Sim II Goldratt Handout

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					SIMULATION – PART II
Application to Inventory Management




                                      1
          A Modification of
        Goldratt’s Simulation

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.

                                                       2
      Learning Objectives

Introduce the concept of Simulation.


Understand the impact that Variance
has on process flow, and then
understand how to manage this impact.



                                        3
             Overview
                                                            PRODUCTION LINE
                              (Amount WS "moves" to WIP on WS's right) = MINIMUM [ (WIP on WS's left) , (WS's capacity) ]

              WS 1                   WS 2                     WS 3                   WS 4                   WS 5                   WS 6
             Capacity               Capacity                 Capacity               Capacity               Capacity               Capacity




   Raw                                                                                                                                        Finished
                        WIP 1-->2               WIP 2-->3               WIP 3-->4              WIP 4-->5              WIP 5-->6
 Material                                                                                                                                      Goods
(unlimited                                                                                                                                   (unlimited
  supply)                                                                                                                                     demand)


                                                  WS = Work Station            WIP = Work in Progress


                                                                                                                                                     4
 One Work Station
What if there is just ONE Workstation?

               WS 1                                      WS 1
              Capacity                                  Capacity
               Die                                       H=3
              Face                                       T=4
                                      OR
    Raw                   Finished            Raw                   Finished
  Material                 Goods            Material                 Goods
 (unlimited              (unlimited        (unlimited              (unlimited
   supply)                demand)            supply)                demand)




What is the Work Station’s capacity (i.e., the
average output of Finished Goods per period)?


                                                                                5
    Line #1 (Base Case)
                                                       LINE #1 (Base Case)
              WS 1                   WS 2                   WS 3                   WS 4                   WS 5                   WS 6
             Capacity               Capacity               Capacity               Capacity               Capacity               Capacity
              Die                    Die                    Die                    Die                    Die                    Die
             Face                   Face                   Face                   Face                   Face                   Face

   Raw                                                                                                                                      Finished
                        WIP 1-->2              WIP 2-->3              WIP 3-->4              WIP 4-->5              WIP 5-->6
 Material                                                                                                                                    Goods
(unlimited                                                                                                                                 (unlimited
  supply)                  0                      0                      0                      0                      0                    demand)




What is your prediction of the average output of Finished Goods?

                                                                                                                                                    6
 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.




                                                      7
          The Steps of One Period
             in 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.
                                                                                                  8
Summary of Your Simulations
       of Line #1



      Go to Excel Workbook




                             9
Summary of My Simulations of
   Line #1 (Base Case)
                                                  Line #1: Output
                            (average of 10,000 averages of 24-period runs)

                           4.00
      Average Output
                                   3.50

        per Period
                           3.50                3.16
                                                            2.94
                           3.00                                          2.78                              Line #1
                                                                                   2.65        2.53
                           2.50

                           2.00
                                   WS 1        WS 2         WS 3     WS 4          WS 5       WS 6
                                                        Work Station



                                                      Line #1: WIP
                            (average of 10,000 averages of 24-period runs)

                           20.00
      at End of a Period




                                                                                                   14.33
         Average WIP




                           15.00                                                                           Line #1
                           10.00
                                    5.27
                            5.00                 3.21         2.39          1.90        1.56
                            0.00
                                   WIP 1-->2    WIP 2-->3    WIP 3-->4     WIP 4-->5   WIP 5-->6   TOTAL

                                                             WIP Location




                                                                                                                     10
 Improvements

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




                                             11
             Lines #1, #2, & #3
                                                       LINE #1 (Base Case)
              WS 1                   WS 2                    WS 3                   WS 4                   WS 5                   WS 6
             Capacity               Capacity                Capacity               Capacity               Capacity               Capacity
              Die                    Die                      Die                   Die                    Die                    Die
             Face                   Face                     Face                  Face                   Face                   Face

   Raw                                                                                                                                       Finished
                        WIP 1-->2              WIP 2-->3               WIP 3-->4              WIP 4-->5              WIP 5-->6
 Material                                                                                                                                     Goods
(unlimited                                                                                                                                  (unlimited
  supply)                  0                      0                       0                      0                      0                    demand)




                                                           LINE #2 (More WIP)
              WS 1                   WS 2                    WS 3                   WS 4                   WS 5                   WS 6
             Capacity               Capacity                Capacity               Capacity               Capacity               Capacity
              Die                    Die                      Die                   Die                    Die                    Die
             Face                   Face                     Face                  Face                   Face                   Face

   Raw                                                                                                                                       Finished
                        WIP 1-->2              WIP 2-->3               WIP 3-->4              WIP 4-->5              WIP 5-->6
 Material                                                                                                                                     Goods
(unlimited                                                                                                                                  (unlimited
  supply)                  3                      3                       3                      3                      3                    demand)




                                                 LINE #3 (Lower Variance)
              WS 1                   WS 2                    WS 3                   WS 4                   WS 5                   WS 6
             Capacity               Capacity                Capacity               Capacity               Capacity               Capacity
              H=3                    H=3                     H=3                    H=3                    H=3                    H=3
              T=4                    T=4                     T=4                    T=4                    T=4                    T=4

   Raw                                                                                                                                       Finished
                        WIP 1-->2              WIP 2-->3               WIP 3-->4              WIP 4-->5              WIP 5-->6
 Material                                                                                                                                     Goods
(unlimited                                                                                                                                  (unlimited
  supply)                  0                      0                       0                      0                      0                    demand)




                                                                                                                                                 12
Summary of Your Simulations
   of Lines #1, #2, & #3



     Go to Excel Workbook




                            13
                   Summary of My Simulations
                     of Lines #1, #2, & #3
                              Average Output per Period                              Average WIP at End of a Period
                          WS 1 WS 2 WS 3 WS 4 WS 5 WS 6                WIP 1-->2 WIP 2-->3 WIP 3-->4 WIP 4-->5 WIP 5-->6 TOTAL
                  Line #1 3.50 3.16 2.94 2.78 2.65 2.53                  5.27      3.21      2.39      1.90       1.56    14.33
                  Line #2 3.51 3.26 3.14 3.08 3.03 3.01                  6.30      4.30      3.69      3.38       3.14    20.81
                  Line #3 3.50 3.40 3.34 3.30 3.26 3.23                  1.48      0.90      0.65      0.51       0.41    3.94



                 Comparison of Lines #1, #2, & #3: Output                                             Comparison of Lines #1, #2, & #3: WIP
                 (average of 10,000 averages of 24-period runs)                                       (average of 10,000 averages of 24-period runs)

                 4.00
Average Output




                                                                                                    25.00


                                                                               at End of a Period
  per Period




                 3.50                                                                                                                                                           Line #1
                                                                  Line #1
                                                                                  Average WIP
                                                                                                    20.00
                 3.00                                                                                                                                                           Line #2
                                                                  Line #2                           15.00
                                                                                                                                                                                Line #3
                                                                  Line #3                           10.00
                 2.50
                                                                                                     5.00
                 2.00
                                                                                                     0.00
                        WS 1 WS 2 WS 3 WS 4 WS 5 WS 6                                                       WIP 1-->2   WIP 2-->3   WIP 3-->4   WIP 4-->5   WIP 5-->6   TOTAL

                                 Work Station                                                                                       WIP Location




                                                                                                                                                                                    14
 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?




                                                     15
  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.
                                                           16

				
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