OPS

50 days of history transpired and the simulation is paused. Work as a team to review and answer the following questions: I N V E N T O R Y

In Simulation 2, in addition to capacity, your team will make decisions related to raw materials inventory – or kits – which are purchased from suppliers.

o   Click on the Materials Buffer icon and “Plot Inventory”. What do you notice? ________________________________

o   What is the current Reorder Point?   __________

o   What is the current Order Quantity? __________ o   What is the lead time for inventory, and what does it mean in terms of your planning?  ________________________

You can use EOQ to calculate the order quantity that will preserve cash for your team. To do that, you need an estimate of Annual Demand, Ordering Cost and Holding Cost.

o            Annual Demand (D) = Avg. Daily Demand X 365 = __________

o            Ordering Cost: __________ per order (in guidelines)

o            Holding Cost:  assume 30% per year and each kit costs $900 Suggestion: Calculate EOQ and compare to the current Order Quantity setting.  What do you think?  

When you have access to make updates, change the current Order Quantity to reflect your EOQ.

The Reorder Point should be set appropriately to make sure that you don’t run out of raw materials.     ROP = Demand During LT + Safety Stock.

Note that there is a lot of variation in demand. To calculate safety stock, your team could use the Normal Distribution method. Decide on a service level % (for example, 95% or 98%), and calculate the standard deviation of daily demand (you can download the orders data to Excel to make that easy). What does your team think you should do about safety stock?

C U S T O M E R   L E A D   T I M E

Note that when you take control of your factory on Day 50, the contract choice is set at Quoted lead time: 7.0 day(s), Maximum lead time: 14.0 day(s) and Revenue per order: 1,000 dollars. You can choose from a menu of contracts under which new customer orders will be accepted. The more lucrative contracts have shorter lead time requirements and greater penalties for not achieving lead times.

· What are your current actual, demonstrated lead times, during the first 50 days? ________________

· Does your team need to purchase additional machines in Station 1, 2 or 3? ________________________