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OM 300

Andrea Marks

Operations Management Test Review (Chapters Spreadsheet Modeling, 6s, 11, and Linear Programming and Optimization)

Spreadsheet Modeling:

∙ Mental model- a decision-making process we conduct in our heads. ∙ Visual model- a model in which graphics or diagrams are used to convey real objects or situations

o Ex: map and graph

∙ Physical model- a model in which physical objects are used to represent the real objects or situations, usually on a smaller scale

o Ex: model cars and buildings

∙ Mathematical model- a model in which quantitative relationship are used to represent a real situation or phenomena

o Ex: a weather prediction model

o

∙ Spreadsheet model- a mathematical model implemented in the form of a computer spreadsheet

∙ Inputs- quantities or factors that affect the decision making situation ∙ Controllable inputs (decision variables)- quantities or factors that a decision maker can change for the current situation

o Ex: the order quantity in an inventory planning situation

∙ Uncontrollable inputs (parameters)- quantities or factors that a decision maker cannot control for the current situation If you want to learn more check out In the visual system, what is fovea?

o The unit cost of a raw material that must be purchased to produce a product ∙ Output- a quantity or factor that is calculated from the inputs of a model and is of interest of the decision maker

∙ Model- a purposeful representation of the key factor in a situation and the relationships among them

∙ Base case- the model containing the “default” or “given” values for the inputs; this is normally the starting point for the analysis

∙ Correct model- a model is correct if it produces the numerically correct values for the outputs for the current values of the inputs

∙ Flexible model- a model is flexible if it produces the numerically correct values for the outputs for any legitimate values of the inputs, without making any changes to the formulas in the model

∙ Documented model- a model is documented if someone else generally familiar with the situation can understand the model without having the model developer explain it in detail; can be put away for months at a time, and when viewed again by the modeler, is readily understandable

∙ Goal seek- an analysis tool in Excel that allows one to search for the value of an input that results in an output becoming a specific valueDon't forget about the age old question of Why is hemispheric lateralization important?

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Andrea Marks

o

∙ Data table- an analysis tool in Excel that allows one to vary one (or two, in a two way Data Table) input and automatically calculate the value of an output ∙ Relative reference- a cell reference that changes when it is copied ∙ Absolute reference- a cell reference that stays the same when copied

Chapter 6s: Statistical Process Control If you want to learn more check out What is unique about make-believe play in early childhood?

∙ Statistical process control (SPC)- a process used to monitor standards by taking measurements and corrective actions as a product or service is being produced

∙ Control chart- a graphical presentation of process data over time ∙ Natural variations- variability that affects every production process to some degree and is to be expected; also known as common cause

o

∙ Assignable variation- variation in a production process that can be traced to specific causes

oDon't forget about the age old question of Who is the brother of zeus?

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Andrea Marks

∙ X bar chart- a quality control chart for variables that indicates when changes occur in the central tendency of a production process

∙ R chart- a control chart that tracks the “range” within a sample; it indicates that a gain or loss in uniformity has occurred in dispersion of a production process ∙ Central limit theorem- the theoretical foundation for x-bar charts, which states that regardless of the distribution of the population of all parts or services, the distribution of x-bars tends to follow a normal curve as the number of samples increases Don't forget about the age old question of How do you name a compound?

o o X-bar bar = μ We also discuss several other topics like Is smoking marijuana in a city park in fort collins a deviant act?

o σ x-bar = σ /(root (n))

*** on the

formula

sheet!

∙

∙

*** on the

formula

sheet!

∙

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Andrea Marks

∙

∙ P-chart- a quality control chart that is used to control attributes

*** on the

formula

sheet!

o

∙ Run test- a test used to examine the points in a control chart to see if nonrandom variation is present

OM 300

Andrea Marks

o

o

∙ Cp- a ratio for determining whether a process meets design specifications; a ratio

of the specification to the process variation o

*** on the formula sheet!

∙ Cpk- a proportion of variation (3 σ ) between the center of the process and the nearest specification limit

*** on the

o

formula sheet!

∙ Acceptance sampling- a method of measuring random samples of lots or batches of products against predetermined standards

o

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Andrea Marks

∙ Operating characteristic (OC) curve- a graph that describes how well an acceptance plan discriminates between good and bad lots

o

∙ Producer’s risk- the mistake of having a producer’s good lot rejected through sampling

∙ Consumer’s risk- the mistake of a customer’s acceptance of a bad lot overlooked through sampling

∙ Acceptable quality level (AQL)- the quality level of a lot considered good ∙ Lot tolerance percentage defective (LTPD)- the quality level of a lot considered bad

∙ Type I error- statistically, the probability of rejecting a good lot ∙ Type II error- statistically, the probability of accepting a bad lot ∙ Average outgoing quality (AOQ)- the percentage defective in an average lot of goods inspected through acceptance sampling

o

o

Chapter 6s Practice Problems:

∙ If the mean of a particular sample is within control limits and the range of that sample is not within control limits:

o The process is not producing within the established control limits ∙ The central limit theorem:

OM 300

Andrea Marks

o Allows managers to use the normal distribution as the basis for building some control charts

∙ The type of chart used to control the central tendency of variables with continuous dimensions is:

o X-bar chart

∙ If parts in a sample are measured and the mean of the sample measurement is outside the control limits:

o The process is out of control, and the cause should be established ∙ Control charts for attributes are:

o Both p-charts and c-charts

∙ The ability of a process to meet design specifications is called:

o Process capability

∙ The _______ risk is the probability that a lot will be rejected despite the quality level exceeding or meeting the ______:

o Producer’s; AQL

∙ The R chart is used:

o To indicate gains or losses in uniformity

∙ Which type of control chart should be used when it is possible to have more than one mistake per item?

o C-chart

∙ One type of control chart for attributes is a:

o P-chart

∙ If a sample of parts is measured and the mean of the sample measurements is outside the control limits:

o The process is out of control and the cause can be established

∙ The object of a statistical process control (SPC) system is to:

o Provide a signal when assignable variations are present

∙ In acceptance sampling, the producer’s risk is the risk of having a: o Good lot rejected

∙ Twenty samples of size 5 are taken from a stable process. The average means of the sample means is 42.5, and the average range of the samples is 1.5. What is the UCL for the X-bar chart?

o 43.37

∙ Twenty samples of size 5 are taken from a stable process. The average means of the sample means is 42.5, and the average range of the samples is 1.5. What is the UCL for the R-chart?

o 3.17

∙ Twenty samples of size 100 are taken. The total number of defective items is 75. What is the UCL of the 3-sigma (z=3) p-chart?

o 0.094

∙ A customer service hotline has received an average of 7 complaints a day for the last 25 days. What type of control chart should be used to monitor this hotline? o C-chart

∙ For the last 30 days, the number of mistakes on the daily report has averaged 4.5. What would the UCL be if a 3-sigma c-chart was constructed?

o 10.86

∙ A bottling company runs a filling process that should fill bottles with 12 plus or minus 0.04 ounces. A capability study reveals that the process mean is 12 ounces

OM 300

Andrea Marks

and the standard deviation is 0.01 ounces. What is the capability of the bottling process?

o 1.33

∙ A manufacturing engineer is designing a process that must be able to produce a shaft with a diameter of 2.5 cm plus or minus 0.01 cm. If the process capability must be 1.5, what is the maximum process standard deviation?

o 0.00222

∙ Which is the best statement regarding an operating characteristic curve? o As the AQL decreases, the producer’s risk also decreases

∙ A box of 1000 parts is subjected to an acceptance sampling plan that examines only 50 parts. The actual fraction defective in the box is 0.02 and the sampling plan has a 0.53 probability of accepting a box of this quality. What is the average outgoing quality for this scenario?

o 0.01

∙ When the process average is under control, the process dispersion is also under control.

o FALSE

∙ The central limit theorem states that regardless of the distribution of all parts (or services), the distribution of x-bars will tend to follow a normal curve as the number of samples increases.

o TRUE

∙ Control charts for variables classify items as defective or not defective. o FALSE

∙ One popular measure of process capability is Cpk.

o TRUE

∙ When the process fraction defective is low, the p-chart may have a negative lower control limit.

o FALSE

∙ If the producer’s risk increases, then the consumer’s risk decreases. o TRUE

∙ If a process is in control, then all of the output produced is acceptable for use. o FALSE

∙ Which type of control chart should be used when it is possible to have more than one mistake per item?

o C-chart

∙ Which of the following statements is NOT true about the process capability ratio? o A capable process has a process capability ratio less than one

∙ Which is the best statement regarding an operating characteristic curve? o As the AQL decreases, the producer’s risk also decreases

Chapter 11: Supply Chain Management

∙ Supply chain management- the coordination of all supply chain activities involved in enhancing customer value

o The objective of supply chain management is to coordinate activities within the supply chain to maximize the supply chain’s competitive advantage and benefits to the ultimate consumer

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Andrea Marks

∙ Make or buy decision- a choice between producing a component or service in house or purchasing it from an outside source

∙ ∙ Outsourcing- transferring a firm’s activities that have traditionally been internal to external suppliers

∙ Six supply chain strategies for goods and services to be obtained from outside sources:

o Negotiating with many suppliers and playing one supplier against another o Developing long term partnering relationships with a few suppliers o Vertical integration

o Joint ventures

o Developing keiretsu networks

o Developing virtual companies that use suppliers on an as needed basis ∙ Vertical integration- developing the ability to produce goods or services previously purchased or actually buying a supplier or a distributor ∙

∙ Keiretsu- a Japanese term that describes suppliers who become part of a company coalition

∙ Virtual companies- companies that rely on a variety of supplier relationships to provide services on demand; also known as hollow corporations or network companies

∙ Cross sourcing- using one supplier for a component and a second supplier for another component, where each supplier acts as a backup for the other

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Andrea Marks

∙

∙ Three issues complicate the development of an efficient, integrated supply chain: o Local optimization

o Incentives

o Large lots

∙ Bullwhip effect- the increasing fluctuation in orders that often occurs as orders move through the supply chain

∙ Pull data- accurate sales data that initiate transactions to “pull” product through the supply chain

∙ Single stage control of replenishment- fixing responsibility for monitoring and managing inventory for the retailer

∙ Vendor managed inventory (VMI)- a system in which a supplier maintains material for the buyer, often delivering directly to the buyer’s using department ∙ Collaborative planning, forecasting, and replenishment (CPFR)- a system in which members of a supply chain share information in a joint effort to reduce supply chain costs

∙ Blanket order- a long term purchase commitment to a supplier for items that are to be delivered against short term releases to ship

∙ Postponement- delaying any modifications or customization to a product as long as possible in the production process

∙ Drop shipping- shopping directly from the supplier to the end consumer rather than from the seller, saving both time and reshipping costs

∙ Four stages of the supplier selection:

o Supplier evaluation- finding potential vendors and determining the likelihood of their becoming good suppliers

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Andrea Marks

o Supplier development- may include everything from training, to engineering and production help, to procedures for information transfer o Negotiations- approaches taken by supply chain personnel to set prices The cost based price model

The market based price model

Competitive bidding

o Contracting- a design to share risks, share benefits, and create incentives so as to optimize the whole supply chain

∙ E procurement- purchasing facilitated through the internet

∙ Logistics management- an approach that seeks efficiency of operations through the integration of all material acquisition, movement, and storage activities ∙ Six major means of distribution:

o Trucking

o Railroads

o Airfreight

o Waterways

o Pipelines

o Multimodal

∙ Channel assembly- postpones final assembly of a product so the distribution channel can assemble it

∙ ∙ Reverse logistics- the process of sending returned products back up the supply chain for value recovery or disposal

∙ ∙ Closed loop supply chain- a supply chain designed to optimize both forward and reverse flows

∙ Inventory turnover- cost of goods sold divided by average inventory o = cost of goods sold / inventory investment

o weeks and supply = inventory investment / (annual cost of goods sold / 52 weeks)

∙ Supply Chain Operations Reference (SCOR) model- a set of processes, metrics, and best practices developed by the Supply Chain Council

o Plan

o Source

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Andrea Marks

o Make

o Deliver

o Return

Chapter 11 Practice Questions:

∙ The objective of supply chain management is to _____________________. o Build a chain of suppliers that focuses on maximizing value to the ultimate customer

∙ The term vertical integration means to:

o Produce goods or services previously purchased

∙ The bullwhip effect can be aggravated by:

o All of the above (local optimization, sales incentives, quantity discounts, and promotions)

∙ Supplier selection requires:

o Negotiations, supplier evaluation, supplier development, and contracts ∙ A major issue in logistics is:

o Cost of shipping alternatives

∙ Inventory turnover equals:

o Cost of goods sold / inventory investment

∙ If a process is in control, then all of the output produced is acceptable for use. o FALSE

∙ Which of the following statements is NOT one of the differentiation strategy decisions?

o Use buffer stocks to ensure speedy supply

∙ Which sourcing strategy is particularly common when the products being sourced are commodities?

o Many suppliers

∙ Which of the following mitigation tactics could reduce economic risk? o Purchasing contracts that address price fluctuations

∙ Which of the following is NOT one of the risk mitigation tactics for the supply chain risk category of suppliers failing to deliver?

o Require overnight delivery

∙ What are the four stages of supplier selection?

o Supplier evaluation, supplier development, negotiations, and contracting ∙ Once revenue and total logistics costs are considered together, the optimal number of facilities in a distribution network may decrease compared to the optimal number of facilities based on total logistics costs only.

o FALSE

∙ Distribution management focuses on which of the following?

o The outbound flow of products

∙ Which of the following statements does NOT accurately explain what occurs when the number of facilities in a distribution network increases?

o Response time first decreases, the increases

∙ Benchmark firms have driven down costs of supply chain performance. o TRUE

OM 300

Andrea Marks

Linear Programming and Optimization

∙ Objective- the quantity to be maximized or minimized

∙ Constraints- limitations or requirements that must be satisfied

∙ Decision variables- quantities under the control of the decision maker ∙ Constrained optimization problem- a mathematical model in which one is trying to maximize or minimize some quantity, while satisfying a set of constraints ∙ Formulation- a formal, algebraic statement of a constrained optimization problem ∙ Text based formulation:

o Decision variables

o Objective function

o Constraints

∙ Linear program (LP)- a constrained optimization problem in which all the functions involving decision variables are linear

∙ Feasible solution- a specific combination of values of the decision variables such that all of the constraints are satisfied

∙ Infeasible solution- a specific combination of values of the decision variables such that at least one of the constraints is violated

∙ Optimal solution- the feasible solution with the largest (for a maximization problem) or smallest (for a minimization) objective value

∙ Simplex method- a mathematical algorithm developed by George Dantzig that, when implemented in software, can solve LP’s very quickly

∙ Guidelines to set an LP in a spreadsheet:

o Develop a correct, flexible, and documented model

o Divide the worksheet into three sections

Decisions variables

Objective function

Constraints

o Use the algebraic formulation and the natural structure of the problem to guide the structure of the spreadsheet

o Use one cell for each decision variable

o Store the coefficients of the objective function in separate cells, and use another cell to store a formula that calculates the value of the objective function (by referring to the decision variable cells and the coefficient cells)

∙ Target cell- in Solver, the cell to be maximized or minimized; this cell corresponds to the objective function

∙ Changing cells- in Solver, the cells that can be changed during the optimization process; these cells correspond to the decision variables

∙ Constraints- in Solver, the limitations and requirements that must be met ∙ Binding constraints- constraints that are satisfied exactly at the optimal solution ∙ Nonbinding constraints- constraints that are satisfied at the optimal solution, but as strict inequalities

∙ Slack- the difference between the left hand side and the right hand side of a constraint

OM 300

Andrea Marks

∙ Shadow price- the amount by which the optimal objective value will change if the right hand side of a constraint is increased by one unit, assuming all other coefficients of the problem remain the same

∙ Marginal value- another name for shadow price

∙ Infeasible problem- a LP in which it is impossible for all the constraints to be satisfied simultaneously

∙ Unbounded problem- a LP in which the objective value can increase (for a maximization problem) or decrease (for a minimization problem) without bound