Supply Chain and Operations Concepts

BOOKING/PROTECTION LEVELS, NO-SHOWS, OVERBOOKING

 Booking limit, protection limit use critical fractile

o Protection limit applies to the high-value class

o 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

o 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

o 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

o 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

o This should be the first step! Compare for all!

o Whatever is the lowest is your bottleneck

o 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

o G >> Revenue from selling it, minus cost of supplying it, minus any other costs such as shipping costs and handling costs

o L >> Cost of supplying it, plus any other costs such as shipping costs and handling costs, minus any salvage revenue if unsold

o 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

o 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

o y x Mean = y-day mean

o (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

o Fixed costs (e.g. Millennium Liquors) such as fixed refrigeration and labor to pack a case are irrelevant

o 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)