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November 05, 2007
Operations Management Lesson 7 Exercise
This lesson is about the “Inventory Management” and “Resources Allocation” that could be managed using tools and theories of ROP, MRP, and ERP.
The right use of these 3 elements has a significant impact upon the profitability of an organization.
For this 7th blog I have chosen a Building Company, analyzing how this company has to manage the stocks or semi worked materials in order to avoid logistic problems or high costs of storage.
Accordingly to the “Pareto Analysis” we can divide the material managed by the company in 3 categories:
- High value items: represented by finished material to be installed once the building construction ends (i.e. sanitary fixtures, doors, windows, boilers…), around 20% of items that account for 55% of the total annual inventory value
- Medium value items: represented by semi-manufactured products (i.e. different kind of panels, in order to separate environments, or solar/insulating ones…), around 30% of items that account for 25% of the total annual inventory value.
- Low value items: represented raw materials (i.e. cement, lime, bolts and screws…), around 50% of items that account for 20% of the total annual inventory value.
Regarding the “Low value items”, company uses ROP method of making order timing decision because material is reordered in a fixed quantity, at specific trigger point, based upon historic data.
Regarding the “High value items”, as company is in a “dependent demand situation”, it uses MRP method. Company has to look at which products are going to be made and has to evaluate the appropriate quantities of end items it needs.
Regarding the “Medium value items”, company can apply ROP or MRP method, depending on the type of material, the seasonal price fluctuation of each component, the job order the company is dealing with.
As per its nature, MRP is quite complex to implement because requires a high number of variables to be used and managed together: gross requirements, scheduled receipts, on hand inventory and planned order releases. Moreover, the MRP element (master production schedule, bill of materials, inventory record files) must be carefully managed, because inaccuracies in data inserting leads to wrong MRP conclusions.
Operations Management Lesson 6 Exercise
The 6th lesson is about the management of capacity and wants to point out the importance of resources used, in terms of quantity and quality.
For this blog I’ve chosen the “Warne Village Cinema” based in Rome.
It is composed of 16 cinema halls (with different seat capacity for each of them) and is situated out of the centre of the city, occupying a very large space.
Around Warner Village area we can find different kind of shops, like:
- Amusement arcades
- Restaurants and Pizzerias
- Sport shops
- Big gymnasium
- Large Supermarket.
Level/chase capacity Management
Starting from the Warner Village conception, cinema is able to meet demand by:
- programming films in cinema halls with a certain number of seats at particular times;
- choosing the number of times to program each film;
The big space at the entrance and exit of “Village” does not create any bottleneck for people passage.
Then different film typologies attract different people who are also interested in other activities to be done in the Warner surroundings (children are interested in amusement arcades, singles or people groups have the chance to meet ourselves, families go shopping).
The choice of opening a big supermarket and a big gymnasium in front of the cinema turned out to be a right decision for reasons here below.
Yield Management / Queue design
Supermarket and gymnasium facilities represent for the customers a way to optimize their own time because they could buy the cinema ticket before doing shopping or physical activities. That means saving a lot of time, avoiding queues for ticket buying or cinema entrance.
The same thinking could be done at the opposite: customers could prefer going to the cinema before going to gym or doing shopping, depending on the time.
Customer could avoid the crowding of the gym (for example) or they could prefer to do shopping in certain hour of the day because the supermarket offers special prices for goods in limited hours of the day.
Moreover, fidelity cards released by Warner Village attract people in “living the club”; so this concept of “global village” brings value to everybody in terms of minimizing the wasting time (for customers and for business locations) and maximizing revenue for the village.