Capacity, Layout, and Inventory Management Techniques
Capacity Management
Capacity: The maximum output a system can achieve. Understanding capacity helps align resources with demand.
Types of Capacity
Design Capacity: Theoretical maximum output.
Effective Capacity: Practical maximum output considering constraints.
Actual Capacity: Realized output under actual operating conditions.
Capacity Measures
Input Measures: Labor hours, machine hours.
Output Measures: Units produced, services delivered.
Capacity Utilization
Indicates how efficiently capacity is being used.
Formula:
Graph: Utilization vs. Time, showing underutilized and overutilized states.
Capacity Cushion
Extra capacity maintained to handle demand variability.
Formula:
Capacity Strategies
Lead Strategy: Add capacity before demand increases.
Lag Strategy: Add capacity after demand exceeds current capacity.
Match Strategy: Gradual capacity additions in response to demand.
Facilities Layout Types
Product Layout: Sequential arrangement, ideal for mass production (e.g., assembly lines).
Process Layout: Functional grouping, ideal for varied production (e.g., job shops).
Fixed-Position Layout: Resources move to the product, suitable for large projects (e.g., construction).
Hybrid Layouts: Combine characteristics of multiple layouts.
Tools for Layout Design
Flowcharts: Visualize workflows.
Relationship Diagrams: Highlight dependencies between tasks.
Load-Distance Analysis: Optimize material movement.
Graph: Example of a process layout showing workflow interdependencies.
Inventory Management
Inventory Types
Raw Materials: Inputs for production.
Work-in-Process (WIP): Items partially completed.
Finished Goods: Completed products ready for sale.
MRO Inventory: Maintenance, repair, and operations supplies.
Inventory Costs
Holding Costs: Storage, insurance, depreciation.
Ordering Costs: Costs to replenish inventory.
Stockout Costs: Costs of unmet demand.
Inventory Systems
Periodic Review: Inventory levels checked at regular intervals; orders placed to restock.
Continuous Review: Inventory monitored continuously; orders triggered when ROP is reached.
Economic Order Quantity (EOQ)
Balances ordering and holding costs.
Formula:
: Annual demand, : Ordering cost, : Holding cost per unit per year.
Graph: Total Cost vs. Order Quantity, showing EOQ point.
Reorder Point (ROP)
Determines when to reorder.
Formula:
: Daily demand, : Lead time in days.
Graph: Inventory level vs. Time, highlighting ROP and safety stock.
ABC Analysis
Classify inventory by value and volume:
A Items: High value, low volume (focus on control).
B Items: Moderate value and volume.
C Items: Low value, high volume (simplify management).
Just-in-Time (JIT)
Minimizes inventory by producing only what is needed, when needed.
Inventory Models
Single-Period Model (Newsvendor Problem)
Balances costs of understocking and overstocking.
Critical Ratio:
: Cost of understocking.
: Cost of overstocking.
Optimal Order Quantity is determined using the cumulative probability distribution of demand.
Graph: Demand distribution with shaded region representing optimal order quantity.
Multi-Period Models
Fixed-Order Quantity System: Continuous monitoring; order placed when inventory reaches ROP.
Fixed-Time Period System: Inventory reviewed at regular intervals; orders placed to replenish to target levels.
Safety Stock
Buffer against variability in demand or supply.
Formula:
: Z-score for desired service level.
, where : Demand variability, : Lead time.
Graph: Safety stock vs. Lead time, showing variability.
Service Level
Probability of meeting demand during lead time.
Links to safety stock via Z-scores.
Inventory Turnover Ratio
Measures inventory efficiency.
Formula: