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Useful Formula

1. Littles Law:
a. Average Inventory (I) = Throughput (R) x Average Flow Time (T) or
*Throughput rate is also known as Flow rate.
b. Length of queue (L) = Arrival rate () x Waiting time in queue (W)
2. Process Formula
a. Process capacity = Capacity of Bottleneck
*Capacity can also be the maximum number of units worker can produce

b. Bottleneck = Process which has the Lowest Capacity


c. Process Utilization = Flowrate / Capacity
*Flowrate here means the flow rate that can meet the current demand.
d. Cycle Time = 1 / Flowrate
*Cycle time is also known as flow time. Cycle time is a process time it takes to go thru a process

e. Inventory Turns = 1 / Time


f.

Effectiveness = Actual Output / Standard Output

g. Order lead time = Time between order and delivery


h. Critical Path = Longest Path
3. Newsvendor Model
a. Cu = Sell Cost = Retail Price Wholesale Price
*Cu, underage cost, is a profit selling one unit product. It can also be interpreted as an opportunity
cost of ordering too little
b. Co = Cost - Salvage
*Co, overage cost, is a loss amount of an unsold product. It can also be interpreted as an opportunity
cost of ordering too much
c. Critical Ratio = Cu / Co+Cu
*Also known as service level.
d. Q* = average + std. dev x Z
e. Expected Lost of Sales = L(Z) x std. dev
f.

Expected Sales = average Expected Lost of Sales

g. Expected Inventory = Q* - Expected Sales


h. Expected Profit = Revenue Cost = (Cu x Expected Sales) (Co x Expected Inventory)
i.

Mismatch Cost = Maximum Profit - Expected Profit = (Average x Cu) Expected Profit
*Mismatch Cost per unit Q* can be used to rank product for initial ordering. The lower Mismatch/Q,
the lower the risk is.

4. Basic Fixed-Order Quantity Model


a. Total Annual Cost = Annual Purchase Cost + Annual Ordering Cost + Annual Holding Cost
TC = DC + D/Q (S) +(Q/2) H
Where D = Annual Demand
C = Cost Per unit
Q = Order Quantity *maybe limited by batch production
S = Setup Cost = Downtime Cost = Switching cost
H = Holding Cost = (r+h) x C = (cost of capital % + storage cost %) x Cost per unit
5. Economic Order Quantity (EOQ)
a. Q = sqrt (2 x D x S / H)
Where Q = Order quantity
D = Annual Demand
S = Cost per order
H = Holding Cost = (Holding Cost %) x Cost per unit
b. Reordering Point = demand per day x lead time in days = d x L
6. Safety Stock Calculations
a. Inventory during Lead time = Mean Demand + Safety Stock
b. Total Inventory = Cycle + Safety Stock
c. Safety Stock = Z x std. dev. = Q average
d. Z = (Q average) / std. dev.
7. Service Type
a. Type 1
i.
ii.
iii.
iv.
b. Type II
i.
ii.
iii.
iv.
v.
vi.

Set alpha target = 90-95%


Find Z value
Determine Reorder Point, R = demand + Z x Std. dev.
Determine Safety Stock, SS = Z x Std. dev
Set Beta target = 90-95%
L(Z) = Q (1-Beta) / Std. Dev.
Q is determined from EOQ
From L(Z), get Z
From Z get R; where R = demand + Z x Std. dev.
Stop iteration if R satisfy = (1-beta) Q

8. Kanban Calculation
a. Number of Kanbans, k = d x L (1+S) / C
b. Maximum Inventory = k x parts in container
Where k = # of kanbans
d = average demand
L = lead time
S = safety stock in %
C = Container size
9. Six-Sigma
a. Z = (USL avg) / sigma or Z = (avg LSL) / sigma
b. Cp = (USL- LSL) / (6 x sigma)
c. Cpk = min (USL avg, avg-LSL) / (3 x sigma)

Session 0: Process Analysis (From Reading Material)

What is Process?
1. Process is collection of tasks connected by a flow of goods and information that transforms various inputs into
useful outputs
2. Process have the capability to store the goods and information during transformation
3. Process can be explained from the process flow diagram
4. Components of Process
a. Input
b. Collections of Tasks
c. Good and information
d. Storage
e. Output
Inputs
1. Categories of Input
a. Labor
b. Materials
c. Energy
d. Capital
2. Need to measure input with respect to output. Unit of measurement can be in hours for labors, joules for
energy and dollars for capital.
Outputs
1. Output can be either good or service
2. The output that can be stored called a Finished Goods Inventory. The output that cant be stored is directly
distributed into the environment.
3. The output is usually measured from an economic point of view through pricing mechanism.
4. Output characteristics:
a. Cost
b. Quality
c. Timelines
Tasks, Flow and Storage
1. Task usually involves the addition of some inputs (i.e. labor, capital)
2. Types of Flows
a. Flow of information
b. Flow of goods
3. Difference between flows and tasks:
a. Flows merely change the position of good and service
b. Tasks change the characteristics of the good
4. Flow of information initiates and aids in the production of a good or service
5. Storage results when no task is being performed and the good or service is not being transported
Technology Choice
1.
2. Operating systems consideration areas:

a. Economic Condition:
i. Important to determine the cost of input and output
b. State of technology:
i. What is technology? Set of knowledge regarding process, methods, techniques and capital
goods by which products are made
ii. Technology is what determines the natures of the tasks and flows within the process
iii. The choice of technology will determine the relationship between tasks and flows
3. Characteristics of a process
a. Capacity: Rate of output from the process
b. Efficiency: Amount of the output of the process to the amount of the input
i. Utilization: ratio of input used and amount of input available
c. Flexibility: is the characteristic that allows a process to respond to changes in its environment.

Session 1: Operation Management


1. What are the Objectives of Operation Management?
Manage Supply and Demand
Increase Efficiency (Low-cost and high-service)
Improve Quality
2. How to achieve these objectives?
Planning: Predict well
Managing: Inventory and resource
Execution: React well
3. Operation Strategy
Strategy: What process type? Outsourcing? Location?
Functions: Manufacturing, Services and Total quality
4. Operation Planning
Short term: How much to produce next week? Where to source?
Long term: What capacity to build plants?
5. Focus of Operation Management
Process Analysis
Inventory
Supply Chain
Service Design
Quality
4. Factor that affects Quality?
a. Product design
b. Production design
c. Management
i. Emphasis
ii. Co-ordination
iii. Production secrets

6. Process types in manufacturing

Continuous: Steel industry, Paper industry, Refineries, Power Plant


Mass: Car, Food industries
Batch: Car
Jobbing: Special Edition products, prototypes, Restaurants
Project

7. Process Terminology
Activity times = Time spent by worker on the task
Capacity = 1/activity times = how many units can worker produce
Bottleneck = at the lowest capacity
Process Capacity = Capacity of bottleneck = maximum flow rate
Flow rate = Throughput rate = Rate of delivering output
Flow time = Cycle time = time it takes to go thru the process = 1/Avg.flowrate
Turnover rate = 1/Throughtput rate
Utilization = Flowrate / Capacity
Effectiveness = Actual Output / Standard Output
Order lead time = Time between order and delivery
Inventory = Cumulative Inflow Cumulative Outflow
8. Inventory. Type of inventory:
Raw material inventory
Work in Process (WIP) inventory
Finished good inventory

9. Littles Law
Average Inventory (I) = Throughput (R) x Average Flow Time (T) or
Length of queue (L) = Arrival rate () x waiting time in queue (W)
10. Cumulative Inventory Diagram
Average Flow Time (T) = Total Area / Total # Processed
Average Inventory (I) = Total Area / total duration
Throughput (R) = Total # processed/ total duration
Hence, Total Area/Total Duration = (Total # Processed / Total Duration) x (Total Area/ Total #
Processed)
(Inventory) Turns = 1/T
11. Inventory Build-up Diagram
Draw the Inventory vs. Time diagram
Calculate the inventory buildup rate
Total Inventory is area under curve
Average Inventory is Total Inventory/time or Total Area / total duration
12. New Vendor model
Is a prototype model for ordering an amount when faced with uncertainty of demand
Sales Forecast
i. Using cost and opportunity cost analysis to optimize the sales forecast (Marginal analysis)
ii. Marginal analysis: Sales quantity stops when the next quantity sold will turn the marginal
profit to negative
iii. D >Q : then Cu
iv. D<Q : then Co
v. Cu P (D>Q) Co P(D=<Q) = 0
vi. Rearrange: P (D=<Q) = Cu / (Co + Cu) = New Vendor Ratio = Critical Ratio

Cost
i.
ii.
iii.
iv.

Cost
Salvage
Overage Cost (Co)= Cost Salvage
Underage Cost (Cu) = Sales Cost

Z-Chart
i. Critical ratio = F(Z)
ii. Find Z value
iii. Q = avg + std dev x Z value

Expected Lost of Sales = Sigma x L(Z)


Expected Sales = Avg. Expected lost sales
Expected Leftover Inventory = Q Expected Sales
Expected Profit = [Cu x Expected Sales] [Co x Expected Leftover]

Session 2: Inventory
1. Inventory types
Depending on purpose
Cycle Stock = Quantity for batch
Safety Stock = Buffer Stock = Decoupling inventory = Quantity above the stock

Pipeline Stock = Transfer of inventory between market to market


Anticipation Inventory = Inventory for anticipation of specific event
Depending on nature of product
Dependent
Independent

2. Inventory Cost
Holding Cost = Average Inventory x Time
Fixed Cost
Setup Cost = D/Q
3. Inventory Control System
Continuous review (Fixed Order Quantity): continuous check whether the current inventory is above
or below average inventory
Periodic Review (Fixed Time Period): continuous check at a specific time
4. Production Quantity Model

5. Basic Fixed-Order Quantity Model


Total Annual Cost = Annual Purchase Cost + Annual Ordering Cost + Annual Holding Cost
TC = DC + D/Q (S) +(Q/2) H
TC = Total Annual Cost
D = Annual Demand
C = Cost Per unit
Q = Order Quantity
S = Setup Cost
H = Holding Cost
L = Lead time
6. Cost Minimization Goal (EOQ Model)
Minimum of total cost point is when Q = SQRT(2DS/H)
Reorder Point = average daily demand x lead time or R = dL
7. Safety Stock Calculations
Inventory during Lead Time = Mean Demand + Safety Stock
Safety Stock = x mean = Z x standard deviation
Managing inventory with uncertainty.
Cost Based (newsboy model) or
Service Based: Business practice to set inventory level to meet service objective
1. Type 1 (percentage of cycles without stockout)
2. Type 2 (percentage of available stock/total demand)

8. Type 1: Continuous review model


Specified a Reorder Point, R, so that probability of not stocking in the lead time is equal to specified
value
Determine service level F(R) (for example F(R) = 90% or to satisfy 90% of the demand)
Obtain Z value from Z table
Reorder Point, R= demand over lead-time + Z x Std. Dev.
Safety Stock = Z x Std. Dev

9. Type 2: also known as Fill rate


Iterative Process to find best Q and R
Need to set Q = EOQ and finding R to satisfy L(R) = Q (1-Beta)/ Std. Dev
Get Z from L(R) value
R = demand + Z x Std Dev
Stop when the current iteration R value = the previous R value
10. Aggregate Planning and MRP
Using Bill of Materials to calculate and plan orders
Start Scheduling with the end product
Scheduling and planning should take into consideration of Lead Time and Spares required
Session 3: Managing Order of Multiple Products (Sport Obermeyer)
1. Multiple Product Ordering
No Aggregation
Aggregation (Find ways to group product with similar order cycles)
2. Managing Uncertainty by
Maximize Expected Profit or Expected Revenue
Minimize Expected Loss
3. How to manage uncertainty?
Step 1: Forecast Quantity. The better the forecast, the better the decision
Step 2: Estimate Uncertainty. Collect opinions individually (Delphi Method), Historical Data (TimeSeries Method), Forecast demand as a function of signals (Regression Method)
4. Ordering Model
Made-to-Stock Model (HP way) : Forecast Plan Produce Satisfy Demand
Made-to-Order Model (Dell way): Wait for Order Produce after receiving Order
5. Managing Forecast changes
Forecasts are betters when they are closer to the actual demand
Therefore, forecast can be made in two steps: Initial Forecast and Las Vegas Order
Initial Forecast is mainly speculative production capacity
Las Vegas Order is based on Reactive Production capacity
6. Prioritization of Order
Use Co-efficient of Variation: CV = Standard Deviation / Mean
Use Standard Deviation
Rank through Mismatch Cost
Which is to order first?
i. The lower the mismatch cost = less risk

ii. The lower the CV = less risk


iii. The higher the Q = safer
iv. The lower the Price = safer
7. Reactive Production Capacity
Can reduce the demand-supply mismatch
Usually limited in term of capacity and comes with price premium
The best bet is to leave reactive capacity for riskier products
Other ways are to increase Reactive Production Capacity through:
i. Increase total capacity (Physical)
ii. Decrease Lead Times
iii. Obtain Information Earlier
8. Uncontrolled Supply Chain (Different Players See Barilla Case Summary)

Session 4: Supply Chain Management


1. Bullwhip Effect: Demand variability increases as you move up the supply chain from customers towards
supply
2. Why bullwhip effect?
Variability of orders Each player only sees orders from its predecessors
Trade promotions - Forward-by to get low prices
Short gaming - Order more if you know supplier is rationing
Lead-time uncertainty - Play safe
3. Strategy to combat bullwhip effect?
i. Information sharing
CPFR Collaborative Planning, Forecasting and Replenishment
Sharing POS
ii. Smooth flow of products
Spread deliveries evenly
Reduce minimum batch sizes
Smaller and more frequent replenishments (EDI)
iii. Eliminate pathological incentives
Everyday low price
Restrict returns and order cancellation
Order allocation based on past sales
iv. Vendor Managed Inventory (VMI)
Delegation of stocking decisions
Vendor takes responsibility of inventory replenishment
Vendor works to agreed-upon service level (fill rate)
VMI Steps: Assemble data, forecast sales, forecast order, generate replenishment orders, order
fulfillment
4. Managing Supply-chain
Sport Obermeyer way of managing uncertainty: Estimate demand Order Smartly Manage
Production
Supply chain management to manage uncertainty (Motivation conflicts, no control, no visibility and
higher risks)
5. Managing Supplier relationship

Easiest contract is no contract (Sport Market, Quality uncertainty)


Second easiest is through Consignment contract: Vendor gets paid only after retailer sells and risk can
be shared equitably
Other way is thru contracts (Legal, complicated, thousands of types)

6. Essential Elements in Supply Contracts


How many can I buy?
When can I get them?
At What Price?
What if (non-performance)?
What is my commitment (Buyer Liability)?
Other Elements: Product roadmap, reviews, liability, safety, lead times, IP, Force Majeure

7. Managing Conflicting Objectives in Supply Chain


Each player in the supply chain has different motivation (e.g. Manufactures want large production
while Distributors want low inventory)
Distributors for example can be look at as middle-man where they have different incentives. But we
need distributors. Why?
Efficiency of Distribution system
Maximize the truckload from various manufacturers
8. Contracting Concepts. Contracts has to be:

Observability : Clear goals and aligned with manufactures


Verifiability: Contracts has to be verifiable (i.e. Quality, Specification, etc)
Enforceability: Terms should be enforceable
Moral Hazard/Adverse Selection
Principal-agent theory

9. Causes of Incentive misalignment


Hidden action and hidden information (hidden means uncontratible)
Losses due to misalignment : double marginalization
9. Options to coordinate misalignment / double marginalization
Cost +: w = c + %c
Buyback Contract: Supplier pays retailer for unsold inventory
Revenue sharing Contract: Retailer gives fixed percentage of revenue and suppliers sells at below cost
to retailer
Quantity Flexibility Contract: Supplier provides credit for every unit unsold
Quantity Discount: Buy more to save
10. Toyota Production System (TPS)
Main Philosophy is to eliminate waste
2 principles under TPS : 1) JIT 2) Jidoka (Problems should be self-evident and stop process when
problems are detected)

11. Lean manufacturing and Just-in Time (JIT) Manufacturing

JIT = Produce what was needed, how much was needed and when it was needed
7 kind of Waste:
- Inventory
- Idle time
- Warehouse storage
- Unnecessary movement
- Setup time
- Scrap
- Rework
JIT Guiding Principles
- Continuous Improvement (Zero Inventory) = Kaizen
- Process Improvement (Fix root cause, not symptoms)
- Prefer large and economical lot sizes
- Reduction in setup times

12. Reducing Inventory


Reduce Inventory will make problems visible
How to reduce Inventory?
i. Produce in small batches
ii. Reduce setup cost and setup time (Example: SMED of Toyota)
13. SMED (Single Minute Exchange of Dies)
SMED is to target the process changeover in less than 10 minutes
Four (4) SMED steps are
i. Suppress useless operations by converting IS to ES
ii. Simplify fittings and tightening
iii. Work together
iv. Suppress adjustment and trials
14. Reducing Buffer Stock and Pipeline Stock
Buffer stock (Variability): Identify cause of defects rather than use buffer stock
Pipeline stock (Distance): Locate suppliers close together / reduce movement within shop floor

Session 5: Toyota JIT and Six-Sigma


1. JIT Terminology
Andon: Fix problems at origin. Workers to stop production and fix defects. Light signal quality
problems
Kaizen: Continuous improvement by identifying and fixing root cause
Heijunka: Process of reducing/dampening variation (Production leveling)
Jidoka : Automation with human touch to identify root cause. Authority to stop production line
Poka-yoke : Prevent defects through fool proof methods, and automate mistake preventions
Kanban : Pull production control through kanban card system
2. Production Planning
Push: A central system that give instructions to each process (e.g MRP software)
- Everyone works independently
- No real-time feedback and no synchronization
Pull: Each process relies on the previous process (Kanban System)
- Production comes from the next downstream station
- Information and product flow is perfectly synchronized
- More visible; product quality from previous station can be easily checked
3. Kanban System

Kanban card is the instruction order to the next process team (either to other material or to start
producing)
Maximum inventory can never Kanban cards x parts in container

4. Kanbans Calculation: 1 card system


Number of Kanbans, K = dL (1+S) / C
Maximum Inventory = k x parts in container
5. Kanbans: 2 card system
Process is link from rotation of cards
Type of cards:
i. Move card (Transport Card): Move containers from supplier to shop
ii. Production Card: Start production
6. Quality
Eight (8) Dimensions of Quality (Performance, Features, Reliability, Conformance, Durability,
Serviceability, Aesthetics, Perceived Quality)
Why quality? Sell more, Premium Price, Reputation, Reduce Cost (Cost of Failure, Cost of Repair
etc)

7. TQM (Total Quality Management) Principles


Quality is Free and Defects are valuable
Everyone is responsible for Quality. One who produces responsibility for defects
Just-In-Time (JIT) principles
Monitor process quality (continuously to achieve Zero defect)
8. Statistical Process Control: Control Charts

Types of Control Charts:


i. Variable Control Charts: Monitor Continuous variables (x-bar and r-chart)
ii. Attribute Control Charts: Monitor Frequency of Defects (p-chart)
iii. Defect Control Charts: Monitor number of defects per unit (c-chart)

9. Variable Control Charts (X-bar and R-Chart)


X Chart Control Limits
i. UCL = x-bar + A2 R
ii. LCL = x-bar A2 R
iii. Where x-bar is sum of average / number of samples and R is sum of range / number of
samples

R Chart Control Limits


i. UCL = D4 R
ii. LCL = D3 R

10. When to take actions?


1 point beyond limits
2 consecutive points near the same limit
5 points below/above the process mean
5 points trending toward limit
Erratic behavior

11. Six-Sigma
Six-sigma goal is to reduce variation and eliminate defects. Target to achieve Cp = 2.
Cp less than 1 is usually not acceptable
Cp = USL LSL / 6 sigma
Cpk = min (USL mean, mean LSL) / 3 sigma
12. Process Centering
Calculate the Percentage of Defects; Z = (USL X) / S and (X LSL)/S
Calculate the Cp
Compare pre and post Cp and Percentage of Defects
13. Six Sigma Quality Metric

-----------------THE END-----------------

Case Study Analysis (Homeworks or Reading)


Case Study Session 1: National Cranberry Case
1. Introduction
a. Spent $200,000 last winter for 5th Kiwanee dumper at RP1
b. But overtime cost were still out of control and growers are upset had to spend time waiting to unload
process fruit into the receiving plant
c. One way to avoid this by increase RP1 capacity
d. Tasks:
i. To look at RP1 and find out what can be done to improve operations
ii. To move quickly
iii. The same crop size
iv. The water-harvested berries will increase to 70% (from 58%)
2. NCC and the cranberry industry
a. NCC formed and owned by growers of cranberries
b. NCC main function is to process and market the berries
3. Trend
a. Increasing surplus produced over those utilized
b. Government and growers agreed to set aside 10% of the crop in 1995 (more than 200,000 barrels
where each barrel weighs 100 lbs)
c. Water harvesting yields up to 20% greater than dry harvesting
d. Water harvesting for RP1: 25,000 bbls in 1993, 125,000 bbls in 1994 and 350,000 bbls in 1995.
4. RP1
a.
b.
c.
d.

RP1 received fresh fruit and process fruit


Fresh fruit operation is preparing for sale
Process fruit operation is canning, freezing and processing fruit products
Process classification:
i. Receiving and testing
ii. Dumping
iii. Temporary holding
iv. Destoning
v. Dechaffing
vi. Drying
vii. Separation
viii. Bulking
ix. Bagging

5. Process Fruit Receiving


a. Average Truck Delivery = 75 bbls
b. Gross weight was recorded
c. Sample Size = 0.3 bbl
i. Went thru small version of cleaning and drying process
ii. Before and after weight of this sample is taken to estimate the trucks net weight made up of
clean and dry berries
iii. Another sample taken to determine the percentage of unusable berries
d. Grading according to color
i. 1,2A, 2B or 3
ii. 3 is $1.50 premium

iii. Was considering a light meter system for color grading quality improvement (Cost $40,000 +
full time skilled operator)
6. Temporary Holding
a. Moved to one of the 5 Kiwannee dumpers.
b. Truck to Conveyor belts
c. Conveyor belts to second level of the plant and deposited them on other conveyor capable of running
the berries into any one of 27 temporary holding bins
i. 1-24 bins : 250 bbls
ii. 25,26,27 bins : 400 bbls [For wet berries only]
d. Conveyors were controlled from a central control panel
e. Usually time is 7 to 8 minutes for truckload to empty its contents
f. But sometime take several hours due to holding bins become full
g. The holding bins emptied on the first level of the plant
7. Destoning, Dechaffing and Drying
a. 25-27 for wet berries only
b. 17-24 for either wet or dry berries
c. Wet berries taken directly to one of the dechaffing units (destoning is not need for wet berries). The
capacity of dechaffing is up to 1,500 bbls
d. After dechaffings, wet berries sent for drying. There are 3 drying units. The capacity is drying units is
up to 200 bbls per hour per dryer
e. 1-16 for dry berries only
f. Berries from these bins taken to one of 3 destoning units, each can process up to 1,500 bbls per hours
g. To convert dry bin to wet bin : $10,000 per bin
h. To get a new dryer : $60,000 per dryer
8. Quality Grading
a. Taken to Jumbo separators. 3 classes of berries:
i. First quality: transported directly to shipping area
ii. Potential 2nd quality: Taken to Bailey mills (12% is 2nd quality and 88% is unacceptable)
iii. Unacceptable berries: floated off to the disposal area
b. Each separator lines process up to 450 bbls per hours but the effective rate is 400 bbls
9. Bulking and Bagging
a. 3 conveyor belts in the shipping area
i. 1 conveyor is to feed bagging stations
ii. 1 conveyor is to bulk bin station
iii. 1 conveyor is to bulk truck stations
10. Scheduling the Work Force
a. Harvest season (1 Sept to 15 Dec)
i. Seven days a week
ii. 27 member work or 53 member work force
iii. Peak days with two shifts 7-3pm and 3-11pm
b. 27 employees is non-seasonal ($13.00 per hour)
c. All non-seasonal are union members + 15 seasonal workers
d. 15 seasonal works from 15 Aug to 25 Dec: $8.00 per hour (Overtime is 1.5 times higher)
e. Beyond 11pm : 8-9 workers needed to run holding bins and do bulk loading
f. Plant never ran more than 22 hours
g. 350,000 bbls in 1995 and down total of less than 8 hours
11. Flowrate = 5 x 60/8 x 75 = 2,812.5 bbls/hours
a. Flowrate of Wet = 0.7 * 2,812.5 = 1,968.75 bbls/hours
b. Flowrate of Dry = 0.3 * 2,812.5 = 843.75 bbls/hours
12. Bottleneck (Existing Capacity)

a. Dryer = 3 x 200 bbls/hour = 600 bbls/hours


i. Shortage = 1968.75 600 = 1,368.75 or ~6.84 equivalent dryers
b. Wet Bins = 3 x 400 + 8 x 250 = 3200
c. Dry Bins = 16 x 250 = 4000
d. Separator Operation = 3 x 400 = 1200
i. Shortage = 2,812.5 1200 = 1612.5 bbls/hr = 4.03 separator lines
13. Possible upgrades
a. Convert the dry bins to wet-dry bins: $10,000 per bin
b. Add dryers: $60,000 per dryer (200 bbls per dryer)
c. Light meter system: $40,000 per light meter system + 1 fulltime skilled operator (same pay grade as
the chief berry receiver)
i. Premium $1.50 per bbl paid for No.3
Case Study Session 2 : Toyota Case Study

1. JIT Toyata Case study


a. Andon
b. Kaizen
c. Heijunka
d. Jidoka
e. Kanban
2. Push vs Pull
Push: Order released from centralized system. Each system components work independently
Pull: Order comes from the downstream stage / end demand
3. Kanban shop-floor control
a. Kanban card is the instruction order
b. Maximum inventory can never Kanban cards x parts in container
4. Kanbans Calculation : 1 card system
a. dL + S
b. Number of Kanbans, K = dL (1+S) / C
5. Fixed the problem immediately and identify the root cause