Mid 1 Slides

8/11/2019 Mid 1 Slides

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Forecasting

• Accurate• Timely• Reliable• In writing• Technique should be simple to understand and use

• Determine the purpose of the forecast•

Establish a time horizon• Select a forecasting technique• Gather and analyse relevant data• Prepare the forecast• Monitor the forecast

Elements of good forecast

Steps in forecasting process





Forecasting

Averaging Techniques

Simple mo ving average

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Weigh ted mo ving average

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Forecasting

Exponent ial Sm ooth ing 111 t t t t F A F F

For smoother demand, is less, the forecasting trend will be smootherFor fluctuating demand, is more, the trend will be less smooth

Simp le Linear Regress ion

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22 x xn y x xynb

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Forecasting

Accuracy of Forecasts

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Two commonly used measures:

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Forecast Actual MAD

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Forecast Actual MSE

Mean absolute deviation (MAD)

Mean squared error (MSE)



Work Measurement

Vital inputs for:• Manpower and machine planning• Reducing labour costs• Scheduling• Budgeting•

Designing incentive systems

Standard Time Amount of time a qualified worker should spend to complete aspecified task, working at sustainable rate , using given methods,tools and equipment, raw material and workplace

Most commonly used methods of work measurement:• Time study• Historical times• Predetermined data• Work sampling



Work Measurement

Time Study• Most widely used method of work measurement• Especially appropriate for short, repetitive tasks

Average of a few properly trained workers’performed time are taken as the standard

Basic steps:• Define the task to be studied, and inform the worker(s) who will be studied• Determine the number of cycles to be observed• Time the job and rate the performance• Compute the standard time



Standard Elemental Time (SET)

Work Measurement

derived from a firm’s own historical time study data

• A time study department accumulates a file of elemental times thatare common to many jobs

• After a certain point, many elemental times can be retrieved from thefile

• Eliminate need for analysts to go through a complete time study toobtain those

Predetermined Time Standards (PDTS)

published data on standard elemental times

• Commonly used system is Method-Time Measurement (MTM)• MTM tables are based on extensive research of basic elemental times



Work ampling

Two primary uses:

• Ratio-delay studies: concern the percentage ofworker’s time that involves delays

approp r ia te for lon g, non -repet i t ive tasks

Work Measurement

is a technique for estimating the proportion of time that a workeror machine spends on various activities and the idle time.

• Analysis of non-repetitive jobs: percentage oftime an employee spends doing various jobs



Work Measurement

Observed Time (OT): simply the average of the recorded times

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Normal Time (NT): observed time adjusted for worker performance

PR*OT NT

Standard Time (ST): normal time required for a job plusan allowance time for different delays

F A* NT ST For job time

For time worked

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Capacity PlanningCapacity refers to an upper limit or ceiling on theload that an operating unit can handle

The basic questions are:• What kind of capacity is needed?• How much is needed?• When it is needed? Impact on the ability of the organization to meet futuredemands for products & servicesMajor determinant of initial cost – greater the capacity,larger the investmentCan affect competitiveness – excess capacity or flexiblecapacity

Affects the ease of management



Desig n Capaci ty : maximum attainable output

Effect iv e Capaci ty : maximum possible output withscheduling difficulties, machine maintenance & so on

Utilization is always less than efficiency

capacity Effectiveoutput Actual

Efficiency

capacity Design output Actual nUtilizatio

Capacity Planning



Determinants of Effective Capacity Facilities

• Design – including size & provision of expansion• Location – transportation cost, distance to market, labor supply•

Layout – smoothness of flow, as will as lighting & ventilation

Capacity Planning

Product / services• Design – easier the design, easier to produce• Product Mix – varieties of product reduce capacity

Process• Quantity – obvious determinant of capacity • Quality – low quality will require inspection & rework



Determinants of Effective Capacity Human Factor

• Job content• Training/Experience• Motivation• Compensation

Capacity Planning

Operational• Scheduling differences in equipment capabilities• Materials management – shortage of materials/ complaints•

Quality assurance – in process & incoming materials

External• Product standard – can restricts increasing capacity• Safety regulations•

Unions



Capacity RequirementLong term – relates to overall level of capacity e.g., facility size

Short term – relates to probable variations e.g., seasonal, random

Determined by forecasting demand over a time horizon, and thenconverting those forecasts into capacity requirement

Trend - How long- Slope of trend

Deviations are important as they can place severe strain to satisfydemand at sometimes & yet result in idle capacity at other times

Capacity Planning



Developing Capacity Alternatives

Design f lex ib i l i ty in to s ys temsProvisions for futures expansions in the original design

Capacity Planning

Different iate between n ew and m ature pro du cts /services

Mature product/services tends to be more predictable

Prepare to deal w i th capaci ty ch un ks

Capacity increases are often acquired in fairly large chunks

Attempt to sm ooth ou t capac i ty requi rement

Need to identify products which can offset each other

Ident i fy th e opt im al operat ion levelIn terms of unit cost of output



Evaluating Alternatives

Cost volume Analysis

Total cost VC FC TC

Variable costU QVC *

Total revenue RQTR *

Total Profit FC U RQ )(*

TC TR P

U R FC P

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U R FC

QFor breakeven

Financial Analysis

• Pay back period •

Net present value • Internal rate of return

Capacity Planning

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Mid 1 Slides