Planning with limiting Factors

Question 1

What are the assumptions applied to limiting factor analysis?

Answer 1

• That there is a single objective - in reality the may be several objectives such as minimise risk & maximise return.
• Each product always uses the same quality of the scarce resource - employees may become more efficient, reducing total number of hours required.
• Contribution per unit is consistent - Selling price may be changed, materials costs may reduce (bulk discounts)
• Products are independent - it may be more efficient for products to be manufactured together, or consumers may expect to by products together.

Question 2

What is “Slack” and how does it relate to limiting factor analysis?

Answer 2

Slack = the amount a resource is under utilised by.

Slack is important because…

• For critical constraints (zero slack) additional units of the scarce resource will allow for improvement of the optimal solution.
• For non critical constraints - a change in the number of units of the scarce resource will have no impact on the optimal solution