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.
Upon successful completion of this unit, you will be able to:
- describe lean operations and how it factors into business processes and inventory management;
- determine whether a process is in control or not, how to return the process to being in control, and quantify a process capability after it has returned to control;
- determine the optimal order quantity and order time for a given inventory model; and
- determine the economic order quantity for an inventory system that minimizes total holding and ordering costs for a given time period.
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.
Watch this video. It provides a list of basic rules to operate a manufacturing process. Along with the benefits indicated, what are some other benefits of being lean?
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.
Read this article on the Green Supply Chain. The authors analyzed the JIT approach to a transportation supply chain. As you read, think about what JIC materials, goods, and labor must be on hand in order to deliver JIT products?
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.
Watch this video on Kanban. Based upon the list of core practices associated with the Kanban system highlighted in the video, in your own words can you list and describe the core practices of a Kanban system?
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.
Read this article. The authors present a review of quality and operations management problems associated with food supply chains. In regard to transportation, how can a supply chain improve the transportation problems of perishables?
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.
Read this paper. The main topic is to estimate the capability of a particular process. How would you define a process capability?
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.
Watch this video. It presents a simple overview and visual aid for understanding SPC. What industries employ statistical process control metrics?
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.
Read this article. The paper seeks to demonstrate how implementing TQM can be a precursor to sustainable customer loyalty. While reading, reflect on how your favorite store or brand seeks to maintain your satisfaction and loyalty. What in particular do they do that keeps you a loyal customer?
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.
Read this chapter, which gives a clear description of Six Sigma, when it is used, and how to interpret the results.
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.
Read the first section of this text on ISO 9000. What are the benefits, for both the firm and the customer, of a firm going through the ISO 900(1) certification process?
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.
Watch this video. Three basic inventory groups are presented. For the deterministic group, what are some of the assumptions noted?
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.
Read this chapter. It uses the food service industry as a case study because of the different types of raw material inventory food establishments need to consider. As you read the section on Three Ways to Increase Your Value, can you recommend a fourth or even a fifth to help these businesses?
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.
Watch this video. For a constant demand model, the presenter suggests that demand is equal to output. What factors are attributed to a product being in constant demand?
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.
Read this article. The research indicates challenges associated with the timely ordering of products, especially those that can degrade with time. What kinds of challenges can you see with products that have a defined shelf life and can spoil or deteriorate?
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.
Read this article. The study indicates that a stochastic inventory management system should be preceded by determining the economic feasibility of the shortage. How does using real-time statistics help determine purchasing?
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.
Read this article. It concludes by suggesting that errors in ordering safety stock can be affected by costs, time, and human error. What other factors should a company consider when ordering safety stock to avoid uncertainty?
Study Guide: Unit 6
We recommend reviewing this Study Guide before taking the Unit 6 Assessment.
Unit 6 Assessment
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Take this assessment to see how well you understood this unit.
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