Operations Management: Exam 3 Study Guide

This guide covers key concepts in Operations Management, focusing on Material Requirements Planning (MRP), Supply Chain Management (SCM), Purchasing Management, and Logistics Management to optimize operational efficiency and profitability.

Core Principles

MRP determines WHAT materials are needed, HOW MANY, and WHEN, starting from finished product demand and working backward.
A supply chain is a network of organizations converting raw materials into products and services.
Purchasing management secures necessary materials at the optimal price, source, quantity, and time.
Logistics management ensures efficient and effective flow and storage of goods from origin to consumption.
Accurate inventory management and timely order fulfillment are crucial for operational success.

Action Steps

For MRP, calculate Net Requirements, apply lot sizing for Planned Order Receipts, calculate Projected On Hand, and place Planned Order Releases considering lead time.
In Supply Chain Management, identify upstream (suppliers) and downstream (customers) entities, manage material, information, and cash flows.
For Purchasing, follow the 6-step Procure-to-Pay process: Forecast & Plan, Need Clarification, Supplier Identification, Approval/PO Generation, Receive Material, Settle & Pay.
In Logistics, understand inbound, outbound, and internal flows, and select appropriate transportation modes based on cost, speed, and volume.
Measure supply chain performance using Inventory Turns, Days of Supply, and Weeks of Supply.

Formulas

Net Requirements: $NetReq(t) = GrossReq(t) - ProjOnHand(t-1) - SchedRec(t)$
Projected On Hand: $ProjOnHand(t) = ProjOnHand(t-1) + SchedRec(t) + PlanOrdRec(t) - GrossReq(t)$
Inventory Turns: $Inventory Turns = COGS / Average Inventory$
Days of Supply: $DOS = 365 / Inventory Turns = (Average Inventory / COGS) \times 365$
Weeks of Supply: $WOS = 52 / Inventory Turns = (Average Inventory / COGS) \times 52$
Cash-to-Cash Cycle Time: $C-t-C = DIO + DSO - DPO$
BOM Explosion: $Units Needed = Qty of parent needed \times Qty per parent \times Qty per next level$

Key Terms

MRP: Material Requirements Planning: Determines what materials are needed, how many, and when.
BOM: Bill of Materials: Shows parent-child relationships and quantities needed for a finished product.
Bullwhip Effect: Amplification of demand variability as it moves upstream in a supply chain.
EDI: Electronic Data Interchange: Computer-to-computer exchange of business documents.
Procure-to-Pay: The end-to-end process of acquiring goods or services, from initial request to final payment.
Logistics: The process of planning, implementing, and controlling the efficient flow and storage of goods.
Inventory Turns: Measures how many times inventory is sold and replaced over a period.
Cash-to-Cash Cycle Time: Measures how long a company's cash is tied up in operations.

Pro Tips

For BOM questions, always multiply quantities down each level.
For MULT lot sizing, always round UP to the nearest multiple.
A NEGATIVE Cash-to-Cash Cycle Time is GOOD, indicating cash collection before supplier payment.
EDI helps reduce the bullwhip effect by enabling direct computer-to-computer data sharing.
Inventory Turns, Days of Supply, and Weeks of Supply are inverses; high turns are good.
The 3-way match (PO + Invoice + Receiving Report) is essential before paying a supplier.

Pitfalls to Avoid

Forgetting to account for lead time when placing planned order releases.
Misinterpreting the direction of information, material, and cash flows in a supply chain.
Confusing the objectives of different lot sizing rules (L4L, MIN, MULT, Fixed).
Overlooking the impact of the bullwhip effect on upstream supply chain partners.
Incorrectly calculating performance metrics like Inventory Turns or Cash-to-Cash Cycle Time.