8 hours

BA 302 Simulation

Name

BA 302 - 002

Gary Michaeu

1. Would you expect holding cost to go down with increases in peak capacity? Explain your answer. Could the actual pattern to be different from the expected one? Explain your answer.

I would expect that holding costs would go down with increases in peak capacity because the business can hold more WIP and sell more. There will be less being held in inventory overnight and holding costs will go down. I think that the actual pattern could be different from the expected one because there are a lot of different variables and the business might not sell all of their capacity which would lead to inventory held overnight.

2. Run your model to test your hypothesis formulated under 1. What do the holding cost do when you increase the max capacity for all five process steps from 6 to 7? Do the holding cost follow the expected pattern? If not, why not? In your answer consider both the mean of and variation in holding cost. Also consider the percentage of completed gifts (customers do not like finding out that their orders are not ready))

When I increased the max capacity for all five process steps from 6 to 7 the holding costs decreases. The holding costs decreased from an average holding cost of $702.45 to an average holding cost of $651.58. I expected that the holding costs would decrease and the actual pattern followed what I predicted. I think that the holding costs went down because the percentage of packages that were shipped increased from 69.0% to 75.6%. In addition, the percentage in holds decreased from 30.9% to 24.3% which means that more customers found out that their completed gifts were ready and sent out.

3. Would you expect the capacity increase to have an effect on slack? Would you include slack effects in your decision to increase or not increase capacity? What does the model predict will be the effect of the capacity increase on slack?

I would expect the capacity increase to have an effect on slack because of the increase in the number of products held. Slack is how much they can hold without being behind and because there is an increase in capacity there will be more waiting to be processed. When looking to increase capacity slack should be considered. However, it should not be the only thing considered. The model predicts that an increase in capacity will also have an increase in slack.

4. What happens with holding cost and slack when instead of increasing the maximum capacity for all steps from 6 to 7, we increase the minimum capacity for all steps from 1 to 2? Why is the effect on holding cost of changing the minimum capacities with 1 so much bigger than the effect of increasing the maximum capacities with 1?

By changing the capacity from 6 to 7 and the minimum from 1 to 2, the holding costs decreased from $651.58 to $373.97. The average total slack decreased from 104.29 to 84.35 which indicates that shorter time is allowed before a package is considered to be late. The effect on holding cost of changing the minimum capacities with 1 is larger than the effect of increasing the maximum capacities with 1 because it requires more is being help and costs will be compiled and increased.

5. Now, instead of setting the maximum capacity of all steps in the process from 6 to 7, set only the max capacities of steps 4 and step 5 to 7 while leaving all others at 6. Set the minimum capacity back to 1. What do you observe when you run the model?

I observed that the holding costs increased from $373.97 to $606.09 and percentage shipped decreased from 85.8% to 73.1%. The average increases because less is being shipped and more is being held. Slack also decreased from 104.2 to 88.3, which means that the time that an item can be pushed back without being behind has decreased. The appeal of running a system like this decreases because slack and percent shipped decreases and holding cost increases.

6. Make a recommendation as to whether or not and how to increase capacity for this business. In your analysis, carefully consider averages, minimum values, maximum values and variation. Hint!!!: you may want to try some model runs with capacity configurations other than the ones we have tried so far. Keep in mind that a hold at step 5 is seven times as expensive as a hold at step 1. Also keep in mind that as you hold fewer gifts, you have to tell fewer customers that their gift orders are not yet ready and that they have to come back the next day.

The recommendation that I would make would be to have the minimum capacity set to 2 and the max capacity for step 1 to be 6 and for steps 2-5 it be set at 7. By doing this, it would reduce the average holding cost to $335.0, percent shipped to 88.6%, percent holds to 11.3% and the average total slack is 117.8. By doing this, this means that less money is being spent when the business has to hold the item. Since, the amount of slack is enough, there is enough time allocated into the system where it won't fall behind if there is a hold-up.