IEDA2200 Notes for Revision

Management: Top, Middle, First-line.

 Top management (strategic planning): 1 – 5 years.

 Middle management (tactical planning): 6 – 24 months.
 First-line management (operational planning): 1 – 52 weeks.

Skills possessed by managers: Technical, interpersonal, conceptual.

Functions of managers: Planning, controlling, organizing, directing, and staffing.

Engineering managers: Has the ability to apply engineering principles and skill in organizing
and directing people and projects.

Operations Management (OM): management of processes used to design, supply, produce,

and deliver valuable goods and services to customers.

 Example: IKEA
o Over 50% recycled products
o Fewer materials
o Do-it-yourself assembly
o Flat packages
o Combine retail and warehouse processes, self-service.

Value added = Value/price of output(s) – cost of input(s)

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Importance of OM:

 Determines QOL for all people.

 Directly impacts sustainability.
Products:

 Usually neither purely good-based nor purely service-based.

Productivity: Measures how well resources are used.
output ( goods/ services)
 Productivity=
input (labor , materials ,energy ,∧other resources)
 Can be computed for a single operation, a department, an organization, or a country.
 It is relative.


Project: A temporary endeavor undertaken to create a unique product or service.

Economic Order Quantity (EOQ)

 Aims to minimize annual cost (holding cost + order inventory cost)

 Assume
o Only 1 product
o Known demand rate, and is constant
o No lead time in production
o No shortage
o Each order received in a single delivery
o No quantity discounts
 parameters
o D (demand rate)
o S (order cost for ordering or producing one lot)
o H (holding cost for one year)
o Q (Lot size / Order quantities)
 Order only when inventory reaches 0 (instantaneous replenishment)
 Order frequency = D / Q

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  Order cycle time T = Q / D
 Average inventory = 0.5Q
 Fix order cost per year = SD/Q
 Holding cost per year = 0.5QH
 Total annual cost TC = SD/Q + 0.5QH
2 SD



Minimum Q Q¿ =
¿
TC ( Q )=√ 2 SDH
√ H

1 Q Q¿
 Sensitivity of TC(Q) with respect to Q ¿ ( +
2 Q¿ Q )
Reorder point (ROP): inventory level when a new order has to be placed

 Relax assumption: no time lag between production and availability to satisfy demand
 Lead time (L) allowed
LQ
 If L ≤T , ROP= =L × D
T
L
 If L>T , ROP=D× T ×mod
T ()
L L
o If =1.3, mod
T T ()
=0.3

BEWARE OF TIME UNITS

Economic Production Quantity (EPQ)

 Production done in batches or lots

 Inventory grows upon continuation of production
 One more parameter: Production rate P, where P > D.
 Assumptions:
o Only one product involved
o Demand, production, and usage rate is constant
o Usage occurs continuously, but production will be periodical
 Formulae:
Q
o Run time (Production time) ¿
P
Q
o Max inventory level I max= ( P−D )
P
I
o Average inventory level I avg= max
2
SD
o Total cost per year ¿ I avg H +
Q

o Optimal run size Q¿ = ( √ 2HSD )( √ P−D

P
)
Q
o Cycle time ¿
D

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Quantity Discount Model: price reduction for large orders, unlike the previous 2 models

 2 types: Carrying cost = constant or Carrying cost = a percentage of the unit price
 For the constant case,
SD QH
o TC ( Q )= + + pD
Q 2
o Broken line graph
o Calculate common EOQ first
o After breaking the lines, find the lowest TC(Q), either the at EOQ or at
boundaries (price break)
 For the percentage case,
o holding cost H = rp, where r is the annual interest rate
o EOQ= 2 DS
√ rp
SD QH
o TC ( Q )= + + pD
Q 2
o Different EOQ for each quantity range
o Still broken line graph
o Begin with the lowest unit price, calculate the EOQ
o Compare EOQ with the price range (if out of price range  not feasible)
o Calculate TC accordingly. Lowest TC is optimum

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