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Contemporary Issues and The Impact of Technology On MA

This document discusses several topics related to inventory management and production systems, including economic order quantity, just-in-time systems, material requirements planning, activity-based management, and total quality management. It explains how to calculate economic order quantity and describes just-in-time as a philosophy that aims to eliminate waste by procuring materials and producing goods just before they are needed. The document also outlines the components and objectives of material requirements planning, how activity-based management uses activity analysis, and key aspects of total quality management like continuous improvement and customer satisfaction.

Uploaded by

LH
Copyright
© © All Rights Reserved
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
81 views

Contemporary Issues and The Impact of Technology On MA

This document discusses several topics related to inventory management and production systems, including economic order quantity, just-in-time systems, material requirements planning, activity-based management, and total quality management. It explains how to calculate economic order quantity and describes just-in-time as a philosophy that aims to eliminate waste by procuring materials and producing goods just before they are needed. The document also outlines the components and objectives of material requirements planning, how activity-based management uses activity analysis, and key aspects of total quality management like continuous improvement and customer satisfaction.

Uploaded by

LH
Copyright
© © All Rights Reserved
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 30

Contemporary Issues And The

Impact Of Technology on MA
(TOPIC 1: PART 3)

BKAM3033 Topic 1

1.
2.
3.
4.
5.
6.
7.
8.
9.

To balance ordering or setup costs and carrying costs


Demand uncertainty
Machine failure
Defective parts
Unavailable parts
Late delivery of parts
Unreliable production processes
To take advantage of discounts
To hedge against future price increases
BKAM3033 Topic 1

Inventory Management
Costs related to holding & managing inventories
Three types of inventory costs can be readily identified
with inventory:
(1)The cost of acquiring inventory.
(2)The cost of holding inventory.
(3)The cost of not having inventory on hand when needed.

BKAM3033 Topic 1

Inventory Management
Economic Order Quantity (EOQ)

TC = PD/Q + CQ/2
TC = The total ordering (or setup) and carrying cost
P = The cost of placing and receiving an order (or the
cost of setting up a production run)
Q = The number of units ordered each time an order is
placed (or the lot size for production)
D = The known annual demand
C = The cost of carrying one unit of stock for one year
BKAM3033 Topic 1

EOQ = 2DP/C

D = 25,000 units

P = $40 per order

Q = 500 units

C = $2 per unit

EOQ = (2 x 25,000 x $40) / $2


EOQ = 1,000,000
EOQ = 1,000 units
BKAM3033 Topic 1

Often described as push systems.


Keep large inventories on hand
Problems:

Storage cost
Hide quality
Bottlenecks and obsolete products

Solution: Lean Productions System

BKAM3033 Topic 1

Philosophy

and a business

strategy
Primary goal is to eliminate
waste and cost
Focus of JIT:

Purchase raw materials just in time


for production
Finish goods just in time for delivery
BKAM3033 Topic 1

Common characteristics
Production occurs in self-contained cells
Broad employee roles
Small batches produced just in time demandpull system
Shortened setup times
Shortened manufacturing cycle times
Emphasis on quality
Supply-chain management

BKAM3033 Topic 1

Just In Time (JIT)


Receive
Receivecustomer
customer
orders.
orders.

Complete
Completeproducts
products
just
justin
intime
timeto
to
ship
shipcustomers.
customers.
Schedule
Schedule
production.
production.

Receive
Receivematerials
materials
just
justin
intime
timefor
for
production.
production.

Complete
Completeparts
parts
just
justin
intime
timefor
for
assembly
assemblyinto
intoproducts.
products.
BKAM3033 Topic 1

Vulnerable when problems strike suppliers


or distributors

Examples

Delays in delivery
Personnel problems union strikes
Shortage of parts due to recalled products
Weather related issues

BKAM3033 Topic 1

1010

Just In Time (JIT) Consequences


Improved
Improved
plant
plantlayout
layout
Reduced
Reduced
setup
setuptime
time

Zero
Zeroproduction
production
defects
defects

Reduced
Reduced
inventory
inventory
Flexible
Flexible
workforce
workforce

JIT
JITpurchasing
purchasing
Fewer,
Fewer,but
butmore
moreultra
ultrareliable
reliablesuppliers.
suppliers.
Frequent
FrequentJIT
JITdeliveries
deliveriesin
insmall
smalllots.
lots.
Defect-free
Defect-freesupplier
supplierdeliveries.
deliveries.
BKAM3033 Topic 1

11

11

Benefits of Just In Time (JIT) System


Reduced
Reduced
inventory
inventory costs
costs

Freed-up
Freed-up funds
funds

Higher
Higher quality
quality
products
products

Greater
Greater customer
customer
satisfaction
satisfaction

Increased
Increased
throughput
throughput

More
More rapid
rapid response
response
to
to customer
customer orders
orders

BKAM3033 Topic 1

12

12

Accounting System Changes in Response


to JIT

For control purposes, performance measures should


coincide with the goals of JIT

Reducing throughput time is a primary


performance measurement for JIT
organisation.
Team effort is important in JIT
environments, so performance measures
should reflect cooperative goals.
BKAM3033 Topic 1

13

13

Accounting System Changes in Response


to JIT
Significantly reduced the number of accounting
transactions.
There is less need to worry about valuing partially
completed products (WIP).

BKAM3033 Topic 1

14

14

Material Requirements Planning (MRP)


The oldest manufacturing control system.
MRP is an operation management tool that uses a
computer to help manage materials & inventories.
Components:

Bills of materials (BOM)


Master production schedule (MPS)
Material requirement planning system (MRPS)

Nowadays MRP/MRPII is embedded in ERP.

BKAM3033 Topic 1

15

15

Material Requirements Planning (MRP)

Objectives of MRP:

To ensure right materials, in right


quantities
and at right time are on hand

Strength of MRP ability to determine precisely


the feasibility of a schedule within capacity
constraints

BKAM3033 Topic 1

16

16

Master Production Schedule (MPS)

MPS:

Specifies what is to be made and when


Must be in accordance with a
production plan (sets the overall level
of output in broad terms)
Tells what is required to satisfy
demand and meet the production plan

BKAM3033 Topic 1

17

17

Activity-based management
Just in Time
Total Quality Management

BKAM3033 Topic 1

18

Activity-Based Management (ABM)


ABM focuses on the activities incurred during the
production or performance process
=> improved the value received by a customer
& profit.
ABM focuses on accountability for activities rather
than costs & emphasis the maximization of systemwide performance instead of individual performance
=> global approach to control.
In ABM both financial & non-financial measures of
performance are important.

BKAM3033 Topic 1

19

Activity-Based Management - Concept


Continuous
improvement
Operational control
Performance
evaluation
Business process
reengineering

Activity analysis
Cost driver analysis
Activity-based costing

BKAM3033 Topic 1

20

20

Activity-Based Management (ABM)


Activity analysis primary component of ABM.
Activity analysis => process of studying the
activities
Activity => repetitive action performed in
fulfillment of business functions
Activity :

Value-added (VA)
Non-value-added (NVA)

BKAM3033 Topic 1

21

21

VA increases significantly the value of


the product/services to the customers.
VA are those:

Necessary or required to meet customer


requirements or expectations;
That enhance purchased materials of a
product;
That are critical steps and cannot be
eliminated in a business process;
That are performed to resolve or eliminate
quality problems.
BKAM3033 Topic 1

22

NVA consumes time, resources, or space,


but adds little in satisfying customer needs.
If eliminated, customer value or satisfaction
remains unchanged.
NVA are those that:

Can be eliminated without affecting the form, fit, or


function of the product/service;
Begin with prefix re (such as rework or returned
goods);
Result in waste and add little or no value to the
product/service;
Are performed due to a request of an unhappy or
dissatisfied customers;
If given the option, you would prefer to do less of.

BKAM3033 Topic 1

23

VA

NVA

Designing products
Setting up
Waiting
Moving
Processing
Reworking
Repairing
Storing
Inspecting
Delivering product
BKAM3033 Topic 1

24

Activity-Based Management (ABM)

ABC/ABM helps manager understand the relationship


between the firms strategy & the activities & resources
needed to put strategy into place.

Cost leadership (business strategy)


=> ABC/ABM is critical to this strategy
Identify value-enhancement opportunities
Develop customer strategy
Support a technology leadership strategy
Establish a pricing strategy

BKAM3033 Topic 1

25

25

Total Quality Management (TQM)


TQM
=> All business functions are involved in a
process of continuous quality improvement
Goals of TQM
=> Customer satisfaction
TQM minimizes costs by maximizing quality.
TQM focuses on continuous improvement and
satisfying customers.

BKAM3033 Topic 1

26

26

Total Quality Management (TQM)


Key success factors
Cost, quality,
innovation

Continuous
improvement
Customer
satisfaction

Total value
chain analysis

Employee
empowerment
Top priority
BKAM3033 Topic 1

27

27

1.

Prevention costs avoid poor quality


goods or services
Employee training
Improved materials
Preventive maintenance

2.

Appraisal costs detect poor quality


goods or services
Inspection throughout production
Inspection of final product
Product testing

BKAM3033 Topic 1

2828

3.

Internal failure costs avoid poor


quality goods or services before delivery
to customers
Production loss caused by downtime
Rejected product units
4. External failure costs incurred after
defective product is delivered
Lost profits from lost customers
Warranty costs
Service costs at customer sites
Sales returns due to quality problems
BKAM3033 Topic 1

2929

End of Topic 1

BKAM3033 Topic 1

30

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