Discussion ?Black Friday?How should stores approach inventory planning for Black Friday?How should retailers plan the process of opening the doors and getting excited customers through checkout?What capacity planning approaches should retailers use for Black Friday? You post should be 75 to 150 words, but may go longer depending on the topic.
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MGT335 Intro to Operation Management
Week 5 Discussion ?Black Friday?
How should stores approach inventory planning for Black Friday?
How should retailers plan the process of opening the doors and getting excited
customers through checkout?
What capacity planning approaches should retailers use for Black Friday?
You post should be 75 to 150 words, but may go longer depending on the topic.
MGT335 Intro to Operation Management
Week 5 Chapter Presentations & Lecture
W5 Lecture “Optimization and Simulation Modeling
& Capacity Planning”
Optimization and Simulation Modeling & Capacity
Lesson 9: Optimization and Simulation Modeling
1. Linear programming
Linear programming is a special formulation of an optimization problem in which all
equations and inequalities are linear. It is used to solve a wide variety of operations
problems, such as production planning, transportation planning, labor scheduling,
revenue management, productivity assessment, capacity planning, and so on.
Linear programming formulation requires the identification of decision variables, the
objective, and constraints. All information must be represented by straight lines or
Linear programming problems with two decision variables can be solved by a graphical
method. If the number of variables is higher than two, then computer-based algorithms
(such as Solver Module of Microsoft Excel) can be used.
2. The use of computer simulation modeling in operations decision making.
Computer simulation models are used in decision making because testing proposed new
operating procedures in an actual operation is often expensive, complicated, and risky.
Simulation models allow managers to evaluate multiple operations designs and perform
what-if types of analyses.
Numerical simulation involves simulating outcomes that are controlled by chance, but
where the state of the system at specific times is not of interest.
Discrete-event simulation is applicable when the state of a system over time is the
Simulation models are generally constructed using spreadsheets, simulation modeling
tools, or general-purpose computer languages.
Animated computer simulation programs such as Service Model allow the users to
create models and evaluate them relatively quickly without actually changing the real
Lesson 10: Capacity Planning
1. Methods of measuring capacity, planning capacity, and calculating capacity
utilization. The impact of economies of scale, diseconomies of scale, and experience
curves on capacity.
Capacity measures are divided into output measures and input measures. Output
measures are generally more applicable to high-volume processes, whereas input
measures are more applicable to processes with a high degree of customization.
Utilization is the percentage of the available time that equipment, space, or labor is
used. Utilization is a fundamental measure of capacity.
Peak capacity is the maximum output rate for the short term, whereas effective
capacity is the output rate that can be maintained for extended periods of time.
Economies of scale result when large volumes of a product or service are produced
together. Economies of scale result in an increase in effective capacity because more
time is spent in processing rather than setup for operations.
Diseconomies of scale occur when an organization or process grows so large that the
costs of managing and tracking its activities outweigh the benefits associated with size.
When confronted with diseconomies of scale, organizations are better off with multiple
smaller facilities or processes than with fewer large facilities.
An experience curve relates improvements in production/service time to the total
2. Differences in capacity strategy in terms of the timing and sizing of expansion
An aggressive expansion strategy is preferred when an industry or market is growing
quickly, whereas a wait-and-see strategy is preferred when the industry or market is
stagnant or is growing or shrinking slowly.
The risks of losing sales if capacity is insufficient must be weighed against the risk of
having excess capacity.
3. The benefits of a capacity cushion and the strategic reasons to increase or decrease
The choice of capacity cushion is linked to the importance of customer service;
generally, organizations that focus primarily on low cost will have low capacity
cushions, whereas those that focus on high quality or flexibility will maintain higher
The timing and size of expansion options need to be carefully evaluated through a fourstep iterative process that links with the organization?s operations strategy.
4. Evaluation of capacity alternatives.
Evaluation of capacity alternatives must account for the stage in the life cycle of the
product or products a firm provides. Companies with many products that are early in
the life cycle generally should plan more aggressive expansion than those with more
products that are in later life-cycle stages.
In evaluating capacity alternatives, companies must look at the big picture for the
entire facility or set of facilities. Identifying where bottlenecks exist is of critical
Capacity expansion is often limited by the increments available, so planning must
Proactively taking steps to smooth out demand through the use of either yield
management or complementary products can greatly simplify capacity management.
(a) Yield management seeks to maximize revenue by charging different prices for
perishable products during different time periods. The goal is to either increase
demand during slack periods or shift demand from busy periods to make the
aggregate demand pattern more stable.
(b) Yield management typically involves offering lower prices during slack periods,
such as movie matinees, early bird specials at restaurants, or unlimited calls
during nonpeak periods for cellular phones.
(c) Yield management seeks to maximize capacity usage once the organization
has committed to a particular level of capacity.
5. Ways to plan capacity expansions to address gaps between demand and supply.
Capacity planning consists of four general steps. These steps provide an approach to
capacity planning that should be implemented on an annual basis or whenever the
organization or process is faced with either a substantial change in market forces or
demand or a dramatic shortage or excess of capacity.
(a) Estimate future capacity requirements.
(b) Identify gaps between existing capacity and projected requirements.
(c) Develop alternative strategies for addressing these gaps.
(d) Choose the most appropriate alternative, based on both qualitative and
6. The importance of special factors for managing service capacity.
Service capacity cannot be inventoried for future use; thus, yield management to
reshape the demand curve is a vital tool.
Location is critical because the customer is typically a participant in the process.
Services thus place a premium on the desirability of a location from the customer?s
Services have much more volatile demand than manufactured products; thus, capacity
planning must look at peak periods rather than the average.
There is a strong relationship between capacity utilization and service quality. Service
organizations should carefully monitor whether they are in the critical zone (above 70
percent utilization) or in the zone of non service (over 100 percent utilization).
Customer service drops dramatically as utilization approaches 100 percent.
MGT335 Intro to Operation Management
Week 5-Getting Started
Getting Started – This Week’s Activities
Formulate and solve linear programming problems.
Describe the use of computer simulation modeling in operations decision making.
Describe methods of measuring capacity, planning capacity, and calculating capacity
utilization. Explain the impact of economies of scale, diseconomies of scale, and
experience curves on capacity.
Explain differences in capacity strategy in terms of the timing and sizing of expansion
Describe the benefits of a capacity cushion and the strategic reasons to increase or
decrease the cushion.
Understand how to evaluate capacity alternatives.
Discuss how to plan capacity expansions to address gaps between demand and supply.
Explain the importance of special factors for managing service capacity.
Read Chapter 9 and 10
Review Chapter Presentations
Complete Discussion Forum: Black Friday
Assignment Questions Chapter 10
Boyer, K., and Verma, R. (2010). Operations and Supply Chain Management for the 21st Century 1st
Edition Mason, OH: South-Western (Cengage).
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