OM Test 3 Flashcards
capacity
the capability to accomplish a purpose over a specified time period
capacity is determined by
resources (organization and efficiency)
Capacity can be viewed in 2 ways
1) as the maximum rate of output/unit of time or
2) as units of resource availability
key capacity issues
Can new goods be accommodated?
Can changing demand be kept up with?
How large should capacity be?
When should capacity changes take place?
short term capacity decisions
1) amt of overtime scheduled for the next week
2) # of emergency room nurses on call during a down town festival weekend
3) # of call center workers to staff during the holiday season
long-term capacity decisions
1) Construction of a new manufacturing plant
2) Expanding the size and number of beds in a hospital
3) # of branch banks to establish in a new market territory
economies of scale
when the average unit cost of a good or service decreases as the capacity increases
focused factory
a way to achieve economies of scale without extensive investments in facilities and capacity by focusing on a few things
safety capacity (capacity cushion)
an amount of capacity reserved for unanticipated events like demand surges
average safety capacity=
avg safety capacity= 100%-Avg resource utilization%
capacity required
c=s + (p x q)
complementary goods and services
can be produced using the same resources available to the firm, but seasonal demand patterns are out of phase with each other (use excess capacity available)
long term capacity expansion strategies need to consider
amount, timing, form of capacity changes
long-term capacity strategies (there are graphs)
1) one large increase
2) small increases that match average demand
3) small capacity increases that lead demand
4) small capacity increases that lag demand
adjusting short-term capacity levels
1) add or share equipment
2) sell unused capacity
3) change labor capacity and schedules
4) change labor skill mix
5) shift work to slack periods
short term demand management
1) vary the price of goods or services
2) provide customers with info
3) ads and promos
4) add peripheral goods or services
5) provide reservations
revenue management systems
has methods to forecast demand, allocate assets, decide when to overbook, determine price (ex. airlines)
theory of constraints
a set of principles that focuses on increasing total process througput by maxing the utilization of all bottleneck work activities and workstations.
throughput
amount of money generated per time period through actual sales
physical constraint
associated with the capacity of a resource
bottleneck work activity
one that effectively limits capacity of the entire process
nonbottleneck work activity
one in which idle capacity exists
nonphysical constraint
environmental or organizational constraint
nonbottleneck management principles
1) move jobs through nonbottleneck workstations as fast as possible until the job reaches the bottleneck workstation
2) idle time here is okay
3) use smaller order (lot /transfer batches) here to keep work flowing to bottleneck stations
4) an hour lost at a nonbottleneck station incurs no real cost
bottleneck management principles
1) only bottleneck stations are critical to achieving objectives and should be scheduled first
2) an hour lost at bottleneck station is an hour lost for the entire process
3) WIP buffer inventory should be placed in front of bottlenecks to maximize resource utilization
4) Use large order sizes at bottleneck workstations to minimize setup time
5) bottleneck workstations should work at all times
utilization=
utilization = ru/ra
or
utiliztion=DR/(SR x n servers)
capacity (w u)
c= u x (sr x n)
forecasting
the process of projecting one or more variables into the future
long range forecasts
total sales dollars- top level mgmt
aggregate forecasts
sales volume- middle mgmt
forecasts of individual units
operational level
planning horizon
length of time on which a forecast is based
time bucket
(used in sales) unit of measure for the time period used in a forecast
trend
pattern
seasonal patterns
characterized by repeatable periods of ups and downs over short periods of time
cyclical patterns
regular patterns that take place over long periods of time
random variation
noise (unexplained variation)
irregular variation
one-time unexplained variation
MSE=
MSE=∑(A-F)^2/T
MSE is influenced more by
large forecast errors than small ones
Statistical forecastingq
based on the assumption that the future will be same as past
Judgmental forecasting
relies on opinions and expertise of people in developing forecasts
moving average forecast (run rate)
average of most recent observations in a time series (k)
single exponential smoothing
F= aA+(1-a)F
or
F+a(A-F)
regression analysis
a method for building a statistical model that defines a relationship between a single dependent variable and one or more independent variables
simple of linear regression finds the best values of a and b using
the method of least squares
y=
y=a+bt
multiple linear regression
more than one independent variable
grass roots forecasting
asking salespeople whats gonna happen
delphi method
forecasting by expert opinion
raw materials, component parts, subassemblies and supplies
inputs to manufacturing and service-delivery processes
WIP inventory
need further processing
finished goods inventory
completed products ready for distribution or sale to customers
safety stock inventory
(not on balance sheet) additional inventory kept over and above the avg amount
two main inventory management questions
when and how much to order?
four categories of inventory costs
1) ordering/set up
2) inventory-holding costs
3) shortage costs
4) unit cost of stock-keeping units (SKUs)
ordering/set up costs
amortized in cost of product
inventory-holding costs
expenses associated with keeping it on-hand
shortage (stockout) coss
when an SKU is unavailable to meet demand (opportunity cost)
unit cost
price paid for purchased goods or the internal cost of producing them.
SKU
a unique identfier (like a textbook ISBN number or a drum of oil.)
independent demand
unrelated to the demand for other goods and must be forecast
dependent demand
related to the demand of other goods and can be calculated without a forecast
static demand
stable
dynamic demand
varies over time
lead time
time between placement of an order and its receipt
stockout
inability to satisfy the demand for an item
backorder
when a customer is willing to wait for an item
lost sale
unwilling to wait
ABC inventory analysis
categorizes SKUs into 3 groups according to their total annual dollar usage
ABC letter by letter
A- account for large dollar value but small percentage of total items
C-items accounting for small dollar value but a large percentage of total items
B- in Between
fixed quantity system
when the order quantity or lot size is fixed and the same Q is ordered all da time
Inventory position
IP=OH+SR-BO
r
=reorder point (IP that triggers a new order)
Ordering decision rule
a new order is triggered whenever the inventory position for the item drops to or past the reorder point.
Economic Order Quantity model
a classic economic model developed in the early 1900s that minimizes total cost (inventory holding+ordering costs)
assumptions of EOQ
- only 1 SKU considered
- Q arrives all at once
- only order/setup and holding costs are relevent
- no stockout allowed
- demand is continuous
- lead time is constant
cycle inventory (or order inventory)
inventory that results from purchasing or producing in larger lots than are needed for immediate sale
Average cycle inventory
ACI= Q/2
Inventory holding cost=
Ch=I x C
Annual inventory holding cost=
ACh= 1/2 QxCh
Annual ordering cost=
AOc = D/Q(C0)
total annual cost
TC=1/2 QCh + D/Q Co
EOQ
Order quntity that minimizes total annual cost
Q*=√2DC0/Ch
reorder point
r= demand rate x lead time
EOQ when demand is uncertain
will result in a high probability of stockout
service level
the desired probability of not having a stockout during a lead-time period
reorder point when there is uncertain demand in a fixed order quantity system
r = µL + zσL
fixed period system
(periodic review system) when the inventory position is checked at fixed intervals of time rather than continuously
two decisions of FPS
T- time interval
M- replenishment level
Economic time interval
T=Q/D
optimal replenishment level without safety stock
M=d(T+L)
managing fixed period inventory systems with uncertain demand
compute safety stock over the period as T+L then calculate new replenishment level M
single period inventory model
when one big order is places to anticipate future uncertain demand
- ex: newspapers
- at the end, it’s either sold out of there is salvage
single period inventory model is solved using
marginal economic analysis
resource planning involves
aggregate planning, dis-aggregation, execution
aggregate planning
defines output levels for over a planning horizon of one to two years and focuses on product families
Aggregate planning things that can change
demand management, production-rate changes, workforce, inventory, facilities, equipment, transportation
level production strategy
plans for the same production rate in each time period
chase demand strategy
sets the production rate equal to the demand in the last time period (alternative to level)
disaggregation
aggregate plans into short-term operational plans
tecniques for disaggregation in manufacturing
MPS, MRP, CRP
MPS
Master Production Schedule: how many finished items are to be produced and when
Final assembly schedule
quantity and timing for assembling subassemblies and component parts into a final finished good
Materials Requirements Planning
Forward-looking, demand -based approach for planning the production of goods and ordering materials
-minimizes unnecessary inventories and reduces costs
MRP system produces
time-phased report that gives:
- materials schedule,
- manufacturing schedule
- production info
Bill of materials
show relationship between items
end items
finished goods schedules in the MPS that must be forecasted
parent item
made up of 1 or more component
subassembly
made of at least one immediate parent and one immediate component
MRP explosion
process of using the logic of dependent demand to calculate the quantity and timing of orders
time buckets
one week
gross requirements
total demand for an item derived from all of its parents
scheduled or planned receipts
orders that are due
planned order receipt
specifies the quantity and time an order is to be recieved
planned order release
specifies the planned quantity and time an order is to be released
projected on-hand inventory
expected amt of inventory on hand at the beginning of the time period
lot sizing
the process of determining the appropriate amount and timing of ordering to reduce costs
lot-for-lot
ordering the gross requirements for each week
fixed order quantity
uses a fixed order size for every order
periodic order quantity
orders a quantity equal to GR-POH
CRP
Capacity Requirements Planning: determining the amount of labor and machine resources required
Capacity required=
C=S+(P x Q)
scheduling
assignment of start and completion times to particular jobs, people or equipment
sequencing
required when several activities must be processed using a common resource
criteria for sequencing
process-focused, customer-focused, cost-based
flow time
F=C-R
Makespan
time needed to process a given set of jobs
M=C-S
sequencing rules for prioritizing jobs
- shortest processing time (max u, min F and WIP)
- earliest due date (min tardiness and lateness)
SPT sequencing
finds a minimal average flow time sequence
FCFS sequest
first come-first served
-works well when processing times are relatively equal
fno sequensing
fewest number of operations remaining
lwr sequencing
least work remaining (all processing times for operations not yet performed)
lwnq sequencing
least amount of work at the next process queue: amt of work awaiting the next process in a job’s sequence
two resource sequencing problem
- list jobs and processing times on resources 1 and 2
- find job with shortest processing time
