MSC 385 Exam 3

Safety Stocks. Two reasons for safety stock. #1: Demand can vary. #2: Lead time can vary. Safety Stock for demand and Safety time for lead time variation

-Stock that is held in excess of expected demanddue to variable demand and/or lead time ROP(reorder point) = (demand x leadtime) + Safety stock

Two Fundamental decisions to make concerning Inventory

1. Level of customer service Having the right goods available in the right quantity inthe right place at the right time 2. Costs of ordering and carrying inventories The overall objective of inventory management is toachieve satisfactory levels of customer service whilekeeping inventory costs within reasonable bounds1. Measures of performance2. Customer satisfaction Number and quantity of backorders Customer complaints Customer satisfaction3. Inventory turnover

EOQ style question. Cost, ordering cost, carrying cost.

A bakery buys flour in 25 pound bags. The bakery uses 1,215 bags a year. Ordering cost is $10 per order. Annual carrying cost is $75 per bag. EOQ = sqrt((2 * D * S) / H)D = Annual demand (1,215 bags)S = Ordering cost per order ($10)H = Annual carrying cost per unit ($75) a.EOQ = sqrt((2 * 1,215 * 10) / 75)= sqrt((24,300) / 75)= sqrt(324)EOQ = 18 bags b. Average Bags on Hand = EOQ /2 = 18 / 2 Average Bags on Hand = 9 bags c. Number of Orders = D / EOQ= 1,215 / 18Number of Orders ≈ 67.5 d.Total Cost_new = ((Q + SS) / 2) * H + (D / Q) * S= (18 / 2) * 75 + (1215 / 18) * 10= 9 * 84 + (67.5) * 10= 675 + 675Total Cost = $1,350 e.H_new = H + Increase in Holding Costs= 75 + 9= $84 per bagEOQ_new = sqrt((2 * D * S) / H_new)= sqrt((2 * 1,215 * 10) / 84)≈ 17.01Total Cost_new = ((Q + SS) / 2) * H + (D / Q) * S= (17 / 2) * 84 + (1215 / 17) * 10

Bill of Materials and what it contains

A listing of all of the assemblies, subassemblies, parts, and raw materials needed to produce one unit of a product. Product Structure tree. A visual depiction of the requirements in a billof materials, where all components are listedby levels

Aggregate planning. The balance they have to achieve

Aggregate planning aims to achieve a balance between the conflicting objectives of meeting customer demand and optimizing operational efficiency. It seeks to strike a balance between supply and demand by aligning production capacity or both with forecasted or actual demand while considering various constraints and objectives.

Material Requirements Planning (MRP). Feasible production plan, flow chart, is it feasible if we dont have capacity if when capicity requriments planning. Teasting for feasibility.

Capacity requirements planning (CRP)- 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 outputs. Load reports for each work center. If a proposed plan is not feasible, it must be revised

Aggregate planning. level prodcution strategy or chase production strategy. blank copy of the worksheet

Chase Strategy is where you work up to the forecast but not past the capacity per period. Level is where you work up to thr capacity per period.

Cycle counting when talking about inventory. What is the purpose of cycle counting.

Cycle counting - A physical count of items in inventory• Cycle counting management - How much accuracy is needed? A items: ± 0.2 percent B items: ± 1 percent C items: ± 5 percent

Retail store carried twice as much inventory. Whether it will provide twice the customer service level. T/F

FALSE

Draw tree diagram

Follow the

Objective of inventory management and the objective of transportation.

Inventory: is to achieve satisfactory levels of customer service while keeping inventory costs within reasonable bounds Transportation: maximize calue to the firm through negotiation to provide porfit contribution. Make sure service is provided effectively. Satisfy customer needs.

Aggregate planning. Pure chase strategy and pure level stragtegy. In a pure level strategy, you will always have the same amount produced every period whether regular time, overtime its always the same, there is also inventory. In a Pure Chase, there is no inventory but you produce what is exactly needed. Quantities and cost jump around

Level capacity strategy:- Maintaining a steady rate of regular-time output while meeting variations in demand by a combination of options: Inventories, overtime, part-time workers,subcontracting, and back orders Chase demand strategy:- Matching capacity to demand; the planned output for a period is set at the expected demand for that period.

Aggregate planning. Disaggregation.

Master schedule: - The result of disaggregating an aggregate plan - Shows quantity and timing of specific enditems for a scheduled horizon

Material Requirements Planning (MRP) there are three inputs. there is one correct option.

Master schedule: One of three primary inputs in MRP; states whichend items are to be produced, when these areneeded, and in what quantities. Bill of materials: A listing of all of the assemblies,subassemblies, parts, and raw materialsneeded to produce one unit of a product. Inventory Records: includes information on the status of each itemby time period, called time buckets

Aggregate planning. Level production strategy. Here are ways we handle variations in demand.

Most organizations use rolling 3, 6, 9, and12 month forecasts - Forecasts are updated periodically, rather than relying on a once-a-year forecast - This allows planners to take into account anychanges in either expected demand or expected supply and to develop revised plans _Maintain a certain amount of excess capacity to handle increases in demand - Maintain a degree of flexibility in dealing with changes Hiring temporary workers Using overtime - Wait as long as possible before committing to acertain level of supply capacity Schedule products or services with known demands first Wait to schedule other products until their demands become less uncertain

Fixed order quantites, fixed order intervals.

Order interval (length of time between orders) Economic order quantity models identify the optimal order quantity by minimizing the sum of annual costs that vary with ordersize and frequency.

Inventory chapter. Two bin inventory system

Perpetual inventory system - System that keeps track of removals frominventory continuously, thus monitor ingcurrent 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 firstis empty

Output in MRP. Specific thing(s) that come out of the output of MRP

Primary Outputs - Planned orders: A schedule indicating the amount and timing offuture orders - Order releases: Authorizing the execution of planned orders - Changes: Revisions of the dates or quantities, or the cancellation of orders Secondary Outputs - Performance-control reports Evaluation of system operation, including deviations from plans and cost informationo e.g., missed deliveries and stockouts - Planning reports Data useful for assessing future material requirementso e.g., purchase commitments - Exception reports Data on any major discrepancies encounteredo e.g., late and overdue orders, excessive scraprates, requirements for nonexistent parts

Aggregate Planning. Capacity. Things to do to modify capacity. Multiple options to modify capacity.

Proactive- Alter demand to match capacity• Reactive- Alter capacity to match demand• Mixed- Some of each

Total cost of inventory. Quantity discounts change somethings. Understand the EOQ calculations and total cost calculations.

Quantity discount - Price reduction for larger orders offered tocustomers to induce them to buy in large quantities.

Problem section. Calculate reorder point. Formula

ROP(reorder point) = (demand x leadtime) + Safety stock

Safety stocks in inventory chapter. Ways you can reduce safety stock and factors that cuase you to hold safety stocks.

The amount of safety stock that is appropriatefor a given situation depends upon:.The average demand rate and average leadtime. Demand and lead time variability. The desired service level. As the amount of safety stock carried increases, the risk of stockout decreases.- This improves customer service level

Inventory chapter. EOQ model. Gives us fixed order quantities, fixed schdulde deliveries, lot for lot.

The basic EOQ model is used to find a fixed order quantity that will minimize totalannual inventory costs. • 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

Aggregate Planning for a firm producing paint. Units used in aggregate Planning. M/C

The plan must be in units of measurement that can be understood by the firm's non-operations personnel - Aggregate units of output per month - Dollar value of total monthly output - Total output by factory - Measures that relate to capacity such as laborhours

Master Production Schedule (MPS). What are we producing, whend producing.....know the three outputs of the MPS.

Three inputs: Beginning inventory, Forecast, Customer orders. Three outputs: Projected inventory, Master production schedule, Uncommitted inventory.

Aggregate Planning. Several decisions.

Timing of demand and demand quantity

Aggregate Planning. Which information is requried to do aggregate planning.

To conduct effective aggregate planning, organizations require essential information, including a clear demand forecast, production and inventory cost data, production capacity details, workforce information, current inventory levels, lead times for procurement and manufacturing, financial constraints, distribution and transportation capabilities, subcontracting options, adherence to company policies and strategies, awareness of environmental and regulatory factors, identification of risk factors, and access to technology and planning tools. This information is vital for developing a balanced plan that aligns supply with demand while considering various organizational constraints and objectives.

Uncommited Inventory. Planning and prodcution runs, there is a different name for uncommitted inventory, what is it?

available-to-promise inventory

Fill rate for production as a percentage of something.

the percentage of orders a brand can fulfill without running out of stock.