Exam questions Flashcards
What is IRR?
IRR = r: NPV = 0
What is Fisher rate?
The rate at which investment options are considered equal, NPV_a = NPV_b.
Describe double reorder point system
A distribution inventory management system that has two order points. R2 equals the original order point, which covers demand during replenishment lead time. The second order point R1 is the sum of the first order point plus normal usage during manufacturing lead time. It enables warehouses to forewarn manufacturing of future replenishment orders.
Formula for double order point system R2
R2 = SS + D L_factoryToDC
Formula for double order point system R1
R1 = R2 + D + L_DCToRetailer
Why use MMS?
The main reason is to create a steady inflow of components to the final assembly line. This is a prerequisite to be able to use Kanban as inflow control. A side effect of the first is that we create conditions to be able to assemble several different products on the same final assembly line. The system as a whole can thus be viewed as a steady flow of components into a single assembly line where multiple deliverables are combined. The final products can be quite different because MMS respects component need per
deliverable.
In Sales- and Operations Planning (S&OP) there are three predominant strategies to plan manufacturing in the long term; level, chase and mix. Explain the strategies in terms of capacity and inventory.
Level: Capacity will be constant but inventory will depend on the demand. Production will be on an average level to even-out the capacity.
Chase: Capacity will depend on the demand while the inventory is likely more constant and at lower levels. Production uses the goal to produce just enough at all times.
Fisher (1997) products and supply chains.
Functional products: Long lifecycles, stable/pedictable demand and constant in requirements.
Innovative products: Short lifecycles, uneven/unpredictable demand and changing in requirements.
Efficient supply chains: Built to minimize costs and maximize resource utilization. Ensures stable flow over time.
Responsive supply chains: Built to support flexibility and changes in demand and products.
Functional - Efficient
Innovative - Responsive
Rule of thumb for dimensioning buffer
x5 lead time
Push system
Basic principles: Produce and run the inventory according to a pre-determined scheduled based on a forecast. Distribute based on centralized decisions.
Production: According to a schedule.
Inventory control: Material is issued according to a schedule or in sync with the start of a job order.
Distribution: The system for replenishment is centralized.
Pros: Reduced risk for shortages, easier to have a high a larger number of products and make sure they can all be produced.
Cons: large inventories, stable to predict, accurate forecasts
Pull systems
Basic principles: Utilize pull signals, for example Kanban. Produce based on JIT and refill inventory based on customer orders. Distribute based on demand from lower nodes in the supply chain.
Production: Produce according to current demand and to replace what we just had.
Inventory control: Operations will indicate demands and withdrawls. Material is only issued when a signal is given from the user.
Distribution: Replenishment decisions are made at the field warehouse.
Pros: Reduced risk for overproduction and waste, opens up for high efficency overall.
Cons: Risk for shortages, production must be precise and well organiszed.
Safety mechanisms in MRP
Safety stock, SS, having some extra units in inventory to cover uncertanties in demand and supply.
Safety lead time, SL, increasing the lead time (add extra time to the actual lead time) to cover unvertanties within the lead time.
Hedging, SQ: Increase the order quantities to cover uncertantites regarding the quantity.
Explain the concept of nervousness
Caused by uncertainty in demand and supply. It gives instability in planned orders. The problem is indicated by frequent rescheduling. A small change of orders can trigger earlier partitioning than previously expected and result in fluctuating flows.
How does deprecations change NPV?
Deprecations will cause cash flows in the first five years which isn’t paid back until the last year. Tax is deducted on the whole residual value and deprecations will return the earlier deductions. This creates and effect taht we can interpret as the company borrowing tax during the horizon of the investment. It is nominal and interest-free. It is like postponing tax into the furutre and thefore the investment can become profitable.
System of equation for splitting orders
s_1 + t_1 * Q gives
s_1 + t_1 * (Q-q)
and
s_2 + t_2 * q
