SCM 414 Exam 2

Short-Term Capacity decision

-Amount of OT scheduled next week -Mechanic staffing for a snowstorm -Call center workers during the holiday season -Police officers for an upcoming music festival

Theory of Constraints steps

1.Identify a system's constraints 2.Decide how to 'exploit' the system's constraints 3.Subordinate everything else to the above decision 4.Evaluate/Elevate the system's constraints 5.Go back to step 1, find a new constraint, and repeat the process

What if a task takes longer than the ideal cycle time?

1.Split the task: is it possible to divide the task and use two workstations? 2.Duplicate the workstations: reduces effective task time by 50% 3.Share the tasks: Use idle time at adjacent workstations to increase throughput 4.Use a more skilled worker 5.Work overtime 6.Redesign the process

Step 1:

A bottleneck resource is: •Always busy --Busyness is however not the only (or even a good) criterion by which to recognize bottlenecks --Many systems are mistakenly optimized to get high utilization (or rather busyness) out of all resources •Work piles up in front of them •Downstream resources are regularly idle

Forward Integration

Acquiring capabilities toward distribution (or customers)

Backwards Integration

Acquiring capabilities towards suppliers

Option Goods and Services

Assemble-to-order Produced in anticipation of and in response to customer demand •Moderate volume and variety •Customization around limited options •Dominant flow patterns •Some common inputs •Setup time (between batches) can be high •Moderately flexible employees/equipment

GLobal Trends

Availability of information and communication has made international trade easier Outsourcing and offshoring --Searching for low cost labor - foreign operations --Searching for low cost raw materials - foreign suppliers --Access to resources International supply chains --Supply, production, and distribution take place at various facilities location around the world

Break Even Objective

Balance costs and benefits

Under-sold capacity

Balance: Book now vs book higher-yield customer later •Displacement cost: --Lost revenue by booking too early at a cheaper rate •Spoilage cost: --Lost revenue from unused capacity

Load Distance

Based on proximity factors Objective: Minimize distance traveled and costs

Queue System

Consists of customers that arrive for service, one or more servers that provide the service, and a queue (waiting line) of entities that wait for service if the server is busy

Postponement

Delaying product customization until the product is closer to the customer at the end of the supply chain

Efficient Supply Chains

Designed for efficiency and low cost by minimizing inventory and maximizing efficiencies in process flow --Goods/services w highly predictable demand --Stable product lines w long life cycles --Low contribution margins

Product Layout

Equipment is organized in stages (progressive steps) to produce product or service • Relies on the same process for each product • Synonymous with flow process types • Managed using workload balancing techniques Ex: Chipotle Assembly Line High volume low variety

Weight-Losing Products

Final goods are lighter than the material inputs -Centralized network

Weight-Gaining Products

Finished good are heavier than the material linnets -Decentralized network

Types of Facility Layouts

Fixed Product Functional Cellular

Responsive Supply Chains

Focus on flexibility and responsive service --Demand is unpredictable --Short product life cycles --Fast response if main competitive priority --Customers require customization --High contribution margins

Batch

Goods / service flow in batches from task to task Production on multiple items or sizeable quantity at once

Activity

Group of tasks needed to create and deliver an intermediate or final output Ex: Assembling cover pieces of an iPad

Continuous Flow

Highly standardized goods or services Usually around the clock in very high volumes

Revenue (Yield) Management Benefits

Improves revenue and profits 2-7% --Better rate and density mix -- max use of capacity --Better overbooking decisions --more capacity is booked to off-set no-shows and cancellations --Optimal customer allocations-- low value customers do not fill valuable space Reduces Service failures --Accuracy in capacity forecasts-- less refusals --Better overbooking decisions --improved service

Center of Gravity

Instead of calculating a single load-distance... CoG finds a central location among a set of demand points, such that the weighted distance is minimized --Accounts for markets and demand to find the best central location •Does not explicitly address customer service objectives --But, can be used to assist managers in balancing cost and service objectives Minimize cost

Buffering

Keep some inventory between stages

Cellular Layout

Labor and machines grouped in cells according to families of parts with similar processing requirements • Combination of process and product layout • Synonymous with batch or flow process types

Project

Large-scale, customized initiatives Composed of many smaller tasks requiring coordination

Bottlenecks in the process

Limit to the rate out output (throughput) SLOWEST step in the process Increase capacity of the bottleneck to increase the throughput of the whole process

Revenue Management

MAX Profit by booking a reservation at different rates The optimal mix depends on --Route, location, concert/game, day, time --Demand & Seasonality

Custom Goods and Services

Make-to-order Produced in response to customer demand •Unique sequencing à varies by project •High complexity •Employees and equipment flexibility •Activities outsourced to specialists •High level customer involvement

Standard Goods and Services

Make-to-stock Produced in anticipation of customer demand Commodities w high volume •Products follow sequence •Operations often run 24/7, continuous •Line stoppages are very costly Highly specialized equipment

Global Sourcing

Many firms purchase internationally --Access to raw materials -Low-cost skilled labor --Economic factors DIFF than International purchasing

Forces shaping Global SC Decisions

Market forces --Higher than expected demand for new product --Competition Technological forces --New technology like blockchain Global cost forces --Lower labor costs, raw materials costs Political and macroeconomic forces --Exchange rates, trade agreements, tariffs, export restrictions, political instability

Step 4:

Methods to elevate bottleneck --Add more people or machines --Training and mentoring --Better tools, faster machines --Switching to a different technology

Line Balancing Goal

Minimize the imbalance in a process to achieve a desired output by --Adjusting capacity at each workstation --Reordering tasks when possible --Grouping or splitting tasks when possible Objective: Balance work between stations to maximize output and with the desired output rate

The type of facility and its location affect:

Modal Choice: --What mode of transportation is needed to move inventory through the network? --Is there sufficient availability and capacity in transportation networks? Lead Times: --How quickly customers can be supported? --How quickly supplies can be sourced or resupplied? Performance: --How efficient does material move through the network?

Step 2:

Must first try to increase the output of the bottleneck --Output of the system is constrained by output of the bottleneck --Any idle time of the bottleneck reduces output of the system •Methods to "exploit" constraint --Remove any non-value adding work --Remove/limit stoppages from machine interruptions --Always work on task that brings the most value --Small buffer of work in front of the bottleneck

Network Flow Models

Objective: Minimize the cost/time/distance over a network

Important to have a well designed process because it impacts

Operational costs Customer service Sustainability

Functional Layout

Operations performed in common, functional areas regardless of what is being produced • Travel between areas may vary for different product or service • Synonymous with job or batch process types • Flow charts and relationship charts Ex: Shoemaking Hospital

FLow Shop

Organized around fixed sequence of activities Produce limited variety of similar goods or services

Job shop

Organized around general-purpose equipment Capable of customizing work for individual customers

Vertical Integration

Process of acquiring and consolidating elements of a value chain to achieve more control --typically adds managerial complexity

Push System

Produces goods in advance of customer demand using a forecast and stores them as finished goods inventory at the point of sale

Pull System

Produces only what is needed in response to customer demand signals

Fixed Position

Product remains stationary at one location • Equipment, materials, and labor move to the product • Synonymous with a project process type Shipbuilidng Construction Low volume, High variety

Process Types

Project Job Shop Batch Flow Shop Continuous FLow

Break-Even Analysis

Q=(FCO -FCI)/(CI -CO) FCO= fixed cost of outsourcing FCI= fixed cost of in-house manufacturing CI= unit cost of in-house manufacturing CO= unit cost of outsourcing

Location Methods

Scoring (Factor weighting) Load Distance Center of Gravity Break Even Network Flow Models

Process

Sequence of activities Ex: Manufacturing an iPad Turns inputs into outputs

Capacity Lagging Strategy

Small capacity increased that lag demand Advantages? --Conservative approach --Waits for real demand --Less investment Disadvantage? --Constant capacity shortages --May result in market share loss, higher costs for OT, ...

3. Capacity Lead Strategy

Small capacity increases that lead demand Advantages? --Prevent capacity shortages --Ready for demand surges Disadvantage? --Always has excess capacity → costs

2. Capacity Matching

Small capacity increases that match demand Advantages? --Incremental expansion --More closely matches increases in demand Disadvantage? --Multiple investments required --Still has periods of over and under-utilization

Tasks

Specific unit of work required to create an output Ex: Inserting circuit board into iPad subassembly

Starving

Stoppage of a task or activity because of lack of material from a previous task (lack-of-work delay)

Blocking

Stoppage of flow because there is no storage place or buffer is full (flow-blocking delay)

Capacity

The ability of an organization to accomplish their mission over a specified period

Cycle Time

The amount of time to complete a process (flow time)

Queuing Theory

The analytical study of waiting lines Typical performance measures that can be computed: --Probability that the system is empty --Average # of units waiting for service in the queue --Average # of units in the system --Average time a unit spends waiting for service (time in queue) --Average time a unit spends in the system (waiting + service time) --Probability that an arriving unit has to wait for service --Probability of specified # of units in the system

Rectilinear distance

The distance between two points with 90-degree turns, as along city blocks

Resource Utilization

The fraction a workstation or individual is busy over the long run

Throughput

The number of units that go through a process or system per unit time. Output rate

Facility Location Decision

The process of determining the best geographic sites for a firm's operations that maximize service and revenue, while minimizing costs

Process Mapping

The sequence of all activities and tasks Start at a high level then expand each activity with more detail Clearly define the process boundary Understand the hand-offs --Between other activities and processes Who they rely on Who relies on them Helps link the individual to the supply chain level

Euclidean distance

The straight-line distance, or shortest possible path, between two points

Safety Capacity=

Theoretical Capacity- Effective Capacity

Resource Availability

Units of available resources per unit of time --Number of airplane seats available per day --Number of hotel rooms available on a specific day --Man-hours per day

Step 5:

When we have applied one improvement and have seen a positive effect, we go back to the beginning: --Is our goal still valid? Is our measurement of throughput still correct? --Where's the bottleneck? After some improvements we may have solved our worst problem As there's always a bottleneck, our second-worst problem gets a promotion

Process

a series of independent tasks that transforms an input into output to provide value for the organization

Queue

a waiting line

Little's Law

an equation that explains the relationship among flow time (T), throughput (R), and work-in-process (WIP) Work-in-process=Throughput × Flow time WIP=R × T

Service Process-- Customer Involvement Possible Advantages

• Increased net value to the customer •Better quality, faster delivery, greater flexibility, and lower cost •Reduction in product, shipping, and inventory costs •Coordination across the supply chain

Focused Strategy for Capacity Mgmt

•Achieve economies of scale without extensive investment in facilities and overhead --Narrow the range of goods or services produced --Target market segments --Focus on maximizing efficiency and effectiveness

1. Expand capacity all at once

•Advantages? --1-time allocation of fixed costs •Disadvantage? --Over- and under-utilization for longer periods of time

Service Process-- Customer Involvement Possible Disadvantages

•Can be disruptive •Managing timing and volume can be challenging • Quality measurement can be difficult •Requires interpersonal skills •Multiple locations may be necessary

Safety Capacity

•Capacity cushion. Capacity reserves for unexpected events. --Demand surges, material shortages, equipment breakdowns

Global Sourcing Advantages

•Cost (scale, labor, material, etc.) •Create a presence in a region/country •Competition for domestic suppliers •Access to scarce materials, products, or parts •Quality advantages in specific locations •Technology and innovation •Currency and other financial considerations Single source global supplier can drive more consistent global quality for next step in supply chain.

Economic factors that affect facility location decisions

•Facility costs: construction, insurance, taxes, depreciation •Operating costs: utilities, maintenance, labor, administrative •Transportation costs: to/from facility and other nodes

Global Manufacturing Issues

•Factory setup •Government regulations •Worker education & skill level •Cultural issues •Infrastructure & Technology •Distribution complexity •Longer lead times

Over-Booked Capacity

•Intentionally overselling •Balance: Cost to settle an overbooking with unused capacity •Overbooking Costs: --Cost to expedite, buy space with another carrier, hotel, upgrade --Customer dissatisfaction •Spoilage Costs: --Lost revenue from unused capacity

Non-economic factors

•Labor availability •Legal and political factors •Community or cultural elements •Climate, quality of life

Scoring Method

•List the major location criteria --Assign a score to reflect its relative importance for a scorecard approach Advantage --Allows objective and subjective assessment --Allows quantitative and qualitative criteria --Adds structure to the process --Balanced decision making Disadvantage --Assumes each factor is equal in importance --Mitigate by adding weights to difference criteria Maximize Benefit!

Output Rate

•Maximum rate of output per unit of time --Number of customers served per hour (per day) --Number of widgets produced per hour (per day) --Number of cars on a roadway segment per day

Theoretical Capacity

•Maximum rate of output that can be produced per unit time (ideal conditions) --Assumes no unscheduled downtime --Typically use the hourly or daily throughput (output rate) and extrapolate to a monthly or annual capacity

Long-Term Capacity Decisions

•Production plant expansion •Purchase of faster, larger aircraft •Construction of a new hotel •Alternative warehouse space in the event of a SC disruption •Capacity for spikes in demand

Global Sourcing Barriers

•Security •Ethical issues •Lead time and other supply chain issues •Higher transportation costs •Currency fluctuation •Legal/Governmental issues •Regulatory differences •Internal communication •Supplier capability in certain locations

Global Manufacturing

•Shrinking the supply chain •Potential cost advantages •Industry clusters •Specialized labor •Government incentives

Effective Capacity

•The actual capacity that is reasonably be expected (long run), normal operating conditions --Considers downtime, such as preventive or unplanned maintenance

Step 3:

•Using slack in non-bottlenecks to support the bottleneck