# Capacity And Inventory Management Forecasting And Scheduling Economics Essay

3122 words (12 pages) essay in Economics

5/12/16

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Initially, our group’s strategy is try to minimise cost in every area not only in production cost but also in the holding cost and interest from loan, which is create for reach customer satisfaction 100% and clear all of debt with in week 24th. Moreover, in this level we plan to pay the loan back in each period that we have money left in the account to avoid the interest as much as we can. However, from conflict of the opinion and not careful enough in calculation the cost and balance capacity of production and cash flow so in this level our group have to pay penalty £ 26,460.

Our group’s forecast in the first level, we using the last year demand and first 12 weeks demand to calculate the growth our formula is

The growth rate is 15.97% or 16%. Then use this growth rate to calculate the demand in the level1.

Where t is number of the period

Week 13

2312.606

Week 14

6019.27

Week 15

2139.798

Week 16

2577.036

The figure show that the forecast of the peak will be in the week 14 as the peak will come every 3 weeks so in this level we plan to produce just enough to the demand for minimising the holding cost because we have 4000 finished good already in the stock. Actually in week 15 is the real peak as show in the figure 2 but the production is only 3500 units and the finished good is stock is only 3400 units so we get high penalty and loss the profit because we miss the demand in week 15.

In this level, we calculate the break-even point for production, which produces at least 3000 units, from using formula

But in week 16, the company cannot produce enough to break-even because of lack of material from miss calculate. Therefore, we do not have material enough to produce and have to produce at cost higher than selling price.

In addition, we also use forecast by weekly basis so we stuck in the reactive management and do not reach maximum utilisation of capacity. The result of this so we do not produce enough to minimize cost and keep stock in the wrong place which we keep the low independent demand which should be high stock to satisfy customer and high dependent demand which should be low stock, calculate for how many that going to use in each period and using proactive management.

## Level 2

We try to using forecast and plan for monthly basis and using the data of sale in the last year and the recently demand in this year by updating the actual demand in week 13-16, and then reforecast the demand. The growth is change to be 27.79%. And we know that the peak will come in week 19. Furthermore, to avoid lack of the material we plan to keep stock for accessory.

Week 17

3067.047

Week 18

11147.44

Week 19

5736.656

Week 20

3578.222

Then we try to stable production by sum the demand from week 17-20, this month demand is 23529.36 units and divided by 4. The result is 5882.341 units demand per month. However, the capacity in day shift is 5000 is not enough to cover the peak that coming in week 19 we think that in some weeks we plan to produce by using day and night shift.

In week 17 we produce at that day shift 5000units because we think that demand in week 17 is low. In week 18 we produce at 8500units by using day and night shift to build the stock for coming of high demand but we went bankrupt as a result of demand is lower than we through then we does not have enough cash to manage the production. The result of this we have to change the plan from product at 8500units to avoid the penalty to be produce at 3500units to using money as less as we can and because have to produce more than 3000units because some product will scrap, rework and machine down time. The result of this we have to pay £12,517.20 for penalty. In week 20 we run out of finished-good so we produce at 8500 for the demand and keep stock for the next level.

## Level 3

In this stage, we forecast and planning for monthly basis and scheduling by using data from customer demand. So we average the demand from week 21-24 for planning to produce enough to satisfy customer during this month, then we see that the day shift is not enough to satisfy the customer demand and if we use day and night shift, we still can produce 10,000 units per weeks. We not use other shift because of limited cash flow. From the demand XL is 50% of standard demand, We plan separate the capacity to produce by 1/3 and 2/3 for XL and standard respectively, in the same time we consider that the price of XL is much higher and we do not want to face the penalty again so we change to produce 60%for standard and 40% for XL. Moreover, we keep high stock of accessory to build new model and standard model because the new model requires more material. In addition, the growth rate is increase to 28.69%.

Standard

XL Model

Week 21

3894.243

1947.122

Week 22

7534.962

3767.481

Week 23

16881.92

8440.959

Week 24

6949.41

3474.705

Average

8815.133

4407.567

In level 3 we satisfy 100% customer. However, we were bankrupt in week 22. The reason of this, we use the unaffordable strategy because we do not have enough cash from penalty two times in level 1 and 2 which are double impact to the cash by pay penalty and missing the revenue from sale. However, we get high revenue from peak in week 23 to offset bankrupt. Another mistake is miss calculate the material so we don’t have enough material to produce in week 25.

## Conclusion

From doing the simulation in all level, we learn that we have to plan for production for long period instead of weekly to avoid reactive management. We will try to utilize production and produce at least to break-even and use the tradeoff between holding cost instead of penalty and pay more for increased flexibility in capacity to improve the in the decision. The penalty not only pays the money for miss the demand but also lose opportunity to get the revenue from sale. In addition, we learn to balance cash and inventory.

## Week 25-28

The growth rate for standard is in decrease trend from 28.69% to 16.79% and the new XL model is launch to the market. From this information, I plan that the demand of standard product will not increase more, and then I will not add the percent of the scrap, rework and machine downtime into the production because there is a chance that the demand of the product will decline and flatter from week 25-35 as see from the last year sales. In addition, the material is not enough to produce at breakeven-point, so I have to produce equal to what have left in the stock. I plan to stable product as in the average demand for standard and XL model in every period.

Moreover, in the week 25 not purchase the accessories because I want to minimise stock but still keep accessories 10,000 in the stock to prevent lack of material to produce and inaccurate forecast and to reduce the lead time by holding stock. Another thing is I try to produce to reach the customer demand and the day shift capacity is not enough to meet the demand so have to use other shift that higher cost but to avoid penalty because it bigger impact to the company than higher cost.

Standard

XL Model

Week 25

3935.893

1967.946

Week 26

4251.231

2125.616

Week 27

17180.11

8590.056

Week 28

7074.095

3537.048

Average

8110.333

4055.166

Week Number

25

26

27

28

Material Ordered

Main Body

12020

12020

12020

10000

Aerial

12020

12020

12020

10000

Accessories

0

16020

14000

7000

Schedule Production

Standard

1454

8020

8020

8020

XL

0

4000

4000

4000

## Week 29-32

In this month, I use the same strategy that stable production to meet the demand in the month not only just for each week but in some period not produce equal other period because I want to keep the holding cost low as much as possible and the demand in that week is low. However, I plan to produce more than demand that come forecast because of avoid penalty by keeping stock. In this month, the demand is flatter and lower than other month then the production in this month is lower than other.

Standard

XL Model

Week 29

4412.404

2206.202

Week 30

2383.726

1191.863

Week 31

8959.119

4479.56

Week 32

7377.755

3688.877

Average

5783.251

2891.626

Week Number

29

30

31

32

Material Ordered

Main Body

6000

10000

10000

6000

Aerial

6000

10000

10000

6000

Accessories

14000

14000

8000

13400

Schedule Production

Standard

6000

5000

6000

6000

XL

4000

1000

4000

4000

## Week 33-35

The plan for production in week 33-35, the demand is rising and because of the peak will come in week 36, I order the material more in the week 34 and 35 for preparing the production to meet the high demand in week 36.

Standard

XL Model

Week 33

4602.775

2301.388

Week 34

4971.838

2485.919

Week 35

9621.33

4810.665

Average

6398.648

3199.324

Week Number

33

34

35

Material Ordered

Main Body

10000

10000

12700

Aerial

10000

10000

12700

Accessories

13400

15400

13400

Schedule Production

Standard

4000

6600

6600

XL

2000

3400

3400

## The Standard product is now reaching the end of its life cycle and will be discontinued within the next few months, discuss the implications of this on production.

In ending stage, there are risks and cost of production in this period because uncertainty and a well organize of supply chain will help to minimize risk and cost for the enterprise (Rushton et al, 2000). When the product reaching the end of product life cycle; in other word, the decline stage mean that the product is become unfashion and obsolete. Consequently, the demand of the product will decline and the increase difficulty of forecast which is not only the customer demand but also how long that the demand of the product will disappear. Another consequent is it hard to manage the productions which include production plan, material order and stock level. The producers have to decrease production level which might be not reaching the breakeven level and profitability is diminishing. However, the producer have to produce because the producer might have a contract that have to produce the spares and replacement part for the product such as in automotive industry. Moreover, the manufacturers have to separate the production schedule for produce new produce which just have been launch and gain the profit and the spare part for the product that have been ended. Therefore, the manufacturers will not reach the highest profit that they should get and lose opportunity in the business, at the same time, spares parts consume the space in the warehouse and there is holding cost. Lastly, the production capacity design for balance the production for Original Equipment quantity and it might be unbalance because some parts produce faster than other parts.

Section 2

## Explain the relationships that exist between customer service levels, inventory holding levels and forecasting/forecast accuracy and explain how this might be managed. Ensure you include discussion of the issues arising if there relationships are poorly managed.

There are many factors concerning good business management. To begin with, forecast the product demand with using all available information and update the sale data from every each period for more accurate forecast the product demand. After that, use the forecast to purchase raw material for production and consider the time lag for order some material that each material take different time to get the material. Next, when the forecast at the accurate level and the production is on schedule then the inventory level has been minimizing. Lastly, the customers are satisfied by the optimum level of production and enough inventories to satisfy and then the company will get the revenue from sale. This is the good case of the relationship between those relationships which both producer and customer get benefit.

The “Vicious Cycles” affect to poorly managed business. However, if there relationships are poorly managed, the business and customer will get the drawback and everything will go wrong. Firstly, the forecast is inaccurate which lead to production too much more than market demand and order the material more. Consequently, company will keep too much stock which result in high holding cost and increase the cost of the business. This effect will decrease liquidity of the company which lead to limited budget for production and manage business activity in the company. Then, in the long-term the company will not have enough money to management and production after that cannot satisfy the customer and it became the vicious cycle. For the produce less than market demand, it might be because lack of material to produce and poorly forecast. As a result of, products are not enough to satisfy customer. If in the simulation, the company will get the penalty and revenue from sale but for the real world, it will lead to lose the business opportunity. Thus, the company will lack the money to manage and produce which not be enough to meet the demand so the company cannot satisfy customer demand and then come back to the same cycle again.

or less than the production demand and also for the production is too much and less than demand in the market.

## A company is considering adopting a LEAN/JIT initiative to its operations. Outline the key requirements for a successful implementation strategy

LEAN/JIT is the philosophy for manufacturing which bring a lot of benefit to the enterprise. The objective of JIT is to improve the method of doing things in each process and get rid of the waste which is cost in every stages of production as much as possible (Harrison, 1992), in other word, work-in-progress is reduced. Therefore, JIT play important role for the production company for reducing cost. However, there are many conditions for successful in JIT. Those requirements will be explain more in detail in following.

Level schedules: To achieve the target of JIT, by reduce the batch size by produce depend on the “Pull”, which is the signal to produce for replenishment the part used, and the schedule can be flexible to keep the stock low. However, there are some drawbacks that have to concern. First is the tradeoff between machine downtime and inventory; for example, using large batch size for decrease downtime of the machine and time for changing job but the inventory will increase and vice versa. Another thing is the problem with several change in production so the ABC analysis become the method to help decision making for cut the low contribution and high bottleneck time.

Reduction of set-up time: if the set-up time reduces, the lead time and inventory between each production station will reduce (Harrison, 1992). It can be reduce by many ways such as preparation in external operation as much as possible. The equipment or machine may be hard to reduce the set-up time but for people can be done by training, practice and work method. For instance, return the tool in the initially place or maintenance the machine for ready to use. Moreover, reduction of set-up time is the way to increase flexibility which not tradeoff with capacity.

Reduced non value-added activities (NVA): Transaction cost is very high in some manufacturing. If using some technology to improve information system of the company, the overall cost will decrease. For example, the automating information technology and warehouse management system will improve the integration of technology such as barcode and RFID (Gunther, 2008) by reduce the time and complexity. Transaction cost per unit might look not costly but for the whole company it will be costly. The Japanese try to get rid of NVA or 3-Mu from the system. The 3-Mu are Muda, Mura and Muri which include the failure of machine, material, manpower, achieving consistency and excessive demand from the defected product(Harrison, 1992 and WMG, 2010).

Developed Layout and flow: the developed of layout and flow can be shorter production process. For example, the way to do this is put the machine closer or together; therefore, the flow distance will minimise. Moreover, for the material part, may be use the number and code for separate it out which will easy to use.

Design for manufacture:

Total quality management:

Total productive maintenance:

Trained people:

Reliable suppliers:

## Briefly explain how a recent technological innovation might potentially impact on future logistics and/or Operations Mgt

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