Situation
GPX, an international tire corporation announced the closing of its production facility in Mississauga, Canada. The company plans to consolidate its manufacturing operations in its other three plants in Maine, Pennsylvania, and China. In the past, GPX has only ran its manufacturing operations in the U.S. four days a week. When their Canadian plant closes, they plan to manufacture products 5 days a week.
Closing a facility is a huge decision. Sometimes, I still wonder if companies make the right judgment when they choose to relocate or close a facility. When making this type of decision, a network optimization model can help top management decide what is best for their company. Network optimization models help businesses decide possible facility locations, size, and the optimal number of facilities in their distribution network. In a typical company's distribution network, a company's facilities include suppliers, manufacturers, distributors, warehouses, distribution centers, wholesalers/retailers, and customers.
Modeling GPX's Situation
Transportation data files are needed in the optimization model to represent flows relating to the inbound shipments, interplant transfers, plant to distribution center (DC), DC transfers, and outbound shipments. Transportation files can help reflect a company's freight cost and to configure an optimal freight system. In addition, operating costs such as fixed facility costs and variable costs are inputted into the model for comparison of new facility costs if the Canadian plant is closed.
How Can GPX Make a Decision Based on a Network Optimization Model
The model results show the change of customer service levels, increase/decrease of transportation costs, and increase/decrease in operating costs. The model can also recommend a center of gravity plant that is the best location based on the distance from customers. In addition, GPX should consider special discounts that the Canadian plant receives, and if it closes, what is the forseen costs in the future? For example, the Canadian plant receives a discount from a local vendor, in which, the vendor will not continue the discount if shipping materials to a plant in the U.S. or China.
A network optimization model is a decision support system that uses linear or multi-linear software to physically find the best facility location(s), facility size(s) (square footage), number of facilities, and even optimal inventory levels. Results such as transportation costs, operating costs, and inventory levels can help top management to make legitimate choices for cutting costs and/or increasing sales.
References
GPX to Close Canada Factory. Tire Review. 25 February 2008. Retrieved February 27, 2008 from
http://www.tirereview.com/default.aspx?type=wm&module=4&id=2&state=DisplayFullText&item=10661
Wednesday, February 27, 2008
Wednesday, February 20, 2008
Blog 3: Implementing an ERP, is it really cost efficient?
At Issue
India's IT e-newspaper, CXO Today, published the article, "ERP Moves Toward Cost Efficiency" that announced an opportunity for an affordable enterprise resource planning (ERP) system. An ERP system is software and hardware, such as a database, that integrates and centralizes all data and processes within an organization. Organizations are finding it difficult to obtain the data with out any redundancies. Redundancies are costly because it increases wasteful processing time and requires extra storage space. Although ERP systems solve redundancies, they are costly and hard to implement. The article describes how Oracle, a well-known database solution provider, is offering a "predictable monthly" ERP cost and "a lower total cost of ownership" for firms in India.
Although this may sound like a great bargain, firms in India must first consider other options. It is a huge decision to implement an ERP since it is an entire new system and is usually costly. In addition, other problems may arise due to the ERP implementation.
Modeling the Decision
The firm should first look at their current direct costs such as maintenance of the data and indirect costs such as time wasted on redundant data entry. Also, the company should complete an in-depth analysis of all the waste and data issues due to different data in different departments. Next the company should either decide to build an in-house ERP system or purchase one from a vendor such as Oracle. A cost-benefit analysis is needed to compare which ERP system is better suited. Data collected should include costs, current work that each worker completes and the possible elimination of certain tasks, and the time it takes to complete these tasks. While building a model to represent the ERP implementation (either the in-house or vendor-purchased), the new system should be carefully planned and simulated.
Model Results
The model results should represent the costs and possible time saved from implementing an ERP system. Although costs may decrease, firms need to consider other factors such as extra training to learn how to use the ERP system and consulting costs to execute the system. Also, firms should take in consideration the illusion of false savings from staff cuts. When purchasing an ERP system from a vendor, firms think they can lay off IT (information technology) workers since the software is pre-written, but this is only a misconception. A company may need to hire additional IT application specialists.
How does this decision support model help top management make decisions?
This model shows the physical costs and time that is possibly saved or increased due to the implementation of the ERP. These cost savings may be significant, but experienced decision makers should be able to see if the efficiency and uniformity of an ERP system outweighs the other costs that result from the ERP implementation (additional training and staffing). If the decision makers are inexperienced, then a detailed cost-benefit analysis should be presented with a clearly stated recommendation.
References
ERP Moves Toward Cost Efficiency. CXO Today. 19 July, 2007. Retrieved February 20, 2008 from
http://www.cxotoday.com/India/News/ERP_Moves_toward_Cost_Efficiency/551-82287-911.html
India's IT e-newspaper, CXO Today, published the article, "ERP Moves Toward Cost Efficiency" that announced an opportunity for an affordable enterprise resource planning (ERP) system. An ERP system is software and hardware, such as a database, that integrates and centralizes all data and processes within an organization. Organizations are finding it difficult to obtain the data with out any redundancies. Redundancies are costly because it increases wasteful processing time and requires extra storage space. Although ERP systems solve redundancies, they are costly and hard to implement. The article describes how Oracle, a well-known database solution provider, is offering a "predictable monthly" ERP cost and "a lower total cost of ownership" for firms in India.
Although this may sound like a great bargain, firms in India must first consider other options. It is a huge decision to implement an ERP since it is an entire new system and is usually costly. In addition, other problems may arise due to the ERP implementation.
Modeling the Decision
The firm should first look at their current direct costs such as maintenance of the data and indirect costs such as time wasted on redundant data entry. Also, the company should complete an in-depth analysis of all the waste and data issues due to different data in different departments. Next the company should either decide to build an in-house ERP system or purchase one from a vendor such as Oracle. A cost-benefit analysis is needed to compare which ERP system is better suited. Data collected should include costs, current work that each worker completes and the possible elimination of certain tasks, and the time it takes to complete these tasks. While building a model to represent the ERP implementation (either the in-house or vendor-purchased), the new system should be carefully planned and simulated.
Model Results
The model results should represent the costs and possible time saved from implementing an ERP system. Although costs may decrease, firms need to consider other factors such as extra training to learn how to use the ERP system and consulting costs to execute the system. Also, firms should take in consideration the illusion of false savings from staff cuts. When purchasing an ERP system from a vendor, firms think they can lay off IT (information technology) workers since the software is pre-written, but this is only a misconception. A company may need to hire additional IT application specialists.
How does this decision support model help top management make decisions?
This model shows the physical costs and time that is possibly saved or increased due to the implementation of the ERP. These cost savings may be significant, but experienced decision makers should be able to see if the efficiency and uniformity of an ERP system outweighs the other costs that result from the ERP implementation (additional training and staffing). If the decision makers are inexperienced, then a detailed cost-benefit analysis should be presented with a clearly stated recommendation.
References
ERP Moves Toward Cost Efficiency. CXO Today. 19 July, 2007. Retrieved February 20, 2008 from
http://www.cxotoday.com/India/News/ERP_Moves_toward_Cost_Efficiency/551-82287-911.html
Wednesday, February 13, 2008
Blog 2: Long lines at the DMV? Who ever heard of that?
Situation
Millions of Americans experience long lines on a normal basis at their state's Department of Motor Vehicles (DMV). The article, "NC DMV Expects Long Lines, Wants 100 New Workers," describes how the state of North Carolina is trying to address this issue. Although hiring more workers may increase the capacity, productivity and efficiency, hiring more workers comes with high costs.
Currently, there are 500 license examiners. Division spokesperson, Marge Hall stated that officials will ask the legislature for 28 supervisors and 76 new license examiners. But the question is, is this the only solution to long lines?
A New Approach to the Problem
I've been to several local DMV's in the state of Missouri. By looking at how the lines are arranged, it's clearly the set up of the line operation that causes the long waits. The longest line is for plate renewals where there is only one or two clerks. There are two other lines where one is designated for the driver license while the other is for some other service. Training each employee to process all types of inquiries such as driver license and plate renewals, could make lines flow more smoothly. Also, the DMV process should be analyzed to identify steps with non-value added activities. This way, service times are reduced, speeding up the line(s).
Modeling This Problem
Three models must be created for comparison. First, the North Carolina DMV should model their current situation. Second, the new model with clerks (with no increase in clerks) who can serve all customer requests should be analyzed. Lastly, the state of North Carolina should model the DMV operation with the extra employees. Data collection for these models should include customer demand for each type of inquiry, average service times for each service, and how the line(s) is/are arranged.
Results
The models' results such as operational costs, wait times, and length of lines will be compared in order to find the optimal solution. The model with the lowest operational costs and greatest efficiency shall be implemented.
How Can this DSS Help Solve The Issue?
In order for ongoing improvement, the DMV needs a software program that allows them to re-organize their operation system. The model shall allow DMV officials to change the counter operation (i.e. single counter to multiple counters), line arrangement, number of clerks, service times, and other factors that may affect the cause of long lines. With this software, DMV officials are able to create better ways to decrease or even eliminate long lines.
Reference
"NC DMV Expects Long Lines, Wants 100 New Workers." The Associated Press. 11 Feb 2008. Retrieved Feb. 13th, 2008 from http://www.witntv.com/home/headlines/15507667.html.
Millions of Americans experience long lines on a normal basis at their state's Department of Motor Vehicles (DMV). The article, "NC DMV Expects Long Lines, Wants 100 New Workers," describes how the state of North Carolina is trying to address this issue. Although hiring more workers may increase the capacity, productivity and efficiency, hiring more workers comes with high costs.
Currently, there are 500 license examiners. Division spokesperson, Marge Hall stated that officials will ask the legislature for 28 supervisors and 76 new license examiners. But the question is, is this the only solution to long lines?
A New Approach to the Problem
I've been to several local DMV's in the state of Missouri. By looking at how the lines are arranged, it's clearly the set up of the line operation that causes the long waits. The longest line is for plate renewals where there is only one or two clerks. There are two other lines where one is designated for the driver license while the other is for some other service. Training each employee to process all types of inquiries such as driver license and plate renewals, could make lines flow more smoothly. Also, the DMV process should be analyzed to identify steps with non-value added activities. This way, service times are reduced, speeding up the line(s).
Modeling This Problem
Three models must be created for comparison. First, the North Carolina DMV should model their current situation. Second, the new model with clerks (with no increase in clerks) who can serve all customer requests should be analyzed. Lastly, the state of North Carolina should model the DMV operation with the extra employees. Data collection for these models should include customer demand for each type of inquiry, average service times for each service, and how the line(s) is/are arranged.
Results
The models' results such as operational costs, wait times, and length of lines will be compared in order to find the optimal solution. The model with the lowest operational costs and greatest efficiency shall be implemented.
How Can this DSS Help Solve The Issue?
In order for ongoing improvement, the DMV needs a software program that allows them to re-organize their operation system. The model shall allow DMV officials to change the counter operation (i.e. single counter to multiple counters), line arrangement, number of clerks, service times, and other factors that may affect the cause of long lines. With this software, DMV officials are able to create better ways to decrease or even eliminate long lines.
Reference
"NC DMV Expects Long Lines, Wants 100 New Workers." The Associated Press. 11 Feb 2008. Retrieved Feb. 13th, 2008 from http://www.witntv.com/home/headlines/15507667.html.
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