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Distribution Planning - Introduction to Operations Management - Lecture Slides, Slides of Production and Operations Management

Indian Institute of Tourism and Travel ManagementProduction and Operations Management

Distribution Planning, Overall Distribution System, Distribution Problems, Demand Or Supply, Shortest Path Problem, New Locations, Inventory Management, Relevant Costs, Acquisition Cost, Maximum Inventory.These are the important points of Operations Management.

Typology: Slides

2012/2013

Uploaded on 01/01/2013

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Distribution Planning
•What should overall distribution system be?
•Where should inventories of products or raw
materials be stored?
•How much inventory of each product and raw
material should be stored at each location
•How should the flow of products and raw
materials through the distribution be coordinated
•What models of transportation should be used?
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Download Distribution Planning - Introduction to Operations Management - Lecture Slides and more Slides Production and Operations Management in PDF only on Docsity!

Distribution Planning

  • What should overall distribution system be?
  • Where should inventories of products or raw

materials be stored?

  • How much inventory of each product and raw

material should be stored at each location

  • How should the flow of products and raw

materials through the distribution be coordinated

  • What models of transportation should be used?

Distribution Planning

• All distribution problems are really special

case of minimum cost problem, even the

shortest distance problem, which replaces

distances with cost

• Remember to freeze cells when using the

sumif function

• Hit ctrl + ~ to get into formula mode, will

make it much easier to debug

Distribution Planning

  • Shortest path problem
    • If we are required to go to a certain path, best way is to solve it in two parts - 1 st^ part is when we go from supply city to intermediate path - 2 nd^ part is when we go from intermediate city to final demand path
    • Set demand = 1 at destination city and set supply = 1 at city of origin
    • Make sure that supply + flowin = demand + flow out
      • This will allow us to make a path with no jumps

Distribution Planning

  • Shortest Path problem cont.
    • If we have to traverse a specific arc, but not to a specific city to within that arc, before going to a specific city, make sure you allow for two-way travel - In three cells, have: - city 1 -> city 2 - City 2 -> city 1 - sum - Each path will reference truckload along that path - Sum is the sum of the two arcs - Constrain solver so that the sum>=1, that way it must traverse the path but also allows for back travel

Inventory Management

  • Goods that have not yet been sold
  • Keep inventory when
    • Demand unpredictable
    • Delivery takes time
    • Fixed cost for delivery
  • Relevant question
    • When to order (ROP = Reorder point)
    • How much to order (Q = reorder quantity)
  • MAKE SURE TIME UNITS ARE CONSISTENT,

DON’T MIX YEARS WITH MONTHS

Relevant Costs

  • Acquisition cost

($/unit purchased)

  • Ordering costs

($/order)

  • clerical expenses
  • delivery, inspection
  • setup (prod.)
    • Carrying costs = Holding costs ($/unit/time unit) - cost of capital - insurance - shrinkage, spoilage, obsolescence - material handling (fork lifts, space)
    • Shortage costs ($/unit short) - lost goodwill, discounts, penalties - lost sales - shut down of assembly line (prod.)

Histogram

Need 3 columns

  • sold, bins, and frequency as headers

  • sold will be a range (0-2, 3-4, etc..)

  • Bins refers to values at or below that value
    • 2 means 0-2, 4 means 3-4, etc..
  • Frequency means how often value

corresponding to a bin shows up in the

dataset

Histogram

• Highlight the empty frequency cells

• Type in frequency (data, bins)

• While they are all highlighted, hit

ctrl + shift + enter, this will cause the

frequency to appear in the cells

Simulation

• Orders take time to come into your place

of business, this time will affect how your

business is run because it will effect your

reorder points and order quantities

• Beginning inventory is equal to ending

inventory of the previous day + the order

that came in that day

Simulation

• Inventory position is beginning inventory

plus inventory that is in transit. If we

ordered two day ago, and we know we will

get the inventory in 5 days, then we

wouldn’t order more stock because we

know that we have an order on the way

• If a new order just arrives and it is too

short, then we would put a new order

through

Simulation

• Shortage is demand less sales

• Ending inventory is beginning inventory

less sales. If your order will come in at the

end of the business day, then ending

inventory will include this as well

• Holding cost is the average of beginning

and ending inventory, multiplied by the

holding cost per unit

Simulation

• Fill rate is the amount of demand that is

satisfied by the inventory

• =total sales/total demand

EOQ = Economic Order Quantity

  • Assumptions
    • Demand is constant
    • Inventory drops to zero just before an order arrives
    • Variables:
      • S = order cost ( per order)
      • H = carrying cost (per item per order)
      • D = annual demand
      • Order cost = (D/Q)/S; Carrying Cost = (Q/2)*H

Q = sqrt(2DS/H)*

  • Q* = quantity to order that will minimize cost under the EOQ model

EOQ = Economic Order Quantity

  • Simulation modeling is a flexible modeling approach that is capable of replicating the real world intricacies of an inventory system but it is also generally an expensive (time and money) approach. In the previous worksheet we used a historical simulation to find a good policy (values for Q and ROP). We found the policy by trial and error, facilitated by a two-way data table.
  • We will use a simpler approximate two-step analytical method to first find Q and then find ROP. We use the well-known EOQ model (which trades off ordering costs with holding costs) to find Q. Then we use this Q and an estimate of the probability distribution of demand during the lead time to determine ROP, either by meeting a pre-specified level of service or fill rate or by minimizing the costs of incurring a shortage plus the cost of carrying extra safety stock). This two-step method involves many approximations, but in practice it usually gives a near-optimal policy
  • Find Q*, then use LTD (lead time demand model) to find ROP using Q from previous step.