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057532:057532: Production Production Planning & Inventory Planning & Inventory

ControlControl

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Production Planning Production Planning & Inventory Control& Inventory Control

ForecastingForecasting Aggregate PlanningAggregate Planning Inventory ManagementInventory Management SchedulingScheduling Production Planning & Master Production Production Planning & Master Production

Scheduling (MPS)Scheduling (MPS) Material Requirements Planning (MRP)Material Requirements Planning (MRP) Capacity PlanningCapacity Planning Just-in-Time (JIT) & Lean ManufacturingJust-in-Time (JIT) & Lean Manufacturing

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Introduction to Introduction to Production Planning & Production Planning &

Inventory ControlInventory Control

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Production SystemProduction System

Input (4Ms):• Money• Man• Materials• Machine

Transformation Output:Product or Service

Productivity = Output / Input= Quantity of Output / Quantity of Input= Value of Output / Cost of Input= Profit / Cost

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Production SystemProduction System

Transformation

Work-In-Process(WIP)

Other Resources

Suppliers CustomersRaw Material Inv.

Finished Goods Inv.

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Production & Inventory Production & Inventory Management (PIM)Management (PIM)

PIM:PIM: The design, operation & control The design, operation & control of the systems for the manufacturing of the systems for the manufacturing & distribution of products.& distribution of products.

Organizations may chooses to Organizations may chooses to maintain different types of inventory.maintain different types of inventory.

Types of inventory:Types of inventory: Raw MaterialsRaw Materials Work-in-Process (WIP)Work-in-Process (WIP) Finished GoodsFinished Goods

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Objectives of PIM:Objectives of PIM: Quality:Quality: Equal or better than Equal or better than

competitors.competitors. Cost:Cost: Lower than competitors. Lower than competitors. Time:Time: Deliver to customers on time, Deliver to customers on time,

every timeevery time

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PIM FunctionsPIM Functions Planning:Planning: Selecting measurable Selecting measurable

objectives and deciding how to objectives and deciding how to achieve themachieve them

Execution:Execution: Carrying out of plans Carrying out of plans Control:Control:

Comparing actual results (or simulated Comparing actual results (or simulated results) with desired resultsresults) with desired results

Deciding whether to revise objectives or Deciding whether to revise objectives or methods of executionmethods of execution

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Production Planning Production Planning DecisionsDecisions

Strategic PlanningStrategic Planning Top ManagementTop Management Long-Range Planning Horizon:Long-Range Planning Horizon:

>18 months – 10 years >18 months – 10 years Long-Range Planning Activities:Long-Range Planning Activities:

Business ForecastingBusiness Forecasting Product & Sales PlanningProduct & Sales Planning Production PlanningProduction Planning Resource Requirements PlanningResource Requirements Planning Financial PlanningFinancial Planning

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Production Planning Production Planning Decisions (Cont’d)Decisions (Cont’d)

Tactical PlanningTactical Planning Middle ManagementMiddle Management Medium-Range Planning Horizon:Medium-Range Planning Horizon: 1-18 1-18

monthsmonths Medium-Range Planning Activities:Medium-Range Planning Activities:

Distribution Requirements Planning (DRP)Distribution Requirements Planning (DRP) Demand ManagementDemand Management Master Production Scheduling (MPS)Master Production Scheduling (MPS) Rough Cut Capacity Planning (RCCP)Rough Cut Capacity Planning (RCCP) Material Requirements Planning (MRP)Material Requirements Planning (MRP) Capacity Requirements Planning (CRP)Capacity Requirements Planning (CRP)

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Production Planning Production Planning DecisionsDecisions

Operational PlanningOperational Planning Short-Range Planning Horizon:Short-Range Planning Horizon: 1 day – 1 month 1 day – 1 month Involve priorities (i.e., determining and meeting Involve priorities (i.e., determining and meeting

due dates) and capacitiesdue dates) and capacities Short-Range Planning Activities:Short-Range Planning Activities:

Input/Output Planning & ControlInput/Output Planning & Control Production Activity ControlProduction Activity Control Purchase Planning & ControlPurchase Planning & Control Project ManagementProject Management Total Quality Control (TQC) and Preventive Total Quality Control (TQC) and Preventive

MaintenanceMaintenance

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Production SystemsProduction SystemsDimensions Dimensions LevelsLevelsPhysical OrganizationPhysical Organization Product vs. Process Product vs. Process Key ResourcesKey Resources Labor Intensive vs. Capital Labor Intensive vs. Capital

IntensiveIntensiveProduct Flow ControlProduct Flow Control Discrete Batches vs. Continuous Discrete Batches vs. Continuous

FlowFlowOrder InitiationOrder Initiation Make-to-Order vs. Make-to-StockMake-to-Order vs. Make-to-StockProduct AuthorizationProduct Authorization Push vs. PullPush vs. PullProduct VarietyProduct Variety Single vs. Multiple ProductsSingle vs. Multiple ProductsProduct VolumeProduct Volume Custom Jobs vs. Repetitive Mass Custom Jobs vs. Repetitive Mass

ProductionProductionFabrication / Assembly Fabrication / Assembly StructureStructure

Single Stage vs. Multiple StagesSingle Stage vs. Multiple Stages

Time HorizonTime Horizon Single Period (Static) Single Period (Static) vs. Multiple Periods (Dynamic)vs. Multiple Periods (Dynamic)

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Physical Organization:Physical Organization: 4 basic layout types4 basic layout types

(1) Process Layout: (1) Process Layout: Used when many different products Used when many different products

are produced & there is a need for are produced & there is a need for skilled expertise at production skilled expertise at production processes. processes.

A greatest flexibility to produce a A greatest flexibility to produce a variety of items variety of items

Low equipment use Low equipment use Long throughput timesLong throughput times

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Physical OrganizationPhysical Organization(2) Product Layout:(2) Product Layout: Used for repetitive manufacturing where Used for repetitive manufacturing where

demand is large enough to economically justify demand is large enough to economically justify the dedication of equipment to a single product.the dedication of equipment to a single product.

Production processes are laid out in a Production processes are laid out in a sequential manner so that product visits each sequential manner so that product visits each area, one right after the other. area, one right after the other.

Equipment is designed to have similar Equipment is designed to have similar production rates at each stage. production rates at each stage.

In a high volume environment, product layouts In a high volume environment, product layouts are very efficient and typically have small are very efficient and typically have small throughput times.throughput times.

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Physical OrganizationPhysical Organization(3) Cellular Layout:(3) Cellular Layout: Attempt to partition large facilities into Attempt to partition large facilities into

smaller smaller “cells”“cells” designed to produce a designed to produce a family of related parts or products. family of related parts or products.

Similarity of machines/tooling or usage Similarity of machines/tooling or usage in the same finish products. in the same finish products.

Each cell is a simpler mini-factory, Each cell is a simpler mini-factory, with short materials moves and easier with short materials moves and easier coordination.coordination.

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Physical OrganizationPhysical Organization(4) Fixed Position Layout:(4) Fixed Position Layout: Large projects such as constructing Large projects such as constructing

a building.a building.

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Physical OrganizationPhysical Organization

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Physical OrganizationPhysical Organization

CharacteristCharacteristicic

ProduProductct

ProceProcessss

CellularCellular FixedFixed

Skill LevelSkill Level LowLow HighHigh MixedMixed HighHighUnit Unit Production Production CostCost

LowLow HighHigh LowLow HighHigh

Equipment Equipment UtilizationUtilization

HighHigh LowLow ModeratModerate –e –HighHigh

Low –Low –ModerModerateate

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Key ResourcesKey Resources Capital Intensive:Capital Intensive:

High-cost machines/equipments High-cost machines/equipments Run multiple shifts & employ adequate labor Run multiple shifts & employ adequate labor

to keep the process running. to keep the process running. Increasing capacity takes a long time and is Increasing capacity takes a long time and is

very expensive. very expensive. Often the majority of cost is fixed and thus it Often the majority of cost is fixed and thus it

is expensive to have the equipment idle. is expensive to have the equipment idle. Capacity of all resources is maintained at a Capacity of all resources is maintained at a

higher level to ensure optimal use of the higher level to ensure optimal use of the bottleneck.bottleneck.

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Key ResourcesKey Resources Labor Intensive:Labor Intensive:

Equipment tends to be small and Equipment tends to be small and inexpensive. inexpensive.

Capacity can be modified in a Capacity can be modified in a relatively short time by hiring and relatively short time by hiring and training workers or through layoffs. training workers or through layoffs.

Overtime and extra shifts can be Overtime and extra shifts can be added when extra capacity is needed.added when extra capacity is needed.

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Product Flow ControlProduct Flow Control Batch Flow Batch Flow Process:Process:

AutomobileAutomobile FurnitureFurniture Consumer electronicsConsumer electronics TextilesTextiles

Continuous Flow Process:Continuous Flow Process: FoodsFoods ChemicalsChemicals PharmaceuticalsPharmaceuticals

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OrderOrder InitiationInitiation: : Make-to-Make-to-StockStock

Strategy:Strategy: Emphasizes Emphasizes immediate deliveryimmediate delivery of of good quality, good quality, reasonable priced, off-the-shelf, standard items.reasonable priced, off-the-shelf, standard items.

Sets target levels for the number of units of each Sets target levels for the number of units of each product to keep on hand at all times.product to keep on hand at all times.

Makes sense when delivery response time is a key Makes sense when delivery response time is a key competitive factor. competitive factor.

Stocking allows us to schedule production in Stocking allows us to schedule production in advance and to coordinate the delivery of R/Ms with advance and to coordinate the delivery of R/Ms with the production schedule. the production schedule.

Large inventories of F/Gs (due to the need to Large inventories of F/Gs (due to the need to provide a variety of size, colors & features) provide a variety of size, colors & features)

Require investment capital & storage space Require investment capital & storage space Run the risk of damage & obsolescenceRun the risk of damage & obsolescence

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OrderOrder InitiationInitiation: : Make-to-Make-to-OrderOrder

Strategy:Strategy: To provide the technical ability to produce To provide the technical ability to produce specialty specialty productsproducts

Inventories of F/Gs are not maintainedInventories of F/Gs are not maintained Items are only produced after they have been ordered. Items are only produced after they have been ordered. Some components are Some components are custom designedcustom designed for the for the

customer.customer. Materials are often purchased Materials are often purchased afterafter the order is the order is

placed.placed. Long Lead TimeLong Lead Time Make-to-Order is appropriate when Make-to-Order is appropriate when

The system can respond quickly to customer requestsThe system can respond quickly to customer requests Products have a high degree of customizationProducts have a high degree of customization Shelf life of products is short because of changing Shelf life of products is short because of changing

customer tastes or product spoilage.customer tastes or product spoilage.

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OrderOrder InitiationInitiation: : Assemble-Assemble-to-Orderto-Order

Assemble / Pack / FinishAssemble / Pack / Finish Strategy:Strategy:

To supply a large variety of To supply a large variety of high quality, competitively-high quality, competitively-priced final productspriced final products from from standard components & standard components & subassembliessubassemblies within within a short assembly lead time.a short assembly lead time.

Many variations of final product exist, all base on a few Many variations of final product exist, all base on a few subassembly platforms. subassembly platforms.

Components and subassemblies are produced/ Components and subassemblies are produced/ purchased to stock.purchased to stock.

Final assembly can be performed quickly providing a Final assembly can be performed quickly providing a rapid delivery cycle time of seemingly customized rapid delivery cycle time of seemingly customized products.products.

We need not incur the high cost of storing a wide We need not incur the high cost of storing a wide variety of finished goods that may never be ordered.variety of finished goods that may never be ordered.

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Production AuthorizationProduction Authorization Refers to the tactical decision of Refers to the tactical decision of

when a worker or machine is when a worker or machine is allowed to start a task that is part allowed to start a task that is part of an open shop order.of an open shop order.

Push & Pull SystemsPush & Pull Systems

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Production AuthorizationProduction AuthorizationPush System:Push System: A high-level planning model will keep A high-level planning model will keep

track of all orders and their status and track of all orders and their status and send authorizations to send authorizations to workers/machines when they are to workers/machines when they are to begin a job.begin a job.

We use the word “push” because these We use the word “push” because these orders, along with the required R/Ms, orders, along with the required R/Ms, are pushed into the work area’s input are pushed into the work area’s input buffer by this upper-level controller. buffer by this upper-level controller.

The appearance of this material The appearance of this material constitutes an authorization to work.constitutes an authorization to work.

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Production AuthorizationProduction AuthorizationPull System:Pull System: Workers are informed that it is time to Workers are informed that it is time to

perform a task when someone comes perform a task when someone comes with an authorization to remove the F/G with an authorization to remove the F/G from the output buffer. from the output buffer.

The station is supposed to maintain a The station is supposed to maintain a fixed number of each part type in fixed number of each part type in inventory. inventory.

When parts are pulled out of the When parts are pulled out of the station’s output buffer by a subsequent station’s output buffer by a subsequent station, the station is automatically station, the station is automatically authorized to replace these parts.authorized to replace these parts.

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Product Volume & VarietyProduct Volume & Variety The combination of product volume & The combination of product volume &

variety strongly impacts the choice of layout variety strongly impacts the choice of layout type, the planning unit & decision hierarchy. type, the planning unit & decision hierarchy.

If products use resources in a similar If products use resources in a similar proportion, we can frequently aggregate proportion, we can frequently aggregate these into a single product for planning these into a single product for planning purposes. purposes.

If multiple products with different resource If multiple products with different resource profiles are produced, then the products and profiles are produced, then the products and all potential bottleneck processes must be all potential bottleneck processes must be explicitly considered in decision models.explicitly considered in decision models.

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Product Volume & VarietyProduct Volume & Variety As product volume increases & variety As product volume increases & variety

decreases, dedicated process layouts & decreases, dedicated process layouts & continuous flow manufacturing become continuous flow manufacturing become more economical. more economical.

DedicatedDedicated The production facility produces The production facility produces only one product, including product only one product, including product variations (e.g. colors) that require no variations (e.g. colors) that require no setup delay in the process.setup delay in the process.

High-Volume products can justify High-Volume products can justify specialized tooling and equipment.specialized tooling and equipment.

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Product Volume & VarietyProduct Volume & Variety

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Product StructureProduct Structure Single Stage vs. Multiple StageSingle Stage vs. Multiple Stage Fabrication & Assembly: Fabrication & Assembly:

Many of the manufactured (fabricated) Many of the manufactured (fabricated) components may first be assembled into components may first be assembled into subassemblies.subassemblies.

Then subassemblies combine into products.Then subassemblies combine into products. The production plan must account for the time-The production plan must account for the time-

phased assignment of operations to workstations phased assignment of operations to workstations for each component & subassembly to be used in for each component & subassembly to be used in final assembly.final assembly.

We must plan to have each component & We must plan to have each component & subassembly arrive at the final assemble point at subassembly arrive at the final assemble point at the right time and in the right sequence. the right time and in the right sequence.

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Time Horizon Time Horizon (Static vs. Dynamic (Static vs. Dynamic

Environments)Environments) Static: Constant through the time Static: Constant through the time Static modelsStatic models assume the same assume the same

plan will be acceptable in each plan will be acceptable in each period, at least for the foreseeable period, at least for the foreseeable future.future.

Dynamic modelsDynamic models explicitly consider explicitly consider changes in demand & resource changes in demand & resource availability to determine what should availability to determine what should be done through time over a be done through time over a planning horizon period.planning horizon period.

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Production Process Production Process DesignDesign

Flow ShopFlow Shop A product always follows the same sequential A product always follows the same sequential

steps of production.steps of production. Typical Layout:Typical Layout: Line (Product Emphasis) Line (Product Emphasis) Make-to-Stock or Assemble-to-OrderMake-to-Stock or Assemble-to-Order

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Flow ShopFlow Shop

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Flow Shop (Cont’d)Flow Shop (Cont’d)1.1. Continuous FlowContinuous Flow

Items:Items: Low Cost / Standardized / Low Cost / Standardized / Automated Process / Specific Purpose Automated Process / Specific Purpose MachineryMachinery

Make-to-StockMake-to-Stock2.2. Dedicated Repetitive FlowDedicated Repetitive Flow

Items:Items: Competitive Cost / Low Variety / Competitive Cost / Low Variety / Some Automation Process / Specific Some Automation Process / Specific Purpose Machinery Purpose Machinery

Make-to-StockMake-to-Stock

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Flow Shop (Cont’d)Flow Shop (Cont’d)3.3. Batch FlowBatch Flow

Long setup time, thus manufacturing runs Long setup time, thus manufacturing runs for each product typically last several hours for each product typically last several hours or days.or days.

Items:Items: High Quality / Some Variety / Medium High Quality / Some Variety / Medium Cost Process / General Purpose MachineryCost Process / General Purpose Machinery

Make-to-Stock / Assemble-to-OrderMake-to-Stock / Assemble-to-Order ExampleExample: Bottle filling plant: Bottle filling plant

Long Setup time: Long Setup time: Line cleaning, Adjustment for bottle height Line cleaning, Adjustment for bottle height changes, etc.changes, etc.

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Production Process Production Process Design (Cont’d)Design (Cont’d)

Job ShopJob Shop The process is characterized by the The process is characterized by the

organization of similar equipment by function.organization of similar equipment by function. Typical Layout:Typical Layout: Functional (Process Emphasis) Functional (Process Emphasis) Customized ProductCustomized Product Items:Items: Low Volume/ High Quality / High Low Volume/ High Quality / High

Variety / High Cost Process / Skilled LaborVariety / High Cost Process / Skilled Labor Different Work Center Loads / High WIP / Long Different Work Center Loads / High WIP / Long

Waiting TimeWaiting Time General Purpose MachineryGeneral Purpose Machinery Make-to-OrderMake-to-Order

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Job ShopJob Shop

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Job ShopJob Shop