Preparing for the Game

The first 30 days of the game will

be initialized this evening
Preparing for the Game
Download Data

We will do one together
GOING OVER THE MODELS IN CLASS
OBJECTIVE #1: SUPPORT THE LITTLEFIELD GAME
STRATEGIC OPERATING PLAN
LITTLEFIELD
SIMULATION EXERCISE
LITTLEFIELD
FORECASTING
INVENTORY WAITING LINES
DECISION TREES
GOING OVER THE MODELS IN CLASS
OBJECTIVE #2: POVIDE TRADITIONAL OVERVIEW
USES: FORECAST + ERROR TO
DETERMINE OPERATING REROURCE
NEEDS
SPECIAL TOPICS:
POISSON PROCESS


FORECASTING
SIMULATION EXERCISE
LITTLEFIELD
d o =
GOING OVER THE MODELS IN CLASS
OBJECTIVE #2: POVIDE TRADITIONAL OVERVIEW
USES: MIN
RELEVANT COSTS
SPECIAL TOPIC:
DEMAND NOT CONSTANT

INVENTORY
SIMULATION EXERCISE:
LITTLEFIELD
EXERCISE &
DERIVATION
GOING OVER THE MODELS IN CLASS
OBJECTIVE #2: POVIDE TRADITIONAL OVERVIEW
USES: CONTROL OPERATING CHARACTERISTICS
AVERAGE LINE LENGTH
AVERAGE WAITING TIME
SPECIAL TOPIC:
SERVER UTILIZATION
WAITING
LINES
SIMULATION EXERCISE
LITTLEFIELD
MINI CASE:
PANTRY SHOPPERS
GOING OVER THE MODELS IN CLASS
OBJECTIVE #2: POVIDE TRADITIONAL OVERVIEW
USES: SEQUENTIAL DECISION MAKING
UNDER UNCERTAINTY
SPECIAL TOPICS:
RISK
PERIOD LENGTHS
DECISION
TREES
SIMULATION EXERCISE
LITTLEFIELD
MINI CASE:
ARCTIC INC
FORECASTING
USES: FORECAST + ERROR TO
DETERMINE OPERATING REROURCE
NEEDS
SPECIAL TOPICS:
POISSON PROCESS

SIMULATION EXERCISE
LITTLEFIELD
d o =
FORECASTING
USES: FORECAST + ERROR TO
DETERMINE OPERATING REROURCE
NEEDS
DEFINITIONS OF FORECASTING
THREE LAWS OF FORECASTING
ELEMENTS OF A GOOD FORECAST
FORECASTING
USES: FORECAST + ERROR TO
DETERMINE OPERATING REROURCE
NEEDS
DEFINITION OF FORECASTING
A FORECAST IS A STATEMENT ABOUT THE FUTURE VALUE OF A
VARIABLE OF INTEREST, e.g.:
DEMAND
LEARNING-CURVE EFFECTS (TASK COMPLETION TIMES)
FORECASTING
USES: FORECAST + ERROR TO
DETERMINE OPERATING REROURCE
NEEDS
DEFINITION OF FORECASTING
FORECASTING IS DRIVING ALONG CA 99 AT 70 MPH
YOUR WINDSHIELD AND SIDE WINDOWS PAINTED BLACK
ONLY INFORMATION FOR STEERING IN REARVIEW MIRROR
FORECASTING
USES: FORECAST + ERROR TO
DETERMINE OPERATING REROURCE
NEEDS
THREE LAWS OF FORECASTING
1. FORECASTS ARE ALWAYS WRONG
2. AGGREGATE FORECASTS ARE MORE ACCURATE THAN
FORECASTS FOR SINGLE PRODUCTS
3. THE LARGER THE FORECAST HORIZON THE LESS ACCURATE THE
FORECAST WILL BE
GIVEN THESE LAWS OF
FORECASTING, WHY DO
WE FORECAST?
FORECASTING
USES: FORECAST + ERROR TO
DETERMINE OPERATING REROURCE
NEEDS
WHY WE FORECAST
FORECASTS ARE ALWAYS WRONG B-U-U-U-T
FORECAST ERROR MEASURES ARE VERY USEFUL
THEY PROVIDE AN IDEA OF JUST HOW WRONG WE CAN BE ON
AVERAGE
FORECASTING
USES: FORECAST + ERROR TO
DETERMINE OPERATING REROURCE
NEEDS
WHY WE FORECAST
USE THE FORECAST and the ERROR MEASURES together to
CREATE a one-TAILED CONFIDENCE INTERVAL
USED TO SET SAFETY STOCK
OR ADDITIONAL SERVICE RESOURCES
FORECASTING
USES: FORECAST + ERROR TO
DETERMINE OPERATING REROURCE
NEEDS
HOW DO WE SET SAFETY STOCK?
TOPIC OF ROP
Preparing for the Game
I. Plotting data
a. Plot with charting tool
i. Select columns A and B
ii. Click on the "Chart Wizard" Icon
iii. Under "Chart Type" on the left select "XY
(Scatter)"
iv. On the right select "Scatter with data points
connected by lines (third icon down on the
left)
v. When you are done customizing your chart
click finish
day number of jobs arriving each day
1 4
2 1
3 4
4 2
5 2
6 7
7 3
8 1
9 5
10 3
11 5
12 4
13 1
14 3
15 6
16 4
17 3
18 4
19 6
20 4
21 5
22 7
23 9
24 6
25 3
26 7
27 1
28 9
29 6
30 8
Job Arrivals first 30 Days
0
1
2
3
4
5
6
7
8
9
10
0 5 10 15 20 25 30
Preparing for the Game
II. Adding trend lines
a. Add a trend line
i. right click your mouse anywhere on the curve
ii. select Add a trend line
iii. select the option that places a formula on the
graph
iv. Forecast out 30 units
day number of jobs arriving each day
1 4
2 1
3 4
4 2
5 2
6 7
7 3
8 1
9 5
10 3
11 5
12 4
13 1
14 3
15 6
16 4
17 3
18 4
19 6
20 4
21 5
22 7
23 9
24 6
25 3
26 7
27 1
28 9
29 6
30 8
Job Arrivals first 30 Days
y = 0.1377x + 2.2989
R
2
= 0.2743
0
2
4
6
8
10
12
0 5 10 15 20 25 30 35 40 45 50 55 60
FORECASTING
USES: FORECAST + ERROR TO
DETERMINE OPERATING REROURCE
NEEDS
SPECIAL TOPICS:
POISSON PROCESS

SIMULATION EXERCISE
LITTLEFIELD
d o =
III. IMPORTANT NOTE ON DEMAND VARIANCE
a. THE JOB ARRIVALS FOLLOW A POISSON DISTRIBUTION
b. SPECIAL FEATURE OF THE POISSON DISTRIBUTION
i. MEAN = VARIANCE
ii. RECALL: VARIANCE = (STANDARD DEVIATION)
2

c. AS DEMAND INCREASES WITH TIME (SEE TREND LINE)
i. SO DOES THE STANDARD DEVIATION OF DEMAND!

i. INCREASING DEMAND WILL AFFECT EOQ
ii. INCREASING VARIANCE WILL AFFECT ROP
PREPARING FOR THE GAME
d o =
FORECASTING
USES: FORECAST + ERROR TO
DETERMINE OPERATING REROURCE
NEEDS
SPECIAL TOPICS:
POISSON PROCESS

SIMULATION EXERCISE
LITTLEFIELD
d o =
PREPARING FOR THE GAME
III. FORECAST OPERATIONAL PLANNING
a. PLAN WHEN YOU WILL NEED TO FORECAST AGAIN
i. SEE LITTLEFIELD_GAME.PDF
b. CONSIDER THE QUANTITY OF DATA NEEDED
i. IDEAL: 30 DAYS
ii. FUNCTIONAL?
INVENTORY MANAGEMENT
USES: MIN
RELEVANT COSTS
SPECIAL TOPIC:
DEMAND NOT CONSTANT
SIMULATION EXERCISE:
LITTLEFIELD
EXERCISE &
DERIVATION
EOQ Model
ASSUMPTIONS of the EOQ MODEL
Only one product is involved
Annual demand requirements known
Demand is even throughout the year
Lead time does not vary
Each order is received in a single delivery
There are no quantity discounts

EOQ Model
OBJECTIVE: MIN
RELEVANT COSTS
Q
2
Annual
carrying
cost
Annual
ordering
cost
Total cost = +
H
D
Q
S
TC =
+
INVENTORY MANAGEMENT
USES: MIN
RELEVANT COSTS
SPECIAL TOPIC:
DEMAND NOT CONSTANT
SIMULATION EXERCISE:
LITTLEFIELD
EXERCISE &
DERIVATION
INVENTORY MANAGEMENT
EXERCISE &
DERIVATION
D = Annual demand
H = Annual holding cost - $/unit/year
S = Fixed order cost

Example
D = 50,000 units
H = $1 /unit/year
S = $1,000
Operate 50 weeks/year
Cost Minimization Goal
Order Quantity
(Q)
The Total-Cost Curve is U-Shaped
Ordering Costs
Q
O
A
n
n
u
a
l

C
o
s
t

(optimal order quantity)
TC
Q
H
D
Q
S = +
2
Deriving the EOQ
Using calculus
take the derivative of the TC function
set the derivative (slope) equal to zero
solve for Q.
Q =
2DS
H
=
2( Annual Demand )(Order or Setup Cost )
Annual Holding Cost
OPT
Deriving the EOQ
The total cost curve reaches its minimum
where
the carrying = ordering costs

Q =
2DS
H
=
2( Annual Demand )(Order or Setup Cost )
Annual Holding Cost
OPT
INVENTORY MANAGEMENT
USES: MIN
RELEVANT COSTS
SPECIAL TOPIC:
DEMAND NOT CONSTANT
SIMULATION EXERCISE:
LITTLEFIELD
EXERCISE &
DERIVATION
EOQ Model
The INVENTORY CYCLE
Quantit
y
on
hand
Q
Receive
order
Place
order
Receive
order
Place
order
Receive
order
Lead time
Reorder
point
Usage
rate
Time
Profile of Inventory Level Over Time
When to Reorder with EOQ Ordering
Reorder Point - When the quantity on hand
of an item drops to this amount, the item
is reordered
Safety Stock - Stock that is held in excess
of expected demand due to variable
demand rate *.
Service Level - Probability that demand will
not exceed supply during lead time.
*Applies to lead-time uncertainty as well but not in the
Littlefield exercise
Determinants of the Reorder Point
The rate of demand
The lead time Demand*
Stockout risk (safety stock)
* and/or lead time variability but not in the Littlefield Exercise
Safety Stock
LT
Time
Expected demand
during lead time
Maximum probable demand
during lead time
ROP
Q
u
a
n
t
i
t
y

Safety stock
Safety stock reduces risk of stockout during lead time
Reorder Point
ROP
Risk of
a stockout
Service level
Probability of
no stockout
Expected
demand
Safety
stock
0 z
Quantity
z-scale
The ROP based on a normal
Distribution of lead time demand
So Whats the D _ _ _ _ _ d ROP Equation?
Let
L = lead time
d = demand rate (demand expressed in
days)
o = standard deviation of demand
SL = required service level
z = standard normal variate

ROP = d x L + z x o x Sqrt(L)
So Whats the D _ _ _ _ _ d ROP Equation?
Example
L = 19 days
d = 24 units/day
o = 4 units/day
SL = 98%
z = 2.05

ROP = d x L + z x o x Sqrt(L)
ROP = (24)(19) + (2.05)(4)sqrt(19)
ROP = 492 units (round up)
DEMAND NOT CONSTANT

Inventory Level of raw kits at Littlefield
(not an average)
inventory level in kits (not an average)
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
0 100 200 300 400
inventory level in kits (not an
average)
INVENTORY MANAGEMENT
USES: MIN
RELEVANT COSTS
SPECIAL TOPIC:
DEMAND NOT CONSTANT
SIMULATION EXERCISE:
LITTLEFIELD
EXERCISE &
DERIVATION
INVENTORY MANAGEMENT
SIMULATION EXERCISE:
LITTLEFIELD
WAITING LINES
USES: CONTROL OPERATING CHARACTERISTICS
AVERAGE LINE LENGTH
AVERAGE WAITING TIME
SPECIAL TOPIC:
SERVER UTILIZATION
SIMULATION EXERCISE
LITTLEFIELD
MINI CASE:
PANTRY SHOPPERS
WAITING LINES
USES: CONTROL OPERATING CHARACTERISTICS
AVERAGE LINE LENGTH
AVERAGE WAITING TIME
SPECIAL TOPIC:
SERVER UTILIZATION
SIMULATION EXERCISE
LITTLEFIELD
MINI CASE:
PANTRY SHOPPERS
WAITING LINES
USES: CONTROL OPERATING CHARACTERISTICS
AVERAGE LINE LENGTH
AVERAGE WAITING TIME
SPECIAL TOPIC:
SERVER UTILIZATION
SIMULATION EXERCISE
LITTLEFIELD
MINI CASE:
PANTRY SHOPPERS
WAITING LINES
USES: CONTROL OPERATING CHARACTERISTICS
AVERAGE LINE LENGTH
AVERAGE WAITING TIME
Example of an M/M/1 queue
[1]

[1]
Picture source: Heizer and Render. Production and Operations Management.
WAITING LINES
12 =

17 =
The following information is typically given:
Symbol Units Description Example
Customers per time unit Arrival rate of customers into the system 12 = cars/hour

Customers per time unit Servers service rate 17 = cars/hour

WAITING LINES
USES: CONTROL OPERATING CHARACTERISTICS
AVERAGE LINE LENGTH
AVERAGE WAITING TIME
Assumptions of the M/M/1 queue
and followaPoissonprocess
1 . The average service time for Dave's car wash is hour(s)/car
Population Source assumed infinitely large
Queue capacity infinite
Queue discipline FCFS
<
WAITING LINES
USES: CONTROL OPERATING CHARACTERISTICS
AVERAGE LINE LENGTH
AVERAGE WAITING TIME
Assumptions of the M/M/1 queue
More
Customers are Patient
That is, they do not
Balk
Renege
Jockey
WAITING LINES
USES: CONTROL OPERATING CHARACTERISTICS
AVERAGE LINE LENGTH
AVERAGE WAITING TIME
Operating Characteristics of the M/M/1 queue
Symbol Formula/Units Description
( ) . 0 1 . , = e 1
Server capacity utilization
n
P

( ) 1
n
n
P = The probability that n customers
are in the system
L
L


=

customers
Average number of customers in
the system
q
L
q
L L = Average number of customers in
the Queue
W
1
W

=

time units
Average amount of time that a
customer spends in the system
q
W
q
W W = time units Average amount of time that a
customer spends in the queue


1 This simply means0 1. < < Stated otherwise,

is a number strictly greater than 0
and strictly less than 1.
WAITING LINES
USES: CONTROL OPERATING CHARACTERISTICS
AVERAGE LINE LENGTH
AVERAGE WAITING TIME
Operating Characteristics of the M/M/1 queue
Symbol Description Example

Server capacity utilization
12 17 0.7059 =
n
P

The probability that n
customers are in the system
( )
2
2
1 0 7059 0 7059
0 2941 0.4983
=0.1466
. .
.
P =
=
L Average number of customers
in the system
12 12
2 4
17 12 5
. L = = =

q
L
Average number of customers
in the Queue
0 7059 2 4 1 69 . . .
q
L = =

WAITING LINES
USES: CONTROL OPERATING CHARACTERISTICS
AVERAGE LINE LENGTH
AVERAGE WAITING TIME
Operating Characteristics of the M/M/1 queue
Symbol Description Example
W Average amount of time that
a customer spends in the
system
1 1
0 2 hour
17 12 5
0 2 60 12 minutes
.
.
W
W
= = =

= =

q
W
Average amount of time that
a customer spends in the
queue
0 7059 12
8 47 minutes
.
.
q
q
W
W
=
=


WAITING LINES
USES: CONTROL OPERATING CHARACTERISTICS
AVERAGE LINE LENGTH
AVERAGE WAITING TIME
SPECIAL TOPIC:
SERVER UTILIZATION
SIMULATION EXERCISE
LITTLEFIELD
MINI CASE:
PANTRY SHOPPERS
WAITING LINES
SPECIAL TOPIC:
SERVER UTILIZATION
What is a good range of values for
?
We know that should be between 0 and 1
But we need to take a closer look
WAITING LINES
SPECIAL TOPIC:
SERVER UTILIZATION
A closer look at
Recall L
L L


=

customers Average number of customers in the system

Recall: <
But What Happens as ?
Draw the D _ _ _ _ d Picture
(DTDP)
The Second Law of EMBA 223
What is the first Law of EMBA 223

But What Happens as ?
L L


=

Value of L vs.
= 0.995
L = 199
= 0.99
L = 99
= 0.90
L = 9.00
= 0.75
L = 3.00
= 0.50
L = 1.00
= 0.20
L = 0.25
= 0.10
L = 0.11
0.00
30.00
60.00
90.00
120.00
150.00
180.00
210.00
0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00

L
How do we use that Information?

WAITING LINES
USES: CONTROL OPERATING CHARACTERISTICS
AVERAGE LINE LENGTH
AVERAGE WAITING TIME
SPECIAL TOPIC:
SERVER UTILIZATION
SIMULATION EXERCISE
LITTLEFIELD
MINI CASE:
PANTRY SHOPPERS
WAITING LINES
MINI CASE:
PANTRY SHOPPERS
Read the Mini Case
Open Chapter 13.xlt
Go to the Single Channel worksheet
MINI CASE:
PANTRY SHOPPERS
WAITING LINES
USES: CONTROL OPERATING CHARACTERISTICS
AVERAGE LINE LENGTH
AVERAGE WAITING TIME
SPECIAL TOPIC:
SERVER UTILIZATION
SIMULATION EXERCISE
LITTLEFIELD
MINI CASE:
PANTRY SHOPPERS
WAITING LINES
SIMULATION EXERCISE
LITTLEFIELD