little field 2 summary and solution(1)
TRANSCRIPT
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LT Game 2 – Managing Customer Responsiveness
DSC 335Zhibin Yang, Assistant Professor
Decision Sciences
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The Factory and Three Decisions
Board stuffing
BufferTesting
Tuning
Buffer
Buffer
Orders arrive
Station 1 Station 2
Station 3
Raw kits
Set lead time target
Inventory management
Capacity management
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Key Issue 1: Minimize Delay and Penalty
Meet delivery time requirement
Set ROP to avoid stockout
Choose right capacity
“Sufficient capacity” is not sufficient for meeting delivery time targetHigh utilization leads to long production lead time
Stockout causes waiting and increases production lead time
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Key Issue 2: Minimize Inventory Costs
Two costs Holding (carrying) cost Ordering cost
Choose your inventory policy Demand is stationary Set reorder quantity to be EOQ
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Demand Analysis
Daily demand is stationary over the planning horizon Average daily demand = 12 batches; Standard dev. = 3.37
0 5 10 15 20 25 30 35 40 45 500
5
10
15
20
25
Daily demand
Mean 12.24Standard Error 0.477715653Median 13Mode 15Standard Deviation 3.377959776Sample Variance 11.41061224Kurtosis -0.273834815Skewness -0.056949681Range 15Minimum 5Maximum 20Sum 612Count 50
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Optimal Strategy – Race for Shortest Lead TimeChoose contract 3 – shortest lead time requirement and
highest revenue
Timing of the decision – immediately after you get the capacity and inventory policy right Because demand is stationary over time
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Optimal Capacity (12 hour time-to-delivery)
Use M/M/s queueing model to calculate W, the average time spend at each of 3 station, then add them up
System parameters (see game 1 analysis) Demand rate λ = 12 batches Capacity rate of board stuffing machine = 5 Capacity rate of testing machine = 32 Capacity rate of tuning machine = 17
Production lead time with different configurations 3-1-1: average lead time = 20.8 hours 4-1-1: average lead time = 16.5 hours 4-2-2: average lead time = 9.15 hours
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Optimal Inventory Policy
Set your reorder quantity to be EOQ
Model parameters Interest rate: i=10%/year Unit cost c=600 per batch; annual holding cost = i*c / batch Daily demand, d =12; Annual demand, D = 4,380 Ordering cost, S=$1,000 per order to the supplier
EOQ = 382 batches = 22,920 kits
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Safety Stock and Reorder Point
Assume the daily demand has normal distributionSS = z σdLT = z*sqr(L)*σ = 11
For the service level of 95%, z = 1.64 L= 4 days Standard deviation, σ = 3.38
Reorder point, ROP = d L + SS = 59 batches = 3,540 kits
Common mistake: ROP = d L, not using a safety stock.
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Summary – Common Mistakes
Start without knowledge about demand
Make capacity decision solely based on utilization
Not realizing low ROP is causing long delay
Do not use EOQ to minimize inventory costs
ROP does not include a safety stock
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Summary – Analytical Skills to Master
Estimate lead time using queueing model
Calculate safety stock using history demand date
Calculate EOQ using parameters from the context