Queuing Theory, Maintenance, Materials & Inventory Mgt. PDF

Outline: - Queuing or Waiting line Theory - Maintenance Management - Materials Management - Inventory Management By: Isaac Owusu QUEUING OR WAITING LINE THEORY INTRODUCTION  One basic fact of life is that we all spend a great deal of time waiting in queues....

Outline: - Queuing or Waiting line Theory - Maintenance Management - Materials Management - Inventory Management By: Isaac Owusu QUEUING OR WAITING LINE THEORY INTRODUCTION  One basic fact of life is that we all spend a great deal of time waiting in queues.  Waiting lines form whenever an item or a person seeks a process that is fully occupied with other items or persons.  Waiting Lines in Manufacturing Industries  In many manufacturing industries, waiting lines occur when parts or materials arrive at a machine and that machine is busy working on other parts or materials.  Waiting Lines in Service Industries  In services, waiting lines occur when customers arrive at a service facility and that facility is already engaged serving other customers.  Examples of Waiting Lines Some examples of waiting lines we encounter in our daily lives include: 1. The lines at super market check outs, 2. Fast food restaurants, 3. Airport ticket counters, 4. Theatres, 5. Customer service centres  Examples of Waiting Lines … In many situations, the “customers” are not people but: 1. Orders waiting to be filled, 2. Trucks waiting to be unloaded, 3. Jobs waiting to be processed or 4. Equipment awaiting repairs.  WHY DO WAITING LINES FORM? 1. Arrival times vary: Customers arrive at random intervals rather than at evenly spaced intervals 2. Service times vary: Some orders take longer to fill than others.  Managerial Implications of Waiting Lines 1. The cost of providing waiting space. 2. A possible loss of business should customers leave the line before being served or refuse to wait at all. 3. A possible loss of goodwill.  Managerial Implications of Waiting Lines … 4. A possible reduction in customer satisfaction. 5. The resulting congestion may disrupt other business operations and/or customers.  Goal of Waiting Line Analysis  The goal of queuing analysis is essentially to minimise total costs.  There are two basic categories of cost in a queuing situation: A. Costs associated with customers waiting for a service B. Costs associated with capacity  -A- Cost associated with customers waiting for a service Examples include: 1. The cost of the space for waiting 2. Any loss of business due to customers refusing to wait and possibly going elsewhere in the future 3. Reduced customer satisfaction. 4. Congestion may occur 5. Salaries paid to employees while they wait to serve customers  -B- Costs associated with capacity  Capacity costs are the costs of maintaining the ability to provide service. Examples include: 1. the number of boys at a car wash, 2. the number of check outs at a super market, and 3. the number of lanes on a high way When a service facility is idle, capacity is lost since it cannot be stored.  THE GOAL OF QUEUING ANALYSIS The traditional goal of queuing analysis is to balance the cost of providing a level of service capacity with the cost of customers waiting for service. The Goal of Queuing Analysis  As capacity increases, its cost increases  but as capacity increases, the number of customers waiting and the time they wait tend to decrease, thereby decreasing waiting costs.  To reduce capacity will imply that waiting times will increase. The Goal of Queuing Analysis Therefore, the goal of queuing analysis is to identify a level of service capacity that will minimise total cost. MAINTENANCE MANAGEMENT  Maintenance in operations management refers to work undertaken in order to keep or restore every facility to an acceptable standard.  Machines, buildings and other facilities are subject to deterioration due to their use and exposure to environmental conditions.  Deterioration arising out of wear and tear naturally affects the efficiency of these facilities and in turn affects the quality of goods or services produced.  To ensure maximum plant availability and reliability, regular maintenance must be carried out to keep or restore the plant, equipment, or facilities to an acceptable operating condition. The principal objectives of maintenance can be clearly defined as follows: 1. To extend the useful life of assets 2. To ensure the optimum availability and efficiency of equipment for production The principal objectives of maintenance (Cont...) 3. To ensure operational readiness of all equipment required for emergency use at all times 4. To ensure the safety of personnel using facilities. The benefits of planned maintenance can be summarized as follows: 1. Fewer failures, hence greater productivity. 2. Detection of impending failure for corrective action. 3. Efficient manpower usage and idle time reduction. 1. Planned Maintenance: Maintenance organized and carried out according to a predetermined plan. 2. Preventive Maintenance: Maintenance directed to the prevention of failure of a facility. 3. Corrective Maintenance: Maintenance carried out to restore a facility which has ceased to meet an acceptable condition. 4. Running Maintenance: Maintenance which can be carried out while the facility is in service. 5. Shutdown Maintenance: Maintenance which can be carried out only when the facility is, or is taken out of service. 6. Breakdown Maintenance: Maintenance which is carried out after failure but for which advance provision has been made in the form of spares, materials, labour and equipment. 7. Emergency Maintenance: Maintenance necessitated by unforeseen breakdown or damage. 8. Downtime: The period of time during which a facility is not ready for use.  What is Materials Management?  Materials management is the management of the broad range of activities concerned with procuring or purchasing, storing, moving and controlling materials as an integral function within an organization. There is the need to ensure effective management of materials.  This is because materials constitute a very significant aspect of the cost structure of most organizations.  This influences profitability levels or cost effectiveness of operations.  In addition to other expenses the outflow of money in an organization involves the procurement of materials, the storage, movement and control of the use of these items. The primary objective of material Management: To provide a service to the organization by making available a balanced flow of materials, maintenance items and general commodities to meet operational requirements. To fulfil this objective, the service must be provided economically to minimise the overall operational costs. Excessive stocks can result in capital being tied-up in stocks and deterioration. Similarly, inadequate stock can lead to stock-outs or shortages, which in turn results in ineffective performance and poor service to clients. Benefits Efficient materials management contributes to cost reduction at every stage/point in the production/operation system. Advantages include: 1. Improved purchase planning. 2. Lowered stock level and more rapid/frequent stock turnover. 3. Less capital tied-up in stock. 4. Few surpluses/stock-out situations. 5. Less obsolescence and risk of damage to stocks. 6. More efficient utilization of capital Several activities are involved in materials management. These activities can be categorised as follows: Purchasing Inventory control Storekeeping Traffic/shipping Physical distribution Definition of Inventory Inventory is a stock of items kept on hand to meet demand  Inventory is a large and costly investment. Better management of corporate inventories can improve cash flow and return on investment.  The lack of comprehensive understanding of inventory management techniques and trade-offs often causes customer service levels to drop. The reasons for holding inventory include the following: 1. It enables the firm to achieve economies of scale 2. It balances supply and demand 3. It enables specialization in manufacturing 4. It provides protection from uncertainties in demand and lead time, 5. It acts as a buffer between critical interfaces within the channel of distribution. Critical interfaces: Supplier-procurement (purchasing) Procurement-production Production-marketing Marketing-distribution Distribution-intermediary Intermediary-consumer/user Inventories can be classified based on the reasons for which they are accumulated. The categories of inventories include: 1. Cycle stock 2. Safety or Buffer Stock 3. Seasonal Stock 4. Speculative Stock 5. Dead Stock Cycle stock Inventory is frequently bought or produced in excess of what is immediately needed in order to take advantage of lower unit costs or quantity discounts  Safety or Buffer Stock Inventory is sometimes carried to protect against unpredictable or unexpected variations in demand. Seasonal Stock Inventory are often built in anticipation of future demand, planned promotional programs, seasonal demand fluctuations, plant shutdowns, vacations, etc. Speculative or Hedge Inventory Inventory can be carried to protect against some future event, such as a scarcity in supply, price increase, disruption in supply, strike, etc. Dead Stock Merchandise that cannot be sold. This type of product has never been worn, used or sold and has been in inventory for an extended period of time. It often has original packaging and tags. It is also known as New Old Stock (NOS) Associated Costs of Inventory The total costs associated with stocks include the following costs: 1. Purchase costs 2. Holding costs: capital, space, service, risk 3. Ordering costs: administrative, transportation, etc. 4. Stock-outs (i.e. the costs of being without stock when it is needed)  Models in Inventory Management Economic Order Quantity (EOQ) Economic Batch Quantity (EBQ) ABC Analysis Economic Order Quantity (EOQ) Model) The EOQ model is a technique for determining the order quantity (Q) that minimises total cost. This value for Q is referred to as the economic order quantity (EOQ). EOQ assumptions: 1. Demand for the item is known and constant. 2. Lead time is known and constant. (Lead time is the amount of time that elapses between when the order is placed and when it is received.) EOQ assumptions (Cont…): 3. The cost of all units ordered is the same, regardless of the quantity ordered (no quantity discounts). 4. Ordering costs are known and constant (the cost to place an order is always the same, regardless of the quantity ordered). EOQ assumptions (Cont…): 5. When an order is received, all the items ordered arrive at once (instantaneous replenishment). 6. No stock out situations (no shortages).  EOQ Calculation Formula Based on the above assumptions EOQ is given by the formula: Q = √2DS/H Where: D = Annual demand S = Ordering cost (Setup cost) H = Holding cost (H) Q = Economic Order Quantity  EOQ ILLUSTRATION Annual demand (D) = 1,000 units per year Ordering cost (S) = Gh¢10 per order Holding cost (H) = Gh¢0.50 per unit per year Q = √2 (1000) x10 0.50 EOQ ILLUSTRATION (Cont...) Q = √20,000 0.50 Q = √40,000 = 200 Hence EOQ= 200 units  EOQ ILLUSTRATION (Cont...) Number of orders placed per year (D/Q) = 1000/200 = 5 Average inventory level (Q/2) = 200/2 = 100 units Reorder Cycle = 365 days / No. of orders placed per year (D/Q) =365/5 =73 days END