Exam 3 Intro to operations
EOQ inventory models are basically concerned with the timing of orders.
FALSE EOQ models are concerned with the size of orders.
In the fixed-order interval model, the order size is the same for each order.
FALSE Order size varies from order to order in a fixed-order-interval model.
ERP Supply Chain Management
Facilitates supplier and customer management, supply chain visibility, and event management
ERP Purchasing
Facilitates vendor selection, price negotiation, making purchasing decisions, and bill payment
Using the EOQ model, the higher an item's carrying costs, the more frequently it will be ordered.
TRUEAs carrying costs increase, the optimal order quantity decrease
Solving quality problems can lead to lower inventory levels.
TRUELeaning out the organization can be facilitated by solving quality problems.
Expected level of demand
The level of demand may be a function of some structural variation such as trend or seasonal variation, such as trend or seasonal variation.
Seasonal Relatives
The seasonal percentage used in the multiplicative seasonally adjusted forecasting model
Exponential smoothing is a form of weighted averaging. True or False
True
Forecasts based on an average tend to exhibit less variability than the original data. True or False
True
MRP Requirements
To implement an effective MRP system requires: -A computer and necessary software to handle computations and maintain records -Accurate and up to date - Master schedules -Bills of materials -Inventory records -Integrity of data files
Time series behaviors
Trend- gradual long term movement in time series data seasonality cycles irregular variations random variation
A seasonal relative (or seasonal indexes) is expressed as a percentage of average or trend. True or false
True
Bias exists when forecasts tend to be greater or less than the actual values of time series. True or False
True
Cycle counting
a physical count of items in inventory
Cycle Counting
a physical inventory-taking technique in which inventory is counted on a frequent basis rather than once or twice a year
Executive Opinions
a small group of upper-level managers may meet and collectively develop a forecast
Forecast
a statement about the future value of a variable of interest. We make forecasts about such things as weather, demand, and resource availability. Forecasts are important to making informed decisions.
regression
a technique for fitting a line to a set of data points.
Time series
a time-ordered sequence of observations taken at regular intervals assume future values of the time-series can be estimated from past values of the time series
Associative forecasting techniques
are based on the development of an equation that summarizes the effects of predictor variables
One reason for using the Delphi method in forecasting is to: avoid premature consensus (bandwagon effect) achieve a high degree of accuracy maintain accountability and responsibility be able to replicate results prevent hurt feelings
avoid premature consensus (bandwagon effect)
The two general approaches to forecasting are:
qualitative and quantitative
Planned-order receipts
quantity expected to be received at the beginning of period offset by lead time.
Moving average
technique that averages a number of recent actual values, updated as new values become available. As new data become available, the forecast is updated by adding the newest value and dropping the oldest and then re-computing the average
Other MRP Considerations Lot Sizing Rules
•Lot-for-Lot (L4L) ordering •Economic Order Quantity (EOQ) •Fixed Period Ordering
Types of Inventory
•Raw materials and purchased parts •Work-in-process (WIP) •Finished goods inventories or merchandise •Tools and supplies •Maintenance and repairs (MRO) inventory •Goods-in-transit to warehouses or customers (pipeline inventory)
How much to order FOI
Fixed order interval model - orders are placed at fixes time intervals
A fill rate is the percentage of _____ filled by stock on hand.
FALSE Safety stock only ensures that a given likelihood of stock outs.
Safety stock eliminates all stock outs.
FALSE Safety stock only ensures that a given likelihood of stock outs.
Forecasts for groups of items tend to be less accurate than forecasts for individual items because forecasts for individual items don't include as many influencing factors. True or False
False
ERP accounting and finance
A central component of most ERP systems. It provides a range of financial reports, including general ledger, accounts payable, accounts receivable, payroll, income statements, ad balance sheets
•Fixed Period Ordering
-Provides coverage for some predetermined number of periods
Setup costs
-The costs involved in preparing equipment for a job -Analogous to ordering costs
MRP Processing
takes the end item requirements specified by the master schedule and "explodes" the into time-phased requirements for assemblies, parts, and raw materials offset by lead times.
Gross requirements
total expected demand for an item in a time period
•Demand or lead time uncertainty creates the possibility that demand will be greater than available supply
true
MAD (mean absolute deviation)
weights all errors evenly
Slam dunk
-ERP dictates the process design where the focus is on a few key processes -More appropriate for smaller companies expecting to grow into ERP
Enterprise resource planning
-ERP was the next step in an evolution that began with MRP and evolved into MRPII -ERP, like MRP II, typically has an MRP core -ERP provides a system to capture and make data available in real time to decision makers and other users throughout an organization -ERP systems are composed of a collection of integrated modules
Franchising strategy
-Independent ERP systems are installed in each business unit of the enterprise while linking common processes across the enterprise -Suits large or diverse companies that do not share many common processes across business units
Material Requirements Planning (MRP)
A computer-based information system that translates master schedule requirements for end items into time-phased requirements for subassemblies, components, and raw materials. - used for planning the production of assembled parts.
Bill of materials ( BOM)
A listing of all of the assemblies, subassemblies, parts, and raw materials needed to produce one unit of a product.
Inventory
A stock or store of goods
Prodcot structure tree
A visual depiction of the requirements in a bill of materials where all components are listed by levels.
Exponential smoothing
A weighted averaging method that is based on previous forecast plus a percentage of the forecast error.
An MRP is not a static document
As time passes - Some order get completed -other orders are nearing completion -New orders will have been entered - Existing orders will have been altered - Quantity changes -Delays -Missed deliveries
To reduce the likelihood of a stockout, it becomes necessary to carry safety stock
true
Inventory Counting Systems
1. Periodic System 2. Perpetual Inventory System
inventory
A list of possessions or goods on hand.
Expected amount on hand
Expected amount on hand at the beginning of each time period
EPQ Formula
Q(p)= squareroot [ (2*D*S)/2] * squareroot [ p / (p -u)]
B items
moderately important
Inventories are a vital part of business:
(1) necessary for operations and (2) contribute to customer satisfaction A typical firm has roughly 30% of it's current assets and as much of 90% of it's working capital invested in inventory.
Setup costs
(e.g., preparing equipment for the job by adjusting the machine, changing cutting tools) are analogous to ordering costs; that is, they are expressed as a fixed charge per produc- tion run, regardless of the size of the run.
C items
(least important) 50 to 60 percent of the number of items in inventory but only about 10 to 15 percent of the annual dollar value
Two Important Aspects of Forecasts
- 1) "expected level of demand" the level of demand may be a function of some structural variation such as a trend or seasonal variation. 2) "accuracy" related to the potential size of the forecast error.
ERP considerations - things to think about
- How can ERP improve a company's business performance? -How long will an ERP implementation take? -How will ERP affect current business processes? - What is the ERP total cost of ownership? -What are the hidden costs of ERP ownership?
Capacity Requirements Planning.
- The process of determining short-range capacity requirements -Inputs to capacity requirement planning -planned-order releases for the MRP -Current Shop loading -Routing information -Job time -Key output -Load reports for each work center
Other MRP Considerations: Safety Stock
- Theoretically, MRP systems should not require safety stock -Variability may necessitate the strategic use of safety stock. -A bottleneck process or one with varying scrap rates may cause shortages in downstream operations -Shortages may occur if orders are late or fabrication or assembly times are longer than expected -When lead times are variable, the concept of safety time is often used -Safety time -Scheduling orders for arrival or completions sufficiently ahead of their need so that the probability of shortage is eliminated or significantly reduced
Simple linear regression assumptions
- Variation around the line are random - Deviations around the average value ( the line) should be normally distributed -predictions are made only within the range of observed values
Elements of a good forecast
- timely - accurate - reliable - meaningful units - in writing - simple to understand and use - cost effective
Parts list Example:
-9942055-100 Airplane Xample - 9942055-101 Fuselage asst - 9942055-102 Wing (RH) -9942055-103 Wing (LH) -9942055-104 Engines (2) -9942055-105 Tail assy -9942055-106 nose and Landing gear assy
Net-Change system
-Approach that updates MRP records continuously -The production plan is modified to reflect changes as they occur. -Only the changes are exploded through the system.
MRP other problems
-Assumptions of constant lead times -Products being produced differently from BOM -Failure to alter a BOM when customizing a product -Inaccurate forecasts
•Economic Order Quantity (EOQ)
-Can lead to minimum costs if usage of item is fairly uniform -This may be the case for some lower-level items that are common to different 'parents' -Less appropriate for 'lumpy demand' items because inventory remnants often result
The big bang
-Companies cast off all of their legacy systems at once and implement a single ERP system across the entire company -The most ambitious and difficult implementation approach
MRP additional benefits
-Low levels of in-process inventories -The ability to track material requirements -The ability to evaluate capacity requirements -A means of allocating production time -The ability to easily determine inventory usage via backflushing -Exploding an end item's BOM to determine the quantities of the components that were used to make the item
MRP inputs : Master Schedule
-One of three primary inputs in MRP; states which end items are to be produced, when these are needed, and in what quantities. -Managers like to plan far enough into the future so they have reasonable estimates of upcoming demands -The master schedule should cover a period that is at least equivalent to the cumulative lead time
inventory costs
-Purchase costs -Holding costs -Ordering costs -Setup costs -Shortage costs
Safety time
-Scheduling orders for arrival or completions sufficiently ahead of their need so that the probability of shortage is eliminated or significantly reduced
Saftey Stock
-Stock that is held in excess of expected demand due to variable demand and/or lead time Expected demand durning lead time + safety stock Extra inventory carried to reduce the probability of a stockout due to demand and/ or lead time variability.
Perpetual Inventory System
-System that keeps track of removals from inventory continuously, thus monitoring current levels of each item -An order is placed when inventory drops to a predetermined minimum level -Two-bin system Two containers of inventory; reorder when the first is empty
•Lot-for-Lot (L4L) ordering
-The order or run size is set equal to the demand for that period -Minimizes investment in inventory -It results in variable order quantities -A new setup is required for each run
Costs of ordering and carrying inventories
-The overall objective of inventory management is to achieve satisfactory levels of customer service while keeping inventory costs within reasonable bounds 1.Measures of performance 2.Customer satisfaction -Number and quantity of backorders -Customer complaints
service level
-The probability that demand will not exceed supply during lead time -Service level = 100% - stockout risk
Quantitative Forecasting
-These techniques rely on hard data -Quantitative techniques involve either the projection of historical data or the development of associative methods that attempt to use causal variables to make a forecast
As the amount of safety stock carried increases, the risk of stockout decreases.
-This improves customer service level
Regenerative system
-approach that updated MRP records periodically -Essentially a batch system that compiles all changes that occur within the time interval and periodically updates the system. - A revised production plan is developed in the same way the original plan was developed
Single period model two categories of problem
-demand can be characterized by continuous distribution -demand can be characterized by a discrete distribution
Consumer surveys
-since consumers ultimately determine demand, it makes sense to solicit input from them -consumer surveys typically represent a sample of consumer opinions
Effective Inventory Management Requires
1. A system keep track of inventory 2. A reliable forecast of demand 3. Knowledge of lead time and lead time variability 4. Reasonable estimates of -holding costs -ordering costs -shortage costs 5. A classification system for inventory items
3 EOQ models
1. Basic economic order quantity model. 2. The economic production quantity model 3. The quantity discount model
Steps in the Forecasting Process
1. Determine the purpose of the forecast 2. Establish a time horizon 3. Obtain, clean, and analyze appropriate data 4. Select a forecasting technique 5. Make the forecast 6. Monitor the forecast errors
Basic EOQ Model assumptions
1. Only one product is involved 2. Annual demand requirements are known 3. Demand is even throughout the year 4. Lead time does not vary 5. Each order is received in a single delivery 6. There are no quantity discounts
Features common to all forecasts
1. Techniques assume some underlying causal system that existed in the past will persist into the future 2. Forecasts are not perfect 3. Forecasts for groups of items are more accurate than those for individual items 4. Forecast accuracy decreases as the forecasting horizon increases
Determinants of the reorder paint
1. The rate of demand 2. The lead time 3. The extent of demand and/or lead time variability 4.The degree of stockout risk acceptable to management
The MRP is designed to answer three questions
1. What is needed? 2. How much is needed? 3. When is it needed?
inventory management has two main concerns
1.Level of customer service 2.Costs of ordering and carrying inventories 3.Inventory turnover
Economic Production Quantity (EPQ) assumptions
1.Only one item is involved 2.Annual demand requirements are known 3.Usage rate is constant 4.Usage occurs continually, but production occurs periodically 5.The production rate is constant 6.Lead time does not vary 7.There are no quantity discounts
EPQ total cost
= (I max/2)H + (D/Q)S Imax = maximum inventory H = Holding cost D = Demand Q = Order quantity S = Ordering cost/order
Total Costs
= annual holding cost + annual ordering cost where [(Q/2)*H)]+[(D/Q)*S)]
Planned orders
A schledue indicating the amount and timing of future orders
Linear Trend
A simple data plot can reveal the existence and nature of a trend linear trend equation f(t)=a+bt F(t) = forecast for period t a = value off (t), at t=0 b = slope of the line t = specified number of time periods from t=0
Forecast Accuracy and Control
Allowances should be made for forecast errors. Forecasts errors should be monitored.
Issues to consider
Always plot the line to verify that the linear relationships appropriate the data may be time-dependent -If they are * use analysis of time series * use time as independent variable in a multiple regression analysis A small correlation may indicate that other variables are important.
An operations strategy for inventory management should work towards:
B. decreasing lot sizes.
Universal product code
Bar code printed on a label that has information about the item to which it is attached.
Forecasts are not perfect
Because random variation is always present, there will always be some residual error, even if all other factors have been accounted for. there will always be fore cast error. Note: a potential shortcoming of using sales force opinions in demand forecasting is that members of the sales force can have difficulty distinguishing between what customers would like to do and what they actually will do.
Dairy items, fresh fruit and newspapers are items that:
C. are subject to deterioration and spoilage.
Inventory Turnover
COGS/Average Inventory
A-B-C- approach
Classifying inventory according to some measure of importance, and allocating control efforts accordingly
ABC Classification System
Classifying inventory according to some measure of importance, and allocating control efforts accordingly
MRP Difficulties
Consequence of Inaccurate Data: -Missing parts -Ordering incorrect numbers of items -Inability to stay on schedule Other problems: -Assumptions of constant lead times -Products being produced differently from the BOM -Failure to alter a BOM when customizing a product -Inaccurate forecasts
ERP distribution
Contains information on third-party shippers, shipping and delivery schedules, delivery tracking
Correlation Coefficient
Correlation, r - a measure of the strenth and direction of relationship between two variables -ranges between -1.00 and +1.00 -r^2, square of the correlation coefficient - a measure of the percentage of variability in the values of y that is "explained" by the independent variable -Ranges between 0 and 1.00
Choosing a forecasting technique : Factors to consider
Cost accuracy availability of historical data - historical data is generally not considered common to all forecasts Availability of forecasting software time needed to gather and analyze data and prepare a forecast Forecast horizon.
Shortage costs
Costs resulting when demand exceeds the supply of inventory; often unrealized profit per unit
Exception reports
Data on any major discrepancies encountered e.g. late and overdue order, excessive scrap rates, requirements for nonexistent parts
Planning reports
Data useful for assessing future material requirements E.g. purchase commitments
Load reports
Department or work center reports that compare known and expected future capacity requirements with projected capacity availability.
Excess cost
Different between purchase cost and salvage value of items left over at the end of the period Cexcess = Ce = Cost per unit - salvage value per unit
Irregular Variation
Due to unusual circumstances that do reflect typical behavior -labor strike -weather event
A cycle count program will usually require that 'A' items be counted:
E. more often than annually.
MRP Benefits
Enables managers to easily determine the quantities of each component for a given order size To know when to release orders for each component To be alerted when items need attention
Forecast errors should be monitored
Error = Actual - forecast If errors fall beyond acceptable bounds, corrective actions my be necessary.
Performance-Control Reports
Evaluation of system operation, including deviations from plans and cost information. E.g. Missed deliveries and stock outs
MRP II
Expanded approach to production resource planning, involving other areas of the firm in the planning process and enabling capacity requirements planning. -Most MRP II systems have the capability of performing simulation to answer a variety of "what if questions so they can gain a better appreciation of available options and their consequences.
Projected Available
Expected inventory on hand at the beginning of each time period
Qualitative Forecasts
Forecasts that use subjective inputs such as opinions from consumer surveys, sales, staff, managers, executives and experts.
Plan the system
Generally involves long-range plans related to: Types of products and services to offer Facility and equipment levels Facility location
Plan the use of the system
Generally involves short- and medium-range plans related to: Inventory management Workforce levels Purchasing Production Budgeting Scheduling
Shortage cost
Generally, the unrealized profit per unit Cshortage = Cs = Revenue per unit - Cost per unit
Level of customer service
Having the right goods available in the right quantity in the right place at the right time
Cycle counting management
How much accuracy is needed? A items: ± 0.2 percent B items: ± 1 percent C items: ± 5 percent When should cycle counting be performed? Who should do it?
ERP Inventory Management
Identifies inventory requirements, inventory availability, replenishment rules, and inventory tracking
Inventory Records
Includes information on the status of each item by time period, called time buckets Information about - gross requirements schedule receipts, expected amount on hand
dependent vs independent Demand
Independent demand is unrelated to the demand for other items, horizontal line on graph with many small bumps, or decreasing fully then starting back up at peak demand again. while dependent demand is directly related to, or derives from, the demand for another inventory item or product.Demand for items that are subassys or component parts to be used in the production of finished goods. Example - parts and materials needed to build cars. Bar charts on graphsx
ERP Sales
Information on orders, invoices, order tracking, and shipping
ERP Production Planning
Integrates information on forecasts, orders, production capacity, on-hand inventory quantities, bills of material, work in process, schedules, and production lead times
allowances should be made for forecast errors
It is important to provide an indication of the extent to which the forecast might deviate from the value of the variable that actually occurs +- 20%
Accuracy in forecasting can be measured by:
MSE MAD MAPE
ERP Human Resources
Maintains a complete data base of employee information such as date of hire, salary, contact information, performance evaluations, and other pertinent information
Periodic System
Physical count of items in inventory made at periodic intervals (weekly, monthly).
Periodic costs
Physical count of items in inventory made at periodic intervals (weekly, monthly).
Fixed-order-Interval (FOH) model
Orders are placed at fixed time intervals
Using the MRP
Pegging - the process of identifying the parent items that have generated a given set of material requirements for an item.
MRP Outouts: Secondary
Performance - control reports Planning reports Exception reports
Forecast Uses
Plan the systems Plan the use of the system
Planned-order releases
Planned amount to order in each time period
MRP Outputs: Primary
Planned orders Order releases Changes
Quantity Discount Model
Price reduction for larger orders offered to customers to induce them to buy in large quantities
Quantity Discounts
Price reductions for larger orders.
Forecasting approaches
Qualitative Methods Quantitative Methods
Reorder Point: Under Uncertainty
ROP = d X LT Where : d = demand rate (unity per period, per day, per week) LT = Lead time (in same time units as d )
point-of-sale (POS) terminal
Record items at time of sale.
Techniques for seasonality
Regularly repeating movements in series values that can be tied to recurring events - Expressed in term of amount that actual value # average value
Accuracy
Related to the potential size of forecast error.
Random Variation
Residual variation that remains after all other behaviors have been accounted for
Low level coding
Restructuring the bill of materials so that materials so that multiple occurrences of a component all coincide with the lowest level at which the component occurs
Changes
Revision of the dates or quantities or the cancellation of orders.
Multiplicative
Seasonality is expressed as a percentage of the average (or tend) amount which is then used to multiply the value of a series in order to incorporate seasonality
Additive
Seasonality is expressed as a quanity that gets added to or subtracted fro the time series average in order to incorporate seasonality
Seasonality
Short-term, fairly regular variations related to the calendar or time of day. Restaurants, service call center, and theaters all experience seasonal demand.
Shortage costs
Shortage cost Generally, the unrealized profit per unit. = Revenue per unit - Cost per unit
Estimating slope and intercept
Slope and intercept can be estimated from historical data
Other details dor each item such as
Supplier Lead time Lot size policy Changes due to stock receipts and withdrawals Canceled orders and similar events
ERP marketing
Supports lead generation, target marketing, direct mail, and sales
perpetual inventory system
System that keeps track of removals from inventory continuously, thus monitoring current levels of each item.
ERP Project Organization
The 'big bang' Companies cast off all of their legacy systems at once and implement a single ERP system across the entire company The most ambitious and difficult implementation approach Franchising strategy Independent ERP systems are installed in each business unit of the enterprise while linking common processes across the enterprise Suits large or diverse companies that do not share many common processes across business units Slam Dunk ERP dictates the process design where the focus is on a few key processes More appropriate for smaller companies expecting to grow into ERP
Cycle Stock
The amount of inventory needed to meet expected demand.
How much safety stock
The amount of safety stock that is appropriate for a given situation depends upon: 1. The average demand rate and average lead time 2. Demand and lead time variability 3. The desired service level
lead time
The amount of time between the recognition that an order needs to be placed and the arrival of the needed merchandise at the seller's store, ready for sale.
Purchase cost
The amount paid to buy the inventory
Purchase Cost
The amount paid to buy the inventory.
Little's Law
The average amount of inventory in a system is equal to the product of the average demand rate and the average time a unit is in the system.
Basic EOQ Model
The basic EOQ model is used to find a fixed order quantity that will minimize total annual inventory costs
Economic Production Quantity (EPQ)
The batch mode is widely used in production. In certain instances, the capacity to produce a part exceeds its usage (demand rate)
Operation Strategy
The better forecasts are, the more able organizations will be to take advantage of future opportunities and reduce potential risks ◦A worthwhile strategy is to work to improve short-term forecasts ◦Accurate up-to-date information can have a significant effect on forecast accuracy: ◦Prices ◦Demand ◦Other important variables ◦Reduce the time horizon forecasts have to cover ◦Sharing forecasts or demand data through the supply chain can improve forecast quality
Trend
a long-term upward or downward movement in data -population shifts -changing income
Sources of forecast errors
The model may be inadequate Irregular variations may have occurred The forecasting technique has been incorrectly applied Random variation
Weighted moving average
The most recent values in a time series are given more weight in computing a forecast. The choice of weights, w, is somewhat arbitrary and involves some trial and error.
Moving average - The number of data points included in the average determines the model's sensitivity
The number of data points included in the average determines the model's sensitivity
Trend adjusted exponential smoothing
The trend adjusted forecast consist of two components -smoothed error -trend factor TAF (t+1) = S(t)+T(t) where S(t) = previous forecast plus smoothed error T(t) = current trend estimate Alpha and beta are smoothing constants Trend-adjusted exponential smoothing has the ability to respond to changes in trend
Time series forecasting - averaging
These techniques work best when a series tends to vary about an average averaging techniques smooth variations in the data They can handle step changes or gradual changes in the level of a series Techniques 1. Moving average 2. Weighted moving average 3. Exponential smoothing
Using seasonal relatives
To deseasonalize data - done in order to get a clear picture of nonseasonal components of the data series Divide each data point bu its seasonal relative To incorporate seaonality in a forecast 1. obtain trend estimates for desired periods using a trend equation 2. Add seasonality by multiplying these trend estimates by the corresponding seasonal relative
Object of linear regression
To obtain equation of a straight line that minimizes the sum of squared vertical deviations from the line (i;e the least squares criterion)
QDM formula
Total cost = carrying cost + purchasing cost = Q/2*H+D/Q*S+PD where P = unit price
Gross requirements
Total expected demand
Monitoring the forecast
Tracking the forecast and analyzing them can provide useful insight to whether forecasts are performing satisfactory Control charts are useful for identifying the presence of non-random error in forecasts Tracking signals can be used to detect forecast bias
Updating MRP System
Two basic systems: -Regenerative system -Approach that updates MRP records periodically -Essentially a batch system that compiles all changes that occur within the time interval and periodically updates the system -A revised production plan is developed in the same way the original plan was developed -Net-change system -Approach that updates MRP records continuously -The production plan is modified to reflect changes as they occur -Only the changes are exploded through the system
Two-bin system
Two containers of inventory; reorder when the first is empty
Two Bin System
Two containers of inventory; reorder when the first is empty.
The total-cost curve is
U-Shaped
Naive Forecast
Uses a single previous value of a time series as the basis for a forecast Tghe forecast for a time period is equal to the previous time period's value Can be used with a stable time series Seasonal Variations Trend
Predictor Variables
Variables that can be used to predict values of the variable of interest. Home values may be related to such factors as home and property size, location, number of bedrooms, and number of bathrooms.
Qualitative forecasting
We use it temper the quantitate forecast. Qualitative techniques permit the inclusion of soft information such as: Human factors personal opinions hunches These factor are difficult, or impossible to quantify
Closed Loop MRP
When MRP II systems began to include feedback loops -Systems evaluate a proposed material plan relative to available capacity -If proposed plan is not feasible, it must be revised. -This evaluation is referred to as capacity requirements planning
Reorder point (ROP)
When the quantity on hand of an item drops to this amount, the item is reordered.
When to reorder
When the quantity on hand of an item drops to this amount, the item is reordered.
Net requirements
actual amount needed in each time period
Inaccuracies in forecasts along the supply chain lead to: shortages or excesses of materials reduced customer service excess capacity missed deliveries all of the above
all of the above
Holding (carrying) costs
cost to carry an item in inventory for a length of time, usually a year
Ordering Costs
costs of ordering and receiving inventory
Ordering costs
costs of ordering and receiving inventory
ROP Demand Uncertainty =
d*LT+z*STD * Squareroot (LT) where z= Number of STD D = demand per period (per day, per week) STD(lt)= STD of lead time LT = average lead time
ROP Lead time Uncertainty
d*LT+z*STD * Squareroot (LT) where z= Number of STD D = demand per period (per day, per week) STD(lt)= STD of lead time LT = average lead time
Excess cost
difference between purchase cost and salvage value of items left over at the end of a period = Original cost per unit - Cost per unit
Amount to order =
expected demand durning protection interval + safety stock - amount on hand at reorder time = d=(OI+LT)+ z*STD* squareroot( OI+LT-A) Where OI = order interval length of time between orders a= amount on hand at reorder time
Time series Forecasts
forecasts that project patterns identified in recent time-series observations
Economic Order Quantity (EOQ)
identify the optimal order quanity by minimizing the sum of annual costs that vary with order size and frequency. There are 3 models
Independent demand items
items that are ready to be sold or used
Least squares line
least squares estimation occurs when you minimize the sum of the squared deviation around the line.
Other Qualitative approaches
managers may solicit opinions from other managers or staff people or outside experts to help with developing a forecast. (Market forecaster) the Delphi method is an iterative process intended to achieve a consensus
MRP has 3 major sources of information
master schedule bill of material inventory records file
Sales force opinions
members of the sales or customer service staff can be good sources of information due to their direct contact with customers and may be aware of plans customers may be considering for the future
Single period model
model for ordering of perishables and other items with limited useful lives
single period model
model for ordering of perishables and other items with limited useful lives
A risk avoider would want ______ safety stock.
more
Scheduled receipts
open orders scheduled to arrive from vendors
Stocking levels =
service level = cs / (Cs+Ce) Cs = shortage cost per unit Ce= excess cost per unity
Moving average forecasting techniques do the following: immediately reflect changing patterns in the data lead changes in the data smooth variations in the data operate independently of recent data assist when organizations are relocating
smooth variations in the data
Reasons for FOI model
suppliers policy may encourage it's use Grouping orders from the same supplier can produce savings in shipping costs Same circumstances do not lend themselves to continually monitoring inventory position
Fill Rate
the percentage of demand filled by the stock on hand
Pegging
the process of identifying the parent items that have generated a given set of material requirements for an item.
Simple linear regression
the simples form of regression that involves a linear relationship between two variables.
Cumulative lead time
the sum of the lead times that sequential phases of a process require, from ordering of parts or raw materials to completion of the final assembly.
A items
very important - 10 to 20 percent of the number of items in inventory and about 60 to 70 percent of the annual dollar value
Cycle
wavelike variations lasting more than one year. These are often related to a variety of economic political, or even agricultural conditions.
MAPE (mean absolute percent error)
weights errors according to relative error
MSE (mean squared error)
weights errors according to their squared values
Inventory functions
•Inventories serve a number of functions such as: 1.To meet anticipated customer demand - Forecast 2.To smooth production requirements - Keep people in work 3.To decouple operations - safety stock or buffer stock 4.To protect against stockouts - finished goods inventory 5.To take advantage of order cycles - seasonality / high volume demand 6.To hedge against price increases - tariffs 7.To permit operations - Make parts and assy 8.To take advantage of quantity discounts - raw
Deriving EOQ
•Using calculus, we take the derivative of the total cost function and set the derivative (slope) equal to zero and solve for Q. •The total cost curve reaches its minimum where the carrying and ordering costs are equal. = Square Root [(2* Annual demand * order costs)/ annual per unit holding cost
Single period model goal
•is to identify the order quantity that will minimize the long-run excess and shortage costs