ME 3222 Exam 2
coefficient of determination
(r^2) measures the percent of change in y predcted by the change in x - values from 0 to 1
Medium-range Forecast
- 3 months to 3 years - Sales and production planning, budgeting
Long-range Forecast
- 3+ years - New product planning, facility location, research and development
S&OP requires
- A logical unit for measuring sales and output - A forecast of demand for a reasonable intermediate planning period in aggregate terms - a method to determine the relevant costs - A model that combines forecasts and costs so scheduling decisions can be made for the planning period
Capacity Options: Varying production rates through overtime or idle time
- Allows constant workforce - May be difficult to meet large increases in demand - Overtime can be costly and may drive down productivity - Absorbing idle time may be difficult
Qualitative Methods: Market Survey
- Ask the customer about purchasing plans - Useful for demand and product design and planning - What consumers say and what they do may be different - May be overly optimistic
Demand Options: Counterseasonal product and service mixing
- Develop a product mix of counterseasonal items - May lead to products or services outside the company's areas of expertise
Scheduling Process-Focused Facilities
- High variety, low volume - Production items differ considerably - Schedule incoming orders without violating capacity constraints - Scheduling can be complex
Capacity Options: changing inventory levels
- Increase inventory in low demand periods to meet high demand in the future - Increases costs associated with storage, insurance, handling, obsolescence, and capital investment - Shortages may mean lost sales due to long lead times and poor customer service
Gantt Charts
- Load chart shows the loading and idle times of departments, machines, or facilities - Displays relative workloads over time - Schedule chart monitors jobs in process - All Gantt charts need to be updated frequently to account for changes
Scheduling Criteria
- Minimize completion time - Maximize utilization of facilities - Minimize work-in-process (WIP) inventory - Minimize customer waiting time
Factors that Affect Location Decisions: Political Risk, Values, and Culture
- National, state, local governments attitudes toward private and intellectual property, zoning, pollution, employment stability may be in flux - Worker attitudes towards turnover, unions, absenteeism - Globally cultures have different attitudes towards punctuality, legal, and ethical issues
Demand Options: Backordering during high demand periods
- Requires customers to wait for an order without loss of goodwill or the order - Most effective when there are a few if any substitutes for the product or service - Often result in a loss of sales
Time-Series Forecasting
- Set of evenly spaced numerical data - Obtained by observing response variable at regular time periods - Forecast based only on past values, no other variables important - Assumes that factors influencing past and present will continue influence in future -Types: trend, seasonal, cyclical, random
Capacity Options: Subcontracting
- Temporary measure during periods of peak demand - May be costly - Assuring quality and timely delivery may be difficult - Exposes your customers to a possible competitor
Short-range Forecast
- Up to 1 year, generally less than 3 months - Purchasing, job scheduling, workforce levels, job assignments, production levels - More accurate than long-term
Factors that Affect Location Decisions: labor productivity
- Wage rates are not the only cost - Lower productivity may increase total cost (labor cost per unit)
backward scheduling
- begins with the due date and schedules the final operation first - Schedule is produced by working backwards through the processes - Resources may not be available to accomplish the schedule
forward scheduling
- starts as soon as the requirements are known - Produces a feasible schedule though it may not meet due dates - Frequently results in buildup of work-in-progress inventory
Demand Options: Influencing demand
- use advertising or promotion to increase demand in low periods - attempt to shift demand to slow periods - may not be sufficient to balance demand and capacity
Factors that Affect Location Decisions: Exchange rates and currency risks
-Can have a significant impact on costs -Rates change over time - Operational hedging: shift production as exchange rates change
Random Component
-Erratic, unsystematic, 'residual' fluctuations -Due to random variation or unforeseen events -Short duration and nonrepeating
Capacity Options: Varying workforce size by hiring or layoffs
-Match production rate to demand -Training and separation costs for hiring and laying off workers -New workers may have lower productivity -Laying off workers may lower morale and productivity
The Strategic Importance of Location
-One of the most important decisions a firm makes -Increasingly global in nature -Significant impact on fixed and variable costs -Decisions made relatively infrequently (Long-term decisions) -Once committed to a location, many resource and cost issues are difficult to change
Finite Capacity Scheduling
-Overcomes disadvantages of rule-based systems by providing an interactive, computer-based graphical system -May include rules and expert systems or simulation to allow real-time response to system changes -FCS allows the balancing of delivery needs and efficiency
Scheduling Issues
-Scheduling deals with the timing of operations -The task is the allocation and prioritization of demand -Significant factors are 1. Forward or backward scheduling 2. Finite or infinite loading 3. The criteria for sequencing jobs
Aggregate Planning Strategies
-Should inventories be used to absorb changes in demand? -Should changes be accommodated by varying the size of the workforce? -Should part-timers, overtime, or idle time be used to absorb changes? -Should subcontractors be used and maintain a stable workforce? -Should prices or other factors be changed to influence demand?
KSF in Region/Community decision
1) Corporate desires 2) Attractiveness of region 3) Labor availability and costs 4) Costs and availability of utilities 5) Environmental regulations 6) government incentives and fiscal policies (taxes) 7) Proximity to raw materials and consumers 8) Land/construction costs
Critical Ration Technique
1) Determine the status of a specific job 2) Establish relative priorities among jobs on a common basis 3) Adjust priorities automatically for changes in both demand and job progress 4) Dynamically track job progress
Potential Problems with Moving Averages
1) Increasing n smooths the forecast but makes it less sensitive to changes 2) Does not forecast trends well 3) Requires extensive historical data
KSF in Country Decision
1) Political risks, governments rules, attitudes, incentives 2) Cultural and economic issues 3) Location of Markets 4) Labor talent, attitudes, productivity, and cost 5) Availability of suppliers, communications, energy 6) Exchange rates and currency risks
KSF in Site Decision
1) Site size and cost 2) Air, railway, highway, and waterway systems 3) Zoning restrictions 4) Proximity of services/supplies needed 5) Environmental impact issues 6) Customer density and demographics
Graphical Methods
1. Determine the demand for each period 2. Determine the capacity for regular time, overtime, and subcontracting each period 3. Find labor costs, hiring and layoff costs, and inventory holding costs 4. Consider company policy on workers and stock levels 5. Develop alternative plans and examine their total cost
Seven Steps in Forecasting
1. Determine the use of the forecast 2. Select the items to be forecasted 3. Determine the time horizon of the forecast 4. Select the forecasting model(s) 5. Gather the data needed to make the forecast 6. Make the forecast 7. Validate and implement results
Seasonal Variations in Data
1. Find average historical demand for each season 2. Compute the average demand over all seasons 3. Compute a seasonal index for each season 4. Estimate next year's total demand 5. Divide this estimate of total demand by the number of seasons, then multiply it by the seasonal index for that season Seasonal index = average period demand for past n years/ average monthly demand
Making Revenue Management Work
1. Multiple pricing structures must be feasible and appear logical to the customer 2. Forecasts of the use and duration of use 3. Changes in demand
Service Location Strategy
1. Purchasing power of customer-drawing area 2. Service and image compatibility with demographics of the customer-drawing area 3. Competition in the area 4. Quality of the competition 5. Uniqueness of the firm's and competitors' locations 6. Physical qualities of facilities and neighboring businesses 7. Operating policies of the firm 8. Quality of management
Limitations of Rule-Based Dispatching Systems
1. Scheduling is dynamic and rules need to be revised to adjust to changes 2. Rules do not look upstream or downstream 3. Rules do not look beyond due dates
Economic Forecasts
Address business cycle - inflation rate, money supply, housing starts, etc.
Revenue Management
Allocating resources to customers at prices that will maximize revenue or yield 1) Service or Product ca be sold in advance of consumption 2) Demand fluctuates 3) Relatively fixed resource (capacity) 4) Segmentable Demand 5) Low variable costs; high fixed costs
locational cost-volume analysis
An economic comparison of location alternatives - Three steps in the method 1) Determine fixed and variable costs for each location 2) Plot the cost for each location 3) Select location with lowest total cost for expected production volume
Critical Ratio (CR)
An index number found by dividing the time remaining until the due date by the work time remaining on the job Jobs with low critical ratios are scheduled ahead of jobs with higher critical ratios Performs well on average job lateness criteria CR = Time Remaining until due/workdays remaining
infinite loading
Assigns work without the consideration of capacity - All due dates are met - Capacities may have to be adjusted
Naive approach
Assumes demand in next period is the same as demand in most recent period Sometimes cost effective and efficient can be god starting point
Sales and Operations Planning
Coordination of demand forecasts with functional areas and the supply chain Typically done by cross-functional teams Determine which plans are feasible Limitations must be reflected Provides warning when resources do not match expectations Output is an aggregate plan Decisions must be tied to strategic planning and integrated with all areas of the firm over all planning horizons
Level Strategy
Daily production is uniform Use inventory or idle time as buffer Stable production leads to better quality and productivity
Importance of Short-Term Scheduling
Effective and efficient scheduling can be a competitive advantage - Faster movement of goods through a facility means better use of assets and lower costs - Additional capacity resulting from faster throughput improves customer service through faster delivery - Good schedules result in more dependable deliveries
Qualitative Methods: Sales force composite
Estimates from individual salespersons are reviewed for reasonableness, then aggregated - May be overly optimistic
Exponential Smoothing
Form of weighted moving average - Weights decline exponentially - Most recent data weighted most Requires smoothing constant (alpha) - Ranges from 0 to 1 - Subjectively chosen Involves little record keeping of past data Ft = F(t-1)+alpha*[A(t-1)-F(t-1)] higher alpha = average is likely to change lower alpha = average is stable
Factors that Affect Location Decisions
Globalization adds to complexity; Drivers of globalization are: - Market economics - Communication - Rapid, reliable transportation - Ease of capital flow - Differing labor costs Identify key success factors (KSFs)
Geographic Information System (GIS)
Important tool to help in location analysis Enables more complex demographic analysis Available databases include: - Detailed census data - Detailed maps - Utilities - Geographic features - Location of major services
Moving Averages
MA is a series of arithmetic means Used if little or no trend Used often for smoothing Provides overall impression of data over time Demand in previous n periods/n
Factors that Affect Location Decisions: Proximity to Markets/Suppliers/Competitors
Markets: - Very important to services - JIT systems or high transportation costs may make it important to manufacturers Suppliers: - Perishable goods, high transportation costs, bulky products Competitors: (Clustering) - Often driven by resources such as natural, information, capital, talent - Found in both manufacturing and service industries
Chase Strategy
Match output rates to demand forecast for each period Vary workforce levels or vary production rate Favored by many service organizations
Center of Gravity Method
Method for locating a distribution center that minimizes distribution cost. Considers: - Location of markets - Volume of goods shipped to those markets - Shipping cost/distance
aggregate planning in services
Most services use combination strategies and mixed plans --Controlling the cost of labor is critical 1. Accurate scheduling of labor-hours to assure quick response to customer demand. 2. An on-call labor resource to cover unexpected demand 3. Flexibility of individual worker skills 4. Flexibility in rate of output or hours of work
Comparison of Sequencing Rules
No one sequencing rule excels on all criteria 1. SPT does well on minimizing flow time and number of jobs in the system But SPT moves long jobs to the end which may result in dissatisfied customers 2. FCFS does not do especially well (or poorly) on any criteria but is perceived as fair by customers 3. EDD minimizes maximum lateness
Qualitative Methods: Delphi method
Panel of experts, queried iteratively - Decision makers, staff, and respondents - iterative group process; continues until consensus is reached
Trend Component
Persistent, overall upward or downward pattern Changes due to population, technology, age, culture, etc. Typically several years duration
Qualitative Methods: Jury of executive opinions
Pool opinions of high-level experts, sometimes augmented by statistical models - Group estimates demand by working together - Relatively quick - "Group-think" disadvantage
Factor Rating Method
Popular because a wide variety of factors can be included in the analysis 1) Develop a list of relevant factors (KSF) 2) Assign a weight to each factor 3) Develop a scale for each factor 4) Score each location for each factor 5) Multiply score by weights for each factor and total the score for each location 6) Make a recommendation based on the highest point score
Technological Forecasts
Predict rate of technological progress Impacts development of new products
Demand Forecasts
Predict sales of existing products and services
Forecasting in the Service Sector
Presents unusual challenges -Special need for short term records -Needs differ greatly as function of industry and product -Holidays and other calendar events -Unusual events
Forecasting
Process of predicting a future event - Underlying basis of all business decisions (production, inventory, personnel, and facilities)
Seasonal Component
Regular pattern of up and down fluctuations Due to weather, customs, etc. Occurs within a single year
Cyclical Component
Repeating up & down movements Affected by business cycle, political, and economic factors Usually multiple years in duration
Priority Rules for Sequencing Jobs
Specifies the order in which jobs should be performed at work centers - FCFS: first come first serve - SPT: Shortest Processing Time - EDD: Earliest due date - LPT: longest processing time
Average completion time
Sum of total flow time / number of jobs
Strategic Importance of Forecasting
Supply-Chain Management - Good supplier relations, advantages in product innovation, cost and speed to market Human Resources - Hiring, training, laying off workers Capacity - Capacity shortages can result in undependable delivery, loss of customers, loss of market share
Aggregate Planning
The objective of aggregate planning is usually to meet forecast demand while minimizing cost over the planning period - Combines appropriate resources into general terms - Part of a larger production planning system
Short-term scheduling
The objective of scheduling is to allocate and prioritize demand (generated by either forecasts or customer orders) to available facilities
Average number of Jobs in the system
Total Flow Time / Total job work (processing) time
Forecasting Approaches: Quantitative Methods
Used when situation is 'stable' and historical data exist - Existing products - Current technology Involves mathematical techniques - e.g., forecasting sales of color televisions
Forecasting Approaches: Qualitative Methods
Used when situation is vague and little data exist - New products - New technology Involves intuition, experience - e.g., forecasting sales on Internet
Weighted Moving Average
Used when some trend might be present - Older data usually less important Weights based on experience and intuition (Weight for period n)(demand in period n)/weights
Capacity Options: Using part-time workers
Useful for filling unskilled or low skilled positions, especially in services
mathematical approaches
Useful for generating strategies Transportation method of linear programming - Produces an optimal plan - works well for inventories, overtime, subcontracting - does not work when nonlinear or negative factors are introduced
coefficient of correlation
a measure of correlation that ranges in value from -1.00 to +1.00
tracking signal
a measurement of how well a forecast is predicting actual values = cumulative error/MAD
finite loading
assigns work up to the capacity of the work station - All work gets done - Due dates may be pushed out
Disaggregation
breaks the aggregate plan into greater detail; results in a master production schedule
tangible costs
easily measured costs such as utilities, labor, materials, taxes
Exponential Soothing with Trend Adjustment
forecast including trend = Exponentially smoothed forecast + Exponentially smoothed trend
Location Strategy Objective
maximize the benefit of location to the firm Options: 1) Expanding existing facilities 2) Maintain existing and add sites 3) Closing existing and relocating
Intangible costs
not as easy to quantify and include education, public transportation, community, quality-of-life
Mean Squared Error (MSE)
sum(Forecast Errors)^2/n
Mean Absolute Deviation (MAD)
sum(actual-forecast)/n
Center of Gravity Point
sum(x_i*Q_i)/sum(Q_i)
Mean Absolute Percent Error (MAPE)
sum[100*(actual(i)-forecast(i))/actual(i)]/n
flow time
the time between the release of a job to a work center until the job is finished
Utilization Metric
total job work (processing) time / sum of total flow time
Average Job Lateness
total late days / number of jobs