MSCI432 Lecture Notes - Mainframe Computer, Job Shop, Customer Service

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This refers to inventory waiting to be processed and inventory currently being processed. Since there are opportunity costs associated with holding inventory (discussed in detail in chapter 4), the firm would like to reduce the wip inventory as much as possible. However, too low levels of wip inventory could make coordination of separate processes difficult: customer service can be measured by fill rate, namely the proportion of demands satisfied (discussed in detail in chapter 5). The likelihood of meeting scheduled deliveries increases if jobs can flow quickly and smoothly through the system. This measure of performance could suffer if wip inventories are reduced too severely. Idle time results when the smooth flow of goods is interrupted and workers must wait. Obviously, idle time is undesirable and can be very costly to the firm: one measure of factory efficiency is the relationship between the cost of running the factory and the revenue generated by the goods it produces.

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