ops exam 3 conceptual things to know

capacity

upper limit or ceiling on the load that an operating unit can handle

the load refers to the number of..

products produced or services performed

importance of capacity

to achieve a match between long term supply capabilities of an organization and the predicted level of long term demand

overcapacity implies while undercapacity implies

high operating costs, potentially losing customers

capacity planning questions

what kind of capacity is needed

how much is needed to match demand

when is it needed

measure capacity in units that

do not require updating

example of units that do not require updating

one product/service: units per day/month

mulitiple produc/service: availability of inpus

dollars are not used to measure capacity because

the value of dollar constantly changes

design capacity ( theoretical)

maximum output rate or service capacity an operation, process, or facility is designed for

• typically not reached

effective capacity (lowest)

design capacity minus allowances ( personal time, maintenance)

actual output

rate of output actually achieved

relationship between design capacity, effective capacity, and actual output

design capacity cannot be > effective cannot be >design

efficiency formula

actual output/ effective capacity

utilization formula

actual output/ design capacity

when effective capacity is low compared to design capacity

efficicency can be misleading

to increase utilization, we need to increase effective capacity

determinants of effective capacity

facilities

product and service factors

process factors

human factors

policy factors

opearational factors

supply chain factors

external factors

for product and sevice factors, the more uniform the output, the easier to..

standardize, more efficient, greater capacity

process factors refer to

quantity and quality

human factors refer to

job design, training

policy factors refer to

allowing overtime or part time

operational factors refer to

scheduling problems or inventory shortages

supply chain factors

if capacity increase, can supply chain handle it

external factors

product standards, pollution control standards

leading

build capacity in aniticipation of future demand increases

following

build capacity when demand exceeds current capacity

tracking

adds capacity in relatively small increments to keep pace with increasing demand, simlar to following

capacity fusion

extra capacity used to offset demand uncertainty

capacity cushion =

capacity-expected demand

steps in capacity planning

estimate future capacity

evaluate existing capacity and facilities, identify gaps

identify alternatives to meet requirements

conduct financial analyses

assess key qualitative issues

select best alterative for long term

implement alternative chosen

monitor results

to determine needed capacity, we need

demand forecast

standard processing time

available work time

cost volume analysis

focuses on the relationship between cost, revenue, and volume of output

fixed costs

tend to remain constant regardless of output volume

variable costs

vary directly with volume of output

variable cost =

quantity * variable cost/unit

total cost=

fixed cost + variable cost

total revenue =

revenue per unit * quantity

breakeven point

volume of output at which total cost and total revenue are equal

indifference point

quantity that would make two alternative equivalent

aggregate planning

intermediate range capacity planning, covering 2-12 months

aggregate planning goal

to achieve production plan that will effectively utilize organizations resources to match expected demand

our current focus for planning

tactical

tactical planning characteristics

workforce, inventory, subcontracting, and logistics decisions

planning numbers aggregated ( month by month)

moderate risk

aggregate planning inputs

demand forecast

resources

policies

costs

resources

workforce/production rates

facilities and equipment

policies

workforce changes

subcontracting

overtime

inventory levels/changes

back orders

costs

inventory carrying

back orders

hiring/firing

overtime

inventory changes

subcontracting

aggregate planning outputs

projected levels of inventory, output, employment, subcontracting, and backordering

total cost of plan

demand options

pricing

promotion: advertising

back order: orders taken in one period and delivery promised later

new demand

pricing is used for demand bc

used to shift demand from peak to off periods

price elasticity is important

supply options

hire and layoff workers

overtime/slack time

part time workers

inventories

subcontracting

level strategy

maintaining a steady rate of regular time output while meeting variations in demand by combination of options

meet demand by

inventories, overtime, part time workers, subcontracting, and back orders

chase strategy

matching capacity to demand, the planned output is set at demand

level strategy cons

high inventory costs

chase strategy cons

low employee morale

master schedule

result of disaggregating an aggregate plan

master schedule shows

quantity and timing of planned completed production

master schedule covers

6-8 weeks ahead

master schedule determines when

products will be made, orders will be filled, and what products/capacities are still available to meet new demand

inputs of master scheduling process

beginning inventory

forecast

customer orders

outputs of master scheduling process

projected inventory

master production schedule

uncommitted inventory

projected on hand inventory

inventory from previous week - max ( forecast,customer orders)

avaialble to promise (uncommitted inventory)

indicate number of units available for sale, given those that have alreasy been promised to customers

atp is only calculated for

first week and other weeks in which there is mps quantity

first week atp=

beginning inventory + mps - sum of orders from week 1 until week when mps is posititive

atp for any other week=

mps - sum of orders from week t until when mps is positive

trade off for inventory management

to achieve satisfactory levels of customer service while keepinf inventory costs within reasonable bounds

type of inventory

raw materials and purchased parts

wip

finished goods

mro

goods in transit ( pipeline)

inventory functions

to meet anticipated customer demand

to smooth production requirements

to protect against stockouts

to hedge against price increases

to permit operations

to take advantage of quantity discounts

inventory costs

purchase

holding

ordering

setup

shortage

overage

purchase cost

paid to buy inventory

holding ( carrying) costs

costs to carry item in inventory for length of item, usually year

ordering costs

costs of doing the action of ordering and receiving inventory

setup costs

costs involved in preparing equipment for job

setup costs are analogous to

ordering costs

shortage costs

costs when demand exceeds supply of inventory

effective inventory control requires

system to keep track of inventory

reliable forecast of demand

knowledge of lead time and its variability

reasonal estimates of costs:

classification system for inventory items

what costs to estiamte for inventory control

holding

ordering/setup costs

shortage costs

inventory counting systems

periodic

perpetual ( continous)

periodic system

physical count of ites in inventory made at periodic intervals ( weekly)

perpetual inventory system

keeps track of removals from inventory continously

• order is placed when invetory drops to certain minimum level

two bin system

two containers of inventory, reorder when first is empty

inventory counting technologies

universal product code: bar code

rfid: uses radio waves to identify objects

abc classification system

classify inventory according to some measure of importance, and allocating control efforts accordingly

A level items

the most important

10-20% of number of items in inventory abd abt 60-70% of annual dollar value

B level items

moderately important

c level items

50-60% of number of items in inventory , 10-15% of annual dollar value

fixed order quantity system questions to answer

how much to order

when to order

how much to order

eoq

epq

quantity discounts

when to order

reordering point

• under certainty

• under uncertainty

  • safety stock

eoq model

to idenify a fixed ordre size that will minimize sum of annual costs of holding inventory and ordering it

situations for eoq

business stocks product to meet demand, ordered outside

manager wants to decide how many units to order at a time and what point in time to place order to minimize cost

assumptions for eoq

one product is involved

annual demand and lead known

demand spread evenly throughout year

lead time is constant

order is received in single delivery

no quantity discounts

holding carry costs are —- related to order quantity

positvely and linearly

annual holding csots =

q/2 H

ordering costs are — related to quantity

negatively and nonlinearly

annual ordering cost=

d/q s

total cost is - shaped

u

total cost =

annual holding + annual ordering costs

eoq =

square root of 2ds/h