SIMULATION – PART II

1. SIMULATION – PART II Application to Inventory Management

2. A Modification ofGoldratt’sSimulation This simulation is a modification of a simulation in Chapter 14 of: The Goal by Eliyahu Goldratt published by North River Press, 1992 By the way, I highly recommend to you this novel about a plant manager’s quest to improve operations at his plant to prevent its closure.

3. Learning Objectives Introduce the concept of Simulation. Understand the impact that Variance has on process flow, and then understand how to manage this impact.

4. Overview

5. One Work Station What if there is just ONE Workstation? What is the Work Station’s capacity (i.e., the average output of Finished Goods per period)?

6. Line #1 (Base Case) What is your prediction of the average output of Finished Goods?

7. Initializing the Simulation Appoint one member of the team to be the team’s “Accountant”. The Accountant will enter data on the Recording Form. Place the initial inventory into each WIP location.

8. The Steps of One Periodin the Simulation Step 1 The person working at “WS 1” rolls a die (or flips a coin) to determine the capacity of “WS 1”. From the unlimited supply of “Raw Materials”, move to “WIP 12” a quantity equal to the capacity of “WS 1”. On the Recording Form, enter the quantity moved. Step 2 The person working at “WS 2” rolls a die (or flips a coin) to determine the capacity of “WS 2”. From “WIP 12”, move to “WIP 23” a quantity equal to the minimum of the inventory in “WIP 12” and the capacity of “WS 2”. On the Recording Form, enter both the quantity moved by “WS 1” and the remaining inventory in “WIP 12”. Steps 3, 4, 5, & 6 For “WS 3”, “WS 4”, “WS 5”, & “WS 6”, proceed as in Step 2, until “WS 6” has moved units to “Finished Goods”. Begin the next period by returning to Step 1.

9. Summary of Your Simulations of Line #1 Go to Excel Workbook

10. Summary of My Simulations ofLine #1 (Base Case)

11. Improvements How can we increase the Line 1’s average capacity (i.e., output of Finished Goods)?

12. Lines #1, #2, & #3

13. Summary of Your Simulations of Lines #1, #2, & #3 Go to Excel Workbook

14. Summary of My Simulations of Lines #1, #2, & #3

15. 1000 Work Stations? For the Base Case, suppose that, instead of only 6 Work Stations, there are 1000 Work Stations. What do you predict about the process’s capacity?

16. Conclusions When a process has components whose capacities vary from period to period, it is a mistake to compute the process’s capacity using only the averages of the components’ capacities. Instead of averaging out, the variations in the components’ capacities propagate through the process in a successively negative manner and result in the process’s capacity being significantly less than the components’ average capacities. Although increasing WIP will increase the process’s capacity, a better alternative is to decrease the variances in the capacities of the process’s components.