Tuesday, June 21, 2011

For a reordering system based on inventory level, calculate buffer stock. What should be reorder level at this buffer stock? What would be carrying costs for a year?

The information provided for an item is as follows:
Annual demand = 12000 units
Ordering cost = Rs 60 per order
Annual carrying cost = 10 % of the purchase price.
Unit cost of item = Rs 10 and
Lead-time = 10 days.

There are 300 working days a year. Determine EOQ and a number of orders per year. In past two years, use rate has gone as high as 50 units per day. For a reordering system based on inventory level, calculate buffer stock. What should be reorder level at this buffer stock? What would be carrying costs for a year?



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hat do you understand by Automated Storage and Retrieval? For what kinds of goods and in which companies in India do you think such systems would be appropriate?

What do you understand by Automated Storage and Retrieval? For what kinds of goods and in which companies in India do you think such systems would be appropriate?

Answer. Automated storage and retrieval systems (ASRS) are systems for receiving orders for materials from wherever in operations, collecting the materials from locations within a warehouse, and delivering the materials to workstations in operations. There are three major elements of ASRS:
1. Computers and communication systems: These systems are used for placing orders for materials, locating the materials in storage, giving commands for delivery of the materials to locations in operations, and adjusting inventory records showing the amount and location of materials.
2. Automated materials handling and delivery systems: These systems are automatically loaded with containers of materials from operations, which they deliver to the warehouse Similarly, they are automatically loaded with orders of materials at the warehouse, which they deliver to workstations in operations. Powered and computercontrolled conveyers of several types are sometimes used, but automated guided vehicle systems (AGVS) are now being used in greater numbers for this purpose. AGVS are usually driverless trains, pallet trucks, and unit loaded carriers. AGVS usually follow either embedded guide wires or paint stripes through operations until their destinations are reached.
3. Storage and retrieval systems in warehouses: Warehouses store materials in standardsize containers. These containers are arranged according to a location address scheme that allows the location of each material to be precisely determined by a computer. A storage and retrieval (S/R) machine receives commands from a computer, gets containers of materials from a pickup point in the warehouse, delivers materials to their assigned location in the warehouse, and places them in their location. Similarly, S/R machines locate containers of materials in storage, remove containers from storage, and deliver containers to a deposit point in the warehouse.

Main purposes of installing ASRS are as follows:
1. Increase storage capacity: ASRS ordinarily increase the storage density in warehouse; that is, the total maximum number of items that can be stored.
2. Increase system throughput: ASRS increase the number of loads per hour that storage system can receive and place into storage and retrieve and deliver to workstations.
3. Reduce labor costs: By automating the systems of retrieval, storage, and delivering materials, labour and related costs are often reduced.
4. Improve product quality: Because of human error in identifying materials, the wrong parts are often delivered and assembled into products. These errors often because of similarity in the appearance of different materials. Automated systems that must identify parts based on bar codes or other identification methods are not as subject to these kinds of identification errors.

AS/RS benefits include:
• Bringing material to the operator cutting cycle time by eliminating wait, walk, and search time.
• Reduces work-in-progress inventory. Better inventory accuracy and better responsiveness to need result in reduction or elimination of “safety stock” in the overall inventory model. This has the net effect of inventory reduction.
• Dramatically increases operator productivity. The “Part to Picker” model of order fulfillment is 3 to 5 times more productive that having the picker travel to the part to complete the fulfillment.
• Provides real-time inventory control with instant reports. With near 100% accuracy and real time information about the inventory on hand, achievable commitments can be made to your customer – as opposed to “best efforts promises”.
• Improves product quality and productivity. Real time information, faster response to a need, physical protection, and traceability of material access all contribute to a better process where time can be spent on improving the quality of the process instead of on expediting material to a point of use.

Automated Storage and Retrieval Systems (AS/RS) are typically used in applications where there is a very high volume of loads being moved into and out of storage where storage density is important because of space constraints, and where no value adding content is present in this process. They are used widely in both Manufacturing and Distribution operations to hold and buffer the flow of material moving through the process to the ultimate end user. Most systems operate in a fully automated mode with little or now human involvement in the handling of material except at the controlled input and output stations to the system. This results in extremely high inventory accuracy.

How much per bearing can RBI afford to spend on inspection costs before it begins to lose money on inspection?

The marketing manager of Roller Bearings International (RBI) estimates that “defective bearings that get into the hands of industrial users cost RBI an average of Rs. 200 each” in replacement costs and lost business. The production manager counters that “the bearings are only about 2 per cent defective now, and the best a sampling plan could do would be to reduce that to 1 per cent defective – but not much better (unless we go to 100 percent inspection).” Should RBI adopt a sampling plan if it costs?
i) Rs. 100 per bearing?
ii) Rs. 250 per bearing?
iii) How much per bearing can RBI afford to spend on inspection costs before it begins to lose money on inspection?


Solution. Let y be the cost of production each bearing and 1000 bearing are produced.
Production cost = 1000y
2% defective = 20 bearings
Cost of replacement and lost business = Rs. 200 each
= 200 x 20 = 4000
= Total cost = 1000y + 4000 …… (1)

If defects are reduced to 1%
Defective bearings would be 10 only

Cost of replacement and lost business = Rs. 200 x 10 = 2000

Part (i)
Revised production cost is (y + 100)
Total cost = 1000 (y + 100) + 2000
= 1000y + 100000 + 2000
= 1000y + 102000 …. (2)

Savings : Equation (1 – 2)
(1000y + 4000) – (1000y + 102000)
= 1000y + 4000 – 1000y – 102000
= - 98000 Rs.
So RBI should no adopt the sampling plan because it is losing money.

Part (ii)
RBI is losing money if the sampling plan cost is Rs. 100 per bearing. If the cost is Rs. 250 then it will lose more money. So it should not adopt the plan.

Part (iii)
Let RBI can afford Rs. z on inspection for each bearing.
Cost of inspection for 1000 bearings = 1000z
= 1000y + 1000z ….(3)

Equating equations (1 and 2)
1000y + 4000 = 1000y + 1000z
1000z = 4000
z = 4000/1000
z = 4 Rs. only
If the inspection cost is more than Rs. 4 per bearing then RBI will start losing money.

What do you mean by an integral approach to Materials Management? Explain.

What do you mean by an integral approach to Materials Management? Explain.

Answer. Materials management is a coordination function responsible for planning and controlling materials flow. Its objectives are:
• Maximize the use of the firm’s resources
• Provide the required level of customer service

An industrial unit should have a centralized authority vested with the responsibility of planning, procuring, preserving, handling, usage and other related aspects. Such a centralized authority wherein, all related activities of materials are combined is called “integrated materials management”.

An integrated or life cycle approach to materials management has the following primary and secondary objectives:
1. Primary objectives
• Low prices
• High Inventory Turnover
• Low Cost acquisition/possession
• Continuity of supply
• Consistency of quality
• Low payroll costs
• Favourable supplier relations
• Development of personnel
• Good records

Secondary Objectives
• Reciprocal relations
• New materials and products
• Economic make or buy
• Standardization
• Product improvement
• Inter-department harmony
• Forecasts
• Acquisitions

Supplier selection and supplier relations are considered important for the purchasing department. Should the quality assurance department ever become involved in these issues? Why or why not?

Supplier selection and supplier relations are considered important for the purchasing department. Should the quality assurance department ever become involved in these issues? Why or why not?

Answer. Supplier selection criteria for a particular product or service category should be defined by a “cross-functional” team of representatives from different sectors of your organization. In a manufacturing company, for example, members of the team typically would include representatives from purchasing, quality, engineering and production. Team members should include personnel with technical/applications knowledge of the product or service to be purchased, as well as members of the department that uses the purchased item.

Common supplier selection criteria:
• Previous experience and past performance with the product/service to be purchased.
• Relative level of sophistication of the quality system, including meeting regulatory requirements or mandated quality system registration (for example, ISO 9001, QS-9000).
• Ability to meet current and potential capacity requirements, and do so on the desired delivery schedule.
• Financial stability.
• Technical support availability and willingness to participate as a partner in developing and optimizing design and a long-term relationship.
• Total cost of dealing with the supplier (including material cost, communications methods, inventory requirements and incoming verification required).
• The supplier's track record for business-performance improvement.
• Total cost assessment.

Methods for determining how well a potential supplier fits the criteria:
• Obtaining a Dun & Bradstreet or other publicly available financial report.
• Requesting a formal quote, which includes providing the supplier with specifications and other requirements (for example, testing).
• Visits to the supplier by management and/or the selection team.
• Confirmation of quality system status either by on-site assessment, a written survey or request for a certificate of quality system registration.
• Discussions with other customers served by the supplier.
• Review of databases or industry sources for the product line and supplier.
• Evaluation (SUCH AS prototyping, lab tests, OR validation testing) of samples obtained from the supplier.

The quality department should be involved in the supplier selection and retention. To ensure that materials from suppliers are of the highest quality, suppliers must be brought into the company’s TQM program. Ford Motor company is a good example of how this should be work. A Ford the initial selection of suppliers is based on how well the suppliers can interface with the Ford’s TQM program. Ford has about 300 suppliers on its Q1 list, a list of suppliers with which Ford is willing to have long-term supply contracts in order to achieve highest quality at competitive costs. Because Q-1 suppliers in the design of new Ford products, the design reflect the supplier’s ability to product high quality materials. And suppliers participate in Ford’s quality training programs; thus, suppliers’ employees are capable of making TQM work within the suppliers’ organizations.

“You don’t inspect quality into a product: You have to build it in.” Discuss the implications of this statement.

“You don’t inspect quality into a product: You have to build it in.” Discuss the implications of this statement.

Answer. The saying, "You don't inspect quality into a product, you have to build it in!" emphasizes the shift in emphasis from inspection to prevention

Investing in prevention can be economic. A typical factory invests 20 to 25 percent of its operating budget in finding and fixing mistakes. One fourth of all workers fix things that are not done right. These are appraisal and internal failure cost. On the other hand, if quality standards are enforced as the item is being built, appraisal, internal and external failure costs will decrease while prevention costs will increase. The rule of thumb is that for every dollar spent in prevention, ten dollars are saved in failure and appraisal costs.

What is quality? This is a multifaceted question, difficult to address in the abstract. It is easier to understand quality by considering its evolution in leading companies. In the United States and Europe, quality control of one sort or another has been part of manufacturing for more than a hundred years, and the use of various quality concepts has come and gone and come again.

By contrast, in Japan quality control was not significant until after World War II. In Japan as in the United States, however, the spectrum of quality practices ranges from none at all to the leading edge, where progress has been rapid and uniform.
At the beginning of this evolutionary process, quality of any kind is not noticed or measured. Goods are produced and shipped. If customers want to send something back, they do so –en of the story.

Quality in product development began with attempts to inspect quality into products or services either in the process domain (scrap and rework), the design domain (verification tests and durability failures) or the customer domain (warranty costs and complaints). The evolution of quality involved a significant mind-set transition from reacting to inspection events to utilizing process patterns in engineering and manufacturing to build quality into the product. Recent developments in quality engineering involve the use of structural tools to lay the proper foundation for good design and enable the process-level methods to work better. Six Sigma is used to react to or fix unwanted events in the customer, design or process domains. DFSS is used to prevent problems by building quality into the design process across domains at the pattern level of thinking. Use of new structural tools such as TRIZ (a Russian acronym for “theory of inventive problem solving”) and axiomatic design provide a foundation for future enhancement of Six Sigma methodologies.

Model of Product Development

The process of design involves understanding what you want to achieve and then selecting a strategy that achieves that intent. The creation of great products or services involves selecting strategies associated with four primary activities or domains: customer domain, functional domain, physical domain and process domain. The customer domain consists of customer attributes—a characterization of needs, wants or delights that define a successful product or service from a customer perspective. The functional domain consists of functional requirements—a characterization of design goals or what the product or service must achieve to meet customer attributes from the viewpoint of the designer. The physical domain consists of design parameters—the collection of physical characteristics or activities that are selected to meet functional goals. The process domain consists of process variables—the collection of process characteristics or resources that create the design parameters.

The development of products or services is highly iterative and involves selecting elements in each domain and mapping these elements from one domain to another. The better the mapping between these domains, the better the design.

The History and Evolution of Quality
The early history of quality in product development was based upon event thinking in the various design domains. After World War II, the primary way of assuring quality to customers was inspection after the process domain. Parts were produced, and then these parts were checked to see if they were good enough to ship. If the parts were not good, then an event occurred, resulting in rework or scrap and problem solving.

Popular and Powerful Methods
In subsequent years, about 120 different quality tools and methods have been created at the pattern level for designers to manage product development process trends, making inspection events a nonevent. Some of the most popular and powerful methods are SPC and QFD, include: failure mode and effects analysis (FMEA) for both the product and process domains, Genichi Taguchi's methods of parameter design (for the product and process domains) and tolerance design (for the product domain), design for assembly (DFA) and design for manufacturing (DFM), which improve the mapping from the product to the process domain, and system engineering, value analysis (VA) and value engineering (VE) in the functional domain.

The transition from event thinking to pattern thinking is the transition from find and fix to prevent. In the words of Henry Wadsworth Longfellow, “It takes less time to do a thing right than it does to explain why you did it wrong.” So then why not do it right the first time? The payoff in warranty savings, customer satisfaction and productivity more than offset the relatively modest investment in longer-term thinking.

The transition from event thinking to pattern thinking is also the transition from Six Sigma to Design for Six Sigma (DFSS). Companies that rely on event thinking and utilize Six Sigma realize that about 80% of the problems they are fixing (and the money they are saving) are determined by design. DFSS is a rigorous approach to designing products and services from the very beginning to ensure that they meet customer expectations. DFSS is an integration of all the prevent quality tools across the pattern level domains. Use of DFSS results in sigma levels between 5 and 6. Further improvement requires implementation of structural thinking tools. The role of DFSS is to build quality into the design by implementing prevent thinking and tools in the product development process. DFSS is, in fact, an integration of prevent methods at the pattern level across all four domains.

The cost of holding a bearing in stock for a year is Rs. 2 and the set-up cost of a production run is Rs. 180. How frequently should production run be made?

A contractor has to supply 10,000 bearings per day to an automobile manufacturer. When he started production runs, he can produce 25,000 bearings per day. The cost of holding a bearing in stock for a year is Rs. 2 and the set-up cost of a production run is Rs. 180. How frequently should production run be made?



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