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Operations Management ch. 15
Key terms for the chapter
37
Business
07/13/2010

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Term
Resource planning
Definition
A process that takes sales and operations plans; processes information in the way of time standards, routings, and other information on how the firm produces its services or products; and then plans the input requirements.
Term
Enterprise process
Definition
A companywide process that cuts across functional areas, business units, geographical regions, and product lines.
Term
Enterprise resource planning (ERP) systems
Definition
Large, integrated information systems that support many enterprise processes and data storage needs.
Term
Dependent demand
Definition
The demand for an item that occurs because the quantity required varies with the production plans for other items held in the firm’s inventory.
Term
Parent
Definition
Any product that is manufactured from one or more components.
Term
Component
Definition
An item that goes through one or more operations to be transformed into or become part of one or more parents.
Term
material requirements planning (MRP)
Definition
A computerized information system developed specifically to help manufacturers manage dependent demand inventory and schedule replenishment orders.
• Products with many levels of components, and more customization
• Lumpy demand, often with larger batch sizes
• Make-to-order, assemble-to-order, and make-to-stock strategies
• Lower and intermediate volumes, with flexible flows
Term
Drum-Buffer-Rope (DBR)
Definition
• Capacity is leveraged to control bottlenecks and entire system flow
• Simpler product structures and more standardized products
• Assemble-to-order or make-to-stock strategy
• Relatively higher volumes, with flexible flows transitioning to line flows
Term
lean systems
Definition
• Using system as catalyst for continuous improvement
• Small lot sizes, consistent quality, reliable suppliers, and flexible workforce
• Assemble-to-order or make-to-stock strategy
• High volumes and well-balanced line flows
Term
MRP explosion
Definition
A process that converts the requirements of various final products into a material requirements plan that specifies the replenishment schedules of all the subassemblies, components, and raw materials needed to produce final products.
Term
Bill of materials (BOM):
Definition
A record of all the components of an item, the parent–component relationships, and the usage quantities derived from engineering and process designs.
Term
Usage quantity
Definition
The number of units of a component that are needed to make one unit of its immediate parent.
Term
End item
Definition
The final product sold to a customer.
Term
Intermediate item
Definition
An item that has at least one parent and at least one component.
Term
Subassembly
Definition
An intermediate item that is assembled (as opposed to being transformed by other means) from more than one component.
Term
Purchased item
Definition
An item that has one or more parents but no components because it comes from a supplier.
Term
Part commonality
Definition
The degree to which a component has more than one immediate parent.
Term
Available-to-promise (ATP) inventory
Definition
The quantity of end items that marketing can promise to deliver on specified dates.
It is the difference between the customer orders already booked and the quantity that operations is planning to produce.
As new customer orders are accepted, the ATP inventory is reduced to reflect the commitment of the firm to ship those quantities
Actual inventory stays unchanged until the order is removed from inventory and shipped to the customer.
Term
Inventory record
Definition
A record that shows an item’s lot-size policy, lead time, and various time-phased data.
Term
Gross requirements
Definition
The total demand derived from all parent production plans.
Term
Scheduled Receipts
Definition
(open orders) are orders that have been placed but not yet completed.
Term
Projected on-hand inventory
Definition
An estimate of the amount of inventory available each week after gross requirements have been satisfied.
Term
Planned receipts
Definition
Orders that are not yet released to the shop or supplier.
Term
Planned order release
Definition
An indication of when an order for a specified quantity of an item is to be issued.
Term
Planning lead time
Definition
An estimate of the time between placing an order for an item and receiving the item in inventory.
Setup time
Processing time
Materials handling time between operations
Waiting time
Term
Lot-sizing rules
Definition
A rule that determines the timing and size of order quantities.
Term
Fixed order quantity (FOQ):
Definition
A rule that maintains the same order quantity each time an order is issued.
Dictated by
Equipment capacity limits
Quantity discount
Truckload capacity
Minimum purchase quantity
EOQ
Term
Periodic order quantity (POQ):
Definition
A rule that allows a different order quantity for each order issued but tends to issue the order at predetermined time intervals.
The order quantity equals the amount of the item needed to covers P weeks’ worth of gross requirements.
Term
Lot-for-lot (L4L) rule
Definition
A rule under which the lot size ordered covers the gross requirements of a single week.
Thus P = 1, and the goal is to minimize inventory levels.
The projected on-hand inventory combined with the new order will equal zero at the end of week t.
Term
Comparing Lot-Sizing Rules
Definition
FOQ, POQ, and L4L rules affect inventory costs and setup and ordering costs. In the example, each rule took effect in week 4, when the first order was placed.
A comparison of projected on-hand inventory averaged over weeks 4 through 8 of the planning horizon for the ladder-back chair seat subassembly:

FOQ: (227+227+77+187+187)/5 = 181 units
POQ: (150+150+0+0+0)/5 = 60 units
L4L: (0+0+0+0+0)/5 = 0 units

FOQ generates high inventory because it creates remnants.

POQ reduces on-hand inventory because it does a better job of matching order quantity to requirements.

L4L minimizes inventory investment but maximizes the number of orders placed.
Term
Safety Stock
Definition
The usual policy is to use safety stock for end items and purchased items to protect against fluctuating customer orders and unreliable suppliers of components but to avoid using it as much as possible for intermediate items.
Schedule a planned receipt whenever the projected on-hand inventory balance drops below the desired safety stock level.
Term
Action notice
Definition
A computer-generated memo alerting planners about releasing new orders and adjusting the due dates of scheduled receipts.
Term
Capacity requirements planning (CRP)
Definition
A technique used for projecting time-phased capacity requirements for workstations; its purpose is to match the material requirements plan with the capacity of key processes.
Term
Manufacturing resource planning (MRP II):
Definition
A system that ties the basic MRP system to the company’s financial system and to other core and supporting processes.
Term
Drum-Buffer-Rope (DBR):
Definition
A planning and control system that regulates the flow of work-in-process materials at the bottleneck or the capacity constrained resource (CCR) in a productive system.
Term
Dependent demand
Definition
Restaurant
Airlines
Hospitals
Hotels
Term
Bill of Resources
Definition
A record of a firm’s parent-component relationships and all of the materials, equipment time, staff, and other resources.