Answers to Review Questions

In document Detailed Scheduling and Planning (Lesson 8) (Page 30-36)

1. A and C

A partnership between a supplier and buyer is useful only where both share similar interests in volume, pricing, quality and new product development, the relationship will fulfill needs and provide tangible benefits for both companies, and there is a high level of trust between the companies, which includes the sharing of information on costs, processes, and new product development.

2. C

The closer the relationship, the greater the value added. However, such close relationships generally involve a great deal of time and effort to maintain. The continuum of supply

relationships runs from vendors through to strategic alliances. These types of partnerships can be categorized as either collaborative relationships or arm’s length relationships.

3. C

A poor choice of supplier may ultimately lead to difficulties meeting customer service levels.

The supplier may not research product adequately or pay sufficient attention to quality.

Information may be difficult or slow to obtain from the supplier and there may be difficulties conveying information to key personnel in the supplier company.

4. B and D

The factors that influence the choice of supplier are the financial health of potential suppliers, the compatibility of their interests with the buyer, duplication of products or services between supplier and buyer, and the state of the marketplace. When the market is highly competitive and volatile, a company may decide to enter a program of strategic sourcing.

5. A and D

Single sourcing leads to price breaks due to the high volumes ordered. As the customer’s importance increases with the size of their order, it may also lead to improved quality as the supplier invests more into processes and equipment, and to increased influence over the supplier.

6. B

There are various ways to manage the supply of material between supplier and buyer. On-site representation involves the setting up of a suppliers’ storeroom on the buyer’s premises, usually manned by supplier staff. This means that inventory can be replenished very quickly but the

Arm’s length relationship

Collaborative relationship

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supplier retains control and ownership of the inventory. Vendor-managed inventory (VMI) is inventory maintained by the supplier but owned by the buyer. The supplier is made aware of demand patterns, forecasts and desired inventory levels. The supplier then maintains those inventory levels, replenishing and invoicing as required. Vendor-owned inventory is a modification of this approach but the buyer is not invoiced until the material has been used, rather than on delivery. Multi-sourcing is the use of two or more suppliers for the same item.

7. B

A tracking signal is used to measure the quality of the forecast and determine whether to adjust the forecast. There are many methods of tracking forecast accuracy, including forecast error as a percentage of demand.

8. C and D

A logistics service provider will bring further expertise to the equation and reduce the requirement for suppliers and buyers to monitor deliveries. In addition, the costs of delivery are often reduced. However, logistics service providers will not necessarily deliver material directly to the point of use.

9. A

Multisourcing improves flexibility and the ability to respond quickly to market changes as there is a greater flexibility in the available volume. However, single-sourcing generally leads to better delivery performance and price, higher quality, and reduced administration.

10. C

The free-on-board point (FOB) is that point at which ownership is transferred from supplier to buyer. When an order is marked FOB origin, this transfer occurs once the order leaves the supplier’s warehouse. An FOB Destination delivery does not become the property of the buyer until it is officially received into the buyer’s warehouse or other premises.

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This is a technique for calculating the start dates and due dates of an operation. The due date for the order is the starting point. The planner works back in time to determine the necessary start and due dates for each operation in the order

bill of material (BOM)

A listing of all the subassemblies, intermediates, parts, and raw materials needed for a parent assembly, showing the required quantity of each. It is used with the MPS to determine items that must be ordered. Also called formula or recipe.

Blanket order A long term commitment to a supplier for material against which several material releases will be issued in order to meet customer requirements.

Bottleneck A resource that cannot cope with the level of demand placed upon it. Such resources can hold up entire production processes, with queues building up before them. Effective management involves identifying and ameliorating issues that cause bottlenecks

Capacity The capability of a system to perform its expected function. This could be the capability of an operator, machine, work center, plant or organization to produce output per time period. Available and required capacity must be measured to assist in planning.

Capacity planning

This is the process of determining the amount of capacity needed to produce the required quantities of product in the future. Resource planning, rough-cut capacity planning, and detailed capacity planning are performed at different levels of the planning structure.

Capacity Requirements Planning (CRP)

The planning activity that determines the capacity requirements for each work center with regard to the material plan. Open shop orders and planned orders from MRP are the main inputs to CRP along with part routings and time standards. These inputs are converted into hours of work by work center for each time period in MRP. CRP may highlight insufficient capacity during some periods.

A scheduling principle that increases work- in-process to ensure flexibility in utilization of capacity. When used appropriately it leads to reduced total cost when taking into account work in process, capacity, and finished goods inventory

Cartel A group of companies that agree to cooperate rather than compete in producing the same product, thereby limiting external competition

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Central point scheduling

A scheduling method that starts at a critical point in production and uses both backward and forward scheduling to work backward and forward from that critical point

Certified supplier

A supplier who consistently meets the quality, cost, delivery, and count objectives of its customer

Consortium A group of companies working together to produce a product

Constraint A factor that prevents the achievement of a targeted level of performance, such as machine center capacity, lack of raw material, inefficient policy etc.

Constraint-oriented finite loading

This finite- loading technique is used to plan orders around bottleneck work centers, aiming to maximize total throughput. Small orders are aggregated into one larger lot size and loaded at the constraining work center. Operations are then backward and forward scheduled as required

Continuous line production

A production system involving a plant layout that closely follows the production process for a product. Material flow is continuous during production, routings are fixed and setups are rarely changed.

Current ratio Current assets divided by current liabilities Customer


The ability of a company to meet customer needs. The term is also used to refer to the measurement of product delivery to a customer within required time constraints

Delphi method A qualitative forecasting technique where the opinions of experts are combined in a series of iterations. The results of each iteration are used to develop the next, so that convergence of the experts' opinion is achieved.

Demonstrated capacity

A level of capacity that is calculated from historical performance data and therefore proven to be achievable.

dependent demand

Demand that is directly related to or derived from the bill of material structure for another item or end product. Dependent demand should be calculated rather than forecast. Some items may have both dependent and independent demand at the same time.

Distri buted requirements planning (DRP)

A time-phased order point approach that uses MRP logic to determine warehouse requirements. This approach is useful in multilevel distribution networks.

Earliest due date(EDD)

A priority rule used in sequencing of queued orders depending on their operation or order due dates.

Efficiency A measure of actual output compared to standard output.

Exceptions Items that deviate from plan

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exponential smoothing

A weighted moving average forecasting technique in which past records are geometrically discounted according to their age with the heaviest weight assigned to most recent data. A smoothing constant is applied to avoid using excessive historical data.

extrinsic forecast A forecast based on a correlated leading indicator, for example, estimating furniture sales based on house builds. Extrinsic forecasts are more useful for large aggregations like total company sales.

Finite loading A method of loading work centers that ensures the available capacity of the work station is not exceeded.

Flow production Uninterrupted flow of material through the production process. May also be called mass production or continuous manufacturing. The plant layout usually facilitates the flow of the product through the plant.

Forward sche duling

A scheduling technique that involves progressing from a known start date and determining the completion date for an order.

independent demand

Demand for an item that is unrelated to the demand for other items.

Examples include finished goods and service part requirements.

Infinite loading Calculation of capacity needed at work centers regardless of the maximum capacity of the work centers in question

Interoperation time

The elapsed time between completion of one operation and the beginning of the next

intrinsic forecast A forecast based on internal factors, such as an average of past sales.

Inventory turnover

The number of times an inventory turns over in a year. It is determined by dividing the annual cost of sales by the average inventory leve l.

Job shop A manufacturing environment that produces items to customer specification.

Usually a wide range of product designs are possible and are performed at fixed locations using general equipment

Joint venture An agreement between companies in the pursuit of a joint business objective to which each company contributes capital and other resources.

Kieretsu A form of cooperation between companies where they remain separate legal entities but work closely together in many ways, for example sharing purchasing and financial processes and setups.

Latest start date The last day upon which a given activity may be started without jeopardizing the project completion date.

lead time Lead time is the span of time required to perform a process.

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Limited partne rship

A partnership that comprises partners who contribute assets but are not involved in company management and general partners who manage the company and are responsible for all debts.

Liquidity ratio A financial ratio that highlights a company’s ability to fulfill short term financial obligations

logistics The art of obtaining, producing, and distributing material in the quantities and places required.

Management information systems (MIS)

A system, either manual or computerized, that provides a database of organized information to a variety of management functions

Manufacturing environment

The type of manufacturing strategy currently implemented in a plant. For example, a plant may be laid out according to functional area and covering several small projects. It is often used to refer to whether a company is make-to-stock, make-to-order or assemble-to-order

Master production schedule (MPS)

The anticipated build schedule for those items assigned to the master scheduler. The master scheduler maintains this schedule and it drives material requirements planning. It specifies configurations, quantities and dates for production.

Multisourcing The procurement of an item from more than one supplier so that risks are limited and a company is not dependent on any one supplier

Partnership A form of business that is owned by two or more people. It can also refer to a supply chain relationship based on trust and shared risk to gain competitive advantage

Profitability The amount of income less expenditure over a given time period

Quick asset ratio This measures cash, securities and accounts receivable against current liabilities

Resource planning

Capacity planning at business levels, resource planning is the process of establishing, measuring and adjusting long-range capacity. It is based on the production plan but may be driven by higher level strategic plans beyond the time frame of the production plan. Resource planning concerns itself with planning for resources that take a long time to acquire, for example, the necessity for a new production facility or a new strategic partner.

Rough-cut capacity planning (RCCP)

The process of converting the master production schedule into requirements for potential bottleneck resources such as labor, machines, warehouse space, and supplier capabilities. These requirements are compared against available capacity. This helps ensure a feasible master production schedule.

Scheduled receipts

An open order with an assigned due date.

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seasonality A repetitive pattern of demand from year to year or month to month (or other time period) showing much higher demand in some periods than in others.

Setup time The amount of time between the production of the last item of one run and the first usable item in another production run for a different product

Single sourcing The opposite of multisourcing, only one supplier is cultivated for the supply of a particular item. This is the approach often used in JIT manufacturing Strategic alliance A relationship between two or more companies that involves the sharing of

information, the participation in joint investments and development of linked processes to mutual benefit. Strategic alliances can lead to better supply chain performance

Theoretical capacity

The maximum output capability for a workstation without considering maintenance or other down times.

Theory of constraints

A management philosophy that incorporates logistics, performance measurement, and logical thinking

Throughput The total amount of production that flows through a production facility. In the theory of constraints, throughput is the rate at which the company generates money through sales. Throughput and output are not the same.

Time to market (TTM)

The total time elapsed between a customer placing an order and receiving the product

trend General upward or downward movement of a variable over time, for example in product demand.

Utilization A measure of how intensively a resource is used, calculated by comparing available time to actual time

Vendor A seller of an item in the marketplace Vendor-owned

inventory (VOI)

Also known as consigned stock, such inventory is held at a customer location but remains the property of the manufacturer until it is used.

work order An order to the machine shop for tool manufacture or equipment maintenance or an authorization to start work on an activity or product.

In document Detailed Scheduling and Planning (Lesson 8) (Page 30-36)