Lecture 03: Serving market demand Flashcards
7. Capacity management 8. Forecasting 9. Inventory management 10. EOQ model
Explain Economic Order Quantity (EOQ) mode (3)
EOQ is a basic reorder level system
- where one orders a set number of materials or parts when the reorder point is met.
What are the different components in understanding a demand pattern? (4)
- What are the types of methods used for forecasting?
Understanding a demand pattern:
- Cyclical components,
- Seasonal peaks components,
- Trend components,
- Random variation (or residual variation)
Methods: Quantitative / Qualitative forecasting
Why do we carry inventory? (4)
- Flexibility
- Protection against stock-outs
- Process constraints (e.g., minimum order or shipment levels, minimum processing levels)
- Financial reasons (e.g., bulk discounts or seasonal price variation)
Problems related to holding inventory (5)
Covers up errors in the system
- Ties up working capital
- Needs space
- Must be managed
- Is prone (Anfällig für..) to damage, theft, and obsolescence
Two basic inventory reorder systems (2)
Reorder Level System
- Economic Order Quantity (EOQ) models
- Two-bin system
Cyclical Review system
“Order up-to” at set intervals
What is the Customer Order Decoupling Point (CODP)? (2)
separates
- order-driven activities
- forecast-driven activities
Four distinct production strategies are defined by the position of the CODP (4)
-
Design / Engineer-to-Order (ETO)
Products and services are created from the drawing board meeting customer requirements. -
Manufacturing / Make-to-Order (MTO)
Individual customers are identified during production; each order is made to a particular customer specification. -
Final Assembly / Assembly-to-Order (ATO)
Builds sub-assemblies in advance of demand, and then puts them together to make the final product when a specific customer order is received. -
Finished Goods / Make-to-Stock (MTS)
Making standard items that are put into inventory, which can be used immediately to fulfil customer demand
The position of the CODP is a strategic decision affecting effectiveness and efficiency … (2)
Speculation:
- moved downstream towards the customer
- because of process constraints or delivery service requirements.
Postponement:
- moved upstream towards raw materials
- because of product-market constraints or inventory cost considerations.
Explain T-point! (2)
Where the product goes from one or a few variants to many. It is also known as the variation explosion point.
It is a good candidate for placing the CODP.
Define capacity!
- How is it expressed?
- Show an example for the way it is expressed! (2)
- the rate at which the operation can transform inputs into outputs
- usually expressed as the quantity of a product or service delivered within a given period (e.g., 100 trucks a day)
Define demand!
Represents how much the market can buy, in the future.
What are the three types of capacity? (Definition)
capacity = expected output of an operation or system.
The maximum amount or level of something that can be produced, held, or accommodated by a system, person, or organization.
Types
- Design capacity - no stoppages
- Effective capacity - less planned stoppages (e.g., for maintenance)
- Actual capacity - less both planned and unplanned stoppages
How is capacity and efficiency calculated? (2)
- Capacity = total time available / Time needed for task
- Efficiency = Actual capacity / Effective capacity in %
How is utilization (Nutzung) calculated?
Utilization = Actual capacity / Design capacity in %
How can capacities be adjusted? (7)
Improving P roduction capacity
- Introducing new machines, lines, factories
- Increasing workforce
- Sourcing capacity from suppliers or competitors
Enhancing O perational efficiency
- Increasing throughput speed in processes
- Reducing quality errors and other wastes in processes and products
Adjusting W ork schedules
- Adding shifts
- Increasing working hours or overtime
Add these demand patterns in the corresponding drawing! (4)
Name quantitative forecasting methods and explain! (4)
-
Causality model
linear regression: Predicts next value as a linear combination of past values with coefficients based on correlations between past values and calculated so as to minimize the mean square residuals. -
Exponential smoothing
Uses a decreasing exponential function to assign the weights to past values -
Näive approach
Assumption: future demand = past demand -
Trend projection
Let you look beyond just the next period
__ -
Moving averages
(weighted moving average) Next value will be the mean of the past n values
5 Qualitative Forecasting Methods!
-
M arket Surveys
Asking people about their opinions towards product services or buying intentions - I ntuition of forecasters
-
D elphi Methods
Detailed interviews and studies of the opinions of a panel of experts in a particular area - I nput from sales and customer service
-
S cenario Planning
Considers the potential scenarios that an organization might face, and then analyzes the demand pattern that might result from each scenario
Name 4 general principles for forecasting!
Sorted by priority:
- Forecasts are no substitute for actual demand
- Never underestimate the effect of human behavior in forecasting.
- Good forecasts include an error estimate (assumption summary)
- Forecasts are always wrong
___
- Forecasts are more accurate for families of products than for single products
- Forecasts are more accurate for shorter horizons than for longer
Name two planning strategies and explain them! Explain both strategies also with help of a drawing!
Chase demand
Target production equals the forecasted demand
Level production
Target production is the average of the monthly forecasted demand for the year
Economic Order Quantity (EOQ) assumption are:
(6)
- Instantaneous receipt of material (unmittelbarer Empfang des Materials)
- Order setup cost and inventory holding cost
- Known and constant lead time
- Known and constant demand
___ - No quantity discounts
- No stock-out (kein Leerbestand)
