Capacity Management• Capacity = Maximum Output Rate (how many products can be produced or how much service can be provided when system is running at full tilt)• What is the capacity of: – Theatre – Coffee Shop – Mechanic Shop – Factory – Human Brain
Factors Impacting Capacity s and Regulation Manual an d Policies Automate d y and Technolog e tur Infrastruc t and Skilled and Consisten Variant Unskilled
Selecting the right capacity• Essentially a Decision Making Problem• Can be objective or subjective• Find optimal solution using multiple 60% 30% capacity variables and constraints 70%• Use decision trees
Inventory Management• Why is Inventory required?• What will happen if we have too little inventory?• What will happen if we have too much inventory?• When can we say that we have optimum inventory?
Inventory is required as a cover for all kinds of variations and uncertainties in the production process and supply chain Inventory allows economies of scale to kick in
EOQ Model – Wilson Model• Underlying assumptions – The ordering cost is constant. – The rate of demand is known, and spread evenly throughout the year. – The lead time is fixed. – The purchase price of the item is constant i.e. no discount is available – The replenishment is made instantaneously, the whole batch is delivered at once. – Only one product is involved. – EOQ is the quantity to order, so that ordering cost + carrying cost finds its minimum. (A common misunderstanding is that the formula tries to find when these are equal.)
EOQ Model – Author Ken Homa MicrosoftPowerPoint 97-2003 Presentation
ABC Analysis Classify all items in inventory into ABC classes or categories as per Pareto principleClass A 70 – 80% expenditure Usually small in numberClass B 10-15% expenditure Medium to large in numberClass C 5-10% expenditure Maybe large in number