FAQ: Operations and Forecasting

Transcription

1 Question 1: Why is accurate forecasting vital to operations management? Answer 1: The following are three key areas that rely on accurate forecasts in operations management (Gaither & Frazier, 2002): Facility planning: It can take 3 6 years to design a new manufacturing facility or large service operation. Because of the length of time for this to occur, sales forecasts need to be as accurate as possible and be generated for years out to nearly 10 years, or longer, if possible. Unless operations managers and facilities designers have enough lead time, products and services may not be delivered to meet customers needs, and/or high premiums will be paid to expedite building design and construction, adding a high premium to fixed costs. Production planning: Schedules must be made daily, weekly, and monthly based on forecasted customer needs. Some processes may take weeks or months to ramp up or down production, so advanced notice can improve the production flow and maintain efficient operations. Workload scheduling: Demand for labor can vary on a daily and weekly basis. Knowing what the labor needs are in advance can assist production managers on how and where to schedule employees to meet production demands while minimizing overtime and idle employees. Question 2: What are key factors and their importance in choosing forecast methods? Answer 2: Key factors in selecting a forecasting method include cost, accuracy, data available, time span, and nature of products and services, such as the following (Gaither & Frazier, 2002): Cost: It is important to know how much an organization can afford to spend on a forecasting methodology. In general, the more accurate the method, the more it will cost to gather data and for the computer hardware and software. Accuracy: It is important to appropriately match the method to the product being forecasted. A product with increased sales at the same time of year, such as automotive products, would benefit from a seasonal moving average model. It is important to test a few different methods and determine which ones were most accurate at predicting sales and then to choose that method. 1

2 Data available: It is important to understand if some data are already available through the company if additional customer solicitation is required or if an outside firm may be needed to conduct market research. Some methods will require more time and expense to gather the appropriate information. Time span: Workers, cash, inventories, and machine schedules are short range, so moving averages and exponential smoothing would be preferred. Long-range needs, such as capacity planning, would benefit from regression, executive consensus, or market research. Nature of products and services: A high-volume and low-cost product may be able to use a simple forecasting technique, such as moving average. A product in the mature stage of a life cycle may be easier to predict using regression. Question 3: What key factors create an environment for companies to move manufacturing to Asia? Answer 3: Key factors that create an environment where many U.S. and European companies move manufacturing to Asia are as follows: The labor rate for many Asian countries is far lower than that of Western Europe and the United States. In addition, the supply of available labor is greater in many Asian countries in manufacturing positions as well as professional fields such as engineering. Many of the subcomponent manufacturing sites have moved to Asia already, so companies that relocate to Asia will have lower transportation costs than if they stayed in the U.S. or Europe. Some Asian countries have more favorable views of companies that manufacture in Asia, which helps in product marketing and helps with a more positive company image in those countries. Question 4: Where would I find information on output changes in the United States? Answer 4: The Federal Reserve Board s site on capacity utilization and output is a key Web site for this question. The exact values will change based on when one views the information because it is 2

3 updated regularly. The categories of interest include consumer goods, utilities, materials, construction supplies, and business equipment. Cite any changes in output and explain how this will impact the capacity. The information impacts planning because as output increases, capacity will decrease and vice versa (Industrial Production and Capacity Utilization, 2007). Question 5: What are two examples of aggregate planning used in manufacturing versus services? Answer 5: Aggregate planning for manufacturing is usually for a 6 18 month range and would aggregate a family of products. There are two common methods for aggregate planning: matching demand and leveling capacity. Matching demand would use techniques to increase demand in low periods, such as lower rates for flights at times of lower plane capacity. Leveling capacity would use temporary services to increase labor output during peak demand. An example of an aggregate plan would be group products such as facial tissue, diapers, and paper towels for a consumer products company. The forecaster would combine bulk paper pulp needs for all of these products into monthly or quarterly material demand forecasts. This eases the process of ordering materials for suppliers and allows both the manufacturer and supplier to analyze fluctuations in demand. An example of aggregate planning for services might be at a hospital. The planners would determine patient load for a year and then the supplies; equipment, such as stretchers and incubators, surgical and emergency services; and personnel needed to meet that patient demand over that period of time. Question 6: Why is it important to balance lines in both manufacturing and service sectors? Answer 6: Line balancing is a process that a manufacturer or service takes to evenly distribute the amount of time among employees in a serial operation. If the line is not balanced, one employee, who is faster, will be idle until more work-in-process makes its way down to him or her. In addition, employees who have a longer cycle time will have inventory building up because they process their pieces at a longer cycle time. 3

4 Unbalanced lines can also have a negative impact on morale. The employees with longer cycle times may feel stressed and that they are asked to work harder than the others. Those employees with shorter cycle times may get bored or frustrated with those with longer cycle times. In addition, it is more difficult to problem solve quality issues because they build up at work stations. Valuable time goes by after the quality problem has occurred, and it reduces the ability to quickly solve a quality problem as it happens. Question 7: What are a couple of advantages and drawbacks to businesses for using temporary services? Answer 7: To better meet short-term labor needs, many companies use temporary services to meet these requirements. The advantages of using temporary services are as follows: Organizations can hire temporarily without having to pay benefits for personnel. They also do not have to pay severance fees if the individual does not meet the job requirements. Many temporary firms offer a range of positions, such as office support, marketing, finance, law, information technology, and education. Many also offer global staffing needs so that companies entering a new country can more easily staff a new operation with help in recruiting, language, and cultural issues. Temporary services companies can consult clients and advise on how to improve specific staffing problems. Many temporary companies pay competitively, which can lead to workers with higher caliber skills. Some also offer training and rewards and recognition programs to their temporary staff. There are drawbacks to using temporary services, such as the following: Temporary employees may only take the position until they can find permanent or more satisfying work. Temporary employees may resent that they are not permanent employees with the company to which they are providing services. Companies must be careful to not treat temporary employees in the same manner as permanent employees (benefits or performance appraisals), or they may be perceived as wrongly treating the temporary staff as permanent employees without providing the same benefits as permanent employees. 4

5 Question 8: What pros and cons exist for customers and quasimanufacturers by switching from a push to a pull system? Answer 8: Fast-food restaurants for example, have changed their quasi-manufacturing from a push to a pull system. A push system produces batches of product triggered by demand that exceeds existing inventory. It allows for employees to know to produce the same amount of product each time. It also allows customers to obtain product more quickly if it is in inventory. Drawbacks to a push-type fast food production system are the aging of inventory and waste at the end of the product life cycle if product is thrown away. Customers may receive product that has sat for a while, instead of made fresh. A pull system only produces product at the time of order. The customer will receive a customized product soon after ordering. Companies will have less waste if an entire batch is not ordered by the time it is too old to sell. Drawbacks include the extra wait time that customers experience by waiting for their food to be prepared after the order is taken. Costs may be higher due to longer labor to make individual units instead of batches. Question 9: What is the ABC classification of materials, and when might it be used? Answer 9: The ABC classification is used most often when there are a large number of parts to be tracked and kept in inventory. It is a prioritization method in which A goods are the most expensive. They are tracked most closely and reordered most often, and the inventory is kept the lowest due to the high material cost. A materials tend to represent 20% of the quantity of materials and 75% of the material costs. B materials are moderately expensive materials and account for 30% of the materials in inventory and about 20% of the costs. C materials represent 50% of the materials and only 5% of the total value of the inventory. These tend to be items like fasteners, rivets, labels, and caps. 5

6 These items would be analyzed much less often for reorder points than that of A items. Question 10: What are costs for a manufacturing or service organization that would be reduced by lowering inventory? Answer 10: A manufacturing or service organization that lowers its inventory can potentially reduce the following operations costs (Gaither & Frazier, 2002): References Carrying costs: These include the interest on debt to borrow money to purchase materials, warehouse rent and utilities, labor costs in warehousing, and costs to coordinate larger batches of production. Cost of production problems: Higher inventories throughout manufacturing hide quality and process problems. Until these problems are exposed, there is little incentive in a manufacturing facility to take the time to solve the underlying issues. Problems like machine breakdown, supplier quality, long equipment changeovers, and poor forecasting may never be solved. Large lot quality cost: In the case of quality problems, they tend to be a much more significant problem if a very large batch exhibits poor quality than a smaller batch. Business services. (n.d.). Retrieved December 5, 2007, from Kelly Services Web site: s_mai.html Gaither, N., & Frazier, G. (2002). Operations management. (9th ed.). Mason, OH: South-Western. Industrial production and capacity utilization. (2007). Retrieved December 5, 2007, from Federal Reserve Web site: 6