Assignment Operation Management

Prerpared by : Jayeseelan Muniandy

1. The XYZ Company purchases a component used in the manufacturing of automobile generators directly from the supplier. XYZs generator production operation, which is operated at a constant rate, will require 1,000 components per month throughout the year. If ordering cost are $25.00 per order,unit cost is $2.50 per component,and annual inventory holding cost are charged at 20%, answer the following inventory policy question for XYZ.

a. What is a EOQ for this component? b. What the cycle time in month? c. What are the total annual inventory holding and ordering associated with your recommended EOQ? d. Assuming 250 days of operation per year and a lead time of 5 days, what is the reorder point for the XYZ Company?

Asnwer

Demand (D) : 1000 per month = 1000 x 12 = 12000 units per year

Holding/ carrying cost per year (H) : $ 2.50 x 20% = $ 0.50

Setup / Order cost (S) : $25.00

a. EOQ

= EOQ = 1095.45 unit

b. Cycle time in month

Order (N) =

= 10.9545 times

T=

= 1.1 month

c. Total annual inventory holding and ordering

TC = [

=[

=[

= $ 547.72

d. Recorder point (ROP)

= 48

ROP = 48 x 5

= 240 units

QUESTION 2 (a) What are the advantages and disadvantages of keeping stock?

Overview
Inventory control is a strategy companies use to keep an appropriate level of materials, supplies and finished products on hand. Excessive amounts of inventory have advantages and disadvantages for a business, which makes inventory control a delicate balancing act. Weighing the pros and cons can help small business owners determine the appropriate levels of inventory to stock.

Inventory Cost When a company holds a high level of inventory, it ties up business funds that the company could use in other areas such as research and development or marketing. New product development and marketing can bring additional business to the company, but holding high inventory levels does not. The cost of the inventory is not recouped by the organization until the company sells the inventory or uses it to build customer orders.

Warehousing Warehousing is another cost of holding excess inventory in a business. The cost of warehousing can include the warehouse space, utilities and maintenance of the storage area. Some supplies may require additional maintenance, such as temperature control to preserve the quality of the material. Companies that reduce inventory levels can store materials in a smaller area in the business and use the extra space for new product development.

Quality Storing excess inventory can lead to quality problems such as degradation and potential obsolescence. Companies may stock high levels of inventory in anticipation of demand or for an existing order, but customers may change specifications or

require different materials for future products. In this situation, the company must purchase new materials and supplies to build according to the new customer specifications. Businesses can identify and isolate quality problems easily with a smaller inventory quantity, as well.

Buffer An excess inventory of finished goods can provide a buffer for increases in customer demand. The business is taking a risk by building and storing finished products in anticipation of customer demand, but it can reduce the lead time and improve customer satisfaction.

Bulk Purchase Savings Small businesses can obtain a savings when purchasing some supplies in bulk quantities. Suppliers may give discounts to customers who order larger quantities. The business can also save on shipping costs for one large order instead of multiple shipments of smaller quantities.

The Disadvantages of holding stock in hand

Storage Costs

Holding a large volume of items on hand means you need a large amount of space to store your inventory. Storage space like warehouses and storage rooms cost money to build, rent and maintain. Storage facilities require workers to categorize and organize items and transport items from one place to another. In addition, high levels of inventory can lead to higher insurance costs. Deterioration and Obsolescence

Some businesses sell goods that tend to deteriorate or perish over time, such as food products. Keeping a large amount of perishable inventory on hand risks the possibility that you will be unable to sell some of the inventory in time before it goes bad, which can force you to throw away product. Similarly, certain types of products, such as computers and other electronic devices tend to become obsolete quickly. Keeping a large inventory of such products is risky because consumers might not be

willing to buy old versions of products at a price that is profitable when new or updated versions become available.

Shifts in Demand

Another disadvantage of keeping a large amount inventory on hand is that certain goods might not sell due to shifts in market demand. For example, a clothing store that stocks too many tank tops during the summer may find itself unable to get rid of the tank tops before fall. During the fall, consumers might demand different types of clothing, like T-shirts or sweatshirts, leaving the company with a large quantity of goods on hand that simply take up space.

Considerations

While high levels of inventory can be a disadvantage, carrying too few goods on hand can also be harmful to a business. If you run out of a certain product, you could miss out on potentially profitable sales, and this could cause customers to give their business to your competitors. Managers must decide on an inventory level that balances the risk of running out of products with storage costs and the other negative aspects of holding too much inventory.

QUESTION 2 (b) What responsibilities do operation manager have? Being an operations manager involves overseeing and having responsibility for all the activities in the organisation which contribute to the effective production of goods and services. Depending on the organisational structure, the exact nature of tasks that are classified under the operations function may differ from business to business. However, the following activities are usually applicable to all types of operations:

Understanding strategic objectives: Operations managers must clearly understand the goals of the organisation and develop a clear vision of exactly how operations will help achieve them. This also involves translating these goals into implications for the operation's performance, objectives, quality, speed, dependability, flexibility and cost.

Developing an operations strategy: Due to the numerous decision-making involved with operations, it is critical that operations managers have a set of guidelines that are align with the organisation's long term goals.

Designing the operation's products, services and processes: Design involves determining the physical form, shape and composition of products, services and processes.

Planning and controlling: This involves deciding what the operations resources should be doing and making sure that it is getting done.

Improving the performance of operation: Operations managers are expected to continually monitor and improve the overall performance of their operation.

QUESTION 2 (c) How can statistical process control help quality planning and control?

Definition Statistical process control (SPC) is a method of quality control which uses statistical methods. One advantage of statistical process control is that it emphasizes early detection and prevention of problems. It does not focus on the correction of problems after they have occurred like other methods.

nother definition of PSC and how SPC works is it is a quality data in the form of Product or Process measurements are obtained in real-time during manufacturing. After which, the data is then plotted on a graph with pre-determined control limits. There are two types of limits: control limits and the specification limits. Control limits are determined by the capability of the process, while on the other hand specification limits are determined by the clients needs. Quality control is not only done in material things like clothing, figurines, decors, and other things, but also in food. The

benefit of implying quality control in business is because it could dramatically reduce variability and scraps; scientifically improve productivity; reduce costs; uncover hidden process personalities; instantly react to process change; and lastly make real-time decisions on the shop floor. At this moment, you are now having an idea about SPC and how it works. It you want to provide the best products and top quality, you need to use this system in your business. Why do you think that you keep on buying the same brands? One reason is your expectations are met like the comfort, quality of the product, and also the durability of the product. With food, like donuts for example, in every mass production, the staffs are actually recording the amount of rejects that is being produced everyday because that will all be put into waste and that also mean lost money. So, the higher the number of rejects, the more the company will suffer from low production. This is how important SPC is to every business. So, now that you have an idea about how SPC works, you now understand why most of the things you can buy at the market are in good quality.

Why SPC give benefits?

In the 21st century, new business methods, philosophies, and strategies have been developed to give the utmost satisfaction to all customers, employees, suppliers, and other stakeholders. Thousands of businesses have to adopt certain practices that can help them ensure efficient operations which can further result to higher revenues and profits. One of these practices is the SPC or the Statistical Process Control. What is SPC? It is actually a philosophy or a methodology developed by Dr. Walter Shewhart which uses the tools of statistics in order to optimize resources and maximize profits. It focuses on quality control and measurement during the process of manufacturing through analyzing and processing given data. Many have started adopting SPC measures as to experience what this methodology offers. The following are some of what can be obtained by the company once SPC is put into practice in their operations.

1. Better Quality of Products and Services

Through applying SPC measures during the manufacturing process, product or service quality can be improved. Variability in the processes and products can also be reduced, thus minimizing defects and errors.

2. Higher Productivity With less defects and errors in the production process, employees can produce more output which then leads to bigger amounts of products and services that the organization can make available in the market. Higher productivity for both the organization and its employees can be ensured.

3. Efficient Usage of Resources There is an efficient usage of resources either human or non-human, by adopting SPC. This is because fewer resources will be wasted as a result of better quality control and higher productivity among workers. Rejects and defects will be alleviated and lower amounts of scraps will be produced, paving the way for a more efficient usage of resources to happen.

4. Reduced Costs If less human and non-human resources are wasted, this could only mean that there will be a reduction in the costs that the company incurs. It could be in the form of raw materials, labor, overhead, inventory and many other costs. As a result, the organization can save money which can then be used to invest in other activities of the business.

5. Maximized Profits This is like a step by step process wherein the end goal is to maximize the profits that employees and owners could gain from the business. With the incorporation of the SPC methodology in the operations of the business, there will surely be higher revenues and lower costs which could only mean higher profits. What is SPC? The Statistical Process Control is a philosophy or a methodology that can greatly help business decision makers and all stakeholders to make the companys operations more efficient and optimal than ever.

QUESTION 3 (a) What are the benefit of lean Manufacturing in organization? Introduction

Lean manufacturing, lean enterprise, or lean production, often simply, "lean", is a production practice that considers the expenditure of resources for any goal other than the creation of value for the end customer to be wasteful, and thus a target for elimination. Working from the perspective of the customer who consumes a product or service, "value" is defined as any action or process that a customer would be willing to pay for. Essentially, lean is centered on preserving value with less work. Lean manufacturing is a management philosophy derived mostly from the Toyota Production System (TPS) (hence the term Toyotism is also prevalent) and identified as "lean" only in the 1990s.[1][2] TPS is renowned for its focus on reduction of the original Toyota seven wastes to improve overall customer value, but there are varying perspectives on how this is best achieved. The steady growth of Toyota, from a small company to the world's largest automaker,[3] has focused attention on how it has achieved this success.

(Wikipedia)

There are several key lean manufacturing principles that need to be understood in order to implement lean. Failure to understand and apply these principles will most likely result in failure or a lack of committment from everyone in your organization. Without committment the process becomes ineffective. This page reviews some of the more critical lean manufacturing principles and should help you get started. Consider these to be the "guiding principles" of lean manufacturing as there are others that have not been included.

Elimination of Waste One of the most critical principles of lean manufacturing is the elimination of waste (known as muda in the Toyota Production System). Many of the other principles revolve around this concept. There are 7 basic types of waste in manufacturing:

Although the above mentioned types of waste were originally geared toward manufactuing, they can be applied to many different types of business. The idea of waste elimination is to review all areas in your organization, determine where the non-value added work is and reduce or eliminate it.

Continuous Improvement Continuous Improvement (commonly referred to by the Japanese word kaizen) is arguably the most critical principle of lean manufacturing. It should truly form the basis of your lean implementation. Without continuous improvement your progress will cease. As the name implies, Continuous Improvment promotes constant, necessary change toward achievment of a desired state. The changes can be big or small but must lend itself toward improvement (often many small changes are required to achieve the target). The process truly is continual as there is always room for improvement. Continuous Improvement should be a mind-set throughout your whole organization. Do not get caught up in only trying to find the big ideas. Small ideas will often times lead to big improvements.

Respect For Humanity

The next lean manufacturing principle has to do with people. The most valuable resource to any company are the people who work for it. Without these people the business does not succeed. When people do not feel respected, they tend to lose

respect for the company. This can become a major problem when you are trying to implement lean. Most people want to perform well in their jobs. Not only do they go to work to earn a living, but they also want to develop a sense of worth in their work. They want to feel like they have contributed to the company goals, like their work and effort has meant something. A company supporting a respect for humanity philosophy will appreciate their workers efforts and keep them in high regard. Some of the methods to ensure your people know you respect them is through constant communication, praise of a job well done, listening to their ideas and helping out when necessary.

Levelized Production

As mentioned on the home page, the foundation of lean manufacturing is levelized production. The basis of this principle is that the work load is the same (or level) every day. Most manufacturing companies are at the mercy of their customers for orders. Before producing product, they wait to get orders. This leads to increased delivery lead time which may not satisfy customer requirements. On the other end of the spectrum, some companies will produce based strictly on a forecast. This may result in excess product that is not required by the customer. Levelized production takes into consideration both forecast and history. The key ingredient for this lean manufacturing principle is utilization of a pull system.

Just In Time Production The next key principle to mention is Just In Time (JIT) production. The basis behind this principle is to build what is required, when it is required and in the quantity required. Working in conjuction with levelized production, this principle works well with kanbans (a pull system). It allows for movement and production of parts only when required. This means components are not used in product that is not required and no time is wasted building unsaleable product.

Quality Built In The last key lean manufacturing principle that I would like to touch on isQuality Built In . The idea behind this principle is that quality is built into the manufacturing

process. Quality is built into the design of the part. Quality is built into the packaging. Throughout all areas of the product, from design to shipping, quality is a major consideration. Automation with a human touch falls within this principle. Machines that can detect defects and stop production are an excellent example of this principle. Part profile mistake-proofing, which prevents an operator from mis-orienting parts, is another excellent example. In Lean Manufacturing (or any other system), the focus must be on doing it right the first time.

More Principles As mentioned at the beginning of this page, there are other lean manufacturing principles. We have made mention of those that we consider critical based on our experience. Use the browser on the left to navigate through more lean definitions, tools and concepts that will help you understand and implement lean. This link, Kanban Just-In-Time at Toyota: Management Begins at the Workplace will also help increase your knowledge of lean manufacturing principles. It is a good book for someone looking to understand the basic concepts of the Toyota Production System (the basis for lean manufacturing). It doesn't go into much detail about how to implement, but it does a good job of explaining the fundamentals in an easy to understand way (in true Japanese style using analogies).

QUESTION 3 (b) What are the benefit of cycle counting?

Cycle counting is a popular inventory counting solution that allows businesses to count a number of items in a number of areas within the warehouse without having to count the entire inventory. Cycle counting is a sampling technique where count of a certain number of items infers the count for the whole warehouse. This sampling method is used by pollsters every day where they measure the opinion of a small number of the people and infer that is the opinion of the population.

When a cycle count is performed, there are two inferences that are made. The primary inference is that the accuracy of the items in the cycle count can be used to determine the accuracy of the items in the warehouse as a whole. The other inference is that if an error is found in the cycle count then that error could be expected to occur for other items in the warehouse. Types Of Cycle Counting There are a number of types of cycle counting that can be used:

Control Group Random Sample ABC Analysis Control Group Cycle Counting When a company starts using cycle counting they may use a control group to test that the method they are using to count items will give the best results. The process usually focuses on a small group of items that are counted many times in a short period. This repeated count process will show any errors in the count technique which can then be corrected. The process is continued until the technique has been confirmed to be accurate. Random Sample Cycle Counting When a number of items to be counted are chosen at random, this is process known as random sample cycle counting. When a companys warehouse has a large quantity of similar items, they can randomly select a certain number of items to be counted. The count can be performed each day or workday so that a large percentage of the items in the warehouse are counted in a reasonable period. Two techniques can be used in random sample cycle counting; constant population counting and diminished population counting.

Constant population counting is where the same number of items are counted each time a count is performed. This can mean that certain items are counted frequently and some items are not counted, as the selection of items to be counted is random. Diminished population counting is a technique where a number of warehouse items are counted and then excluded from being counted again until all of the items in the warehouse are counted. Each count selects items from an ever-decreasing number of eligible items to be counted. ABC Cycle Counting ABC cycle counting is an alternative to random sample counting. This method uses the Pareto principle as the basis for this technique. The Pareto principle states that, for many events, roughly 80% of the effects come from 20% of the causes. The ABC cycle counting method uses this principle to assume that 20% of the parts in a warehouse relate to 80% of the sales, these are the A items. The principle is then extended to two other categories where B items account for 30% of the items and 15% of sales and C items represent 50% of the items in the warehouse, but only 5% of sales. Before a cycle count can be performed, the items in the warehouse have to be identified as A, B or C items. This is usually achieved with the help of a computer system, such as inventory control software. Once each of the items in the warehouse has been assigned a category, the number of times each category should be counted needs to be determined. The items with the highest sales value should be counted more frequently than items that have low sales. Therefore, an item that has been assigned as an A item will be counted more frequently than items that are designated as C items. The ABC cycle count does have issues. Warehouses with a large number of distinct items may find that they are counting many times a day. The warehouse may not have enough resources to complete the required number of counts. Another issue is that due to the infrequency of counting of C items, the inventory accuracy of these items may be low.

An automated route accounting system equips you with the efficiency of cycle counts. Tight inventory control gained from cycle counting provides for multiple benefits such as:

1. Unmatched accuracy - Inventory is easily counted with an automated system. Accurate data and a full audit trail is provided to report exactly what inventory is or isn't present. 2. Cost and time savings - Because cycle counts are electronic and ongoing, business operations are no longer disrupted by full physical inventory counts that halt business operations. In addition, problems and discrepancies are more easily spotted and corrected. This saves you labour costs and hours of time. 3. Operational efficiency - Real-time accurate visibility into the location of your inventory allows for greater productivity. For example, if a customer wants a particular item, you can locate it on a truck, in a warehouse, or in another store, without having to purchase another item and wasting your customer's time. 4. Enhanced sales - Understanding product movement can also enhance your sales. For example, if a product line performs better than expected, you can expand the amount of those items that are on hand and sell more. 5. Staff diligence - When staff understand inventory is accurately counted, they become more diligent in caring for your inventory.