OM 300: FINAL EXAM
97 Cards in this Set
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[Chp. 4] Global company profile: Walt Disney Parks & Resorts
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o Global portfolio includes parks in HK, Paris, Tokyo, Orlando, and Anaheim
o Revenues are derived from people-how many visitors and how they spend their money
o Daily management report contains only the forecast and actual attendance at each park
o Generate daily, weekly, monthly, ann…
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What is forecasting?
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The art and science or predicting future events // underlying basis of all business decisions
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3 Forecasting time horizons
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+Short-range: up to 1 year, generally 3 months
+Medium-range: 3 months to 3 years
+Long-range: 3+ years
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What is short-range forecasting used for?
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Used for planning purchasing, job scheduling, workforce levels, job assignments, and production levels
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Medium-Range?
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Used in sales planning, production planning and budgeting, cash budgeting and analysis of various operating plans
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Long-range?
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used in planning for new products, capital expenditures, facility location or expansion, and research and development
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Differences between the time horizon forecasts
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-Short term more accurate, math based, immediate decisions, scheduling, production planning
- Short term used moving averages, exponential smoothing, and trend extrapolation
- Mid/long-term aren't definite and used to make decisions on where to invest and what to expect (production plan…
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How does forecast affect human resources?
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HR can get labor trained for increased production, hiring, training, and laying off workers
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How does it affect capacity planning?
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If you aren't accurately forecasting you may not be able to produce at the right rate, lose customers
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How does it affect supply chain?
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Bettering supplier relationships, advantages in innovation, cost, and speed to market depend on accurate forecasts (e.g. Apple controlling everything, Toyota, Wal-Mart collaborates with suppliers
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7 Steps to forecasting (Disney)
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1) Determine the use of the forecast - park attendance to drive forecasts
2) Select the items to be forecasted - daily attendance at each park
3) Determine the time horizon of the forecast - short, medium, or long term?
4) Select the forecasting model(s) - moving averages, regression a…
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Qualitative vs. Quantitative forecasting approaches
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Qualitative - (personal, emotional experiences)
- Used when situation is vague and little data exists (new products, new technology). Involves intuition and experience (forecasting sales on the internet)
Quantitative - (math)
- Used when situation is 'stable' and historical data exists…
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Jury of Executive Opinion (Qual)
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Uses the opinion of a small group of high-level managers to form a group estimate of demand (often augmented by statistical models, relatively quick)
- Used by Bristol-Myers Squibb for future trends in the medical field
- Drawback: group think
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Delphi method (Qual)
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Uses a group process to allow experts to make forecasts (they use a questionnaire and continue until a consensus is reached)
- 3 types of participants: 1. Decision makers - (5-10 people) make the actual forecast 2. Staff personnel - prepare and administer surveys 3. Respondents - people …
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Sales force composite (Qual)
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Based on salespersons' estimates of expected sales - combined at the district and national levels to reach overall forecast
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Market survey (Qual)
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Solicits input from customers or potential customers regarding future purchasing plans
-Drawbacks: what customers say and what they do are often different
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What is Time-Series forecasting?
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Uses a series of past data points (daily, monthly, quarterly, etc.) to make a forecast
- Set of evenly spaced numerical data obtained by observing response variable at regular time periods
- Only past values matter, nothing else does
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4 Components of Time-Series Forecasting
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1) Trend - the gradual upward or downward movement of the data over time
2) Seasonality - a data pattern that repeats itself after a period of days, weeks, months, or quarters (e.g. 7 days a week, 52 weeks a year)
3) Cycles - patterns in the data that occur every several years
4) Rando…
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Naive Approach (Quan)
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Assumes that demand in the next period is equal to demand in the most recent period (next month forecast is last month actual)
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Moving Average (Quan -Time series)
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Uses an average of the n most recent periods of data to forecast the next period
Moving average = ΣD in previous n periods/n
- Jan = 10, Feb = 12, March = 13 April = (10+12+13)/3
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Weighted Moving average (Quan -Time series)
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- Used when some trend or pattern is present (places more emphasis on recent values)
= Σ((Weight for period n)(Demand in period n))/ΣWeight
- Jan = 10, Feb = 12, March = 13 April = [(3x13)+(2x12)+10)/6]
-Potential problems: Increasing n smooths the forecast but makes it less sensitive …
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Exponential Smoothing (Quan -Time series)
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A weighted-moving-average in which data points are weighted by an exponential function
- Ft= F(t-1)+ α(A(t-1)- F(t-1) )
Ft = new forecast, F(t-1) = previous period's forecast, a = smoothing constant, A(t-1) = previous period's actual demand
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How is forecast error measured and compared across multiple forecasts?
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Generally we select the model that gives us the lowest forecast error
-Forecast error = actual demand - forecast value
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Mean Absolute Deviation (MAD)
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A measure of the overall forecast error for a model
- MAD = Σ|Actual - Forecast|/n
1) Forecast + a(actual - forecast)
2) Subtract the above forecast by the actual
3) Total all the above steps and divide by n
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Seasonal Variation
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Regular upward or downward movements in a time series that tie to recurring events
Below are steps for a company with 1 month "seasons"
1) Find the average demand for each season/month (e.g. Jan 2012 = 80, Jan 13 = 85, Jan 14 = 105, average = 90 units)
2) Find the average demand over a…
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What is associative forecasting?
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Used when changes in one or more independent variables can be used to predict the changes in the dependent variable (usually consider several variables that are related to the quantity being predicted)
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Trend Projection (Quan -Time series)
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A method that fits a trend line to a series of historical data points and then projects the line into the future for forecasts
- y^ = a + bx
y^ = computed value of the variable to be predicted (dependent variable)
a = y-axis intercept
b = slope of the regression line
x = independent …
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Calculate trend progression (Least Squares)
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1) Year(x), Demand (y), find x^2 and x*y
2) Sum x, y, x^2, and x*y
3) xbar = Σx/n, ybar = Σy/n
4) solve for b
5) solve for a
6) solve for y^ with x = the next year
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How are forecasts monitored and controlled?
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Tracking signal: a measurement of how well a forecast is predicating actual values
Tracking signal = Cumulative Error/MAD
Tracking signal = Σ(actual demand in period i - forecast demand in period i)/MAD
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Calculate Tracking Signal
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1) Find error (actual - forecast)
2) Add Cumulative error (adding the error for each one)
3) Find MAD
4) Find tracking signal (Cumulative/MAD)
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[Chp. 8] Why did FedEx choose a 'hub' approach?
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1) Permits service to a far greater number of points with fewer aircrafts than traditional City A-City B system.
2) Match aircraft flights with package loads each night and reroute flights when load volume requires it
3) Reduce mishandling and delay in transit because there is total con…
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Why did FedEx choose Memphis?
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Located in the middle of the U.S. and it has very few hours of bad weather closures
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Why is location decisions so important?
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They have significant cost impacts, they are made infrequently, they are difficult to change, they are increasingly global in nature
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Globalization has taken place because of the development of...
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Market economics, better communication, faster, better shipping, easier cash flow between countries, differences in labor cost
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What factors should be considered when making a location? What makes each one of these significant?
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1) Labor productivity - cost of labor cannot be considered by itself, as production is important
2) Exchange rates and currency risk
3) Costs - Tangible costs: readily identifiable costs that can be measured with some precision, like labor/taxes Intangible costs: a category of location …
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Clustering
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The location of competing companies near each other, often because of a critical mass of information, talent, venture capital, or natural resources
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What methods are used to evaluate/compare location possibilities? How/when are they used?
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- Factor-Rating Method
- Locational Cost-Volume Analysis
- Center of gravity
- Transportation model
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Factor-Rating Method
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A location method that instills objectivity into the process of identifying hard-to-evaluate costs
- 6 steps: 1. Develop a list of key success factors; 2. Assign a weight to each factor; 3. Develop a scale for each factor; 4. Have management score each location; 5. Multiply the score by …
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Locational Cost-Volume Analysis
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A method of making an economic comparison of location alternatives (identifies crossover point)
3 steps: 1. Determine fixed and variable costs for each location; 2. Plot the costs for each location, with costs on the vertical and annual volume on the horizontal; 3. Select location based …
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Center of Gravity Method
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A mathematical technique used for finding the best location for a single distribution that services several stores or areas
- Takes into account the location of markets, the volume of goods shipped, and shipping costs
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Transportation model
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A technique for solving a class of linear programming problems
- The purpose is to determine the best pattern of shipments from several points of supply to several points of demand so as to minimize total production and transportation costs
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What decision to make based on each result
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Factor rating - look for high value
Cost-volume - look for lowest cost
Center-of-gravity - look for minimized distribution cost
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Difference between industrial-sector and the service sector
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Industrial analysis is on minimizing costs, while the service sector is on maximizing revenue
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Compare the location strategies between service and goods-producing firms (Service)
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----Service----
-Revenue Focus: Volume/revenue (purchasing power), physical quality (parking, security), Cost determinants (rent, operations)
-Techniques: regression models(new), factor-rating, traffic counts(new), demographic analysis(new), purchasing power(new), center-of-gravity(new…
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Compare the location strategies between service and goods-producing firms (Goods)
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----Goods----
-Cost focus: Tangible costs (cost of raw material, shipments), Intangible costs (attitude, quality of life)
- Techniques: transportation method (new), factor-rating method, locational cost-volume analysis (new), crossover charts (new)
-Assumptions: location is a major det…
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How does LaQuinta choose profitable hotel sites?
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Price model has 4 variables:
1) The price of the inn
2) Median income levels
3) The state population per inn
4) The location of nearby colleges
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[Chp. 12] Amazon
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Jeff Bezos expects the customer experience at Amazon to be one that yields the lowest price, the fastest delivery, and an error-free order fulfillment process so no other contact with Amazon is necessary - returns are expensive!
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What are the functions of inventory?
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1) To provide a selection of goods for anticipated customer demand and to separate the firm flow fluctuations in that demand
2) To decouple various parts of the production process
3) To take advantage of quantity discounts
4) To hedge against inflation
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4 Types of inventory
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1) Raw material inventory
2) Work-in-progress inventory
3) Maintenance/repair/operating supply inventory-MRO
4) Finished-goods inventory
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Raw materials inventory
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Materials that are usually purchased but have yet to enter the manufacturing process
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Work-In-Progress
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Products or components that are no longer raw materials but have yet to become finished products
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MROs
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Needed because timing for maintenance is unknown
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Finished-goods inventory
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An end item ready to be sold, but still an asset on the company's books
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How is inventory managed?
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1) How inventory items can be classified (ABC analysis) 2) How accurate inventory records can be maintained
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ABC Analysis
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A method for dividing on-hand inventory into three classifications based on annual dollar volume
-Class A: high annual dollar volume (70-80%)
-Class B: medium annual dollar volume (15-25%)
-Class C: low annual dollar volume (5%)
- Used to establish policies that focus on the few criti…
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Records Accuracy
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Record accuracy allows organization to focus on what is needed.
-Necessary to make precise decision about ordering, scheduling, and shipping.
-Incoming and outgoing record keeping must be accurate
- Accuracy maintained by periodic and perpetual systems (regular checks and continual c…
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Cycle counting
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A continuing reconciliation of inventory with inventory records (keeping inventory as you go, not stopping)
Cycle counting advantages:
- Eliminates shutdown and interruption
- Eliminates annual inventory adjustments
- Trained personnel audit the accuracy of inventory
- Allows cause …
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What are the different inventory costs? What are they comprised of?
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- Housing costs (6%): building rent or depreciation, operating costs, taxes, insurances
- Material-handling costs(3%): equipment lease or depreciation, power, operating costs
- Labor cost(3%): receiving, warehousing, security
- Investment costs(11%): borrowing costs, taxes, and insuran…
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Shrinkage and pilferage
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S: Retail inventory that is unaccounted for between receipt and sale
P: A small amount of theft
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Holding cost and order cost
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H: The cost to keep or carry inventory in stock
O: The cost of the ordering process
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Setup cost and Setup time
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SC: The cost to prepare a machine or process for production
ST: The time required to prepare a machine or process for production
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The 3 independent inventory models
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1) Economic order quantity (EOQ) model - an inventory control tecnique that minimizes the total of ordering and holding costs
2) Production order quantity model - An economic order quantity technique applied to production orders
3) Quantity discount model - a reduced price for items pu…
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EOQ - buying inventory from someone else (Answers "How much?") - What are the 6 assumptions?
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1) Demand for an item is known, constant, and independent
2) Lead time (placement to receipt) is known and consistent
3) Receipt of inventory is instantaneous and complete
4) Quantity discounts are not possible
5) The only variable costs are the cost of setting up or placing an order…
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Describe the sawtooth diagram that depicts the model
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It the maximum we can ever have is Q (say, 500 units) and the minimum is zero, then if inventory is used (or sold) at a fairly steady rate, the average = Q/2
- Total order received is the peak of the graph, with the downward slope being the usage rate
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EOQ Definitions
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Q = Number of units per order
Q* = Optimum number of units per order (EOQ)
D = Annual Demand in units for the inventory item
S = Setup or ordering cost for each other
H = Holding or carrying cost per unit per year
N = Expected number of orders
T = Time between orders
TC = Total ann…
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Calculate the Reorder Point (answers the question of "when?")
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-The inventory level at which action is taken to replenish the stocked item
- ROP = Demand per day(d) x lead time for new orders
-Demand per day (d) = annual Demand/number or working days in a year
- If lead time and demand during lead time are not consistent, you must add the safe sto…
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Production Order Quantity Model (EPQ)
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Applicable 1) when inventory continuously flows or builds up over a period of time after an order has been placed, and 2) when units are produced and sold simultaneously
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Why the inventory profile differs from the EOQ saw-tooth
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The graph has a slower increase and decrease over time
-Increase: part of inventory cycle during which production and usage take place
-Decrease: demand part of cycle with no production
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Why is total holding cost calculate differently?
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Because we're using the inventory as we produce it
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EPQ Definitions
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Q = Number of units per order
H = Holding cost per unit per year
p = Daily production rate
d = Daily demand rate, or usage rate
t = Length of the production run in days
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EPQ Calculations
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Q*, Maximum inventory level, Average inventory, total Setup cost, total Holding cost, Variable cost, Total cost
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Quantity Discount model
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Tradeoff between reduced product cost and increased holding cost
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Quantity Discount Model Definitions
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Q = Quantity ordered
D = Annual demand in units
S = Ordering or setup cost per order
P = Price per unit
H = Holding cost per unit per year
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[CHP.16] Global Company: Toyota Motor Corporation
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JIT, TPS (Toyota Production System), and lean operations give Toyota a competitive advantage.
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Just-In-Time (JIT)
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Continuous and forced problem solving via a focus on throughput and reduced inventory
-JIT provides an excellent vehicle for finding and eliminating problems because problems are easy to find in a system with no slack
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Toyota Production System(TPS)
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Focus on continuous improvement, respect for people, and standard work practices
- TPS emphasizes employee learning and empowerment in an assembly-line environment
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Lean Operations
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Eliminates waste through continuous improvement and focus on exactly what the customer wants
- Emphasizes understanding the customer
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What are the goals of JIT, TPS, and Lean Ops?
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Eliminate waste, removed variability, and improve throughput
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What are Ohno's Seven categories of Waste?
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1) Overproduction - Producing more than the customer ordered
2) Queues - Idle time, storage, and waiting are wastes
3) Transportation - Moving material between plants more than once
4) Inventory - Unnecessary raw material, WIP
5) Motion - Movement of equipment or people that add no va…
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The 5S's
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1) Sort/segregate - when in doubt, throw it out
- makes space available and improves work flow
2) Simplify/ straighten - use methods analysis to improve workflow and reduce wasted motion
3) Shine/sweep - clean daily.
4) Standardize - remove variations from the process by developing s…
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How does 5s help eliminate waste?
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An orderly workplace reduces waste so that assets are released for other purposes - helps reduce misplaced merchandise and improve customer service
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Describe the goals of JIT partnerships
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1) Remove of unnecessary activities - receiving, incoming inspection, and paperwork related to bidding, invoicing, and payment
2) Removal of in-plant inventory - by delivery in small lots directly to the using department as needed
3) Removal of in-transit inventory - by encouraging supp…
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What are supplier's concerns?
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1) Diversification: Suppliers may not want to tie themselves to long-term contracts with one customer
2) Scheduling: Many suppliers have little faith in the purchaser's ability to produce orders to a smooth, coordinate schedule
3) Lead time: Engineering or specification changes can play…
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Explain how the JIT layout reduces distance...
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Distance Reduction - large lots and long production lines with single-purpose machinery are being replace by smaller flexible cells, often U-shaped for shorter paths
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Increases flexibility...
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Increased flexibility-cells designed to be rearranged as volume or designs change, applicable in office environments as well as production settings, facilitates both product and process improvement
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Impact on employees
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Impact on employees-may be cross trained for flexibility and efficiency, improved communications facilitate the passing on of important information about the process, getting it right the first time is critical
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Reduced space and inventory...
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Reduced space and inventory-with reduced space, inventory must be in very small lots units are always moving because there is no storage
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What is the JIT perspective on inventory?
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Inventory is at the minimum level necessary to keep operations running
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Calculate the setup time associated with specific lot sizes
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S = Setup cost
D= annual demand
H = holding cost
d = daily demand
p = daily production
S = (Q^2)(H)(1-d/p)/2D
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What is the impact of reducing setup time?
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- High setup costs encourage large lot sizes
- Reducing setup costs reduces lot size and reduces average inventory
- Setup time can be reduced through preparation prior to shut down and changeover
Reducing setup time (and cost) is an excellent way to reduce inventory investment and to …
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What are the focuses of JIT scheduling?
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Effective schedules, communicated inside and outside the community, support JIT. Better scheduling improves the ability to meet customer orders, drives down inventory by allowing small lot sizes, and reduces work-in-progress
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Two techniques to JIT scheduling
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Level schedules and Kanban
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Level Schedules
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Scheduling products so that each day's production meets the demand for that day (small batches rather than large batches) - freezing the schedule helps stability
- Small lots increases flexibility to meet customer demand and reduces inventory
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What is a Kanban?
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The Japanese word for card (signal), a kanban system moves parts through production via a "pull" from a signal
- The card is the authorization for the next container of material to be produced
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How are the size and number of kanbans calculated?
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# of KB = (Demand during lead time + safety stock)/Container size
- Demand during lead time = lead time * daily demand
- Safety stock = 1/2 * daily demand
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Explain the focuses of TPS
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- Continuous improvement, Respect for people, standard work practice
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Explain the focuses of Lean Operations
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Building a lean organization, lean sustainability, identifying customer value by analyzing all the activities required to produce the product and then optimizing it
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Study Guide: Final Exam