operations week 7-12 Flashcards
Decision making tools:
What is break-even analysis?
Analysis to compare processes by finding the volume at which 2 processes have equal total costs. Break-even = neither earning profit or sustaining loss
Evaluating service/products:
-Is predicted sales sufficient to break even?
-How low must variable cost per unit be to break even, based on current prices and sales forecast?
-How low must fixed cost be to break even?
-How do price levels affect the break-even quantity?
Decision making tools:
What is the break-even analysis notations?
What is the break-even analysis equation?
2 cost categories: variable costs and fixed costs variable costs (c) = portion of total cost that varies directly with volume of output (material) fixed cost (F) = portion of total cost that remains constant regardless of changes in levels of output (rent) quantity (Q) = number of customers served or units produced per period Variable cost per period = c Q
Equation: Total cost =F+cQ Total revenue =pQ (price * quantity) by setting revenue equal to total cost: pQ=F+cQ Q=F/(p-c) (slide 39)
Decision making tools:
What is the approach to ‘decision making under uncertainty’? (4)
- Maximin: The best of the worst, a PESSIMISTIC approach
- Maximax: The best of the best, an OPTIMISTIC approach
- Laplace: The alternative with the BEST WEIGHTED payoff assuming equal probabilities
- Minimax regret: MINIMIZING YOUR REGRET (also pessimistic)
Decision making tools:
How do you draw a ‘decision tree diagram’?
Diagramming techniques:
- Decision points = points in time when decisions are made, squares called nodes
- Decision alternatives = branches of the tree off the decision nodes
- Chance events = events that could affect a decision, branches or arrows leaving circular chance nodes
- Outcomes = each possible alternative listed
- Note: they’re drawn left to right, sum of probabilities = 100
Decision making tools:
How do you solve a ‘decision tree diagram’?
After drawing the decision tree, we solve by working right to left, calculating the expected payoff for each possible path.
1. For an event node, multiply payoff of each event branch by events probability and add these products to get the event nodes expected payoff
2. For decision node, pick alternative that has best expected payoff
(ch7, slide 33-40)
Resource planning:
What is the ‘Master Production Schedule’? (MPS)
MPS = translate business plan to comprehensive product manufacturing schedule that covers whats assembled/made, when, with what materials acquired when, and cash required.
- Production Plan (Build Schedule) = details how many end items will be produced within specified periods of time
- Translates ‘forecast demand’ into ‘production plan’ using planned and actual customer orders
- Uses products or services rather than dollars
- ALTERATIONS to MPS impacts inventory levels and lead times
- MPS maintained by the master scheduler/production manager
Resource planning:
How do you develop the ‘Master Production Schedule’? (MPS) (3 steps)
Step 1: calculate projected on-hand inventories
-Projected requirements = max(Forecast, customer orders booked)
Step 2: Determine the timing and size of MPS quantities
-Goal is maintain a nonnegative projected on-hand inventory balance
-As shortages detected, MPS quantities should be scheduled to cover them
Step 3: implement figures within table
Resource planning:
What is ‘Available-to-promise’ (ATP) inventory?
- Quantity of end item that marketing can promise to deliver on specific dates
- Difference between customer orders already booked and quantity that operations is planning to produce
Resource planning:
Why do we need to ‘freeze’ the MPS?
Freezing the MPS:
-Changes to MPS are costly
-Increases lead to material shortages, delayed shipments
-Decreases lead to unusual material and excess production
-Need to freeze MPS to commit production
Reconciling the MPS with sales and operations plans
Inventory management and supply chain design:
What is ABC analysis and how does it work?
ABC classification determines level of control and frequency of review of inventory items. (A ‘pareto chart’, cycle counting)
ABC analysis = process of dividing SKU’s (stock keeping unit) into 3 classes according to their dollar usage so that managers can focus on SKU’s that have the highest dollar value.
-Class A SKUs = 20% of SKUs but account for 80% of dollar usage
-Class B SKUs = 30% of SKUs but only 15% of dollar usage
-Class C = 50% of SKUs but only 5% of dollar usage
Lecture 1:
What are the competitive priorities?
Critical dimensions that process or supply chain MUST possess to satisfy internal or external customers, both now and in the future.
- Time = delivery speed, lead time to process merchant payments
- Quality = Consistent quality
- Flexibility = Volume flexibility, utilization
- Cost = Low cost operations etc.
Inventory management and supply chain design:
What is the strategic choices and implications in regard to supply chain? (efficient vs responsive)
-Incorrect supply chain design hinders supply chain performance
-Supply chain operations need to be aligned with firms competitive priorities.
-Efficient supply chains:
1. build to stock
-Responsive supply chains:
1. Assemble to order
2. Make to order
3. Design to order
Environments:
1. Demand:
- efficient work best = predictable, low forecast errors
- responsive work best = unpredictable, high forecast errors
2. Competitive priorities:
- efficient = low cost, consistent quality, on-time delivery
- responsive = development speed, fast delivery imes, customisation, volume flexibility, variety, top quality
3. New service/product introduction:
- efficient = infrequent
- responsive = frequent
4. Contribution margins:
- efficient = low
- responsive = high
5. Product variety:
- efficient = low
- responsive = high
Design Features:
1. Operation strategy:
- efficient = make to order, standardised services or products, emphasise high volumes
- responsive = assemble to order, make to order, or customised service or products, emphasise variety
2. Inventory investment:
- efficient = low; enable high inventory turns
- responsive = as needed to enable fast delivery time
3. Lead time:
- efficient = shorten, but do not increase costs
- responsive = shorten aggressively
4. Supplier selection:
- emphasise low prices, consistent quality, on-time delivery
- emphasise fast delivery time, customisation, variety, volume flexibility, top quality
Inventory management and supply chain design:
What is the difference between efficient supply chains and responsive supply chains?
Efficient supply chains.
Efficient supply chains:
- Minimise inventories and maximise the efficiency of the manufacturers and service providers in the chain
- Work best where demand is predictable with low forecast errors; competitive priorities are low cost, consistent quality, and delivered on time; new-product intro is low; and profit margins are low
- make to order or standardised services operations strategy, low capacity cushion, and low inventory investment. They should shorten lead time without increasing costs and emphasise fast delivery time, customisation, volume flexibility, and high performance design quality.
Inventory management and supply chain design:
What is the difference between efficient supply chains and responsive supply chains?
Responsive supply chains.
Responsive supply chains:
- Designed to react quickly to market demands by positioning inventory and capacities
- work best when demand is unredicatable with high forecast errors. Competitive priorities are development speed, fast delivery times, customisation, high-performance design quality; new product-intro is frequent; contribution margins are high; and product variety is high
- should use assemble to order, make to order, or customised services emphasising product or service variety; high capacity cushions; and inventory levels set to enable fast delivery time. They should aggressively shorten lead time and emphasise fast delivery time, customisation, volume flexibility, and high performance design quality
Lean systems (week 5):
What is the difference between the ‘push’ and ‘pull’ methods of material flow? Which method does lean systems use?
Pull method = customer demand (an order) activates the production of goods or services. The production system does not anticipate the need for more product until indicated by a customer order.
Push method = begins with a production schedule and customer demand is assumed (or hoped for). Lean system processes use the pull method of production.
Inventory and supply chain:
What is outsourcing? What are the advantages and disadvantages?
Outsourcing is an allocation of specific business processes to a specialist external service provider.
ADVANTAGES:
- Swiftness and Expertise: outsourced to vendors who specialise in their field.
- Concentrating on core process rather than the supporting ones: outsourcing the supporting processes gives the organisation more time to strengthen their core business process.
- Risk-sharing: Since the outsourced vendor is a specialist, they plan your risk-mitigating factors better.
- Reduced operational and recruitment costs: Outsourcing eludes need to ire individuals in house; hence recruitment and operational costs can be minimized to a great extent.
DISADVANTAGES:
- Risk of exposing confidential data: involves a risk of exposing confidential company information to a third-party
- Synchronising the deliverables: common problems may arise such as stretched delivery times and sub-standard quality output
- Hidden costs: hidden costs involved in signing contract across international borders may pose a serious threat
- Lack of customer focus: Vendors may lack complete focus on organisations tasks
