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Test 3 Review

Know key terms in each chapter not limited to the following:

Chapter 12
Raw materials
Work in process
Safety stock
Inventory holding
Types of Demand (stochastic, dynamic, static, etc)
Economic Order Quantity, Reorder Point, Order quantity (how to calculate)
Sample Problem:
Kelly opens an aquarium store in a lively shopping mall and finds business to be
booming, but she often stocks out of key items customers want. She decides to
experiment with inventory control methods such as using a fixed order quantity (FQS)
and/or fixed order period (FPS) systems. The Fluval 303 pump, a high margin and
profitable pump, is one of her best sellers, but it stocks out frequently. She collects the
following data about the pumps sales.
Demand = 10 units per week
Order cost = $30/order
Item cost = $80/pump
Inventory-holding cost = 15% per year

Store operates 45 weeks/year

Lead time = 3 weeks
Standard deviation of weekly demand = 4 units
Desired service level = 90 percent

The economic order quantity (EOQ) rounded to the next highest number is:
ANS: D (EOQ=47.43)
The reorder point with safety stock rounded to the next highest whole number is:
ANS: C (R = 30+8.86 = 39)
If the current order quantity used by Kelly is 20 pumps per order, how much money can she save by adopting an
economic order quantity (EOQ) policy?


= $569.21, TC


= $735, Savings = $165.79)

If Kelly decides to use a fixed-period system (FPS), the fixed-order interval (T) based on store economics is:
ANS: A (T= EOQ/D*45 weeks/year = 4.8 weeks )

Chapter 13
Aggregate Planning
Framework for Resource Planning (levels and what they do)
capacity requirements plan (CRP)
master production schedule (MPS)
material requirements plan (MRP)
Time buckets
Lot sizing
Action schedule
Master production schedule
Material requirement plan
Capacity requirement plan

Chapter 14
Know how to do a sequencing calculation with flow time using the shortest processing
Work shifts
Flow time
Shortest Processing Time Rule
Gantt Chart

Chapter 15
Deming and his principles
Juran and his work
Six Sigma
ISO 9000:2000

Calculate empo
Each day, a golf resort handles 700 golfers. Each guest encounters 22 moments of
truth during a typical day. The resort is open seven (7) days a week. If they receive 12
complaints per week, the epmo is _____.
ANS: (111.3)
prevention costs
appraisal costs
internal failure costs
external failure costs
DMAIC problem-solving approach

Chapter 16
1:10:100 Rule
Causes of variation
Special causes
Know differences in statistical process control charts

Chapter 17
Lean operating systems
Review Toyota case
5 Ss
total productive maintenance
Just In Time Systems
calculate Kanban
ABC Manufacturing Inc. uses a Kanban system for a component. The daily demand is 800
units. Each container has a combined waiting and processing time of 0.34 days. If the
container size is 50 and efficiency (safety) factor is 9 percent, how many Kanban card
sets should be authorized?
ANS: B (K = 5.93 or 6)

Chapter 18
Project life cycle
Critical path method (CPM)
Crash cost