacturer can stock up on white
umbrellas early with minimal labour costs, and be sure of the ​demand​ before they dedicate
time and money into predicting the demand. ​Drop Shipping: ​Drop shipping is a ​supply chain
management​ method in which the ​retailer​ does not keep goods in stock but instead
transfers the ​customer​ orders and shipment details to either the manufacturer, another
retailer, or a ​wholesaler​, who then ships the goods directly to the customer. As in ​retail
business​, the majority of retailers make their profit on the difference between the
wholesale and retail price, but some retailers earn an agreed percentage of the sales in
commission, paid by the wholesaler to the retailer.
and so far in the future.

15. ​What do you mean by Drop Shipping, Channel Assembly and Pass through Facility?

Pass through facility:​ A distribution center where the merchandise is held, but it functions
less as a holding area and more as a shipping hub.
Ex: FedEx warehouse next to the airport at Memphis can receive an order after a store
closes for the evening and can locate, package and ship the merchandise that night and
guarantees a delivery by morning.
Channel Assembly: ​It is an extension of pass through facility. It sends individual component
and modules rather than finished products to the distributor. The distributor then
assembles, tests and ships. Channel assembly treats distributors as manufacturing partners
rather than distributors. It is extremely successful in industries such as personal computers.
17. ​What do you mean by Electronic data interchange and Advance shipping notice?
Standardized data transmittal format for computerized communications between
organizations. Under EDI, data for purchase order, such as order date, due date, quantity,
part number, purchase order number, address, etc are fitted into EDI standard format. EDI
includes Advance shipping notice, which notifies the purchaser that the vendor is ready to
ship.
18. ​What are online catalogues and the three version of it?
Online catalogues or e catalogues facilitates a direct relationship between the company and
its clients. It enables faster decision making and improved responsiveness to market
demands.
1. Catalogs provided by vendors
2. Catalogs provided by Intermediaries
3. Exchanges provided by buyers

18.What are different type of auctions? How is reverse auction different from
all of them and where is it used?
Common types of auctions are listed below
open ascending price auction​: This type of auction is arguably the most common
form of auction in use today. Participants bid openly against one another, with each
subsequent bid required to be higher than the previous bid.The auction ends when
no participant is willing to bid further, at which point the highest bidder pays their bid
open descending price auction​: the auctioneer begins with a high asking price for
some quantity of like items; the price is lowered until a participant is willing to accept
the auctioneer's price for some quantity of the goods in the lot or until the seller's
reserve price is met​. If the first bidder does not purchase the entire lot, the
auctioneer continues lowering the price until all of the items have been bid for or the
reserve price is reached
Sealed first price auction / First Price Sealed Bid Auction (FPSB)​: In this type of
auction all bidders simultaneously submit sealed bids so that no bidder knows the
bid of any other participant. The highest bidder pays the price they submitted​. These
auctions are commonly called tendering for procurement by companies and
organisations, particularly for government contracts and auctions for mining leases.
sealed-bid second-price auction (Vickery Auction)​: This is identical to the sealed
first-price auction except that the winning bidder pays the second-highest bid rather
than his or her own. Vickrey auctions are extremely important in auction theory, and
commonly used in automated contexts such as real-time bidding for online
advertising, but rarely in non-automated contexts

Reverse Auction​:. ​A reverse auction is a type of auction in which the roles of buyer
and seller are reversed. In an ordinary auction (also known as a 'forward auction'),
buyers compete to obtain goods or services by offering increasingly higher prices. In
a reverse auction, the sellers compete to obtain business from the buyer and prices
will typically decrease as the sellers underbid each other.
For business auctions, the term refers to a specific type of auction process (also
called ​procurement auction, e-auction, sourcing event, e-sourcing or eRA,
eRFP, e-RFO, e-procurement, B2B Auction​) commonly used in government
procurement and the private sector

19.What do you mean by RFQs?

A request for quotation (RfQ) is a standard business process whose purpose is to
invite suppliers into a bidding process to bid on specific products or services. RfQ
generally means the same thing as Call for bids (CfB) and Invitation for bid.
An RfQ typically involves more than the price per item. Information like payment
terms, quality level per item or contract length may be requested during the bidding
process. ​To receive correct quotes, RfQs often include the specifications of the
items/services to make sure all the suppliers are bidding on the same item/service.
Logically, the more detailed the specifications, the more accurate the quote will be
and comparable to the other suppliers. Another reason for being detailed in sending
out an RfQ is that the specifications could be used as legal binding documentation
for the suppliers.

20.What is RFID? Why is it used and how can it help?

Radio-frequency identification (RFID) uses electromagnetic fields to automatically
identify and track tags attached to objects. The tags contain electronically-stored
information. Passive tags collect energy from a nearby RFID reader's interrogating
radio waves. Active tags have a local power source (such as a battery) and may
operate hundreds of meters from the RFID reader. Unlike a barcode, the tag need
not be within the line of sight of the reader, so it may be embedded in the tracked
object. RFID is one method for Automatic Identification and Data Capture (AIDC)
RFID tags are used in many industries, for example, an RFID tag attached to an
automobile during production can be used to track its progress through the assembly
line; RFID-tagged pharmaceuticals can be tracked through warehouses; and
implanting RFID microchips in livestock and pets allows for positive identification of
animals.

21.What are the different stages of Vendor Selection?

1. Analyze your business requirements
2. Search for a vendor
3. Write a Request for Proposal (RFP) & Request for Quotation (RFQ)
4. Evaluating the proposal & selecting the vendor
5. Creating a contract negotiation strategy

22.What do you mean 1PL,2PL,3PL & 4PL? Examples.

1PL: ​A first-party logistics provider (1PL) is a firm or an individual that needs to have
cargo, freight, goods, produce or merchandise transported from a point A to a point
B. The term first-party logistics provider stands both for the cargo sender and for the
cargo receiver​. ​A 1PL can be a manufacturer, trader, importer/exporter, wholesaler,
retailer or distributor in the international commerce field. It can also be institutions
such a government department or an individual or family removing from one place to
another. Anyone having goods moved from their place of origin to their new place is
considered to be first-party logistics provider.
2PL: A second-party logistics provider (2PL) is an asset-based carrier, which
actually owns the means of transportation. Typical 2PLs would be shipping lines
which own, lease or charter their ships; airlines which own, lease or charter their
planes and truck companies which own or
lease their trucks
3PL: A 3rd party logistics provider can help manage your supply chain and
distribution needs by offering their unique services to your business. These
companies offer many different logistics services, including contract management,
freight forwarding, logistics optimization, management consulting, order fulfilment,
transportation, warehousing and much more. Whether you only need a few services
or a complete solution to your distribution and warehousing needs, a 3rd party
logistics provider will be there to help.
Ex: ​DHL, Wincanton, Norbert-Dentressangle, CEVA & NYK Logistics
4PL: A fourth-party logistics provider (4PL) is an independent, singularly
accountable, non-asset based integrator who will assemble the resources,
capabilities and technology of its own o
rganisation and other organisations, including 3PLs, to design, build and run
comprehensive
supply chain solutions for clients.

23.What do you mean by inventory turnover?

Inventory turnover is a ratio showing how many times a company has sold and
replaced inventory during a period. The company can then divide the days in the
period by the inventory turnover formula to calculate the days it takes to sell the
inventory on hand. It is calculated as sales divided by average inventory. ​The speed
with which a company can sell inventory is a critical measure of business
performance. It is also one component in the calculation of return on assets — the
other component is profitability. The return a company makes on its assets is a
function of how fast it sells inventory at a profit. High turnover means nothing unless
the company is making a profit on each sale.

Aggregate Planning and MRP

What do you mean by MPS? How is it related to MRP?

A Master Production Schedule determines how many end items will be produced
within specified periods of time. It breaks the sales and operations plan into specific
product schedules.
The process of developing an MPS includes two steps:
1) The first step is to calculate the projected on-hand inventory which is an
estimate of the amount of inventory available each week after the demand has been
satisfied.
2) The second step is to determine the timing and size of MPS quantities to
maintain a non-negative projected on-hand inventory balance.
The first input into a Material Requirement Plan is the Master Production schedule.
On the basis on MPS, MRP helps manage dependent demand inventory and
schedule replenishment orders.

What is Chase strategy?

The chase strategy refers to the notion that you are chasing the demand set by the
market. Production is set to match demand and doesn't carry any leftover products.
This is a lean production strategy, saving on costs until the demand – the order – is
placed. Inventory costs are low, and the cost of goods for products sold is kept to a
minimum and for a shorter length of time. This is common in industries where
perishables are an issue or with a company that doesn't have a lot of extra cash on
hand and doesn't want the added risks of loss, theft or unsold products. The
production schedule is based on orders and immediate demand.

What is Level strategy?

A level strategy seeks to produce an aggregate plan that maintains a steady

production rate and/or a steady employment level. To satisfy changes in customer
demand, the firm must raise or lower inventory levels in anticipation of increased or
decreased levels of forecast demand. The firm maintains a level workforce and a
steady rate of output when demand is somewhat low. This allows the firm to
establish higher inventory levels than are currently needed. As demand increases,
the firm is able to continue a steady production rate/steady employment level, while
allowing the inventory surplus to absorb the increased demand.

How do you make Aggregate Planning decisions in Service Industries?8

For manufacturing firms, the luxury of building up inventories during periods of slack
demand allows coverage of an anticipated time when demand will exceed capacity.
Services cannot be stockpiled or inventoried, so they do not have this option. Also,
since services are considered "perishable," any capacity that goes unused is
essentially wasted. In industries such as banking, trucking, and fast foods, aggregate
planning may be easier than in manufacturing. Controlling the cost of labor in
service firms is critical. Successful techniques include:

1. Accurate scheduling of labor-hours to ensure quick response to customer demand

2. An on-call labor resource that can be added or deleted to meet unexpected
demand
3. Flexibility of individual worker skills that permits reallocation of available labor
4. Flexibility in rate of output or hours of work to meet changing demand
What is Bill of Materials?

A Bill of Materials is a record of all the components of an item, the parent-component

relationships, and the usage quantities derived from engineering and process
designs. The replenishment schedule for a component is determined from the
production schedule of its parents. Hence the system needs accurate information on
parent component relationships which is provided by Bill of Materials. Four items
frequently used to describe inventory items are end items, intermediate items,
subassemblies and purchased items. An end item is the final product sold to
customer which is a parent. An intermediate item has at least one parent and one
component. A subassembly is an intermediate item that is assembled from more
than one component. A purchased item has no components in the buyer’s inventory
as it comes from a supplier.

What are Modular Bills?

Bills of material may be organized around product modules. Modules are not final
products to be sold but are components that can be produced and assembled into
units. They are often major components of the final product or product options. Bills
of material for modules are called modular bills. Modular bills are convenient
because production scheduling and production are often facilitated by organizing
around relatively few modules rather than a multitude of final assemblies. This
approach allows the MPS to be prepared for a reasonable number of items.

What are Planning and Phantom Bills?

A phantom bill (also known as a phantom assembly) describes a normally

non-stocked assembly or subassembly. One purpose of a phantom bill of material is
to allow you to manufacture and stock the assembly when necessary. You can use
phantoms, for example, to build and stock occasional spares for field service
requirements.

Planning bills are groups of items in a bill of material format that reflect how an item
is sold, rather than how it is built. Planning bills allow you to account for the variety of
possible options and features that might be included as components in a saleable
end item.You can use a planning bill to configure a hypothetical average parent item
that is not actually manufactured, but represents the components needed to satisfy
demand for all the combinations of options and features that you expect to sell.

What do you mean by Kits?

It is a Bill of Materials which is set as a pseudo item (kit item) only on the plan to
handle small parts to be used for various items as one group by combining them by
a given rule. By setting them as one kit item, e.g. it is possible to give only one
instruction for one kit item instead of giving several instructions for one-by-one
delivery.

What is MRP?

Material requirements planning (MRP) is a system for calculating the materials and
components needed to manufacture a product. It consists of three primary steps:
taking inventory of the materials and components on hand, identifying which
additional ones are needed and then scheduling their production or purchase.
It's important to note that MRP and lean production are not the same and are
considered by some practitioners to be antithetical, though some say MRP can help
with lean production. MRP is considered a "push" system -- inventory needs are
determined in advance, and goods produced to meet the forecasted need -- while
lean is a "pull" system in which nothing is made or purchased without evidence of
actual -- not forecasted -- demand.

What is system nervousness?

Nervousness is a characteristic in an MRP system when minor changes in higher

level (e.g., level 0 or 1) records or the master production schedule cause significant
timing or quantity changes in lower level (e.g., level 5 or 6) schedules and orders.

An approach in which the material requirements plan is continually retained in the

computer. Whenever a change is needed in requirements, open order inventory
status, or bill of material, a partial explosion and netting is made for only those parts
affected by the change. Ant: regeneration MRP.

What do you mean by pegging?

Procedure in Production Planning and Detailed Scheduling that establishes the

relationship between receipt elements and requirements elements of a product within
a location. Using pegging, the corresponding receipt elements are assigned to the
requirements.

Two types of pegging are available:

Fixed pegging
With fixed pegging the assignment of a receipt element to a requirements element
remains fixed during planning.

Dynamic pegging

With dynamic pegging the assignment of receipt elements to requirements elements

can change depending on the planning situation.

What do you mean by time fences?

A time fence can be defined as a series of time intervals specifying the types of order
changes that are allowed. Time fences can be categorized as –

1. Demand Time Fence (DTF) – In this type, there is a designated period in which
the MPS is frozen. The DTF starts with the present period, extending into the future,
with relatively few periods. In demand time fence, freezing the MPS means not
allowing any type of changes to the existing schedule.

2. Planning Time Fence (PTF) – Involves, a designated period during which the
master scheduler is allowed to make changes. The PTF starts after the DTF ends
and extends further into the future.

JIT and Lean Operations:

● How did Toyota achieve competitive advantage with Lean Operation?

Understand the
Concepts.
A: ​Lean operation is a systematic methodology for waste minimization (MUDA)
within a manufacturing system without sacrificing productivity. This methodology
was introduced by the engineers at Toyota.
Types of waste:
• Transport: - moving products that are not actually required to perform the
processing
• Inventory: - all components, WIP and finished product not being processed
• Motion: - people or equipment moving more than required
• Waiting: - waiting for the next production step
• Over production: - production ahead of demand
• Over processing: - resulting from poor tool or product design creating activity
• Defects: - the effort involved in inspecting for and fixing defects
Steps to achieve a lean system:
The following steps should be implemented to create the ideal lean manufacturing
system
• Design a simple manufacturing system
• Recognize that there is always room for improvement
• Continuously improve the lean manufacturing system design

1) Design a simple manufacturing system-

A fundamental principle of lean manufacturing is demand-based flow manufacturing.
In this type of production setting, inventory is only pulled through each production
center when it is needed to meet a customer's order. The benefits of this goal include
• Decreased cycle time
• Less inventory
• Increased productivity
• Increased capital equipment utilization
2) Continuous improvement-

A continuous improvement mindset is essential to reach the company's goals. The

term "continuous improvement" means incremental improvement of products,
processes, or services over time, with the goal of reducing waste to improve
workplace functionality, customer service, or product performance.

3) Measure-

Overall equipment effectiveness (OEE) is a set of performance metrics that fit well in
a lean environment. Also, PMTS, methods-time measurement, cost analysis and
perhaps time study can be used to evaluate the wastes and IT effectiveness in the
operational processes.

• What do you mean by JIT, TPS and Lean Operations?

A: ​ JIT: - A philosophy of manufacturing based on planned elimination of all waste

and on continuous
improvement of productivity. It encompasses the successful execution of all
manufacturing
activities required to produce a final product, from design engineering to delivery, and
includes
all stages all stages of conversion from raw material onward. The primary elements of
JIT are to
have only the required inventory when needed: to improve quality to zero defects: to
reduce lead
times by reducing setup times, queue lengths, and lot sizes: to incrementally revise the
operations
themselves: and to accomplish these activities at minimum cost. In the broad sense, it
applies to
all forms of manufacturing-job shop, process, and repetitive-and to many service
industries as well.
TPS: - The Toyota Production System (TPS) is an integrated socio-technical
system, developed by Toyota, that comprises its management philosophy and
practices. The TPS organizes manufacturing and logistics for the automobile
manufacturer, including interaction with suppliers and customers. The system is a
major precursor of the more generic "lean manufacturing". Taiichi Ohno and Eiji
Toyoda, Japanese industrial engineers.

• What are 5S? 7S?

A: 5S: The 5S system is a lean manufacturing tool that improves workplace
efficiency and eliminates wastes. The core principles of 5S involve creating and
maintaining
• Visual Order
• Organization
• Cleanliness
• Standardization

5S: Sort, Set in Order, Shine, Standardize, Sustain

7S: 5S + 2S (Safety, Spirit)

• What is throughput time and how is it different from Cycle time?

A: Takt time: Takt time is the rate at which you need to complete the production
process in order to meet the customer demand
TT = (Net production time/ customer demand)
Cycle time: Cycle time is the time it takes to complete the production of one unit from
start to finish. Takt time is based on customer demand whereas cycle time is work
process based.
CT = (Net production time/ no. of units produced)
Lead time: Lead time is the time it takes for one unit to make its way through your
operation from front to end (from taking the order to receiving the payment)
LT = Time from order to dispatch.
Throughput time: It is the measure of the time required for a material, part or sub
assembly to pass through a manufacturing process following the release of an order to
dispatch of the product.
It includes the following time intervals:
a) Processing time – time spent in transforming the raw materials into finished
products
b) Inspection time – time spent inspecting raw materials, WIP and finished goods
c) Move time - time required to move items into and out of production area
d) Queue time – time spent waiting prior to the processing
Throughput time = RM receipt till dispatch of product

• What do you mean by a bottleneck?

A: A bottleneck is a phenomenon by which the performance or capacity of an
entire system is severely limited by a single component. The component is sometimes
called a bottleneck point.
• What do you mean by Consignment Inventory?
A: Consignment Inventory is inventory that is in the possession of the customer
but is still owned by the supplier.
In other words, the supplier places some of his inventory in his customer’s possession
(in their store or warehouse) and allows them to sell or consume directly from his
stock. The customer purchases the inventory only after he has resold or consumed it.
The key benefit to the customer should be obvious; he does not have to tie up his
 capital in inventory. This does not mean that there are no inventory carrying costs for
the customer; he does still incur costs related to storing and managing the inventory.

8. What do you mean by lean operation in Service Industries?

Lean applies to suppliers, layout, inventory and scheduling under service sector. Major
difference between lean operations in manufacturing and service industries is the high level
of customer interaction.
Suppliers -examples: ​Every restaurant will deal with suppliers on a JIT basis, if not food
waste will be too high. Every financial service like deposits, withdrawals and brokerage
activities need to be done on a JIT basis.
Layout -examples: ​Lean layouts are required in restaurant kitchens, where cold food is to be
served cold and hot food is to be served hot. Layouts also make a difference in airline’s bag
claim, where customers expect their bags within 20 minutes.
Inventory -examples: ​In finance, stock brokers drive their inventory (buy and sell orders) to
near zero, if not they will be in serious trouble if left holding an unexecuted trade.
McDonald’s reduces inventory waste by maintaining a time-stamped finished-goods
inventory of only a few minutes.

Scheduling -examples: ​At salon, prompt service is assured by scheduling both the ​customer
and the staff. At McDonald’s and Walmart, scheduling of personnel is down to 15-minute
increments, based on precise forecasting of demand.

To deliver goods and services to customers under continuously changing demand, suppliers
need to be reliable, inventories low, cycle times short, and schedules nimble. Lean engages
and empowers employees to create and deliver the customer’s perception of value,
eliminating whatever does not contribute to this goal. Lean techniques are widely used in
both goods producing and service-producing firms; they just look different.

9. What is a two Bin system?

Two​-​bin​ inventory control is an inventory control system used to determine when items or
materials used in production should be replenished. In practice, a store manager sets up two
containers (each with adequate inventory to cover demand during the time required to receive
another order) and places an order when the first container is empty. The ​two​-​bin​ inventory
control method is mainly used for small or low-value items.

What do you mean by Kanban? Examples

when inventory is moved only as needed, it is referred to as a ​pull s​ ystem, and the ideal lot
size is one. The Japanese call this system ​Kanban (Japanese word for ‘card’ -used to signal
the need for another container of material)​. Kanbans allow arrivals at a work center to match
(or nearly match) the processing time. It places added emphasis on meeting schedules,
reducing the time and cost required by setups, and economical material handling.
Number of kanbans (cards or containers) = (Demand during lead time + Safety stock)/Size of
container

Eg: Supermarket: when the customer buys; the stock clerk observes the shelf or receives
notice from the end-of-day sales list and restocks.

10. What are the main objectives in JIT with respect to inventory / JIT inventory
tactics?
Lean inventory is the minimum inventory necessary to keep a perfect system running.
Lean Inventory tactics:
● Use of pull system to move inventory
● Reduce lot sizes
● Develop JIT delivery system with suppliers
● Deliver directly to point of use
● Perform to schedule
● Reduce setup time
● Use group technology

11. What are the key factors to be considered in JIT layout?

Distance reduction:​ work cells, often arranged in a U shape, containing several machines
performing different operations. These work cells are often based on group technology codes.
Group technology codes help identify components with similar characteristics, so they can be
grouped into families. Once families are identified, work cells are built for them. The result
can be thought of as a small product-oriented facility where the “product” is actually a group
of similar products—a family of products. The cells produce one good unit at a time, and
ideally, they produce the units ​only ​after a customer orders them.
Increase flexibility:​ To adapt to changes in volume and product changes. Layout flexibility
aids the changes that result from product ​and p​ rocess improvements that are inevitable at a
firm with a philosophy of continuous improvement.
Impact on employees:​ When layouts provide for sequential operations, feedback, including
quality issues, can be immediate, allowing employees working together to tell each other
about problems and opportunities for improvement
Reduced space and inventory:​ Because Lean layouts reduce travel distance, they also
reduce inventory. When there is little space, inventory travels less and must be moved in very
small lots or even single units.

12. What are the concerns of Suppliers with JIT?

1. ​Diversification: ​Suppliers may not want to tie themselves to long-term contracts with one
customer. The suppliers’ perception is that they reduce their risk if they have a variety of
customers.
2. ​Scheduling: M​ any suppliers have little faith in the purchaser’s ability to produce orders to
a smooth, coordinated schedule.
3. ​Lead time: ​Engineering or specification changes can play havoc with JIT because of
inadequate lead time for suppliers to implement the necessary changes.
4. ​Quality: ​Suppliers’ capital budgets, processes, or technology may limit ability to respond
to changes in product and quality.
5. ​Lot sizes: ​Suppliers may see frequent delivery in small lots as a way to transfer buyers’
holding costs to suppliers

INVENTORY

1. What are the different types of inventory?

4 types of inventory are:
· Raw material inventory: The inventory has been purchased but
not processed. This inventory can be used to decouple suppliers
from production process.
· Work in progress inventory: This inventory is components or raw
materials that have undergone some change but are not completed.
· MRO(maintenance/repair/operating): These are devoted to
supplies necessary to keep machinery and processes productive.
· Finished goods inventory: Completed product awaits shipment.
Finished goods may be inventoried because future customer
demands are unknown.
2. What do you mean by MRO and WIP?
· Work in progress inventory(WIP): This inventory is components
or raw materials that have undergone some change but are not
completed.
· MRO(maintenance/repair/operating): These are devoted to
supplies necessary to keep machinery and processes productive.
3. What is ABC analysis?
ABC analysis divides on hand inventory into three classifications based on annual
dollar volume. ABC analysis is an inventory application of what is known as Pareto
Principle. Pareto Principle states that there are a critical few and trivial many.
· Class A: The top 70-80% of the annual dollar value of the
company typically accounts for only 10-20% of total inventory items.
 · Class B:​ ​15-25% of annual dollar value typically accounts for
30% of total inventory items.
· Class C: The lower 5% of the annual dollar value typically
accounts for 50% of total inventory items.
4. What do you mean by Cycle Counting? What are its advantages?
A small subset of inventory, in a specific location, is counted on a specified day.
Advantages:
· ​Improved operational efficiency
· ​Improved customer service
· ​More accurate inventory records
· ​Shortened periods of time between physical counts of any given
item in the warehouse
· ​Reduced errors
· ​Fewer inventory write-offs
5. What do you mean by Shrinkage and Pilferage Loss?
· Shrinkage is the loss of inventory that can be attributed to factors
such as employee theft, administrative error, vendor fraud, damage
in transit or in store.
· Inventory theft is also known as pilferage.
6. What do you mean by Holding, Ordering and Setup Costs?
· Holding costs: Holding costs are the costs associated with
holding or “carrying” inventory over time. Therefore, holding costs
also include obsolescence and costs related to storage, such as
insurance, extra staffing, and interest payments.
· Ordering costs: Ordering cost includes costs of supplies, forms,
order processing, purchasing, clerical support,and so forth. When
orders are being manufactured, ordering costs exist.
· Setup costs: Setup cost is the cost to prepare a machine or
process for manufacturing an order. This includes time and labor to
clean and change tools or holders.

7. What are the inventory Models for Independent Demand?

These ​independent ​demand models are:
a. Basic economic order quantity (EOQ) model
b. Production order quantity model
c. Quantity discount model
8. What do you mean by EOQ model?
EOQ is an inventory-control technique that minimizes the total of ordering and
holding costs. It is based on following assumptions:
1. Demand for an item is known, reasonably constant, and independent of decisions
for
other items.
2. Lead time—that is, the time between placement and receipt of the order—is
known and
consistent.
3. Receipt of inventory is instantaneous and complete. In other words, the inventory
from
an order arrives in one batch at one time.
4. Quantity discounts are not possible.
5. The only variable costs are the cost of setting up or placing an order (setup or
ordering
cost) and the cost of holding or storing inventory over time (holding or carrying cost).
These costs were discussed in the previous section.
6. Stockouts (shortages) can be completely avoided if orders are placed at the right
time.
Q= root(2DS/H)
9. What do you mean by POQ model?
We need a model that does not require the instantaneous-receipt assumption. This
model is applicable under two situations: (1) when inventory continuously
flows or builds up over a period after an order has been placed or (2) when units are
produced and sold simultaneously.

10. What do you mean by Quantity Discount?

A quantity discount is simply a reduced price for an item when it is purchased in
large quantities.

11) What is reorder point? And what is lead time?

Lead time: Time between placement and receipt of the order called lead time or
delivery time.

The inventory level(point) at which action is taken to replenish the stocked item.

ROP = Demand per day* Lead time for a new order in days

12) What are different type of probabilistic Inventory models?

Probabilistic model applicable when product demand or any other variable is

unknown but can be specified by probability distribution.

Different type of models are:

1) Fixed Quantity models – Q Systems

2) Fixed period Systems – P

13) What is Q type and P type inventory levels? What are advantages and
disadvantages?

Fixed Quantity model – Q system:

In this system, whenever the stock on hand reaches the reorder point, a fixed
quantity of materials is ordered

Advantages:

● Each material can be procured in the most economical quantity.

● Purchasing and inventory control people automatically gives their attention to
those items which are required only when are needed.
● Positive control can easily be handled to maintain the inventory investment at
the desired level only by calculating the predetermined maximum and
minimum values
Disadvantages:
● Sometimes, the orders are placed at the irregular time periods which may not
be convenient to the producers or the suppliers of the materials.
● The items cannot be grouped and ordered at a time since the reorder points
occur irregularly.
● If there is a case when the order placement time is very high, there would be
two to three orders pending with the supplier each time and there is likelihood
that he may supply all orders at a time.
● EOQ may give an order quantity which is much lower than the supplier
minimum and there is always a probability that the order placement level for a
material has been reached but not noticed in which case a stock out may
occur.
● The system assumes stable usage and definite lead time. When these
changes significantly, a new order quantity and a new order point should be
fixed, which is quite cumbersome.

Fixed Period – P:

In this system, the stock position of each material of a product is checked at regular
intervals of time.

Advantages:
● The ordering and inventory costs are low. The ordering cost is considerably
reduced though follow up work for each delivery may be necessary.
● The suppliers will also offer attractive discounts as sales are guaranteed.
● The system works well for those products which exhibit an irregular or
seasonal usage and whose purchases must be planned in advance on the
basis of sales estimates.
Dis advantages:
● The periodic testing system tends to peak the purchasing work around the
review dates.
● The system demands the establishment of rather inflexible order quantities in
the interest of administrative efficiency.
● It compels a periodic review of all items; this itself makes the system
somewhat inefficient.
14) What is service level?
The Probability that demand will not be greater than supply during lead time.it is
complement of a stockout. Uncertain demand rises the probability of a stockout.
15) What is fill rate? Difference between order and Product fill rate?
Percentage of customer or consumption order satisfies from the stock at hand. It is
measure of an inventory’s ability to meet demand. Also called as demand
satisfaction rate.
Product fill rate:
It is fraction of product demand that is satisfied from product in inventory
Order fill rate:
It is fraction of order that is satisfied from available inventory. Order fill rate are tend
to be lower than product fill rates because all products must be in stock for an order
to be filled.
16) What do you mean by stock out?
A Stockout is an event that cause inventory to be exhausted.
Annual stockout costs = The sum of the units short for each demand level *
Probability of that demand level* the stockout cost/unit * The number of order per
year.
17) What is safety stock and how it is calculated?
Extra stock to allow for uneven demand, a buffer.
Safety Stock = Z × σLT × D avg
Z is the desired service level, σLT is the standard deviation of lead time, and D avg
is demand average.
18) What do you mean by Fixed Period System?
Refer the Question: 3
19) What do you mean by Fixed Quantity system?
Refer the Question: 3
20) What is Perpetual Inventory System?
A system that keeps track of the each withdrawal or addition to inventory
continuously , so record are always current.

Quality and Statistical Process Control

What is PDCA?
Also called: PDCA, plan–do–study–act (PDSA) cycle, Deming cycle, Shewhart cycle
When to Use Plan–Do–Check–Act

· ​As a model for continuous improvement.

· ​When starting a new improvement project.
· ​When developing a new or improved design of a process, product or service.
· ​When defining a repetitive work process.
· ​When planning data collection and analysis in order to verify and prioritize problems or
root causes.
· ​When implementing any change.
Plan–Do–Check–Act Procedure

1. Plan - Recognize an opportunity and plan a change.

2. Do - Test the change. Carry out a small-scale study.
3. Check - Review the test, analyze the results and identify what you’ve learned.
4. Act - Take action based on what you learned in the study step: If the change did not
work, go through the cycle again with a different plan. If you were successful,
incorporate what you learned from the test into wider changes. Use what you learned to
plan new improvements, beginning the cycle again.
What is DMAIC and DMADV?
DMADV​ (DFSS) stands for these five phases of a Lean Six Sigma project that’s
aimed at creating a new product or process design:
D ​— Define process and design goals
M​ — Measure (and identify) critical-to-quality aspects of your process/product,
including risks and production capabilities
A ​— Analyze to develop process designs and evaluate to select the best design for
your process
D ​— Design process details and optimize your design. Test your design(s)
V ​— Verify the chosen design for your process with pilot-testing. Implement and
monitor the new process
DMAIC​ is the more well-known and most-used Lean Six Sigma project methodology
and is focused on improving an existing process, rather than creating a new product
or process like DMADV.
D ​— Define the problem with your product or process.
M​ — Measure your current process and collect data.
A​ — Analyze your data to find the root causes of defects.
I​ — Improve your process based upon your data analysis and test it. (Techniques
like DOE and poka yoke are often used in this phase.)
C​ — Control your new process and monitor for defects. (SPC techniques are helpful
in this phase.)
What is internal and external Benchmarking?
Benchmarking is the systematic process of measuring one’s performance against recognized
leaders for determining best practices that lead to superior performance when adapted and
utilized.
When benchmarking internally, organizations benchmark against their own projects.
When benchmarking externally, organizations seek projects from other companies or
perhaps, in the case of DOE, from separate program offices for comparative analysis.
External benchmarks are generally considered to provide the greater advantage; however,
internal benchmarking can be useful where no external benchmarks are available. Internal
benchmarks are often the starting point for quantitative process examination. Trends can be
identified by examining these data over time, and the impact of performance-improving
processes can be assessed. External benchmarks provide the added advantage of comparing
against competitors. Without external benchmarks, an organization and its managers may
lack an understanding of what constitutes “good” performance​.
What is Fish Bone Analysis?
Also Called: Cause–and–Effect Diagram, Ishikawa Diagram
Variations: cause enumeration diagram, process fishbone, time–delay fishbone, CEDAC
(cause–and–effect diagram with the addition of cards), desired–result fishbone, reverse
fishbone diagram
The fishbone diagram identifies many possible causes for an effect or problem. It can be used
to structure a brainstorming session. It immediately sorts ideas into useful categories.
When to Use a Fishbone Diagram

· ​When identifying possible causes for a problem.

· ​Especially when a team’s thinking tends to fall into ruts​.

Fishbone Diagram Procedure

Materials needed: flipchart or whiteboard, marking pens.
· ​Agree on a problem statement (effect). Write it at the center right of the flipchart or
whiteboard. Draw a box around it and draw a horizontal arrow running to it.
· ​Brainstorm the major categories of causes of the problem. If this is difficult use generic
headings:
o Methods
o Machines (equipment)
o People (manpower)
o Materials
o Measurement
o Environment
· ​Write the categories of causes as branches from the main arrow.
 · B​ rainstorm all the possible causes of the problem. Ask: “Why does this happen?” As
each idea is given, the facilitator writes it as a branch from the appropriate category.
Causes can be written in several places if they relate to several categories.
· ​Again ask “why does this happen?” about each cause. Write sub–causes branching off
the causes. Continue to ask “Why?” and generate deeper levels of causes. Layers of
branches indicate causal relationships.
· ​When the group runs out of ideas, focus attention to places on the chart where ideas are
few.

Fishbone Diagram Example

This fishbone diagram was drawn by a manufacturing team to try to understand the source of
periodic iron contamination. The team used the six generic headings to prompt ideas. Layers
of branches show thorough thinking about the causes of the problem.

For example, under the heading “Machines,” the idea “materials of construction” shows four
kinds of equipment and then several specific machine numbers.
Note that some ideas appear in two different places. “Calibration” shows up under “Methods”
as a factor in the analytical procedure, and also under “Measurement” as a cause of lab error.
“Iron tools” can be considered a “Methods” problem when taking samples or a “Manpower”
problem with maintenance personnel.
What is a Pareto Chart?
Also called: Pareto diagram, Pareto analysis
Variations: weighted Pareto chart, comparative Pareto charts
A Pareto chart is a bar graph. The lengths of the bars represent frequency or cost (time or
money), and are arranged with longest bars on the left and the shortest to the right. In this
way the chart visually depicts which situations are more significant.
When to Use a Pareto Chart

· ​When analyzing data about the frequency of problems or causes in a process.

· ​When there are many problems or causes and you want to focus on the most significant.
· ​When analyzing broad causes by looking at their specific components.
· ​When communicating with others about your data.
Pareto Chart Procedure

· ​Decide what categories you will use to group items.

· ​Decide what measurement is appropriate. Common measurements are frequency,
quantity, cost and time.
· ​ ecide what period of time the Pareto chart will cover: One work cycle? One full
D
day? A week?
· ​Collect the data, recording the category each time. (Or assemble data that already
exist.)
· ​Subtotal the measurements for each category.
· ​Determine the appropriate scale for the measurements you have collected. The
maximum value will be the largest subtotal from step 5. (If you will do optional steps 8
and 9 below, the maximum value will be the sum of all subtotals from step 5.) Mark the
scale on the left side of the chart.
· ​Construct and label bars for each category. Place the tallest at the far left, then the
next tallest to its right and so on. If there are many categories with small measurements,
they can be grouped as “other.”
Steps 8 and 9 are optional but are useful for analysis and communication.
· ​Calculate the percentage for each category: the subtotal for that category divided by
the total for all categories. Draw a right vertical axis and label it with percentages. Be
sure the two scales match: For example, the left measurement that corresponds to
one-half should be exactly opposite 50% on the right scale.
· ​Calculate and draw cumulative sums: Add the subtotals for the first and second
categories and place a dot above the second bar indicating that sum. To that sum add the
subtotal for the third category and place a dot above the third bar for that new sum.
Continue the process for all the bars. Connect the dots, starting at the top of the first bar.
The last dot should reach 100 percent on the right scale.
What is POKA-YOKE?
Japanese term which means mistake proofing.

A poka-yoke device is one that prevents incorrect parts from being made or assembled, or
easily identifies a flaw or error.

Or “mistake-proofing,” – a means of providing a visual or other signal to indicate a

characteristic state. Often referred to as “error-proofing,” poka-yoke is actually the first step
in truly error-proofing a system. Error-proofing is a manufacturing technique of preventing
errors by designing the manufacturing process, equipment, and tools so that an operation
literally cannot be performed incorrectly.

To avoid (yokeru) inadvertent errors (poka)

Purpose of Poka Yoke

We overcome the inefficiencies of inspection using automatic devices called Poka Yoke,
these seek to do three things;

● Not accept a defect for the process

● Not Create a Defect
 ● Not Allow a Defect to be passed to the next process

They do this in a number of different ways but can be categorized as being either;

● Control – they take physical action to prevent a defect

● Warning – They sound an alarm or light up to tell us a mistake has been made.

An example or a control type Poka Yoke is one that physically rejects an underweight
product on a conveyor whilst a warning Poka Yoke is one that sounds an alarm such as the
one that sounds when you accidentally leave your lights on in the car when you remove the
ignition key.

What is the difference between Attribute and Variable

Inspection?
Attribute inspection is qualitative testing while variable inspection is quantitative
testing. attributes control is at the limits, variables control within the limits.

Control Charts for Variables vs. Charts for Attributes

Sometimes, the quality control engineer has a choice between variable control charts

and attribute control charts.

Advantages of attribute control charts. Attribute control charts have the

advantage of allowing for quick summaries of various aspects of the quality of a

product, that is, the engineer may simply classify products as acceptable or

unacceptable, based on various quality criteria. Thus, attribute charts sometimes

bypass the need for expensive, precise devices and time-consuming measurement

procedures. Also, this type of chart tends to be more easily understood by managers

unfamiliar with quality control procedures; therefore, it may provide more persuasive

(to management) evidence of quality problems.

Advantages of variable control charts. Variable control charts are more sensitive

than attribute control charts. Therefore, variable control charts may alert us to quality

problems before any actual "unacceptables" (as detected by the attribute chart) will
occur. Montgomery (1985) calls the variable control charts leading indicators of

trouble that will sound an alarm before the number of rejects (scrap) increases in the

production process.

What is Process Capability? How is it Measured?

Process Capability (Cp) is a statistical ​measurement of a process's ability to produce
parts within specified limits on a consistent basis. Process capability compares the
output of an in-control process to the specification limits by using capability indices.
The comparison is made by forming the ratio of the spread between the process
specifications (the specification "width") to the spread of the process values, as
measured by 6 process standard deviation units (the process "width").
Indices for measurement
We are often required to compare the output of a stable process with the process
specifications and make a statement about how well the process meets specification.
To do this we compare the natural variability of a stable process with the process
specification limits. There are several statistics that can be used to measure the
capability of a process: Cp, Cpk, and Cpm.
Most capability indices estimates are valid only if the sample size used is "large enough".
Large enough is generally thought to be about 50 independent data values.

What is the difference between Process Capability

Ratio(Cp)
and Process Capability Index(Cpk)?
Cp=
Cpk=min[(USL−μ,μ−LSL)/3]
The Cp index is calculated using specification limits and the standard deviation only. This
index indicates, in general, whether the process is capable of producing products to
specifications. No information on the ability of the process to adhere to the target
value is included in this index.
This Cpk index is calculated using specification limits, the standard deviation, and the mean.
The index indicates whether the process is capable of producing within specification and is
also an indicator of the ability of the process to adhere to the target specification.
What is Central Limit Theorem?
The Central Limit Theorem states that the sampling distribution of the sample means
approaches a ​normal distribution​ as the ​sample size​ gets larger — ​no matter what the
shape of the population distribution.​ This fact holds especially true for sample sizes
over 30.
What are the Control Charts for Variables? 2 Lines each
about them
I-MR Chart - I-MR charts plot individual observations on one chart accompanied with
another chart of the range of the individual observations - normally from each consecutive
data point. This chart is used to plot CONTINUOUS data.

The Individuals (I) Chart plots each measurement (sometimes called an observation)
as a separate data point. Each data point stands on its own and the means there is
no rational subgrouping and the subgroup size = 1.
A typical ​Moving Range (MR) Chart uses a default value of 2, which means each
data point plots the difference (range) between two consecutive data points as they
come from the process in sequential order. Therefore there will be one less data
point in the MR chart than the Individuals chart. However, this value can be adjusted
in most statistical software programs.
X-Bar R Chart - is a type of ​control chart​ used to monitor ​variables data​ when samples
are collected at regular intervals from a ​business​or ​industrial process​. The "chart"
actually consists of a pair of charts: One to monitor the process standard deviation
(as approximated by the sample ​moving range​) and another to monitor the process
mean
X-Bar S Chart - plots the mean value for the quality characteristic across all units in the
sample, ​{\displaystyle {\bar {x}}_{i}}plus the standard deviation of the quality
characteristic across all units in the sample
What are the Control Charts for Attributes? 2 Lines each
about them
A ​defect is any nonconformance of the unit of product with the specified
requirements. A defective is a unit of product which contains one or more defects.
p-chart – Used to test the defectives and when the sample size is not constant
np-chart – Used to test the defectives and when sample size is constant
U-chart – Used to test the defects and when the sample size is not constant
C- chart – Used to test the defects and when the sample size is constant

Supply Chain Management

• Discuss on Make or Buy? 7 points each

Managers in manufacturing firms often have decide between making a part (or product) and
buying it from a supplier. These decisions require careful analysis of accounting data and
often have strategic implications. One of the most difficult aspects of this decision is how to
handle overhead. If you completely ignore overhead, the decisions will generally go in the
direction of “in-sourcing” – if you fully allocate overhead, decisions will generally go in the
direction of “out-sourcing” and can lead the firm into the “death-spiral” where the more you
outsource, the more overhead you have, which leads you to more outsourcing. A company
should never outsource a core competence.
A make-or-buy decision is the act of choosing between manufacturing a product in-house or
purchasing it from an external supplier. In a make-or-buy decision, the most important
factors to consider are part of quantitative analysis, such as the associated costs of production
and whether the business has the capacity to produce at required levels.
BREAKING DOWN 'Make-Or-Buy Decision'
Also referred to as the outsourcing decision, the make-or-buy decision compares the costs
and benefits associated with producing a necessary good or service internally to the costs and
benefits involved in hiring an outside supplier for the resources in question. To compare
costs accurately, all aspects regarding the acquisition and storage of the items must be
considered.
Make and Buy Costs
In regard to in-house production, a business must include expenses related to the purchase
and maintenance of any production equipment as well as the cost of production materials.
Further make costs can include the additional labor required to produce the items, storage
requirements within the facility or if additional storage space must be purchased, and the
proper disposal of any remnants or byproducts from the production process. Buy costs
related to purchasing the products from an outside source must include the price of the good
itself, any shipping or importing fees, and applicable sales tax charges. Additionally, the
expenses relating to the storage of the incoming product and labor costs associated with
receiving the products into inventory must be factored into the decision.
Decision-Making Points
The results of the quantitative analysis may be sufficient to decide based on the approach that
is more cost-effective. At times, qualitative analysis addresses any concerns that cannot be
measured specifically. Factors that may influence a firm's decision to buy a part rather than
produce it internally include a lack of in-house expertise, small volume requirements, a
desire for multiple sourcing and the fact that the item may not be critical to the firm's
strategy. Additional consideration may be given if the firm has the opportunity to work with
a company that has previously provided outsourced services successfully in the past and can
sustain a long-term relationship.
Similarly, factors that may tilt a firm towards making an item in-house include existing idle
production capacity, better quality control or proprietary technology that needs to be
protected. Concerns regarding the reliability of the supplier may also be considered,
especially if the product in question is critical to normal business operations. The firm should
also consider whether the supplier can offer a long-term arrangement, if that is desired.
What are the different supply chain strategies used for obtaining goods and services from
outside services?
Six Sourcing Strategies
Having decided what to outsource, managers have six strategies to consider.
Many Suppliers
With the many-suppliers strategy, a supplier responds to the demands and specifications of
a “request for quotation,” with the order usually going to the low bidder. This is a common
strategy when products are commodities. This strategy plays one supplier against another
and places the burden of meeting the buyer’s demands on the supplier. Suppliers
aggressively
compete with one another. This approach holds the supplier responsible for maintaining the
necessary technology, expertise, and forecasting abilities, as well as cost, quality, and
delivery
competencies. Long-term “partnering” relationships are not the goal.
Few Suppliers
A strategy of few suppliers implies that rather than looking for short-term attributes, such as
low cost, a buyer is better off forming a long-term relationship with a few dedicated
suppliers.
Long-term suppliers are more likely to understand the broad objectives of the procuring
firm and the end customer. Using few suppliers can create value by allowing suppliers to
have
economies of scale and a learning curve that yields both lower transaction costs and lower
production costs. This strategy also encourages those suppliers to provide design innovations
and technological expertise.
Ford chooses suppliers even before parts are designed. Motorola evaluates suppliers on
rigorous
criteria, but in many instances has eliminated traditional supplier bidding, placing added
emphasis on quality and reliability. On occasion these relationships yield contracts that
extend
through the product’s life cycle. The British retailer Marks & Spencer finds that cooperation
with its suppliers yields new products that win customers for the supplier and themselves.
The
move toward tight integration of the suppliers and purchasers is occurring in both
manufacturing
and services.
As with all other strategies, a downside exists. With few suppliers, the cost of changing
partners is huge, so both buyer and supplier run the risk of becoming captives of the other.
Poor supplier performance is only one risk the purchaser faces. The purchaser must also be
concerned about trade secrets and suppliers that make other alliances or venture out on their
own. This happened when the U.S. Schwinn Bicycle Co., needing additional capacity, taught
Taiwan’s Giant Manufacturing Company to make and sell bicycles. Giant Manufacturing is
now the largest bicycle manufacturer in the world, and Schwinn was acquired out of
bankruptcy
by Pacific Cycle LLC.
Vertical Integration
Purchasing can be extended to take the form of vertical integration. By vertical integration ,
we
mean developing the ability to produce goods or services previously purchased or to actually
buy a supplier or a distributor. As shown in Figure 11.2 , vertical integration can take the
form
of forward or backward integration .
Backward integration suggests a firm purchase its suppliers, as in the case of Apple deciding
to manufacture its own semiconductors. Apple also uses forward integration by establishing
its own revolutionary retail stores.
Vertical integration can offer a strategic opportunity for the operations manager. For firms
with the capital, managerial talent, and required demand, vertical integration may provide
substantial
opportunities for cost reduction, higher quality, timely delivery, and inventory reduction.
Vertical integration appears to work best when the organization has a large market share
and the management talent to operate an acquired vendor successfully.
The relentless march of specialization continues, meaning that a model of “doing everything”
or “vertical integration” is increasingly difficult. Backward integration may be particularly
dangerous for firms in industries undergoing technological change if management cannot
keep abreast of those changes or invest the financial resources necessary for the next wave of
technology. Research and development costs are too high and technology changes too rapid
for
one company to sustain leadership in every component. Most organizations are better served
concentrating on their own specialty and leveraging suppliers’ contributions.
Joint Ventures
Because vertical integration is so dangerous, firms may opt for some form of formal
collaboration.
Firms may engage in collaboration to enhance their new product prowess or technological
skills. But firms also engage in collaboration to secure supply or reduce costs. One version of
a joint venture is the current Daimler–BMW effort to develop and produce standard
automobile components. Given the global consolidation of the auto industry, these two rivals
in the luxury segment of the automobile market are at a disadvantage in volume. Their
relatively low volume means fewer units over which to spread fixed costs, hence the interest
in consolidating to cut development and production costs. As in all
other such collaborations, the trick is to cooperate without diluting the brand or conceding a
competitive advantage.

Keiretsu Networks
Many large Japanese manufacturers have found another strategy: it is part collaboration, part
purchasing from few suppliers, and part vertical integration. These manufacturers are often
financial supporters of suppliers through ownership or loans. The supplier becomes part of a
company coalition known as a keiretsu . Members of the keiretsu are assured long-term
relationships
and are therefore expected to collaborate as partners, providing technical expertise and stable
quality production to the manufacturer. Members of the keiretsu can also have
second- and even third-tier suppliers as part of the coalition.
Virtual Companies
Virtual companies rely on a variety of good, stable supplier relationships to provide services
on
demand. Suppliers may provide a variety of services that include doing the payroll, hiring
personnel,
designing products, providing consulting services, manufacturing components, conducting
tests, or distributing products. The relationships may be short- or long-term and may
include true partners, collaborators, or simply able suppliers and subcontractors. Whatever
the formal relationship, the result can be exceptionally lean performance. The advantages of
virtual companies include specialized management expertise, low capital investment,
flexibility,
and speed. The result is efficiency.
The apparel business provides a traditional example of virtual organizations. The designers
of clothes seldom manufacture their designs; rather, they license the manufacture. The
manufacturer
may then rent space, lease sewing machines, and contract for labor. The result is an
organization that has low overhead, remains flexible, and can respond rapidly to the market.
A contemporary example is exemplified by Vizio, Inc., a California-based producer of
flatscreen
TVs that has fewer than 100 employees but huge sales. Vizio uses modules to assemble
its own brand of TVs. Because the key components of TVs are now readily available and
sold
almost as commodities, innovative firms such as Vizio can specify the components, hire a
contract
manufacturer, and market the TVs with very little startup cost. In a virtual company, the
supply chain is the company. Managing it is dynamic and demanding.

Discuss on Many & Few Suppliers. Examples

Many Suppliers
With the many-suppliers strategy, a supplier responds to the demands and specifications of
a “request for quotation,” with the order usually going to the low bidder. This is a common
strategy when products are commodities. This strategy plays one supplier against another
and places the burden of meeting the buyer’s demands on the supplier. Suppliers
aggressively
compete with one another. This approach holds the supplier responsible for maintaining the
necessary technology, expertise, and forecasting abilities, as well as cost, quality, and
delivery
competencies. Long-term “partnering” relationships are not the goal.
Few Suppliers
A strategy of few suppliers implies that rather than looking for short-term attributes, such as
low cost, a buyer is better off forming a long-term relationship with a few dedicated
suppliers.
Long-term suppliers are more likely to understand the broad objectives of the procuring
firm and the end customer. Using few suppliers can create value by allowing suppliers to
have
economies of scale and a learning curve that yields both lower transaction costs and lower
production costs. This strategy also encourages those suppliers to provide design innovations
and technological expertise.

What is Vertical Integration? Examples

Vertical Integration
Purchasing can be extended to take the form of vertical integration. By vertical integration ,
we
mean developing the ability to produce goods or services previously purchased or to actually
buy a supplier or a distributor. As shown in Figure 11.2 , vertical integration can take the
form
of forward or backward integration .
Backward integration suggests a firm purchase its suppliers, as in the case of Apple deciding
to manufacture its own semiconductors. Apple also uses forward integration by establishing
its own revolutionary retail stores.
Vertical integration can offer a strategic opportunity for the operations manager. For firms
with the capital, managerial talent, and required demand, vertical integration may provide
substantial
opportunities for cost reduction, higher quality, timely delivery, and inventory reduction.
Vertical integration appears to work best when the organization has a large market share
and the management talent to operate an acquired vendor successfully.
The relentless march of specialization continues, meaning that a model of “doing everything”
or “vertical integration” is increasingly difficult. Backward integration may be particularly
dangerous for firms in industries undergoing technological change if management cannot
keep abreast of those changes or invest the financial resources necessary for the next wave of
technology. Research and development costs are too high and technology changes too rapid
for
one company to sustain leadership in every component. Most organizations are better served
concentrating on their own specialty and leveraging suppliers’ contributions.

What is Keiretsu? Examples

Keiretsu Networks
Many large Japanese manufacturers have found another strategy: it is part collaboration, part
purchasing from few suppliers, and part vertical integration. These manufacturers are often
financial supporters of suppliers through ownership or loans. The supplier becomes part of a
company coalition known as a keiretsu. Members of the keiretsu are assured long-term
relationships
and are therefore expected to collaborate as partners, providing technical expertise and stable
quality production to the manufacturer. Members of the keiretsu can also have
second- and even third-tier suppliers as part of the coalition.

What is a Virtual Company? Example

Virtual Companies
Virtual companies rely on a variety of good, stable supplier relationships to provide services
on
demand. Suppliers may provide a variety of services that include doing the payroll, hiring
personnel,
designing products, providing consulting services, manufacturing components, conducting
tests, or distributing products. The relationships may be short- or long-term and may
include true partners, collaborators, or simply able suppliers and subcontractors. Whatever
the formal relationship, the result can be exceptionally lean performance. The advantages of
virtual companies include specialized management expertise, low capital investment,
flexibility,
and speed. The result is efficiency.
The apparel business provides a traditional example of virtual organizations. The designers
of clothes seldom manufacture their designs; rather, they license the manufacture. The
manufacturer
may then rent space, lease sewing machines, and contract for labor. The result is an
organization that has low overhead, remains flexible, and can respond rapidly to the market.

What is Bull Whip Effect? Reasons for it.

Bullwhip is a pervasive supply chain problem whereby order variability grows as demand
signals
propagate upstream. Essentially, demand spikes as orders flow back from retailer to
distributor to
original equipment manufacturers to tier-one suppliers, and so on.
A pattern of increasing variability in the demand from the customer to the retailer to the
distributor
to the manufacturer, to the supplier to the manufacturer, etc. The four causes of the bullwhip
effect include
(1) forecast updating,
(2) periodic ordering/order batching,
(3) price fluctuations, and
(4) shortage gaming.
Even if the customer is consuming at a constant rate, the supplier to the manufacturer will
often see high variability in the demand as variations in the demand are amplified along the
supply chain. The primary solution to this problem is for the retailer to regularly share actual
and projected demand information. Other solutions include vendor-managed inventories,
reducing order sizes by reduced
ordering costs, everyday low prices (instead of promotional prices), and avoiding allocation
based on orders placed.

What do you mean by accurate pull Data?

Accurate “Pull” Data Accurate pull data are generated by sharing (1) point-of-sales (POS)
information so that each member of the chain can schedule effectively and (2)
computer-assisted
ordering (CAO). This implies using POS systems that collect sales data and then adjusting
that
data for market factors, inventory on hand, and outstanding orders. Then a net order is sent
directly to the supplier, who is responsible for maintaining the finished-goods inventory.

​Other Topics

1.What is Hedging Inventory?

Inventory held to protect against future fluctuations due to a dramatic change in
prices, strikes, war, unsettled government, etc. These events are rare, but such
occurrences could severely damage a company’s initiatives.
Risk and consequences are usually high, and top management approval is often
required. Hedge inventory is similar to safety stock except that a hedge has a
dimension of timing as well as amount. If we know the time when an event might
happen, we can determine a hedge requirement adding onto the gross requirement
for MRP to plan more planned order release (POR). If the incident does not occur in
the predicted time period, the hedge rolls over to the time period.

2.What is FSN and VED classification in Inventory?

FSN Analysis
This analysis classifies inventory based on quantity, rate of consumption and
frequency of issues and uses.
F stands for Fast moving, S for Slow moving and N for Non moving items.
● Fast Moving (F) = Items that are frequently issued/used
● Slow Moving (S) = Items that are issued/used less for certain period of time
● Non-Moving (N) = Items that are not issued/used for more than certain
duration
This classification helps spare parts management in establishing most suitable
stores layout by locating all the fast moving items near the dispensing window to
reduce the handling efforts. Also, attention of the management is focused on the
Non-Moving items to enable decision as to whether they are required in the future or
they can be salvaged.

VED Analysis
This is an analysis whose classification is dependent on the user’s experience and
perception. This analysis classifies inventory according to the relative importance of
certain items to other items, like in spare parts.
In VED Analysis, the items are classified into three categories which are:
● Vital – inventory that consistently needs to be kept in stock.
● Essential – keeping a minimum stock of this inventory is enough.
● Desirable – operations can run with or without this, optional.

3. What is 5PL in logistics?

A fifth party logistics provider will aggregate the demands of the 3PL and others into
bulk volume for negotiating more favorable rates with airlines and shipping
companies. Non asset based, it will work seamlessly across all disciplines.
The central ethos of 5PL is its commitment to collaboration and to obtaining a higher
degree of resource utilization in order to achieve savings and open up opportunities
to secure the best possible solution at minimum cost/carbon etc.

4. What is SMED (Single Minute Exchange of Dyes)?

SMED (Single-Minute Exchange of Die) is a system for dramatically reducing the
time it takes to complete equipment changeovers. The essence of the SMED system
is to convert as many changeover steps as possible to “external” (performed while
the equipment is running), and to simplify and streamline the remaining steps. The
name Single-Minute Exchange of Dies comes from the goal of reducing changeover
times to the “single” digits (i.e. less than 10 minutes).

A successful SMED program will have the following benefits:

 ● Lower manufacturing cost (faster changeovers mean less equipment
downtime)
● Smaller lot sizes (faster changeovers enable more frequent product changes)
● Improved responsiveness to customer demand (smaller lot sizes enable more
flexible scheduling)
● Lower inventory levels (smaller lot sizes result in lower inventory levels)
● Smoother startups (standardized changeover processes improve consistency
and quality)

SMED was developed by Shigeo Shingo, a Japanese industrial engineer. His

pioneering work led to documented reductions in changeover times averaging 94%
(e.g. from 90 minutes to less than 5 minutes) across a wide range of companies.

Example:
For many people, changing a single tire can easily take 15 minutes.
For a NASCAR pit crew, changing four tires takes less than 15 seconds.
Many techniques used by NASCAR pit crews (performing as many steps as possible
before the pit stop begins; using a coordinated team to perform multiple steps in
parallel; creating a standardized and highly optimized process) are also used in
SMED. In fact the journey from a 15 minute tire changeover to a 15 second tire
changeover can be considered a SMED journey.

In SMED, changeovers are made up of steps that are termed “elements”. There are
two types of elements:

Internal Elements (elements that must be completed while the equipment is stopped)
External Elements (elements that can be completed while the equipment is running)
The SMED process focuses on making as many elements as possible external, and
simplifying and streamlining all elements.

5.What is FIFO, LIFO, FEFO?

These are the types of removal strategies used in inventory management.
FIFO ( First In First Out )
A First In First Out strategy implies that the products that were stocked first will move
out first. Companies should use FIFO method if they are selling perishable goods.
Companies selling products with relatively short demand cycles, such as clothes,
also may have to pick FIFO to ensure they are not stuck with outdated styles in
inventory.

LIFO (Last In First Out)

In this warehouse management, the products which are brought in the last, moves
out the first. LIFO is used in case of products which do not have a shelf life.
FEFO ( First Expiry First Out )
In FEFO warehouse management, the products are dispatched from the warehouse
according to their expiration date. A common example of this treatment is the
management of perishable products in a shelf display: Products with deadlines
closest consumption should be used before the other .