Bike Plast DD some remarks

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1 Roberto Cigolini Department of Management, Economics and Industrial Engineering Politecnico di Milano 1

2 Evaluate the analysis carried out by the Plant Director and comment on it What good planners (usually) do They are used to speaking about (production) capacity, (production) rate (rhythm) They speak about pieces rather than Euros (Dollars or whatever else monetary unit) They are focused on demand volatility as opposite to their (production) plants (machinery), which are rigid (stiff, not flexible) 2

3 Evaluate the analysis carried out by the Plant Director and comment on it What good planners (usually) do They are well aware that robustness is often much more valuable than (cost) effectiveness They know very well that forecasts are unreliable They know also that when something goes wrong customers (and so sales guys) are right (customeris king) and they are guilty They will be forgiven everything but stock out 3

4 Evaluate the analysis carried out by the Plant Director and comment on it Preliminaries just to visualize Forecasts Plan A Plan B

5 Evaluate the analysis carried out by the Plant Director and comment on it Preliminaries Time bucket Horizon Forecasts Plan A Plan B Either plan suggests you should produce the same amount of pieces from bucket 8 on i.e. you can narrow you horizon to period 1 7 The rest of the horizon can be disregarded as it is not differential 5

6 Evaluate the analysis carried out by the Plant Director and comment on it Preliminaries Time bucket Horizon Forecasts Plan A Plan B Either plan requires at least 200 pieces per bucket, i.e. shift 1 is saturated and thus it can be disregarded Shift 1 is not differential Time bucket Horizon Forecasts Plan A Plan B

7 Evaluate the analysis carried out by the Plant Director and comment on it Your playground The problem now looks much easier 400 to handle, 350 doesn t it? Time bucket Plan A 1st shift Plan B 1st shift Plan A 1st shift Plan B 1st shift

8 Evaluate the analysis carried out by the Plant Director and comment on it Plan A Time bucket The inventory level is kept as low as possible ( zero inventories ) Forecasts Plan A Plan forecast Chaselike plan Significant (and steady) use of overtime and outsourcing. 2 nd shift used when it is worth Inventory Plan 1st shift Second shift Overtime (< 60 pcs) Outsourcing (< 100 pcs) Relevant number of setups: 4 setups over 7 buckets Production rate Setup

9 Evaluate the analysis carried out by the Plant Director and comment on it Plan B Time bucket High inventory level, used to smooth the peak of demand Forecasts Plan B Plan forecast Inventory Levellike plan Almost no setup: just 1 setup over 7 buckets Neither overtime nor outsourcing at all. Steady use of the 2 nd shift (combined with stocks) Plan 1st shift Second shift Overtime (< 60 pcs) Outsourcing (< 100 pcs) Production rate Setup 1 9

10 Evaluate the analysis carried out by the Plant Director and comment on it Now let s take a glance at costs per unit Meaningless: it is related to sales Item Value Unit of measure Useless: it is not differential Important but not relevant: neither plan involves stockout, which is to be avoided, period Selling price 2,000 HRC/piece Direct production cost (i.e. 200 HRC/piece during regular shifts labor, raw materials ) 260 HRC/piece during overtime Overhead production cost 385,000 HRC/year Stock out cost 200,000 HRC/piece Stock keeping cost 100 HRC/piece per period (bucket) Outsourcing cost 292 HRC/piece up to 100 pieces 700 HRC/piece beyond 100 pieces Setup cost 58,500 HRC/setup To be carefully considered to properly evaluate the most efficient ( optimal ) approach 10

11 Evaluate the analysis carried out by the Plant Director and comment on it To work out the best approach we should look at the marginal costs i.e. what does mean manufacturing 1morewindshield? You may outsource it You will pay 292 HRC You may manufacture it using overtime You will pay = 290 HRC You may switch the second shift on You will pay = 230 HRC But you have also to add (at least) the inventory cost of the remaining 199 pieces for 1 bucket, i.e. 199 x 100 = 19,900 HRC Up to 160 extra pieces requested, you should: Use overtime first (up to 60 pieces), then outsource them (up to 100 pieces more) 11

12 Evaluate the analysis carried out by the Plant Director and comment on it At the other extreme, what does mean manufacturing 200 more windshields? You may manufacture 60 of them using overtime and then outsource the remaining 140 You will pay ( ) x 60 = 17,400 HRC And 700 x 140 = 98,000 HRC In the end: 98, ,400 = 115,400 HRC You may switch the second shift on You will pay ( ) x 200 = 46,000 HRC Over 200 extra pieces requested, you should always switch the second shift on 12

13 Evaluate the analysis carried out by the Plant Director and comment on it What happens between 160 and 200 windshields? E.g. 180 You may manufacture 60 of them using overtime and then outsource the remaining 120 You will pay ( ) x 60 = 17,400 HRC And 700 x 120 = 84,000 HRC In the end: 84, ,400 = 101,400 HRC You may switch the second shift on and take into account the inventory cost You will pay ( ) x 200 = 46,000 HRC Plus 20 x 100 = 2,000 HRC In the end 46, ,000 = 48,000 HRC At first sight, consider the second shift, while paying attention to setup costs (58,500 HRC) that may shift the balance 13

14 Evaluate the analysis carried out by the Plant Director and comment on it One more remark Overall overtime cost = overtime cost + additional scraps = = 290 HRC/pcs Outsourcing cost (up to 100 pieces) = 292 HRC/pcs The difference (2 HRC/pcs) is negligible The outsourcing practice is preferable to overtime when facing the opportunity of avoiding one setup Example: you need 60 more pieces in bucket e.g. 7 Case A: you manufacture them during overtime shift (the most effective decision in terms of costs), which unfortunately requires the throughput rate to be adjusted (leading to one more setup) This costs ( ) x ,500 = 75,900 HRC Case B: you merely outsource them This costs 292 x 60 = 17,520 HRC 14

15 Evaluate the analysis carried out by the Plant Director and comment on it In the end: 1. Use overtime first, as much as you can (up to 60 pieces) 2. Then outsource as many pieces as you can, up to 100 more pieces 3. Eventually, consider the second shift, by paying attention to setup costs 4. Switch from overtime to outsourcing to spare setups if needed Once the second shift is saturated, start again with overtime and then with outsourcing. In this way, your maximum throughput rate before hitting 700 HRC/piece (i.e. the huge cost of outsourcing too many pieces) is: = = 560 pieces Forecasts

16 Evaluate the analysis carried out by the Plant Director and comment on it Plan A costs Time bucket Horizon Plan A Relevant costs Stock keeping kn kn 50,0 kn kn 50,0 kn kn kn 100,0 kn Second shift kn kn kn kn 400,0 kn 400,0 kn 400,0 kn 1.200,0 kn Overtime (< 60 pcs) kn kn 156,0 kn 156,0 kn 156,0 kn 156,0 kn kn 624,0 kn Additional scraps kn kn 18,0 kn 18,0 kn 78,0 kn 78,0 kn 60,0 kn 252,0 kn Outsourcing (< 100 pcs) kn kn 262,8 kn 262,8 kn 262,8 kn 262,8 kn kn 1.051,2 kn Outsourcing (> 100 pcs) kn kn kn kn kn kn kn kn Setup kn 585,0 kn kn 585,0 kn kn 585,0 kn 585,0 kn 2.340,0 kn Overall kn 585,0 kn 486,8 kn 1.021,8 kn 946,8 kn 1.481,8 kn 1.045,0 kn 5.567,2 kn Notice that hereinafter 1 HRC = 100 kn 16

17 Evaluate the analysis carried out by the Plant Director and comment on it Plan B costs Time bucket Horizon Plan B Relevant costs Stock keeping 200,0 kn 400,0 kn 500,0 kn 500,0 kn 400,0 kn 200,0 kn kn 2.200,0 kn Second shift 400,0 kn 400,0 kn 400,0 kn 400,0 kn 400,0 kn 400,0 kn kn 2.400,0 kn Overtime (< 60 pcs) kn kn kn kn kn kn kn kn Additional scraps 60,0 kn 60,0 kn 60,0 kn 60,0 kn 60,0 kn 60,0 kn kn 360,0 kn Outsourcing (< 100 pcs) kn kn kn kn kn kn kn kn Outsourcing (> 100 pcs) kn kn kn kn kn kn kn kn Setup kn kn kn kn kn 585,0 kn kn 585,0 kn Overall 660,0 kn 860,0 kn 960,0 kn 960,0 kn 860,0 kn 1.245,0 kn kn 5.545,0 kn 17

18 Unusual Evaluate the analysis carried out by the Plant Director and comment on it Plan A and B at a glance It makes sense Pareto's A class Plan A Setup 2.340,0 kn 42% 42% Second shift 1.200,0 kn 22% 64% Outsourcing (< 100 pcs) 1.051,2 kn 19% 82% Pareto's A class Plan B Second shift 2.400,0 kn 43% 43% Stock keeping 2.200,0 kn 40% 83% It is reasonable, given the structure of the plans Relevant costs Plan A Plan B Stock keeping 100,0 kn 2% 2.200,0 kn 40% Second shift 1.200,0 kn 22% 2.400,0 kn 43% Overtime (< 60 pcs) 624,0 kn 11% kn 0% Additional scraps 252,0 kn 5% 360,0 kn 6% Outsourcing (< 100 pcs) 1.051,2 kn 19% kn 0% Outsourcing (> 100 pcs) kn 0% kn 0% Setup 2.340,0 kn 42% 585,0 kn 11% Overall 5.567,2 kn 100% 5.545,0 kn 100% 18

19 Evaluate the analysis carried out by the Plant Director and comment on it Is there any plan C better than either A or B? Time bucket Higher inventory level than A, but lower than B Forecasts Plan C Plan forecast Inventory Good compromise between overtime and second shift Plan 1st shift Second shift Overtime (< 60 pcs) Outsourcing (< 100 pcs) more setup than B and 3 less than A Production rate Setup

20 Evaluate the analysis carried out by the Plant Director and comment on it Plan C costs Time bucket Horizon Plan C Relevant costs Stock keeping kn kn 160,0 kn 220,0 kn 260,0 kn 200,0 kn kn 840,0 kn Second shift kn kn 400,0 kn 400,0 kn 400,0 kn 400,0 kn kn 1.600,0 kn Overtime (< 60 pcs) kn kn 156,0 kn 156,0 kn 156,0 kn 156,0 kn kn 624,0 kn Additional scraps kn kn 78,0 kn 78,0 kn 78,0 kn 78,0 kn kn 312,0 kn Outsourcing (< 100 pcs) kn kn kn kn 233,6 kn 233,6 kn kn 467,2 kn Outsourcing (> 100 pcs) kn kn kn kn kn kn kn kn Setup kn 585,0 kn kn kn kn 585,0 kn kn 1.170,0 kn Overall kn 585,0 kn 794,0 kn 854,0 kn 1.127,6 kn 1.652,6 kn kn 5.013,2 kn 20

21 Evaluate the analysis carried out by the Plant Director and comment on it Plan C vs. A and B Relevant costs Plan A Plan B Plan C Stock keeping 100,0 kn 2% 2.200,0 kn 40% 840,0 kn 17% Second shift 1.200,0 kn 22% 2.400,0 kn 43% 1.600,0 kn 32% Overtime (< 60 pcs) 624,0 kn 11% kn 0% 624,0 kn 12% Additional scraps 252,0 kn 5% 360,0 kn 6% 312,0 kn 6% Outsourcing (< 100 pcs) 1.051,2 kn 19% kn 0% 467,2 kn 9% Outsourcing (> 100 pcs) kn 0% kn 0% kn 0% Setup 2.340,0 kn 42% 585,0 kn 11% 1.170,0 kn 23% Overall 5.567,2 kn 100% 5.545,0 kn 100% 5.013,2 kn 100% 21

22 Simulate, on the basis of the provided hypotheses, the effect of demand variance (±10%) and analyze the results 22

23 Simulate, on the basis of the provided hypotheses, the effect of demand variance (±10%) and analyze the results In the case of 10% either plan overproduces, thus generating excess of inventory (overstock) In the case of +10% either plan leads to stock out Which is actually unaffordable 1. One piece stocked out is equivalent to the revenue coming from 100 pieces sold 2. You are indifferent between one piece stocked out and one piece stored in your warehouse for 2000 buckets Item Value Unit of measure Selling price 2,000 HRC/piece Direct production cost (i.e. 200 HRC/piece during regular shifts labor, raw materials ) 260 xhrc/piece 100 during overtime Overhead production cost 385,000 HRC/year Stock out cost 200,000 HRC/piece Stock keeping cost x HRC/piece per period (bucket) Outsourcing cost 292 HRC/piece up to 100 pieces 700 HRC/piece beyond 100 pieces Setup cost 58,500 HRC/setup 23

24 Simulate, on the basis of the provided hypotheses, the effect of demand variance (±10%) and analyze the results In the case of 10% You have to adjust either plan to reduce the number of pieces produced, by keeping an eye on costs and on the philosophy of either plan Plan A is a chase like plan, whilst plan B is a level like one Time bucket Horizon 10% Forecasts Plan A (original) Plan A (adjusted) Plan B (original) Plan B (adjusted) Notice that you can no longer overlook the first shift, given the steady component of forecasted demand is lower that 200 pcs/bucket 24

25 Simulate, on the basis of the provided hypotheses, the effect of demand variance (±10%) and analyze the results In the case of 10% Time bucket Horizon Plan A (adjusted) First shift Second shift To avoid a setup Overtime (< 60 pcs) Outsourcing (< 100 pcs) Production rate Time bucket Horizon Setup Plan B (adjusted) First shift Second shift Overtime (< 60 pcs) Outsourcing (< 100 pcs) 40 Production rate Setup 1 25

26 Simulate, on the basis of the provided hypotheses, the effect of demand variance (±10%) and analyze the results In the case of 10% : plan A costs Time bucket Horizon Plan A (adjusted) Costs Stock keeping 20,0 kn 40,0 kn 30,0 kn 30,0 kn 40,0 kn 40,0 kn 40,0 kn 120,0 kn 140,0 kn 160,0 kn 180,0 kn kn 840,0 kn First shift 400,0 kn 400,0 kn 400,0 kn 400,0 kn 400,0 kn 400,0 kn 400,0 kn 400,0 kn 400,0 kn 400,0 kn 400,0 kn kn 4.400,0 kn Second shift kn kn kn kn 400,0 kn 400,0 kn kn kn kn kn kn kn 800,0 kn Overtime (< 60 pcs) kn kn 156,0 kn 156,0 kn 156,0 kn 156,0 kn 156,0 kn 156,0 kn kn kn kn kn 936,0 kn Additional scraps kn kn 18,0 kn 18,0 kn 78,0 kn 78,0 kn 18,0 kn 18,0 kn kn kn kn kn 228,0 kn Outsourcing (< 100 pcs) kn kn kn 292,0 kn kn 292,0 kn 292,0 kn kn kn kn kn kn 876,0 kn Outsourcing (> 100 pcs) kn kn kn kn kn kn kn kn kn kn kn kn kn Setup kn 585,0 kn 585,0 kn kn 585,0 kn kn kn 585,0 kn kn kn kn kn 2.340,0 kn Overall 420,0 kn 1.025,0 kn 1.189,0 kn 896,0 kn 1.659,0 kn 1.366,0 kn 906,0 kn 1.279,0 kn 540,0 kn 560,0 kn 580,0 kn kn ,0 kn 26

27 Simulate, on the basis of the provided hypotheses, the effect of demand variance (±10%) and analyze the results In the case of 10% : plan B costs Time bucket Horizon Plan B (adjusted) Costs Stock keeping 220,0 kn 440,0 kn 570,0 kn 610,0 kn 560,0 kn 420,0 kn 260,0 kn 280,0 kn 300,0 kn 360,0 kn 180,0 kn kn 4.200,0 kn First shift 400,0 kn 400,0 kn 400,0 kn 400,0 kn 400,0 kn 400,0 kn 400,0 kn 400,0 kn 400,0 kn 400,0 kn kn kn 4.000,0 kn Second shift 400,0 kn 400,0 kn 400,0 kn 400,0 kn 400,0 kn 400,0 kn kn kn kn kn kn kn 2.400,0 kn Overtime (< 60 pcs) kn kn kn kn kn kn kn kn kn kn kn kn kn Additional scraps 60,0 kn 60,0 kn 60,0 kn 60,0 kn 60,0 kn 60,0 kn kn kn kn kn kn kn 360,0 kn Outsourcing (< 100 pcs) kn kn kn kn kn kn kn kn kn 116,8 kn kn kn 116,8 kn Outsourcing (> 100 pcs) kn kn kn kn kn kn kn kn kn kn kn kn kn Setup kn kn kn kn kn 585,0 kn kn kn kn kn kn kn 585,0 kn Overall 1.080,0 kn 1.300,0 kn 1.430,0 kn 1.470,0 kn 1.420,0 kn 1.865,0 kn 660,0 kn 680,0 kn 700,0 kn 876,8 kn 180,0 kn kn ,8 kn 27

28 Simulate, on the basis of the provided hypotheses, the effect of demand variance (±10%) and analyze the results In the case of 10% : plan A and B at a glance Plan A Plan B Costs (adjusted) (adjusted) Stock keeping 840,0 kn 8% 4.200,0 kn 36% First shift 4.400,0 kn 42% 4.000,0 kn 34% Second shift 800,0 kn 8% 2.400,0 kn 21% Overtime (< 60 pcs) 936,0 kn 9% kn 0% Additional scraps 228,0 kn 2% 360,0 kn 3% Outsourcing (< 100 pcs) 876,0 kn 8% 116,8 kn 1% Outsourcing (> 100 pcs) kn 0% kn 0% Setup 2.340,0 kn 22% 585,0 kn 5% Overall ,0 kn 100% ,8 kn 100% Now plan A has a relevant edge over plan B 28

29 Simulate, on the basis of the provided hypotheses, the effect of demand variance (±10%) and analyze the results In the case of +10% You have to avoid stock out by all means, so get ready to produce more Time bucket Horizon +10% Forecasts Plan A (original) Plan A (adjusted) Plan B (original) Plan B (adjusted) Either plan requires at least 200 pieces per bucket, i.e. shift 1 is saturated and thus it can be disregarded as it is not differential 29

30 Simulate, on the basis of the provided hypotheses, the effect of demand variance (±10%) and analyze the results In the case of +10% Time bucket Horizon Plan A (adjusted) Second shift Overtime (< 60 pcs) Outsourcing (< 100 pcs) Outsourcing (> 100 pcs) 180 Production rate Setup 1 1 Time 1 bucket Horizon Plan B (adjusted) To avoid a setup Used for the first time To avoid either a setup or stock out Second shift To avoid either a setup or stock out Overtime (< 60 pcs) Outsourcing (< 100 pcs) 40 Outsourcing (> 100 pcs) Production rate Setup

31 Simulate, on the basis of the provided hypotheses, the effect of demand variance (±10%) and analyze the results In the case of +10%: plan A costs Time bucket Horizon Plan A (adjusted) Costs Stock keeping kn kn kn 20 kn 20 kn 0 kn 20 kn 60 kn 40 kn 20 kn 20 kn 0 kn 200 kn Second shift kn kn kn 400 kn 400 kn 400 kn 400 kn kn kn kn kn kn kn Overtime (< 60 pcs) kn kn 156 kn 156 kn 156 kn 156 kn 156 kn kn kn kn kn kn 780 kn Additional scraps kn kn 18 kn 78 kn 78 kn 78 kn 78 kn kn kn kn kn kn 330 kn Outsourcing (< 100 pcs) 58 kn 58 kn 204 kn kn 263 kn kn kn 175 kn kn kn 58 kn kn 818 kn Outsourcing (> 100 pcs) kn kn kn kn kn kn kn kn kn kn kn kn kn Setup kn 585 kn 585 kn 585 kn kn kn 585 kn kn kn kn kn kn kn Overall 58,4 kn 643,4 kn 963,4 kn 1.239,0 kn 916,8 kn 1.894,0 kn 1.239,0 kn 235,2 kn 40,0 kn 20,0 kn 78,4 kn 0,0 kn 7.327,6 kn 31

32 Simulate, on the basis of the provided hypotheses, the effect of demand variance (±10%) and analyze the results In the case of +10%: plan B costs Time bucket Horizon Plan B (adjusted) Costs Stock keeping 180 kn 360 kn 430 kn 390 kn 240 kn 40 kn 60 kn 80 kn 60 kn 40 kn 20 kn 0 kn kn Second shift 400 kn 400 kn 400 kn 400 kn 400 kn 400 kn 400 kn kn kn kn kn kn kn Overtime (< 60 pcs) kn kn kn kn kn 156 kn 156 kn kn kn kn kn kn 312 kn Additional scraps 60 kn 60 kn 60 kn 60 kn 60 kn 78 kn 78 kn kn kn kn kn kn 456 kn Outsourcing (< 100 pcs) kn kn kn kn kn kn kn 117 kn kn kn kn kn 117 kn Outsourcing (> 100 pcs) kn kn kn kn kn kn kn kn kn kn kn kn kn Setup kn kn kn kn 585 kn kn 585 kn kn kn kn kn kn kn Overall 640,0 kn 820,0 kn 890,0 kn 850,0 kn 1.285,0 kn 674,0 kn 1.279,0 kn 196,8 kn 60,0 kn 40,0 kn 20,0 kn 0,0 kn 6.754,8 kn 32

33 Simulate, on the basis of the provided hypotheses, the effect of demand variance (±10%) and analyze the results In the case of +10%: plan A and B at a glance Plan A Plan B Costs (adjusted) (adjusted) Stock keeping 200,0 kn 3% 1.900,0 kn 28% Second shift 1.600,0 kn 22% 2.800,0 kn 41% Overtime (< 60 pcs) 780,0 kn 11% 312,0 kn 5% Additional scraps 330,0 kn 5% 456,0 kn 7% Outsourcing (< 100 pcs) 817,6 kn 11% 116,8 kn 2% Outsourcing (> 100 pcs) 1.260,0 kn 17% kn 0% Setup 2.340,0 kn 32% 1.170,0 kn 17% Overall 7.327,6 kn 100% 6.754,8 kn 100% Here plan B has a relevant edge over plan A 33

34 Simulate, on the basis of the provided hypotheses, the effect of demand variance (±10%) and analyze the results In the case of +10%: a further remark Plan B has another ace up to his sleeve Time bucket Forecasts Inventory A Inventory B The higher inventory level (of plan B than A) before the (forecasted) peak of demand provides some sort of safety stock in case of e.g. a left wise peak shift over time Forecasts Inventory A Inventory B

35 Simulate, on the basis of the provided hypotheses, the effect of demand variance (±10%) and analyze the results In the case of +10%: plan C Time bucket Horizon Forecasts Plan A (adjusted) Plan B (adjusted) Plan C Time bucket Horizon Plan C Second shift Overtime (< 60 pcs) Outsourcing (< 100 pcs) Outsourcing (> 100 pcs) Production rate Setup

36 Simulate, on the basis of the provided 3100 hypotheses, the effect of demand variance (±10%) and analyze the results In the case of +10%: plan C Forecasts Plan A (adjusted) Plan B (adjusted) Plan C Forecasts Plan A (adjusted) Plan B (adjusted) Plan C

37 Simulate, on the basis of the provided hypotheses, the effect of demand variance (±10%) and analyze the results In the case of +10%: plan C costs Time bucket Horizon Plan C Costs Stock keeping kn kn 130 kn 150 kn 130 kn kn 20 kn 60 kn 40 kn 20 kn 20 kn 0 kn 570 kn Second shift kn kn 400 kn 400 kn 400 kn 400 kn 400 kn kn kn kn kn kn kn Overtime (< 60 pcs) kn kn 156 kn 156 kn 156 kn 156 kn 156 kn kn kn kn kn kn 780 kn Additional scraps kn kn 78 kn 78 kn 78 kn 78 kn 78 kn kn kn kn kn kn 390 kn Outsourcing (< 100 pcs) 58 kn 58 kn kn kn 204 kn 204 kn kn kn kn kn kn kn 526 kn Outsourcing (> 100 pcs) kn kn kn kn kn kn kn kn kn kn kn kn kn Setup kn 585 kn kn kn kn kn 585 kn kn kn kn kn kn kn Overall 58,4 kn 643,4 kn 764,0 kn 784,0 kn 968,4 kn 838,4 kn 1.239,0 kn 60,0 kn 40,0 kn 20,0 kn 20,0 kn 0,0 kn 5.435,6 kn 37

38 Simulate, on the basis of the provided hypotheses, the effect of demand variance (±10%) and analyze the results In the case of +10%: plan C Plan A Plan B Plan C Costs (adjusted) (adjusted) Stock keeping 200,0 kn 3% 1.900,0 kn 28% 570,0 kn 10% Second shift 1.600,0 kn 22% 2.800,0 kn 41% 2.000,0 kn 37% Overtime (< 60 pcs) 780,0 kn 11% 312,0 kn 5% 780,0 kn 14% Additional scraps 330,0 kn 5% 456,0 kn 7% 390,0 kn 7% Outsourcing (< 100 pcs) 817,6 kn 11% 116,8 kn 2% 525,6 kn 10% Outsourcing (> 100 pcs) 1.260,0 kn 17% kn 0% kn 0% Setup 2.340,0 kn 32% 1.170,0 kn 17% 1.170,0 kn 22% Overall 7.327,6 kn 100% 6.754,8 kn 100% 5.435,6 kn 100% 38

39 Simulate, on the basis of the provided hypotheses, the effect of demand variance (±10%) and analyze the results In the end: Under the base case either plan is almost the same delta = 0.4% In the case 10% plan A (chase like) has a relevant edge over plan B (level like) Delta = 14% In the case +10% the opposite is true: plan B (level like) has a relevant edge over plan A (chase like) Delta = 8.5% You never knows which plan is the best one Plan C overpowers both A and B You should be flexible, open to changes, ready to start re planning as soon as you can 39

40 Try to optimize the planning process by removing the hypothesis related to re planning, thus considering re planning without any delay 40

41 Try to optimize the planning process by removing the hypothesis related to re planning Re planning is actually useless under the hypotheses of the case This is basically because re planning is effective just from bucket 6 on But re planning after the peak is useless, because the highest risk of stock out is before Forecasts Now suppose you are able to (reasonably) react within one bucket i.e. while you are in bucket n, you are receiving data about bucket n 1 and you manage to change your mind about bucket n+1 Let us consider the case +10% which is riskier in terms of stock out probability +10% Area where you would benefit most from replanning Area eligible for re planning 41

42 Try to optimize the planning process by removing the hypothesis related to re planning Re planning plan A Time bucket Two buckets are frozen and under estimated, which leads to stock out Forecasts Plan A Plan B Actual demand Plan A replanned Plan A demand Stocks on hand Inventory level

43 Try to optimize the planning process by removing the hypothesis related to re planning Re planning plan B Time bucket Forecasts Plan B Actual demand At the beginning, there is no need for re planning due to the initial inventory level Plan B replanned Plan B demand Stocks on hand Inventory level

44 Try to optimize the planning process by removing the hypothesis related to re planning Re planning plan A with safety stocks What is the appropriate SS level? In this way, the initial stock out is avoided Time bucket The expected demand variance accounts for 10% of an overall demand of 3,600 pieces, which leads to 360 pieces (i.e. 3,600 x 10%) over the entire horizon and so 30 pieces/bucket (i.e. 360/12). Since 2 buckets are frozen, 60 pieces (i.e. 30 x 2) seem to be adequate Forecasts Plan A with SS Actual demand Plan A replanned Plan A demand Stocks on hand Inventory level

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