Capacity and Inventory, Forecasting(week 9 and 10) Flashcards
What is Design capacity and what does its decisions affect?
Maximum level of value added activity that an operation or process or facility is capable over a period of time.
Costs, performance, competitiveness, investment decisions
What is Effective capacity?
Design capacity less or more ‘real’ factors such as staff sickness, machine downtime, wastage etc
What is preventive maintenance?
preventative maintenance attempts to eliminate or reduce the chances of failure by servicing the facilities at pre-planned intervals.
Whats the equations for utilisation and efficiency?
Utilisation = Actual output/design capacity
Efficiency = Actual output/effective capacity
What is capacity leading?
Strategy of planning capacity levels such that they are always greater than or equal to forecast demand
What is capacity lagging?
Strategy of planning capacity levels such that they are always less than or equal to forecast demand
Explain the four qualitative forecasting techniques
Grass roots: Derives a forecast by compiling input from those at the end of the hierarchy who deal with what is being forecast
Panel Consensus: Free open exchange at meetings (create better forecasts than an individual one)
Historical Analogy: Ties what is being forecast to a similar item (new product forecast derives from similar product in history)
Delphi Method: Experts respond to questionnaires, moderator compiles results and formulates a new questionnaire, learning process in the group as new information is received.
What is an inventory?
Stored accumulation of material resources in a transformation system
What are the functions of an inventory?
- Maintain independence of operations: inventory allows management to reduce the number of setups, hence reducing costs
- Meet variation in demand
- Flexibility in production scheduling
- Provide a safeguard for variation in raw material delivery time
- Take advantage of economic purchase order size: the larger the order, the smaller the costs of putting in the order (phone calls, postage etc)
Explain the four main types of costs of inventories?
Holding costs: Costs of storage facilities, handling, insurance etc
Setup costs: Smaller costs can be obtained by reducing the time lost in changing between two products, resulting installer lots being produced (aim of JIT system)
Ordering costs: Managerial and clerical costs to prepare the purchase of production order (calculations, counting etc)
Shortage costs: Balance between carrying sufficient stock to carry demand and the costs of a ‘stock-out’
What are the five main types of inventory?
Buffer/Safety: Compensates for fluctuation in supply and demand.
Cycle: Occurs because a process cannot supply all the items it produces simultaneously, stocks one of the items while it processes the other
Anticipation: Accumulated to cope with expected future demand , such as at festivals, or interruptions in supply
Decoupling: Allow processes and work centres to operate relatively independently. Allows machines to work on their optimum rates by decoupling the dependency of machines on each other and so prevent whole process from production irregularities.
Pipeline: Material cannot be transported instantaneously between point of supply and point of demand. Ani inventory is called a pipeline when the stock is allocated, packed, loaded and transported to the customer.
What are the four ways in which you would reduce inventory?
Reduce lead times: Increasing delivery speed to increase the stock being removed from the inventory
Improve supplier reliability: If you have a greater confidence in the supply your receiving, you can reduce the safety stocks.
Ordering less stock more frequently: Reduce cycle stocks by increasing how frequently you buy. Reduces the bullwhip effect as more stock flexible with changing demand.
Improved Forecasting: Better forecasting reduces safety shocks.
What are the two clear benefits to managing an inventory?
Provide desired level of customer service: Satisfied customer needs dependent on demand fluctuations because inventory managed sufficiently.
Cost effective operations: By building large production lots of items, companies are able to spread some fixed costs over a larger number of
units, thereby decreasing the unit cost of each item. Also buying greater volumes qualifies for volume discounts which further reduces unit costs
What are the equations for holding costs, ordering costs and total costs?
Holding costs = holding costs/unit * average inventory
Ordering costs = ordering cost * number of orders per period
Total costs = holding costs + ordering costs
What is Pareto Law?
80/20 rule: For inventory, 20% of products produce 80% of sales value, For activities, 20% of types of problems produce 80% of the disruption
