BUS606 Study Guide

Unit 6: Process and Inventory Management

6a. Describe lean operations and how it factors into business processes and inventory management 

  • How does lean manufacturing improve efficiency?
  • How can Kanban and Total Quality Management (TQM) principles help with the efficiency of the manufacturing process?
  • How might a supply chain be different for easily perishable items?

When designing an efficient manufacturing process, keep in mind these ten tips: keep it moving, keep it small, keep it logical and sequential, make it ergonomic, economize on movement, optimize parts presentation, do it online, minimize wasteful handling, keep it open and flexible, and keep it simple.
A Kanban system is a lean work scheduling system that involves: visualizing the workflow, limiting works-in-progress (WIP), and measuring the lead, or cycle, time. The goal of a Kanban system is to maximize a team's productivity by reducing idle time.
While lean supply chains are effective, easily perishable items must receive additional considerations in the supply chain. Easily perishable items include food and medicines. Consumers of these products tend to be very conscious about expiration dates. Additionally, partners in the supply chain must invoke special processes, such as refrigeration, and deal quickly with disruptions in the supply chain, such as transportation breakdowns and refrigeration breakdowns. Considering that COVID-19 vaccines had very short expiration dates and required very specialized delivery methods, you can see that a lean, highly effective supply chain needed to be designed quickly.
To review, see:


6b. 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 

  • How do you know when a process is in or out of control?
  • How can Statistical Process Control be used to develop the quality of a product that the consumer requires?

Determining when a manufacturing process is in control or out of control is vital to an organization. Determining the efficiency of the process or identifying problems early can save an organization time and money. Statistical Process Control is one method of continuous improvement that will help an organization collect data, measure data, and make corrections. Any process can be statistically analyzed, including the speed of manufacturing, the number of defects, overall product quality, and more. Organizations can use SPC to reduce the variations in the process.
Control charts can be used in the SPC to depict when a process is in control (when the data remains within an upper- and lower-limit control limit). When data is outside the control limit, it is out of control.
When a process is out of control, that is, when the data collected has variations outside the control limits, corrections must be made.
To review, see Statistical Process Control.

6c. Determine the optimal order quantity and order time for a given inventory model 

  • How can the food service industry determine the optimal quantity of order time for its inventory?

In food service, optimal order quantity and order time is essential. Because of the perishability (for fruits, vegetables, and meat), seasonality (ice cream in the summer versus hot drinks in the winter), and specific transportation needs, ordering the correct quantity at the right time is vital.
While the examples used in this unit revolve around food services, the basics of inventory control are applicable across industries:

  1. Set up systems to track and record inventory;
  2. Develop specifications and procedures for ordering and purchasing;
  3. Develop standards and procedures to efficiently receive deliveries; and
  4. Determine the frequency and processes for reconciling inventory and analyze inventory data to determine any areas for improvement.

To review, see Managing Inventory Control and Procurement.

6d. Determine the economic order quantity for an inventory system that minimizes total holding and ordering costs for a given time period 

  • What is Economic Order Quantity (EOQ)?
  • In what way does effective inventory management meet the needs of the consumer?
  • How does inventory control maintain low levels of stock while also meeting the consumer's needs and maximizing the organization's profit?

In traditional inventory control systems, organizations would keep stock on hand to handle fluctuations in consumer demand. However, more recently, the cost of keeping that stock on hand has been defined as a cost to maintain that supply.
Today, combining the improvement of information support systems, differentiating the supply sources, and improved transportation methods allow an organization to reduce their stock level without losing quality to the customer, which helps decrease the enterprise's total expenses. Inventory systems like JIT can help organizations maintain customer satisfaction while maintaining maximized profits.
Safety stock is that point of stock that leads to neither under-stock nor over-stock in fluctuating demand. In other words, safety stock helps to even out fluctuating demand. Because inventory is a cost to an organization, forecasting future demand, forecasting error, and using Economic Order Quantity (EOQ) calculations could help an organization maximize consumer demand and organization profits. Economic Order Quantity (EOQ) is the level of inventory that minimizes total inventory holding costs and order costs. Linear regression or multilinear regression can be used to help determine the EOC.
To review, see Stochastic Inventory Management in a Shortage and Determining Safety Stock with Uncertain Demand.

Unit 6 Vocabulary 

This vocabulary list includes the terms that you will need to know to successfully complete the final exam.

  • control charts
  • Economic Order Quantity (EOQ)
  • in control
  • Just-in-Time
  • Kanban system
  • out of control
  • Statistical Process Control (SPC)