PRODUCTION AND

OPERATIONS MANAGEMENT
LECTURE 7

LECTURE 7: MODULE 1
PROCESS ANALYSIS

BUFFER OR SUFFER

BUFFER OR SUFFER
In a system that is not able to buffer the
variability, we will suffer a loss of flow rate.
By allowing for inventories, we'll actually be able
to have a higher flow-rate.

SIMPLE PROCESS FLOW A FOOD

TRUCK
Food Truck

Every five minutes:

- You get 0, 1, or 2 orders with equal probability
- You have a capacity of 0, 1, or 2 with equal probability
- It is not possible to make a sandwich before the order
- Customers are not willing to wait

DIFFERENCE BETWEEN MAKE-TO-ORDER AND MAKE-TOSTOCK

McDonalds
Subway
1. Make a batch of sandwiches
1. Customer orders
2. Sandwiches wait for customer orders
2. Customer waits for making of sandwic
3. Customer orders can filled immediately
3. Customer orders can filled with delay
=> Sandwich waits for customer
=> Customer waits for sandwich
Which approach is better?
Make-to-Stock advantages include:
+ Scale economies in production
+ Rapid fulfillment (short flow time for customer order)
Make-to-Order advantages include:
+ Fresh preparation (flow time for the sandwich)
+ Allows for more customization (you cant hold all versions
of a sandwich in stock)
+ Produce exactly in the quantity demanded

FIVE REASONS FOR INVENTORY

PIPELINE INVENTORY
You will need some minimum inventory because of the
flow time >0
Littles law.
flow rate of one patient per hour and a flow time of l .
5 hours, the average inventory is
Inventory = l [ patientlhour] X 1.5 [ hours] = 1.5
patients

Source: De Groote

SEASONAL INVENTORY
Driven by seasonal variation in demand and
constant capacity
Due to the nature of the harvesting season,
Monitor Sugar, a large sugar cooperative in the U.
S. Midwest, collects all raw material for their suga
r production over a period of six weeks. At the en
d of the harvesting season, they have accumulate
d-in the very meaning of the word-a pile of sugar
beets, about 1 mill ion tons

CYCLE INVENTORY
Economies of scale in production
Whether a truck is dispatched empty or full , the
driver is paid a fixed amount and a sizeable portio
n of the wear and tear on the truck depends on th
e mileage driven, not on the load carried. Therefo
re tempted to load the truck completely.

SAFETY INVENTORY:
Buffer against demand.
Mc Donalds case.

DECOUPLING INVENTORY/ BUFFERS

Buffers between several internal steps
Suppose the first worker sews the collar onto a
shirt and the second sews the buttons. A buffer b
etween them is a pile of shirts with collars but no
buttons.

READ HANDOUT 6