CAPACITY / INVENTORY PLANNING Flashcards
(25 cards)
Define capacity?
The maximum level of value added activity over a period of time that the manufacturing process can achieve under normal operating conditions.
Define design capacity / effective capacity / actual output?
Design: max attainable output (think ideal efficiency)
Effective: max capacity with product mix, scheduling issues taken into account (think exergy)
Actual output - self explanatory
What are the equations for Utilisation and Efficiency?
Utilisation = actual output / design capacity. (think 1st law efficiency)
Efficiency = actual output / effective capacity (think 2nd law efficiency)
What is the best operating point in terms of design capacity?
Around 70% of the design capacity.
Difference between output and input capacity?
Output capacity - e.g amount of beer produced in a brewery. Counts the finished units from the process. Useful for low variety/customisation
Input capacity - e.g beds available in a hotel. Measure of the key input into the process. Useful for when capacity is quite fixed.
Different ways of defining capacity will be used in different scenarios.
Describe long term capacity planning and how is it affected?
- Manufacturing firms must decide on the size of the operation
- Affected by the available capital and economies / diseconomies of scale
Define economies of scale?
The decrease in unit cost associated with an increase in order volume
Define medium term capacity planning?
Deciding the level of production in a time period at which the manufacturing firm should operate
3 major steps in medium capacity planning?
- Measure demand and capacity
- Identify alternative capacity plans
- Choose most appropriate capacity plan
What are the 3 approaches to capacity planning (fluctuating demand)?
Level capacity: ignores fluctuations, activity is kept constant. Where non-perishable items are processed but not immediately sold, they can be added to finished goods inventory for future sales.
Chase demand: attempt to closely match capacity to forecasted demand (hiring + firing, part time staff)
Manage demand: try to change and control demand through price manipulation. Sometimes resources can be used to create alternative products / services in off peak times, eg uni accom used for conferences in summer.
Options for short term capacity planning?
- Leasing extra space
- Hire temporary workers
- Authorise overtime
Effect of quality on capacity?
Defects will have to be taken into account, and this increases the required capacity as more products will have to be manufactured to make up for the defective ones which will not be sold to customers.
Capacity expansion strategy options (general)?
-Add services to an existing site
- Duplicate services at an additional site
- Relocate to a more suitable (i.e larger) site
Describe expansionist vs wait-and-see : advantages and disadvantages of each.
Expansionist:
+ve: ahead of competition, no lost sales
-ve: risky if demand changes
Wait-and-see:
+ve: no unused capacity
-ve: relies on short term options
Define inventory?
Inventory (stock) is the stored accumulation of material resources.
Why do inventories exist / what do they support?
To support:
-quality (e.g aged cheese/wine)
-speed of operation (eg blood bank)
-dependability (eg insurance against warehouse fires)
-flexibility (eg custom computers)
-cost objectives (eg other firms ordering in bulk)
What are the different types of inventory?
Buffer: inventory to compensate for fluctuations in supply and demand (safety inventory)
Cycle: resources that are kept to meet minimum production requirements
De-coupling: required to allow processes to proceed at various speeds independently
Anticipation: stored to cope with predictable fluctuations in seasonal demand.
Pipleline: stores because delivery of materials is not instantaneous
What are the 3 decisions that must be made in day to day inventory management?
- How much to order (the volume decision)
- When to order (the time decision)
- How to control the system (the control decision)
What is the aim of the volume decision?
To find the order volume that balances order costs and storage costs.
Describe the Economic Order Quantity (EOQ) approach?
- Assumes constant demand and instantaneous delivery
- Order cost independent of order size
Avg inventory = Q/2
slope = demand rate
Differentiate total cost expression with respect to Q to find optimal order quantity.
Describe the Economic Batch Quantity (EBQ) approach?
- Assumes delivery not instantaneous and that they are carried out at constant rate P
Avg inventory can be taken from equation
What are the 2 approaches to the timing decision?
ROP: re-order point: The point in TIME to order so that inventory does not run out before delivery arrives
ROL: re-order level: the LEVEL of inventory at which to order etc
What is 2 bin inventory control?
Inventory divided into 2 bins.
Bin 1: items that are being used
Bin 2: ROL + safety inventory
This approach is very good at showing when ordering strategy needs to be reviewed
Sometimes Bin 2 is split to have 3 bins in total.
What is ABC inventory control?
Inventory is categorised by usage value and the approach to manage it is varied accordingly. This works because of the 80/20 rule: 80% of the sales are made up of only 20% of the stocked item types.
