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  1. Intermodal service
    • Using containers that can be reconnected to truck trailers or moved to
    • ships for further shipping.
  2. Railroads
    • Tracks are very inflexible routes.
    • Most effective for transporting heavy loads over long distances.
    • Low cost, high volume.
    • Improving flexibility.
    •      Intermodal service 
    •      Double stacking 
    •      Road-Railers
  3. Double stacking
    • Stacking two containers together for
    • transporting higher volumes at lower cost.
  4. Five major modes of
    • Railroads
    • Trucking
    • Package Carriers
    • Water
    • Air
    • Intermodal
    • Pipelines
  5. Road-Railers
    • Using truck trailers with steel wheels for rail
    • travel and rubber tires for road travel.
  6. Intermodal shipping
    • Combines rail and trucking.
    • Offers low cost.
    • Improved flexibility by combining the benefits of trucking with the benefits of rail.
  7. Trucking
    • Most frequently use.
    • Very flexible. 
    • Most effective for very frequent, small loads, and JIT deliveries.
    • Part of TQM supplier-customer relationship.
    • Single sourcing reduces number of trucking firms serving a company, but may increase the number of trips required.
  8. Package Carriers
    • UPS.
    • Fedex. 
    • U. S. Postal Service. 
    • Transportation of small packages to end-users.
  9. Airfreight
    • Very expensive.
    • Quick and reliable. 
    • Useful for very small and lightweight items.
    • Rapidly growing segment of transportation industry.
    • Lightweight, small items.
    • Often combined with trucking operations.
  10. Water
    Vessels that float on water

    Inexpensive, but slow.

    Used for heavy/large items, raw materials, and bulk.

    One of the oldest means of transport.

    Low-cost, high-volume, slow.

    Standardized shipping containers improve service.

    Combined with trucking & rail for complete systems.
  11. Intermodal
    Combining several modes of transportation.

    Often truck-rail-truck or truck-water-rail/truck.
  12. Pipelines
    Used for transporting liquids, oil...

    Slurry lines carry materials like coal

    Pipeline construction is high.(high capital costs)

    Operating cost is low.

    Used to transport across difficult terrain or through extreme climates.
  13. Internet Transportation
    Exchanges –
    shippers and carriers brought together on the Web
  14. Time Series:
    y = f(t); demand is a function of time (alone).

    Statistical technique.

    Uses historical data accumulated over a period of time.

    Assume that what has occurred in the past will continue to occur in the future.

    Popular methods used for short-range forecasting.
  15. Quantitative forecasting methods.
    Simple Moving Average

    Weighted Moving Average

    Exponential Smoothing

    Adjusted exponential smoothing (not shown in this lecture)

    Linear trend line with t (time) as predictor
  16. Trend Line:
    a linear line: y = a + bx.

    “A straight line can be drawn through a scatter plot of data such that errors or distances from each data point to the line are minimized.”

    A linear trend line method is used when data shows a general upward or downward movement on a graph of demand (or other forecasted value) plotted over time.
  17. Concept behind a trend line
    A straight line can be drawn a scatter plot of data such that the errors or distances from each data point to the line are minimized.
  18. Least Squares method
    • Used to derive equations
    • for a- and b-coefficients minimizes the error between the mathematical line
    • representing the data and the actual data.
  19. Best way to compute the Trend Line
    • Use columns of data for
    • which the terms used in the a- and b-coefficient formulas have been computed.
  20. Seasonal
    A seasonal pattern is a repetitive increase and decrease in demand.

    One simple way to forecast using a seasonal adjustment is to use a seasonal factor in combination with a linear trend line.
  21. Causal Forecasting Methods:
    • y = f(x1, x2, . . . xn);
    • Demand is a function of relevant predictors. 

    • Types include:
    •    Simple linear regression -- uses single
    • predictor; uses least squares method
    •    Multiple regression -- uses multiple
    • predictors.
    •    Seasonal Adjustments
  22. Mean
    Absolute Deviation
    Mean absolute deviation (MAD) is an average of the difference between the forecast and actual demand.

    The absolute value of the difference is computed because an error is an error, regardless of if it is positive or negative.
  23. Mean
    Absolute Percent Deviation
    The mean absolute percent deviation (MAPD)

    Measures the absolute error as a percentage of demand rather than per period.

    • Useful when comparing two forecasts with dramatically different demand values and to
    • get a good idea of the magnitude of error.

    • It is computed by dividing the MAD by the total demand for the periods used in the
    • forecast. 

    MAD, MAPD and ERROR: are Ways of measuring forecast error.
  24. Cumulative
    Calculated by computing the difference between the forecast and actual demand without taking the absolute value.

    Adds negative and positive errors directly.

    Purpose: determine if a forecast consistently over-predicts or under-predicts actual demand.

    Large positive values indicate under-prediction.
  25. The average error, or bias, can also be calculated by
    dividing the cumulative error by the number of forecast periods used.
  26. Tariffs
    fees for importinggood s
  27. Subsidies
    government aid to make a particular country's goods cheaper in the market
  28. Quotas
    • A limited or fixed number or amount of people
    • or things, in particular.
  29. Trend
    • line straight up or
    • down
  30. Cycle
    • long term symmetric
    • up-and-down
  31. Seasonal
    Repeating pattern that may not be symmetrical when comparing upswings to downswings.
  32. Once a forecaster finds a mathematical model to fit some data, what must be done next?
    • See how well the model fits the data by calculating error or other evaluation
    • techniques; continuous monitoring for accuracy.
  33. Aggregate Production
    • Aggregate production planning (APP) determines the resource capacity a
    • firm will need to meet its demand over an intermediate time horizon -- six to
    • twelve months in the future.

    The term aggregate is used because the plans are developed for product lines or product families, rather than individual parts.

    • Aggregate planning provides a plan for allocating resources, like labor and materials for production, and space and time for
    • services.
  34. Points in Aggregate planning:
    Matches market demand to company resources.

    Plans production 6 months to 12 months in advance,

    Expresses demand, resources, and capacity in general terms.

    Develops a strategy for economically meeting demand.

    Establishes a company-wide game plan for allocating resources.
  35. The production can respond to the demand in any of the following ways:
    Use inventory to absorb fluctuations in demand (level production).

    Hire and fire workers to match demand (chase demand).

    Maintain resources for high demand levels.

    Increase or decrease working hours (over and under-time).

    Subcontract work to other firms

    Use part-time workers

    Provide the service or product at a later time period (backordering).
  36. Capacity planning is an important part of strategy be cause it:
    Establishes the overall level of productive resources,

    • Affects lead time, responsiveness, cost, and
    • competitiveness,

    Determines when and how much to increase capacity.
  37. Capacity expansion decisions should consider the following factors:
    Volume and certainty of anticipated demand

    Strategic objectives for growth

    Costs of expansion and operation
  38. Several options are available when making strategic decision about capacity:
    Capacity-Lead Strategy

    Capacity-Lag Strategy

    Average Capacity Strategy
  39. Capacity-lead strategy
    Capacity is expanded in anticipation of demand growth.

    • This aggressive strategy is used to lure customers from competitors who are
    • capacity-constrained or to gain a foothold in a rapidly expanding market.
  40. Capacity-lag strategy
    Capacity is increased after an increase in demand has been documented. 

    This conservative strategy produces a higher return on investment but may lose customers in the process.

    It is used in industries with standard products and cost-based or weak competition.

    The strategy assumes that lost customers will return from competitors after capacity has expanded.
  41. Average capacity strategy
    Capacity is expanded to coincide with average expected demand.

    This is a moderate strategy in which managers are certain they will be able to sell at least some portion of the additional output.
  42. Several options are available for how to expand.
    • Incremental - less risky, but more costly. Often the initial facility should be built with future expansion in mind. This strategy
    • means including options in the facility that may never be used.

    One-step expansion - risky, but finished in one step, less hassle.

    Outsourcing - suppliers absorb risk, but purchaser loses some control and may be growing a new competitor.
  43. Pure strategy:
    Using only one of the techniques for meeting demand

    • Level production - produce at constant rate and use inventory as needed to meet demand.
    • Chase demand - change workforce levels so that production matches demand.
    • Maintaining resources for high demand levels
    • - ensures high levels of customer service.
    • Overtime and under-time - common when demand fluctuations are not extreme.
    • Subcontracting - useful if supplier meets quality and time requirements
    • Part-time workers - feasible for unskilled jobs or if labor pool exists.
    • Backordering - only works if customer is willing to wait for product/services.
  44. Mixed Strategy
    combining several of the strategies below:

    • Level production - produce at constant rate and use inventory as needed to meet demand.
    • Chase demand - change workforce levels so that production matches demand.
    • Maintaining resources for high demand levels- ensures high levels of customer service.
    • Overtime and under-time - common when demand fluctuations are not extreme.
    • Subcontracting - useful if supplier meets quality and time requirements
    • Part-time workers - feasible for unskilled jobs or if labor pool exists.
    • Backordering - only works if customer is willing to wait for product/services.
  45. Level Production Strategy
    Produce an average amount throughout the production period.

    Creating inventory in low-demand periods.

    Using inventory in high-demand periods.

    Inventory tends to vary dramatically.

    Number of workers and materials used is fairly constant.
  46. Chase Demand Strategy
    Produces an amount equal to the demand at any given time.

    Tends to have little or no inventory.

    Requires a high variance in the number of workers and materials used.
  47. Strategies for Managing
    Two ways to manage demand more effectively are:

    • Shifting demand into other periods through
    • Incentives
    • Sales promotions
    • Advertising campaigns
    • Price differentials
    •    >Example: Phone companies try to utilize
    • telecommunications equipment more effectively by charging lower rates during
    • weekends and at night, when calls are at their lowest.

    • Offering product or services with counter-cyclical demand patterns -- create demand for idle resources.
    •    >Kawasaki USA produces motorcycles before their highest sales period in spring and summer and snowmobiles before winter.
  48. Demand
    Two basic types of demand are considered in inventory management. Each type requires different management systems and ordering philosophies.

    • Dependent Demand
    • Independent Demand
    • Carry Cost
    • Order Cost
    • Shortage or Stockout Cost
  49. Dependent Demand
    • Items used to produce final products; demand for these items "depends" on the demand for the final product. They are the components and parts that make up the finished
    • goods.
  50. Independent Demand
    Items demanded by external customers. These are the finished goods that eventually feed the demand for dependent demand goods.
  51. Carry Cost
    The cost of holding an item inventory. As the number of orders per year decreases, the annual inventory carrying cost increases because a higher volume of items must be purchased each time.

    • (Is it a good idea for a restaurant to order refrigerated food products
    • just once a year?)
  52. Types of carrying cost:
    Financing, interest on loans to purchase inventory, and loss of positive cash flow.

    • Direct storage costs, like rent, heating, cooling, lighting, security, refrigeration,
    • record keeping, and internal transportation.

    Depreciation and obsolescence.

    Product deterioration and spoilage, breakage, and pilferage.
  53. Methods of calculating carrying cost:
    Summing all the individual costs just mentioned and assigning them on a per-unit basis per time period, such as $10 per unit per year.

    Summing all the individual costs just mentioned and assigning them on a percentage basis, such as 30% of the item cost. It is estimated that carrying costs range from 10% to 40% of the value of a manufactured item.
  54. Ordering Costs
    • The cost of replenishing inventory. As the number of orders per year increases, the annual ordering cost increases. (Is it a
    • good idea to order a single pencil each time someone in the company needs
    • one?)

    • Types of ordering costs:
    • >Requisition and purchase orders.
    • >Transportation and shipping from the supplier.
    • >Receiving and inspection.
    • >Handling and storage.
    • >Accounting and auditing costs.

    • Method of calculating ordering cost.
    • Usually the above costs are summed and applied on a "per order" basis.
  55. Shortage or stockout cost
    Temporary or permanent loss of sales when demand cannot be met because of insufficient inventory.
  56. Reorder
    In previous calculations we made, we determined how much to order, the number of orders to place annually, and the number of days between orders.

    We can also calculate when an order should be placed based on how much inventory is left in stock.

    As inventory is used, the quantity is depleted to a level known as the reorder point. 

    • An order must be placed at this point
    • so that inventory will not run out before the next order arrives. The equation for reorder point is:

    R = dL
  57. Safety Stocks
    • Example: an order is placed when the inventory level reaches the reorder point.
    • During the lead time, the remaining inventory in stock will be depleted at a constant demand rate, such that the new order quantity will arrive at exactly the same moment as the inventory level reaches zero.
    • Demand and lead time are less certain.
    • Inventory dips past zero (a stockout - "negative" inventory, meaning the company ran out before the next order came in). This can be a very serious and costly situation for a company, particularly if production is halted because of the shortage. 

    As a hedge against stockouts when demand is uncertain, a safety stock of inventory is frequently added to the expected demand during lead time.  

    NOTE:  Safety stock is not added to EOQ (the amount of inventory ordered).  It is added to the re-order point, meaning an order is placed sooner than it would be if demand was certain.
  58. Service
    The amount of safety stock needed is determined by the service level desired by the company.

    The service level is the probability that the amount of inventory on hand during the lead time is sufficient to meet expected demand -- that is, the probability that a stockout will not occur.

    A service level of 90% means that there is a .90 probability that demand will be met during lead time.
  59. The
    Basic EOQ Model
    • An order
    • is placed in just enough time to have a new order quantity, Q, come in just as
    • the older order quantity, Q, reaches 0. These are the other assumptions:

    • Demand is known with certainty and is relatively constant over time.
    • No shortages are allowed.
    • Lead time for the receipt of orders is constant.
    • The order quantity is received all at once.
  60. Total Annual Inventory Costs,
    • Composed of inventory carrying cost and inventory ordering cost. When a small quantity of items is purchased in each order, the ordering costs will be high. When a large quantity is purchased, the number of orders will be low, so the annual ordering
    • cost will be low.  

    We can also solve for Q by noting that the minimum total cost occurs at the point where carrying cost equals ordering cost.
  61. economic order quantity:
    Qopt = (2CoD / Cc)1/2
  62. Minimum Inventory cost
    occurs at the point where carrying cost equals ordering cost, and total minimum inventory cost is defined as:

    TCmin = (CoD / Qopt) + (Cc Qopt / 2)
  63. Concepts that underlie the EOQ model:
    Annual inventory cost is minimized at the order quantity where carrying cost exactly equals ordering cost.

    The EOQ represents the optimal order quantity that minimizes inventory cost.

    The EOQ tells how much to order.

    The number of orders for the year is represented by D/Q. Dividing the year by the number of orders tells when to order (based on the constant demand rate assumed in the model).

    The EOQ can be adapted for use in production problems. Qopt corresponds to production lot size and Co corresponds to set-up cost.
  64. The ABC Classification
    Another important aspect of the inventory control system is the degree of monitoring necessary.

    Because demand volume and the value of items varies, inventory can be classified according to its value to determine how much control is applied.

    • Class A Items
    • Class B Items
    • Class C Items

    Class A items require very tight inventory control (more accurate forecasting, better record-keeping, lower inventory levels), whereas C-items tend to have less control.
  65. Class A Items:

    Class B Items:

    Class C Items:
    • Class A items are 5-15% of the items
    • by quantity, but 70-80% of the $-value of the times (automobile chassis)

    • Class B items are 30% of the items by
    • quantity, but 15% of the $-value of the times (steering wheels and storage consoles).

    • Class C items are 50-60% of the items
    • by quantity, but 5-10% of the $-value of the times (pins and fasteners).
  66. Capacity Requirements
    Capacity Requirements Planning is a computerized system that projects load from the material plan onto the capacity of the system and identifies underloads and overloads.

    It is then up to the MRP planner to level the load -- smooth out the resource requirement so that capacity constraints are not violated. CRP produces a load profile, which compares released orders and planned orders with work center capacity.
  67. (Capacity Requirements Planning) 

    calculated as follows:

    Capacity = (No. of machines or workers) X (No. of shifts) X (utilization) X (efficiency)
  68. (Capacity Req. Planning)

    The percentage of available working time that a worker actually works or a machine actually runs.

    Scheduled maintenance, lunch breaks, and setup time are examples of activities that reduce actual working time.
  69. (Capacity Req. Planning)

    • Refers to how well a machine or worker performs compared to a standard
    • output level.
  70. (Capacity Req. Planning)

    Is the standard hours of work (or equivalent units of production) assigned to a production facility.

    % = Load / capacity

    Centers loaded above 100% will not be able to complete the scheduled work without some adjustment in capacity or reduction in load.
  71. (Capacity Req. Planning)

    Remedies for Underloads:

    Remedies for Overloads:
    Remedies for underloads:

    • *Acquire more work.
    • *Pull work ahead that is scheduled for later time periods.
    • *Reduce normal capacity.

    Remedies for overloads:

    • *Eliminate unnecessary requirements
    • *Reroute jobs to alternative machines or work centers
    • *Split lots between two or more machines
    • *Increase normal capacity
    • *Subcontract
    • *Increase the efficiency of the operation
    • *Push work back to later time periods
    • *Revise master schedule
  72. CRP identifies...

    but Planner...
    capacity problems,

    solves the problems.
  73. MRP Outputs from Processes:
    Planned orders from the planned order release row of the MRP matrix. These might be work orders for in-house production, or purchase orders for purchased products.

    Can also recommend changes in previous plans or existing schedules. These action notices, or rescheduling notices, are issued for items that are no longer needed as soon as planned, or for quantities that may have changed.

    • Expedited parts are marked for completion in less than their average lead time (rush
    • orders).
  74. The
    MRP Process
    Responsible for scheduling the production of all items beneath the end item level (level 0).

    Recommends the release of work orders and purchase orders, and issues rescheduling notices when necessary.

    Process begins with a matrix like the one shown in the Table below. We'll make the calculations directly on the matrix to illustrate the calculations; a computer makes these calculations automatically in the MRP system.

    MRP is driven by Master production schedule.
  75. Forecasting and aggregate
    planning in relation to MPR.
    Create the information that feeds the MRP system. 

    Used to create a master production schedule.
  76. Master Production Schedule
    shows a schedule and breakdown of all finished products to be produced.
  77. MPR System in relation to: 

    Product structure file.

    Inv. Master file.

    Work orders, Purchase orders, Rescheduling notice.
    • The MRP system also needs engineering information in the form of a product structure file and inventory information in the form
    • of an inventory master file to determine which parts go into each finished product.

    MRP uses all this information to produce its outputs: work orders, purchase orders, and rescheduling notices.

    Work orders are used to initiate the production of parts in-house, while purchase orders are used to buy parts from vendors.
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Second Midterm
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