Supply Chain and Operations Management Concepts

Ordering Costs and Setup

  • Ordering Costs: Costs incurred during the process of placing orders for supplies.

    • Includes the work involved in configuring tools, equipment, and machines necessary for fulfilling orders.

Inventory Management

  • Static Demand: Refers to a stable level of demand for an item.

  • Dynamic Demand: Refers to demand that varies over time.

  • Lead Time: The time between the placement of an order and its receipt.

  • Stockouts: The condition where there is an inability to satisfy the demand for an item.

  • Backorder: Occurs when a customer is willing to wait for an item that is currently unavailable.

ABC Inventory Analysis

  • ABC Inventory Analysis: A method where all items are categorized based on their total dollar value.

    • Most items account for a small percentage of total dollar value but a large percentage of total items.

Economic Order Quantity (EOQ) Model

  • EOQ: A model that minimizes the total cost of ordering and holding inventory.

  • Cycle Inventory: The amount of inventory that is purchased or produced in larger amounts than needed for immediate consumption or sale.

Cycle Time and Little's Law

  • Flow Time (Cycle Time): Average time taken to complete one cycle of production.

  • Little's Law: An equation that establishes the relationship among flow time ($t$), throughput ($R$), and work-in-process ($WIP$).

    • Equation:

    • WIP = R imes t

    • R = \frac{WIP}{t}

    • Rearranged: t = \frac{WIP}{R}

Theory of Constraints

  • Theory of Constraints (TOC): A set of principles focusing on increasing process throughput by maximizing the utilization of bottlenecks or workstations.

  • Physical Constraints: Associated with the capacity of machines or employees.

  • Non-Physical Constraints: Environmental or organizational factors leading to low product demand or inefficient policies and procedures.

Dispatching and Capacity Management

  • Dispatching: The process of selecting jobs for processing and authorizing the work to be done.

  • Coping with Capacity Shortages: Strategies include:

    • Overtime

    • Short-term subcontracting

    • Alternate process routing

    • Workforce reallocations

  • Strategic Workforce Planning: Aligns recruiting investments with long-term workforce requirements, including:

    • Analyzing current employee census

    • Projecting workforce growth

    • Calculating number of hires needed.

  • Utilization: The fraction of time a resource is busy over a specified period.

    • Utilization ($u$) can be expressed as: u = \frac{\text{Resources used}}{\text{Resources available}}

    • In the long run: u = \frac{\text{Demand rate}}{\text{Service rate} \times \text{Number of servers}}

Resource Management

  • Resource Management: Involves planning, executing, and controlling all resources used to produce goods and provide services.

  • Aggregate Planning: The development of long-term output and resource plans in aggregate units of measure, focusing on product families.

  • Capacity Requirements: Driven by demand forecasts.

  • Disaggregation: The process of translating aggregate plans into short-term operational plans, leading to weekly and daily scheduling and resource requirements.

ERP Systems

  • ERP (Enterprise Resource Planning): Integrates all aspects of a business into a unified information system that enables timely analysis of data.

  • Sequencing: The determination of the order in which jobs or tasks are processed.

Capacity Requirements Calculation

  • Capacity Required Calculation:

    • Formula:

    • Ci = Si + Pi \times Qi

      • Where:

        • $C_i$: Capacity requirements in units of time for work order $i$.

        • $S_i$: Setup or changeover time for order $i$.

        • $P_i$: Processing time for work order $i$ (remains fixed and does not vary with volume).

Capacity Costs

  • Capacity Costs: Include both initial investments in facilities and equipment as well as annual operating and maintenance costs.

  • Complementary Goods & Services: Produced or delivered using the same resources but with seasonal demand patterns that are out of phase with each other.

Reservation and Revenue Management

  • Reservation: A promise to provide goods or services at a future time and place.

  • Revenue Management System: Uses dynamic methods to forecast demand and manage perishable assets across market segments.

    • Decides when to allocate inventory and overbook, and establishes pricing for different customer classes.

Learning Curve and Cost Reduction

  • Learning Curve: As experience increases, direct labor costs can decrease in a predictable manner.

    • P-Percentage Learning Curve: Characterizes the process where the time required to produce the $2^x^{th}$ unit is a constant percentage ($P$) of the time required to produce the xth unit.

    • Formula: Y = a + b \cdot x

    • Where:

      • $x$: Number of units produced

      • $a$: Hours required to produce the first unit

      • $Y$: Time to produce the xth unit

      • $b$: Constant defining a percentage learning experience.

Cost Considerations in Scale

  • Economies of Scale: Average unit cost decreases as capacity increases.

  • Diseconomies of Scale: Average unit cost can increase at a very large scale due to excessive overhead costs.

Capacity Calculation

  • Safety Capacity: Defined as effective capacity minus average demand.

  • Setup Time: Reduces usable capacity.

  • Capacity Relationships:

    • \text{Capacity Required} = (\text{Setup Time} + \text{Processing Time}) \times \text{Demand}

Capacity Modeling Techniques

  • Multiple Linear Regression Model: A model using more than one independent variable.

  • Grassroots Forecasting: Involves asking personnel close to the end consumer about purchasing plans.

  • Forecasting: Should be conducted monthly, and the results can influence staffing, inventory, capacity, and scheduling decisions.

Types of Forecasting

  • Statistical Forecasting: Assumes that the future is an extrapolation of the past.

    • Utilizes:

    • Time-Series Methods: Uses past values of the same variable.

    • Regression Methods: Includes other causal factors influencing demand.

Forecast Error Measurement

  • Mean Absolute Percentage Error (MAPE): Measures forecast accuracy as:

    • MAPE = 100 \cdot \frac{1}{T} \sum{t=1}^{T} \left|\frac{Yt - Ft}{Yt}\right|

    • Where:

    • $Y_t$: Actual value in period $t$

    • $F_t$: Forecast value for period $t$

    • $T$: Number of periods

  • Forecast Error: Calculated as: \text{Error} = Yt - Ft

Job Design and Work Measurement

  • Job Design: Involves determining specific tasks, responsibilities, work environments, and methods to achieve operational goals.

  • Standard Time: Normal time adjusted for allowances (e.g., labor fatigue, personal needs, breakdowns).

    • Calculated as:

    • \text{Standard Time} = \text{Normal Time} \times (1 + \text{Allowance Factor})

  • Work Measurement: A systematic procedure for analyzing work and determining standard times required to perform tasks.

Lean Servicescape and Facility Design

  • Servicescape: All physical evidence that forms customer impressions and provides settings for service encounters.

  • Facility Layout: The arrangement of physical facilities crucial for production and service