BUSINESS PROCESS MANAGEMENT
Model
Last-Minute Gifts Model To run a trial of 20 days, press the F9 key
Decision variables
Min. capacity/all steps/day 1
Max capacity/step/day Step 1 6
Max capacity/step/day Step 2 6
Max capacity/step/day Step 3 6
Max capacity/step/day Step 4 6
Max capacity/step/day Step 5 6
Min. demand/day 1
Max. demand/day 6
Total demand & delivery Total holding cost Total slack Correlation Holds-Slack
Total demand 80 Holds $/Hold Hold$ Slack -0.11
Total shipped 52 Step 1 85 $1 $85 Step 1 6
Total not shipped 28 Step 2 67 $2 $134 Step 2 9
% shipped 65.00% Step 3 60 $3 $180 Step 3 11
% not shipped 35.00% Step 4 43 $5 $215 Step 4 16
Step 5 26 $7 $182 Step 5 25
Total 281 $796 67
Day 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Demand 4 2 5 6 3 3 2 5 5 3 3 5 2 5 5 4 6 3 4 5
Step 1 Starts with 0 0 0 0 0 0 0 0 3 7 4 5 7 5 4 8 9 9 7 9
Receives 4 2 5 6 3 3 2 5 5 3 3 5 2 5 5 4 6 3 4 5
Has 4 2 5 6 3 3 2 5 8 10 7 10 9 10 9 12 15 12 11 14
Capacity 4 3 5 6 6 5 2 2 1 6 2 3 4 6 1 3 6 5 2 6
Moves 4 2 5 6 3 3 2 2 1 6 2 3 4 6 1 3 6 5 2 6
Holds 0 0 0 0 0 0 0 3 7 4 5 7 5 4 8 9 9 7 9 8
Slack 0 1 0 0 3 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Holding Cost $0 $0 $0 $0 $0 $0 $0 $3 $7 $4 $5 $7 $5 $4 $8 $9 $9 $7 $9 $8
Step 2 Starts with 0 0 0 0 4 2 2 1 1 0 0 1 0 0 4 3 5 8 12 11
Receives 4 2 5 6 3 3 2 2 1 6 2 3 4 6 1 3 6 5 2 6
Has 4 2 5 6 7 5 4 3 2 6 2 4 4 6 5 6 11 13 14 17
Capacity 6 6 6 2 5 3 3 2 2 6 1 4 6 2 2 1 3 1 3 4
Moves 4 2 5 2 5 3 3 2 2 6 1 4 4 2 2 1 3 1 3 4
Holds 0 0 0 4 2 2 1 1 0 0 1 0 0 4 3 5 8 12 11 13
Slack 2 4 1 0 0 0 0 0 0 0 0 0 2 0 0 0 0 0 0 0
Holding Cost $0 $0 $0 $8 $4 $4 $2 $2 $0 $0 $2 $0 $0 $8 $6 $10 $16 $24 $22 $26
Step 3 Starts with 0 0 1 4 5 9 8 6 4 5 7 3 2 3 1 2 0 0 0 0
Receives 4 2 5 2 5 3 3 2 2 6 1 4 4 2 2 1 3 1 3 4
Has 4 2 6 6 10 12 11 8 6 11 8 7 6 5 3 3 3 1 3 4
Capacity 4 1 2 1 1 4 5 4 1 4 5 5 3 4 1 3 6 5 5 6
Moves 4 1 2 1 1 4 5 4 1 4 5 5 3 4 1 3 3 1 3 4
Holds 0 1 4 5 9 8 6 4 5 7 3 2 3 1 2 0 0 0 0 0
Slack 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3 4 2 2
Holding Cost $0 $3 $12 $15 $27 $24 $18 $12 $15 $21 $9 $6 $9 $3 $6 $0 $0 $0 $0 $0
Step 4 Starts with 0 3 0 1 0 0 0 2 1 0 3 2 3 4 7 5 6 3 0 0
Receives 4 1 2 1 1 4 5 4 1 4 5 5 3 4 1 3 3 1 3 4
Has 4 4 2 2 1 4 5 6 2 4 8 7 6 8 8 8 9 4 3 4
Capacity 1 5 1 5 6 4 3 5 6 1 6 4 2 1 3 2 6 6 4 1
Moves 1 4 1 2 1 4 3 5 2 1 6 4 2 1 3 2 6 4 3 1
Holds 3 0 1 0 0 0 2 1 0 3 2 3 4 7 5 6 3 0 0 3
Slack 0 1 0 3 5 0 0 0 4 0 0 0 0 0 0 0 0 2 1 0
Holding Cost $15 $0 $5 $0 $0 $0 $10 $5 $0 $15 $10 $15 $20 $35 $25 $30 $15 $0 $0 $15
Step 5 Starts with 0 0 0 0 0 0 2 0 1 0 0 1 0 1 0 0 0 4 7 6
Receives 1 4 1 2 1 4 3 5 2 1 6 4 2 1 3 2 6 4 3 1
Has 1 4 1 2 1 4 5 5 3 1 6 5 2 2 3 2 6 8 10 7
Capacity 4 4 1 6 5 2 5 4 5 6 5 6 1 4 6 3 2 1 4 3
Moves 1 4 1 2 1 2 5 4 3 1 5 5 1 2 3 2 2 1 4 3
Holds 0 0 0 0 0 2 0 1 0 0 1 0 1 0 0 0 4 7 6 4
Slack 3 0 0 4 4 0 0 0 2 5 0 1 0 2 3 1 0 0 0 0
Holding Cost $0 $0 $0 $0 $0 $14 $0 $7 $0 $0 $7 $0 $7 $0 $0 $0 $28 $49 $42 $28
Daily Day 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
totals Demand 4 2 5 6 3 3 2 5 5 3 3 5 2 5 5 4 6 3 4 5
Avg. capacity 3.80 3.80 3.00 4.00 4.60 3.60 3.60 3.40 3.00 4.60 3.80 4.40 3.20 3.40 2.60 2.40 4.60 3.60 3.60 4.00
Delivered 1 4 1 2 1 2 5 4 3 1 5 5 1 2 3 2 2 1 4 3
Holds 3 1 5 9 11 12 9 10 12 14 12 12 13 16 18 20 24 26 26 28
Holding cost $15 $3 $17 $23 $31 $42 $30 $29 $22 $40 $33 $28 $41 $50 $45 $49 $68 $80 $73 $77
Cum hold cost $15 $18 $35 $58 $89 $131 $161 $190 $212 $252 $285 $313 $354 $404 $449 $498 $566 $646 $719 $796
Slack 5 6 1 7 12 2 0 0 6 5 0 1 2 2 3 1 3 6 3 2
Correlation Holds-Slack
-0.1108309572
Holds 3 1 5 9 11 12 9 10 12 14 12 12 13 16 18 20 24 26 26 28 Holding cost 15 3 17 23 31 42 30 29 22 40 33 28 41 50 45 49 68 80 73 77 Demand 4 2 5 6 3 3 2 5 5 3 3 5 2 5 5 4 6 3 4 5 Avg. capacity 3.8 3.8 3 4 4.5999999999999996 3.6 3.6 3.4 3 4.5999999999999996 3.8 4.4000000000000004 3.2 3.4 2.6 2.4 4.5999999999999996 3.6 3.6 4 Holds 3 1 5 9 11 12 9 10 12 14 12 12 13 16 18 20 24 26 26 28 Slack 5 6 1 7 12 2 0 0 6 5 0 1 2 2 3 1 3 6 3 2
Multiple Runs
WIP Holding Costs Totals Slack
Run Demand Shipments Step 1 Step 2 Step 3 Step 4 Step 5 Holds Holding Cost Step 1 Step 2 Step 3 Step 4 Step 5 Total
80 52 $85 $134 $180 $215 $182 281 $796 6 9 11 16 25 67
1 62 45 $116 $26 $30 $55 $49 157 $276 1 4 8 6 24 27 69
2 69 45 $212 $118 $87 $155 $42 337 $614 2 2 14 14 7 27 64
3 77 45 $206 $274 $102 $80 $56 401 $718 3 14 14 6 6 18 58
4 71 49 $82 $76 $39 $160 $203 194 $560 4 0 14 24 22 12 72
5 68 49 $52 $200 $57 $70 $126 203 $505 5 11 18 11 20 31 91
6 72 57 $19 $40 $171 $430 $119 199 $779 6 6 12 4 3 18 43
7 66 53 $22 $44 $90 $190 $133 131 $479 7 9 15 10 12 28 74
8 70 48 $226 $116 $48 $110 $119 339 $619 8 15 15 14 32 34 110
9 70 50 $107 $34 $96 $190 $420 254 $847 9 8 9 12 20 23 72
10 67 52 $46 $68 $27 $145 $210 148 $496 10 7 24 13 12 18 74
11 77 48 $116 $32 $567 $30 $70 337 $815 11 28 31 14 14 20 107
12 74 52 $99 $50 $87 $245 $497 273 $978 12 14 26 21 26 24 111
13 59 48 $32 $22 $45 $80 $112 90 $291 13 6 2 21 18 22 69
14 76 41 $148 $106 $93 $125 $840 377 $1,312 14 9 18 16 24 14 81
15 72 52 $53 $84 $177 $315 $77 228 $706 15 4 13 13 14 10 54
16 70 44 $183 $80 $39 $40 $77 255 $419 16 20 20 25 18 28 111
17 83 51 $189 $70 $84 $175 $287 328 $805 17 5 13 18 19 12 67
18 86 47 $133 $368 $258 $370 $308 521 $1,437 18 4 18 23 17 31 93
19 70 53 $122 $34 $36 $205 $182 218 $579 19 0 16 9 13 10 48
20 74 48 $186 $248 $174 $125 $91 406 $824 20 24 9 3 30 23 89
21 70 55 $59 $38 $66 $45 $392 165 $600 21 9 18 19 30 18 94
22 54 48 $35 $36 $102 $135 $28 118 $336 22 2 15 11 25 21 74
23 76 52 $72 $300 $225 $70 $119 328 $786 23 0 1 9 18 21 49
24 62 51 $19 $62 $93 $110 $497 174 $781 24 6 22 14 22 34 98
25 76 48 $98 $160 $543 $160 $133 410 $1,094 25 9 13 2 32 6 62
26 77 58 $92 $122 $108 $185 $175 251 $682 26 13 19 6 20 21 79
27 82 52 $297 $38 $99 $110 $133 390 $677 27 4 6 16 8 28 62
28 70 49 $116 $60 $105 $75 $182 222 $538 28 9 20 8 11 25 73
29 70 45 $109 $206 $27 $10 $84 235 $436 29 8 5 9 20 30 72
30 69 48 $157 $46 $216 $80 $63 277 $562 30 4 4 17 18 18 61
31 70 47 $122 $164 $207 $95 $56 300 $644 31 10 4 2 7 17 40
32 62 43 $73 $150 $57 $70 $56 189 $406 32 21 12 17 19 19 88
33 69 40 $104 $116 $129 $30 $763 320 $1,142 33 0 7 10 11 8 36
34 57 44 $76 $48 $84 $110 $42 156 $360 34 9 11 8 15 31 74
35 66 36 $48 $320 $453 $20 $63 372 $904 35 9 20 21 10 11 71
36 76 45 $102 $154 $60 $535 $315 351 $1,166 36 11 24 22 29 17 103
37 76 51 $198 $98 $72 $55 $147 303 $570 37 4 1 20 18 17 60
38 71 59 $111 $36 $180 $30 $385 250 $742 38 2 9 16 20 4 51
39 65 48 $58 $44 $75 $160 $133 156 $470 39 5 2 13 13 26 59
40 73 49 $110 $212 $51 $65 $189 273 $627 40 5 23 31 14 33 106
41 70 44 $51 $202 $105 $220 $147 252 $725 41 2 1 16 13 17 49
42 75 45 $73 $32 $159 $170 $182 202 $616 42 7 11 10 7 25 60
43 64 49 $184 $38 $213 $80 $49 297 $564 43 3 4 20 21 10 58
44 60 53 $59 $44 $51 $55 $217 140 $426 44 7 5 24 10 11 57
45 74 47 $40 $120 $48 $135 $301 186 $644 45 5 3 29 23 18 78
46 72 45 $68 $178 $234 $90 $168 277 $738 46 12 6 5 13 23 59
47 54 32 $44 $82 $72 $125 $329 181 $652 47 15 6 0 20 11 52
48 63 53 $25 $70 $66 $285 $161 162 $607 48 14 7 23 22 29 95
49 73 57 $54 $66 $144 $305 $378 250 $947 49 2 11 2 11 6 32
50 72 51 $191 $64 $99 $90 $56 282 $500 50 1 17 12 7 7 44
51 74 52 $184 $54 $129 $50 $189 291 $606 51 13 1 20 11 20 65
52 69 51 $75 $32 $48 $105 $224 160 $484 52 0 10 11 15 15 51
53 78 49 $170 $86 $60 $240 $371 334 $927 53 17 17 16 23 20 93
54 69 44 $35 $366 $108 $90 $84 284 $683 54 10 10 4 17 23 64
55 66 52 $41 $16 $51 $215 $119 126 $442 55 19 12 18 18 15 82
56 72 50 $30 $96 $294 $245 $280 265 $945 56 21 13 24 10 12 80
57 70 61 $42 $66 $111 $145 $140 161 $504 57 0 17 11 20 22 70
58 73 36 $45 $88 $834 $40 $70 385 $1,077 58 9 20 13 29 27 98
59 63 57 $45 $154 $24 $50 $119 157 $392 59 9 15 13 7 4 48
60 75 47 $57 $162 $570 $65 $28 345 $882 60 0 20 32 20 24 96
61 70 53 $189 $34 $75 $130 $112 273 $540 61 15 15 20 14 10 74
62 84 47 $205 $22 $30 $375 $511 374 $1,143 62 0 18 24 17 28 87
63 68 50 $69 $78 $129 $115 $63 183 $454 63 0 8 6 13 8 35
64 59 49 $35 $42 $159 $215 $49 159 $500 64 0 0 18 35 35 88
65 69 50 $51 $200 $30 $130 $168 211 $579 65 0 3 18 30 30 81
66 66 46 $34 $128 $168 $355 $238 259 $923 66 24 11 30 35 36 136
67 77 48 $164 $184 $102 $190 $126 346 $766 67 5 18 14 16 25 78
68 61 51 $23 $166 $63 $85 $203 173 $540 68 0 48 26 29 25 128
69 76 52 $37 $128 $210 $175 $399 263 $949 69 0 6 30 18 17 71
70 69 50 $74 $340 $90 $20 $203 307 $727 70 10 3 21 11 13 58
71 63 46 $45 $46 $72 $215 $126 153 $504 71 19 5 9 24 21 78
72 83 56 $209 $30 $135 $320 $385 388 $1,079 72 4 4 44 19 25 96
73 80 51 $127 $74 $81 $145 $497 291 $924 73 14 17 20 30 6 87
74 63 50 $73 $52 $156 $115 $140 194 $536 74 3 1 1 18 17 40
75 76 44 $101 $432 $72 $155 $28 376 $788 75 4 25 28 31 29 117
76 66 46 $83 $144 $249 $20 $119 259 $615 76 0 16 15 36 20 87
77 57 45 $19 $98 $60 $145 $126 135 $448 77 26 24 22 28 37 137
78 67 54 $21 $182 $72 $120 $217 191 $612 78 13 7 0 13 16 49
79 64 42 $140 $162 $66 $380 $238 353 $986 79 15 23 25 18 26 107
80 68 55 $115 $144 $36 $190 $161 260 $646 80 4 15 19 17 13 68
81 71 47 $221 $74 $72 $15 $42 291 $424 81 19 12 9 23 9 72
82 58 50 $52 $24 $228 $75 $119 172 $498 82 0 22 22 14 28 86
83 70 48 $51 $124 $84 $315 $147 225 $721 83 23 15 33 27 20 118
84 67 52 $27 $172 $303 $95 $154 255 $751 84 9 27 12 24 16 88
85 59 51 $32 $178 $171 $120 $126 220 $627 85 6 8 13 19 15 61
86 60 46 $22 $70 $12 $85 $357 129 $546 86 11 8 17 17 21 74
87 65 49 $36 $60 $162 $140 $406 206 $804 87 4 17 20 0 20 61
88 72 50 $132 $82 $75 $105 $560 299 $954 88 10 8 5 7 24 54
89 77 51 $167 $78 $78 $290 $280 330 $893 89 19 13 10 25 9 76
90 83 47 $196 $58 $243 $65 $77 330 $639 90 5 5 15 3 18 46
91 62 47 $8 $118 $39 $280 $49 143 $494 91 18 0 19 12 21 70
92 65 47 $82 $156 $45 $70 $21 192 $374 92 13 29 17 25 29 113
93 54 46 $12 $72 $108 $125 $119 126 $436 93 6 9 22 23 21 81
94 78 48 $232 $290 $30 $65 $126 418 $743 94 8 11 22 20 15 76
95 84 53 $158 $106 $243 $110 $609 401 $1,226 95 6 14 24 13 15 72
96 77 45 $161 $110 $378 $130 $49 375 $828 96 7 14 25 25 25 96
97 69 60 $69 $66 $120 $185 $84 191 $524 97 2 4 15 24 21 66
98 74 50 $121 $160 $72 $90 $147 264 $590 98 0 3 5 14 13 35
99 60 50 $26 $42 $300 $155 $154 200 $677 99 20 15 15 21 24 95
100 67 52 $71 $100 $66 $150 $126 191 $513 100 8 5 20 32 17 82
Demand Shipments Step 1 Step 2 Step 3 Step 4 Step 5 Holds Average Holding Cost Step 1 Step 2 Step 3 Step 4 Step 5 Average Total Slack
Average: 69.78 48.97 $95.97 $113.62 $136.07 $145.74 $194.34 255.05 $685.74 Average: 8.44 12.53 15.76 18.46 19.97 75.16
Percent shipped: 70.18% Min holding cost $276.00 Min slack 32.00
Percent holds: 29.82% Max holding cost 82% Max holding cost $1,437 Max slack 137.00
St. dev. holding cost 232.088 St. dev. slack 22.64
Summary
Multiple run summary
Min. capacity/all steps/day 1
Max capacity/step/day Step 1 6
Max capacity/step/day Step 2 6
Max capacity/step/day Step 3 6
Max capacity/step/day Step 4 6
Max capacity/step/day Step 5 6
Min. demand/day 1
Max. demand/day 6
Production data
Demand Shipments Step 1 Step 2 Step 3 Step 4 Step 5 Holds Average Holding Cost
Average: 69.78 48.97 95.97 113.62 136.07 145.74 194.34 255.05 $685.74
Percent shipped: 70.18% Min holding cost $276.00
Percent holds: 29.82% Max holding cost $1,437.00
St. dev. holding cost $232.09
Slack data
Step 1 Step 2 Step 3 Step 4 Step 5 Average Total Slack
Average: 8.44 12.53 15.76 18.46 19.97 75.16
Min slack 32.00
Max slack 137.00
St. dev. slack 22.64 BA 270 Business Process Management
Simulation – Homework
In this homework, you’ll work with a simple, discrete simulation model of a fictitious business called Last-Minute Gifts.
To successfully complete this homework, we
strongly advise
that you follow the following procedure:
The homework is based on Microsoft Excel 2003, 2007 or 2010 and so on (your choice) running on Microsoft Windows.
For these spreadsheets to workan add-in called
Analysis Toolpak
must be installed on Microsoft Excel. All COB computers already have it. If you are using your own computer and do not have theAnalysis Toolpakadded in, you can add that by going to Excel’sHelp(F1) and typing “Analysis Toolpak”.
Although this spreadsheet will run on Microsoft’s Mac version of Excel, it is a little harder to make it work nicely. Hence, we advise you to run this homework either on a Windows machine or use a Austin Hall computer remotely.
Carefully read the assignment and make sure that you understand its logic.
Study the simulation model associated with the problem. Make sure you understand what the spreadsheet shows and how you can use it
BEFORE (!!)
you use it to answer the questions.
If reading the problem and studying the spreadsheet causes you problems or if you lose track of things, first review your notes from class and see if your classmates can help you. If you remain stuck, see your instructor.
Assignment Background
One of the costs of doing business is work-in-progress (WIP) inventory; i.e, work that is in progress but not yet ready to be sold. The value of this ‘inventory’ is often known as holding cost. The holding cost for a business is the cost for storing and keeping track of the inventory and any finance costs incurred in borrowing the money to pay for the inventory until it can eventually be sold and the expenses recovered.
The holding cost increases as the inventory moves forward through the process chain, with inventory at the next step worth more than at earlier steps. This is because every step adds some more value to the inventory. The total holding cost associated with WIP is, therefore, a function of the holding cost at each step and the time duration for which inventory is held at each step before it is moved to the next step.
To compute the holding cost at each process step, one typically multiplies the WIP quantity at that process step by its per unit holding cost at that step.
Your simulation model simulates a five-step process employed by the Last-Minute Gifts company for preparing gift assortments for delivery to holiday customers. Each gift that customers order goes through these five steps in the following order:
1. Checking the order against available items in stock.
2. Selecting the right box and packing materials.
3. Retrieving the set of items from the warehouse stock.
4. Assembling the gift in the box.
5. Closing the box and completing the documentation for delivery and sending the completed invoice to order processing.
We will staff each step with its own server (one server for each step).
Please note that since this business is a service business, the WIP inventory refers to the gifts that are not yet ready for delivery and are held overnight at a particular step in the process.
Let us assume that process capacity; i.e., the availability of the people working in the business is variable. Let’s also assume that both your capacity and the demand for gift processing are described by simple, uniform probability distributions. Under that assumption we can ask ourselves whether or not increasing the maximum capacity of our process affects WIP levels and hence, holding costs. For example, we can increase the maximum capacity of our process by hiring more workers or allowing existing workers to work longer hours (process more gifts). Increased maximum capacity at each step costs more, but if it lowers the holding cost more than the extra capacity costs, it might be worth it.
To keep the numbers simple, we will assume the holding cost per gift to be $1, $2, $3, $5, and $7 for process steps 1, 2, 3, 4, and 5, respectively.
Now study the Simulation1.xls spreadsheet that models the process of this company and pay attention to the following:
Notice how the Model sheet tracks for each of the five production steps the various variables for a 20-day simulation (20 demands, 20 capacity fluctuations). These demand and capacity data are computed by randomly selecting a value from between the minimum and maximum demand and capacity values listed in the Decision variables box at the top of the Model sheet. Notice how each step in the process has its own maximum capacity (all set at 6). Minimum capacity is 1 for all steps. Maximum demand (6) is the maximum number of gifts requested by customers on any given day. Minimum demand is set at 1.
By pushing the F9 key you can resample the values and run another 20-day simulation.
The Multiple Runs sheet collects 100 of these 20-day runs; i.e., every time you press F9, 100 20-day model runs are made; i.e., this is a Monte Carlo simulation where 100 different futures are simulated. Since the values for the runs are sampled from probability distributions, individual runs come out differently.
Make sure you understand this before you go on.
The Summary sheet contains the summary statistics of the Multiple Runs sheet. This is the sheet that you study when evaluating the results of the simulation.
Your assignment:
Using Simulation1.xls, we’re going to evaluate the effects of changing capacities on holding cost. To do this, you will need to run several simulations: one to estimate the holding cost with the current capacities and several others to estimate the holding cost with other capacity values. You can change the capacities by changing the Maximum capacity values in the Decision variables box at the top of the Model sheet.
CAUTION: Since pressing the F9 key changes all of the data in the spreadsheet, you will need to copy the Summary sheet for each of the simulation runs to a separate worksheet where they remain unchanged regardless of how many times you push F9. That way you can analyze your result data without it having been changed all the time. Use Copy –> Paste Special… –> Values to do this.
Answer the following questions on a MS Word file:
1. Would you expect holding cost to go down with increases in maximum capacity? Explain your answer.
2. Could the actual pattern be different from the expected one? Explain your answer.
3. Run your model to test your hypothesis formulated under question 1. What happens to the holding costs when you increase the maximum capacity for all five process steps from 6 to 7? Do the holding costs follow the expected pattern? If not, why not? In your answer consider both the mean of and variation in holding costs. Also consider the percentage of shipped gifts?
4. Would you expect the capacity increase to have an effect on slack (idle capacity)? Would you include slack effects in your decision to increase or not increase capacity? What, according to your model, will be the effect of the capacity increase on slack?
5. What happens with holding cost and slack when instead of increasing the maximum capacity for all steps from 6 to 7, we increase the minimum capacity for all steps from 1 to 2? Why is the effect on holding cost of changing the minimum capacities by 1 so much bigger than the effect of increasing the maximum capacities by 1?
6. Next, instead of setting the maximum capacity of all steps in the process from 6 to 7, set only the maximum capacities of steps 4 and step 5 to 7 while leaving all others at 6. Also, at the same time, set the minimum capacity back to 1. What do you observe when you run the model?
7. Make a recommendation as to whether or not and how to increase capacity for this business. In your analysis, carefully consider averages, minimum values, maximum values and variation.
Hint: You may want to try some model runs with capacity configurations other than the ones we have recommended above. Keep in mind that a hold at step 5 ($7) is seven times as expensive as a hold at step 1 ($1). Also keep in mind that as you hold fewer gifts, you have to tell fewer customers that their gift orders are not yet ready and that they have to come back the next day – meaning more satisfied customers.
Along with your answers on the MS Word file, turn in the Excel workbook containing the Summary sheets that have results with all of the following combinations for minimum and maximum capacities:
1. All minimum capacities at 1 and all maximum capacities at 6.
2. All minimum capacities at 1 and all maximum capacities at 7.
3. All minimum capacities at 2 and all maximum capacities at 6.
4. All minimum capacities at 1, the maximum capacity of only steps 4 and 5 at 7, and the other steps at a maximum capacity of 6.
5. Your preferred capacity settings.
In your answers/analysis, specify the numbers from your models on which you base your conclusions:
Bad example: “Average holding cost of the first model is less than that of the second model.”
Good example: “Average holding cost of the first model ($114.17) is less than that of the second model ($687).”
Make sure that the numbers mentioned in your answers/analysis correspond with the numbers on the Summary sheets.
