• Unit 6: Process and Inventory Management

    This unit covers process and inventory models. For process models, this includes quality control and the tools to measure and control quality such as statistical process control, total quality management, and six-sigma, and lean systems such as just-in-time logistics. Inventory models are covered which determine optimal inventory order schedules and lot sizes. Finally, the importance of safety-stock inventory buffers is considered to take into account disruptions in supply schedules.

    Completing this unit should take you approximately 9 hours.

    • 6.1: Lean Operations

      Lean operations respond to customer demand when the more items it produces the cheaper the items become. Striving for a lean operation means scaling operations, and lowering costs, to increase profit margins. Part of a lean philosophy also includes making continuous improvements, increasing the quality of the products, integrating feedback, focusing on the long term, and eliminating both waste and mistakes.

      • 6.1.1: JIT versus JIC

        Just in time (JIT) is a production method that seeks to reduce in-process inventory and carrying costs. Whereas Just in case (JIC) is an inventory management method that stores materials, goods, and labor to be on hand and available when necessary. Both methods are intended to help the manufacturer evolve into a leaner organization while simultaneously helping deal with uncertainty in the OSCM process.

      • 6.1.2: Kanban Systems

        Known as a visual signal, Kanban has its roots in the Toyota manufacturing industry. This system is depicted with columns and cards representing development stages and describing tasks which are then moved through the chart. From this perspective flows and bottlenecks can be identified and addressed.

    • 6.2: Quality Control

      Quality is a top concern for managers and leaders in operations departments. Controlling quality can come in different forms from randomly sampling products off a production line, to managing employee productivity, to identifying and addressing bottlenecks. Over time the quality of a product or service may decline and needs to be checked periodically and addressed during which overall operations are minimally disrupted.

      • 6.2.1: Process Capability

        Measuring the performance of a process is the essence of process capability and is used in various industries. To meet customer requirements the manufacturing or service process must be repeatable and consistent. Moreover, this method objectively measures to what degree a process is meeting requirements or not.

      • 6.2.2: Statistical Process Control

        Statistical Process Control (SPC) is a statistical analysis tool used to assess the stability of a process as well as the quality of outputs. SPC relies on the quantitative and graphic analysis of measurements to evaluate an observed variation. If the studied attribute is within an acceptable range, it is thought to be in control and if not will need to be addressed.

      • 6.2.3: Total Quality Management

        Total Quality Management (TQM) advocates establishing a corporate culture focused on continuous improvement, customer orientation, and employee empowerment. Aligning production with customer expectations and stressing quality at every step improves organizational performance. This performance affects areas of the organization, including operations, marketing, and finance.

      • 6.2.4: Six Sigma

        The name of this methodology is derived from statistics and refers to the ability of a manufacturer to produce within defined specifications. If the process operates at defects below 3.4 per one million it is determined to be within quality limits. In essence, this philosophy is a systematic process analysis tool that strives for a zero-defect level.

      • 6.2.5: ISO 9000

        ISO 9000 is a family of quality management systems that sets standards helping ensure an organization meets stakeholder regulatory requirements of a product or service. Established by the International Organization for Standardization (ISO), it is the basis for quality assurance. Through setting standards it assists manufacturers in documenting quality elements that need to be implemented.

    • 6.3: Inventory Models

      Many businesses with physical products must have inventory on hand to make a sale transaction. Without a sufficient supply, a sale could be missed. However, too much supply on hand can affect cash flow. A mathematical model is employed to understand the optimum level of inventory.

      • 6.3.1: Questions and Metrics

        Inventory is the storage of products and could be a major factor in the closing of a sale. Wholesalers and retailers alike must ask essential questions and have accurate tracking tools in place to understand their current situation. If unclear and undefined, the entire supply chain and customer delivery could be jeopardized.

      • 6.3.2: Constant Demand Model

        When a purchase order is continuous and expected at certain intervals it is known to be in constant demand. The buyer and seller in this transaction usually have an agreed-upon price for a fixed duration so that production can be managed properly to ensure on-time delivery. Usually, the product to be ordered is not perishable.

      • 6.3.3: Time-Varying Demand Model

        The optimal time to order products is based on factors that include demand, available supply, and other related conditions. Generally speaking, production can be constant. However, demand could have swings of increases or decreases. By anticipating demand and placing orders at an agreed-upon time, both supplier and purchaser can anticipate when future orders need to be placed.

      • 6.3.4: Stochastic Inventory Model

        Managing inventory in an unstable environment may cause a business to overestimate or underestimate its need to replenish inventory. The Stochastic inventory management approach accounts for random probabilities that can be addressed through statistical analyses. Predicting demand can be challenging requiring inventory models that can adjust with demand.

    • 6.4: Safety Stock and Uncertainty

      Stocking inventory serves as a strategic decision to mitigate the risk of shortages. The challenge is for a business to determine what level is safe to ensure business continuity, especially during uncertainties. This decision can protect against market variability, attempt to compensate for inaccurate forecasts, or prevent disruptions altogether.

    • Study Guide: Unit 6

      We recommend reviewing this Study Guide before taking the Unit 6 Assessment.

    • Unit 6 Assessment

      • Receive a grade