Week 8: Capacity and Inventory Planning

Question 1

What is capacity?

Answer 1

Capacity is the maximum level of value-added activity over a period of time that the manufacturing process can achieve under normal operating conditions

Question 2

What is design capacity?

Answer 2

Design capacity is the maximum attainable output

Question 3

What is effective capacity?

Answer 3

Effective capacity is the maximum capacity with product mix, scheduling challenges and other issues taken into account

Question 4

What is actual output?

Answer 4

Actual output is the rate of output that is actually achieved, it can never exceed the effective capacity

Question 5

What is utilisation?

Answer 5

Utilisation is an indicator of how close the facility is functioning with regards to its design capacity

Utilisation = Actual Capacity/Design Capacity

Question 6

What is efficiency?

Answer 6

Efficiency indicates how close the facility is functioning to the effective capacity

Efficiency = Actual Output/Effective Capacity

Question 7

What are the symbols in the equation below?

B = M/(1-d1)(1-d2)…(1-dn)

Answer 7

B - average number of produced parts
M - number of good products made
n - number of operations
di - the average proportion of defective units at operation i

Question 8

How do you go about solving a (capacity) decision tree?

Answer 8

Add up all options at each branch, the branch with the highest number is the best decision

Question 9

What is the volume decision?

Answer 9

In general the volume decision is finding the balance between order costs and storage costs

Question 10

What is EOQ + diagram

Answer 10

The Economic Order Quantity - simple model with a constant demand rate, instantaneous stock replenishment and a constant order cost independent of order size.

Question 11

What do the symbols mean in the following equation?

Tc = Toc + Tsc = CoD/Q+CsQ/2

Answer 11

Tc - total inventory cost
Toc - total ordering cost
Tsc - total storage cost
Co - ordering cost for each unit
D - demand
Q - order quantity
Cs - storage rate for each unit

Question 12

What is the optimum order quantity for EOQ?

Answer 12

Q=sqrt(2D*Co/Cs)

Question 13

What is EBQ + diagram

Answer 13

The Economic Batch Quantity is a more complicated model, where the deliveries are not instantaneous and are carried out at a constant rate(P), demand is also assumed to be depleting the inventory at a constant rate(D)

Question 14

What is the equation for average inventory in the EBQ model?

Answer 14

Q(P-D)/2

Question 15

What is the optimum order quantity for EBQ?

Answer 15

Q* = sqrt(2CoD/Cs(1-D/P))

Question 16

What is ROP?

Answer 16

Re-order point: the point in time at which more items are ordered, usually calculated to ensure that inventory does not run out before the next batch of inventory arrives

Question 17

What is ROL?

Answer 17

Re-order level: the level of inventory at which more items are ordered, usually calculated to ensure that inventory does not run out before the next batch of inventory arrives

Question 18

What are the approaches to measuring inventory(3)?

Answer 18

• The total monetary value of the stored inventory
• Stock cover, usually used in push control: how long the items stored in the inventory will last for under normal operating conditions
• Stock turn: the number of times that the stock would be completely depleted over a period of time (usually a year) at the normal rate of operation