Supply Chain and Operations Concepts
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BOOKING/PROTECTION LEVELS, NO-SHOWS, OVERBOOKING
Booking limit, protection limit use critical fractile
Protection limit applies to the high-value class
Booking limit applies to the low-value class
Total Seats – Protection Limit = Booking Limit
When calculating protection limits and quantities, such as in WAMB example, be sure to know which is the high-value and which is the low-value
Protection level is the high-value one (it was confusing in the example because last-minute = high-value)
When calculating cost of bumped passengers, think of it in Expected Lost Inventory
Unmet demand of no-shows (which you get distribution for) means they did show and you couldn’t fulfill
When calculating % no-shows, know what side of the z-table you’re on
If no-shows you take the area to the left of the z-score since fewer no-shows means greater chance of overbooking and smaller chance of not overbooking
BOTTLENECKS, CAPACITY, UTILIZATION
When calculating bottlenecks, and you have processing time and resources, divide resources by processing time and compare
This should be the first step! Compare for all!
Whatever is the lowest is your bottleneck
You end up with a flow rate, such as 0.333 units/minute
Normalize it to hours, so multiply by 60 and you get 20 units/hour, which is your system capacity (same as bottleneck)
CRITICAL FRACTILE, CAPACITY
When calculating quantity to purchase, consider all costs that go into G and L
G >> Revenue from selling it, minus cost of supplying it, minus any other costs such as shipping costs and handling costs
L >> Cost of supplying it, plus any other costs such as shipping costs and handling costs, minus any salvage revenue if unsold
Get critical fracticle (G/G+L), then get a Z, and then get the X
If you don’t get a target capacity, like in the bagel example, go the critical fractile path
To calculate L, make sure all salvage costs are factored in, even in cases where there are %s that some are sold and some are not (average the two out)
When calculating capacity, if a target is given (such as 80% for bagels), you can find a z-score for 80% and then use z-score equation (Z = (X – mean)/stdev)
DEMAND DISTRIBUTION
Demand distribution over several periods “y” instead of one period
y x Mean = y-day mean
(y)0.5 x Mean = y-day standard deviation
If demand is positively correlated (vs. uncorrelated), standard deviation will get larger
EOQ, HOLDING COSTS
Holding costs >> think of these as costs required to hold on to each unit that you sell
Fixed costs (e.g. Millennium Liquors) such as fixed refrigeration and labor to pack a case are irrelevant
Cost of capital is used >> if you have a CoC % (adjust accordingly if it is not over a full year) and the cost of inventory, multiply together. Include any other variable unit costs (such as variable cost of refrigeration)