Industrial Management

Topic 7 Production Planning & Control

MEM575

Organizational Strategy and Production Planning

Decision Level
Corporate (Top Management)

Decision Process
Production Planning and Allocation

Forecast Needed
Annual Demand by Item and Region

Plant Manager

Determines seasonal plan by product type Determines monthly item production schedules

Monthly Demand for 12 mths by product types

Shop Supervisor

Monthly Demand for 6 mths by items

It explains the relationship between planning structure and organizational structure It also tells who are responsible for the for the decision making.
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The Planning Process

Long Range Planning Covers a period of 5 years and made up of : Product & Market Planning Financial Planning Resource Planning Medium Range Planning Covers 6 8 months and made up of : Aggregate Planning Item Forecasting Master Production Schedule (MPS) Capacity Planning
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The Planning Process

Short Range Planning Covers from 1 day to a few weeks and consists of : Material Requirement Planning (MRP)
(Specify when production and purchase orders must be made)

Capacity Requirement Planning

(Provide detailed schedule when each operation is to be run on each work center and how long it will take to process).

Final Assembly Scheduling

(Operations required to put product in its final form).

Production Planning and Control

(Scheduling and shop-floor control activities).

Purchase Planning and Control

(Acquisition and control of purchased items).
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The Planning Process

When you complete this chapter, you should be able to : Identify or Define:
Aggregate planning Tactical scheduling Graphic technique for aggregate planning Mathematical techniques for aggregate planning

Describe or Explain:
How to do aggregate planning How service firms develop aggregate plans
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Medium Range Planning

a. Aggregate Planning

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Planning Horizon
Aggregate planning: Intermediate-range capacity
planning, usually covering 2 to 12 months. In other words, it is matching the capacity and the demand.
Long range Intermediate range

Short

range

Now
8

2 months

1 Year

Aggregate Planning
Definitions
An AP means combining the appropriate resources into general, or overall terms. It is concerned with determining the quantity and timing of production for immediate future.
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Why aggregate planning

Details are hard to gather for longer horizons
Demand for chicken meat during Hari Raya

Details carry a lot of uncertainty: aggregation reduces variability

Demand for meat during Hari Raya has less variability than the total variability in the demand for chicken, lamb, beef, etc.

If there is variability why bother making detailed plans, inputs will change anyway
Instead make plans that carry a lot of flexibility Flexibility and aggregation go hand in hand

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Aggregate Planning Inputs

Resources
Workforce Facilities

Demand forecast Policy statements

Subcontracting Overtime Inventory levels Back orders

Costs Inventory carrying Back orders Hiring/firing Overtime Inventory changes subcontracting

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Aggregate Planning
Objectives
To minimize costs over the planning period.

To minimize fluctuations in the work force or inventory levels. To obtain a certain standard of service performance.
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Change Inv. Levels

Part time workers

Vary w/force size

Counter seasonal (pdt & service mixing)

Subcon

Back Chase ordering strategy Vary prdn rate

Influencing demand

Level strategy

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Chase vs. Level

Chase Approach
Advantages
Investment in inventory is low

Level Approach

Advantages
Stable output rates and workforce

Labor utilization in high

Disadvantages
The cost of adjusting output rates and/or workforce levels

Disadvantages
Greater inventory costs Increased overtime and idle time Resource utilizations vary over time

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Aggregate Planning Strategies

Changing inventory levels Varying work force size by hiring or layoffs. Varying production rates through overtime or idle time. Subcontracting. Using part-time workers. Influencing demand. Back ordering during high demand periods. Counter-seasonal product mixing.
Mixed strategies (combination of two or more controllable variables) often works best.
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Phases of Aggregate Planning

1. Prepare an aggregate demand forecast. 2. Specify organization policies for smoothing capacity utilization. 3. Determine feasible production alternatives :
Changing production rate (same work force) Changing production rate (changing the size of work force). Absorbing demand through inventories. Absorbing demand through back ordering. Absorbing demand through subcontract. Using part-time workers.

4. Determination of optimal production strategy.

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Aggregate Planning
Graphical or Charting Methods
1. Popular they are easy to understand and use. 2. They are trial-and-error approaches that do not guarantee an optimal plan. 3. The five steps involved are: Determine the demand in each period.

Determine the capacity for regular, OT, hired workers and subcontracting for each period. Find production costs, hiring and layoff costs, and inventory holding costs. Consider company policy on workers and stock levels. Develop alternative plans, examine their total costs and select the best plan (lowest total cost).
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Roofing Supplier Example

Month Jan Feb Mar Apr May June Expected Demand 900 700 800 1,200 1,500 1,100 6,200 Production Days 22 18 21 21 22 20 124
Table 13.2

Demand Per Day (computed) 41 39 38 57 68 55

Total expected demand Average requirement = Number of production days 6,200 = = 50 units per day 124
MEM575
(demand per day)

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Roofing Supplier Example - graphical

Production rate per working day Forecast demand (demand per day)

70 60 50 40 30

Level production using average monthly forecast demand

0 Jan

Feb

Mar

Apr

May

June

= Month = Number of working days

19

22
Figure 13.3

18

21

21
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20

Roofing Supplier Plan1 (level production)

Month Jan Feb Mar Apr May June Expected Demand/ Demand forecast 900 700 800 1,200 1,500 1,100 6,200 Production Days * 50 units per day 22*50=1,100 900 1,050 1,050 1,100 1,000 Monthly Inventory Change +200 +200 +250 -150 -400 -100 Ending Inventoriy 200 400 650 500 100 0 1,850

Cost Inventory carrying Regular-time labor Other (OT, hiring, layoffs, sub-con) Total cost $9,250 49,600 0 $58,850

Calculations (=1,850 units carried X $5 per unit) (=10 workers X $40 per day X 124 days)

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Cumulative output/demand

Reduced in inventory

Excess Inventory demand Jan Feb Mar Apr

Cumulative
production Cumulative

May

June

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Roofing Supplier Plan2

Month Jan Feb Mar Apr May June Expected Demand 900 700 800 1,200 1,500 1,100 6,200 Production Days 22 18 21 21 22 20 124 Demand Per Day (computed) 41 39 38 57 68 55

Minimum requirement = 38 units per day 38 / (8hr/day/1.6hr/unit) = 38/5 = 7.6 workers Production = 38 * 124 = 4,712 units Balance = 6,200 4,712 = 1,488 units

Cost Regular labor Sub-con Total cost $37,696 14,880 $52,576

Calculations (=7.6 X $40 per day X 124 days) (=1,488 X $10 per unit)

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Roofing Supplier - graphical

Production rate per working day Forecast demand

70 60 50 40 30
Level production using lowest monthly forecast demand

0 Jan

Feb

Mar

Apr

May

June

= Month = Number of working days

23

22

18

21

21
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Roofing Supplier Plan3

Expected Demand (Forecast)
900 700 800 1,200 1,500 1,100 6,200 Demand Per Day (daily production) 41 39 38 57 68 55 Cost (Demand * 1.6 hr per unit * $5 per hr) $7,200 5,600 6,400 9,600 Cost (Hiring) $5,700 (=19*$300) $3,300 (=11*$300) $9,000 Cost (Layoff) $1,200 (2*$600) $600 (=1*$600) $7,800 (=13*$600) $9,600

Month Jan Feb Mar Apr May June

Total Cost $7,200 6,800 7,000 15,300 15,300 16,600 $68,200

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12,000
8,800 $49,600

Production = Expected Demand

Roofing Supplier - graphical

Production rate per working day

70 60 50 40 30

Forecast demand and monthly production

0 Jan

Feb

Mar

Apr

May

June

= Month = Number of working days

25

22

18

21

21
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Aggregate Planning
Example 1:
Period 1 2 200 3 300 4 400 5 500 6 200 Total 1800 Forecast 200

Planners for a company that makes several models of skateboards have gathered the following information:
Associated data and costs: Current work force = 15 people Regular time labour = RM0.25 per hour Overtime labour = RM3.00 per unit Inventory = RM1.00 per unit per period on average inventory. Back orders = RM5.00 per unit per period Hire workers = RM50 per worker. (A temporary worker can produce 15 units per period). Layoff workers = RM50 per worker. Labour hours = 8 hour per unit Workdays = 20 days per period Subcontract = RM6.00 /unit
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Aggregate Planning
Prepare an aggregate plan and determine its cost using a steady rate of regular-time output. Use inventory to absorb the uneven demand but allowing some backlog. Start with zero inventory on hand in the first period. Note that the planned ending inventory is zero. Assume 8 hour of work per day. Example 2 & 3 Planners have learned that one person is about to retire from the company. Rather than replace him, they would like to : stay with smaller work force and use overtime to make
up for the lost output. Use temporary workers to fill in during month of higher demand.

Develop alternative plans and compare their costs to the previous one.
MEM575

Solutions

27

Aggregate Planning
Example 4:
Month
Forecast

Jul
400

Aug
500

Sept
550

Oct
800

Nov
700

Dec
700

Cost: Holding Cost = RM6 per DVD per mth Normal time labour = RM8 per hr Overtime = RM12 per hr Hiring = RM 400 per worker

Begin inventory = 100 DVDs

No backlog is allowed Labour hr per day = 8hrs

Layoff = RM 800 per worker

Current work force = 8 workers Labour hrs per DVD = 4 hrs

Work days per mth = 20 days

MEM575

Max hrs for OT are 50% of the normal working hrs

Solutions
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b. Master Production Schedule (MPS)

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Master Production Schedule (MPS)

Specifies what is to be made and when Must be in accordance with the aggregate production plan Inputs from financial plans, customer demand, engineering, supplier performance As the process moves from planning to execution, each step must be tested for feasibility The MPS is the result of the production planning process
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Master Production Schedule (MPS)

MPS is established in terms of specific products Schedule must be followed for a reasonable length of time The MPS is quite often fixed or frozen in the near term part of the plan The MPS is a rolling schedule The MPS is a statement of what is to be produced, not a forecast of demand
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MPS Examples
For Nancys Specialty Foods
Gross Requirements for Crabmeat Quiche Day Amount 6 50 7 8 100 9 47 10 60 11 12 110 13 75 14 and so on

Gross Requirements for Spinach Quiche Day Amount 7 8 9 100 200 150 10 11 12 60 13 75 14 15 100 16 and so on

Table 14.1

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MEM575

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Dependent Demand
The demand for one item is related to the demand for another item Given a quantity for the end item, the demand for all parts and components can be calculated In general, used whenever a schedule can be established for an item MRP is the common technique
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Dependent Demand
Effective use of dependent demand inventory models requires the following
1. 2. 3. 4. 5. Master production schedule Specifications or bill of material Inventory availability Purchase orders outstanding Lead times
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c.Bills of Material
List of components, ingredients, and materials needed to make product Provides product structure
Items above given level are called parents
Items below given level are called children
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BOM Example
Independent Demand Level 0 1 B(2) Std. 12 Speaker kit Product structure for Awesome (A) A Dependent Demand
12 Speaker kit w/ C(3) Std. amp-booster

E(2)
Packing box and installation kit of wire, bolts, and screws

E(2)

F(2) Std. 12 Speaker

booster assembly

D(2)

G(1)

D(2)

Amp-booster 12 Speaker
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12 Speaker

37

BOM Example
Level 0 1 Product structure for Awesome (A) A

D(2)

Part B: 2 x number of As = (2)(50) = 100 Std. 12 Speaker kit w/ Part C: 3 x number of As = (3)(50) = 150 B Std. 12 Speaker kit C (2) (3) amp-booster Part D: 2 x number of Bs + 2 x number of Fs = (2)(100) + (2)(300) = 800 Part E: E(2) 2 x number of Bs E(2) F(2) Std. 12 Speaker booster + 2 x number of Cs = (2)(100) + (2)(150) = assembly 500 Part F: 2 x Packing number of Cs = (2)(150) = 300 box and Part G: 1installation x number of = (1)(300) 300 kit ofFs wire, G(1) = D(2)
bolts, and screws

Amp-booster 12 Speaker
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12 Speaker

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MEM575

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Time-Phased Product Structure

Start production of D Must have D and E completed here so production can begin on B
1 week

D
2 weeks

2 weeks to produce

B E

A
2 weeks

1 week

E
2 weeks

1 week

G
3 weeks

C
F

1 week

D
| | | | | | | |

4 5 MEM575 Time in weeks

Figure 14.4
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d. MRP

41

MRP
Material Requirement Planning is a tool geared specifically to assembled operations MRP provides answers for several questions (objectives) for the suppliers:

What items are required? Ensure materials

and products are available for production and delivery to customers.

How many are required? Maintain the lowest

possible level of inventory.

When are required ? Plan manufacturing

activities, delivery schedules and purchasing activities.
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Benefits of MRP
1. Better response to customer orders
2. Faster response to market changes 3. Improved utilization of facilities and labor 4. Reduced inventory levels
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MRP Structure
Data Files BOM Master production schedule Output Reports
MRP by period report

MRP by date report

Lead times
(Item master file) Planned order report

Inventory data Material requirement planning programs (computer and software)

Purchase advice

Exception reports Order early or late or not needed Order quantity too small or too large

Purchasing data

Figure 14.5

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e. Material Resource MRP II Planning II (MRP II)

Expanded MRP with emphasis placed on integration
Financial

planning

Marketing Engineering Purchasing

Manufacturing
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Material Resource Planning II (MRP II)

Once an MRP system is in place, inventory data can be augmented by other useful information
Labor hours Material costs Capital costs Virtually any resource

System is generally called MRP II or Material Resource Planning

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MRP - Example
Draw up a production schedule for 2000 units of product A. Assume the units are required on week 20
A
Item LT Batch Qty On Hand

A B E

4 4 3 4 3

100 500 200 400

0 200 750 400 2000

48

C D

E
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Material Requirements Planning

A

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Material Requirements Planning

minus
Week 20 Item A Gross Reqmt 2000 On Hand 0 Net Reqmt 2000 LT 4 Order Week 16 Order Qty 2000 Remain 0

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Material Requirements Planning

A

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Material Requirements Planning

minus
Week 20 16 16 16 Item A B C D Gross Reqmt 2000 2000 2000 2000 On Hand 0 200 750 400 Net Reqmt 2000 1800 1250 1600 LT 4 4 3 4 Order Week 16 12 13 12 Order Qty 2000 18(100) 3(500) 8(200) Remain 0 0 250 0

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Batch quantity

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Material Requirements Planning

A

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Material Requirements Planning

Week 20 16 16 16 12 12 Item A B C D C D Gross Reqmt 2000 2000 2000 2000 1800 1800 On Hand 0 200 750 400 0 0 Net Reqmt 2000 1800 1250 1600 1800 1800 LT 4 4 3 4 3 4 Order Week 16 12 13 12 9 8 Order Qty 2000 18(100) 3(500) 8(200) 4(500) 9(200) Remain 0 0 250 0 200 0

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Material Requirements Planning

A

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Material Requirements Planning

Week
20

Item
A

Gross Reqmt
2000

On Hand
0

Net Reqmt
2000

LT
4

Order Week
16

Order Qty
2000

Remain
0

16
16 16 12 12 13

B
C D C D E

2000
2000 2000 1800 1800 1250

200
750 400 0 0 1250

1800
1250 1600 1800 1800 0

4
3 4 3 4 3

12
13 12 9 8 -

18(100)
3(500) 8(200) 4(500) 9(200) -

0
250 0 200 0 0

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Material Requirements Planning

A

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Material Requirements Planning

Week
20

Item
A

Gross Reqmt
2000

On Hand
0

Net Reqmt
2000

LT
4

Order Week
16

Order Qty
2000

Remain
0

16
16 16 12 12 13 12

B
C D C D E E

2000
2000 2000 1800 1800 1250 2(1600)

200
750 400 0 0 1250 750

1800
1250 1600 1800 1800 0 2450

4
3 4 3 4 3 3

12
13 12 9 8 9

18(100)
3(500) 8(200) 4(500) 9(200) 7(400)

0
250 0 200 0 0 350

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Material Requirements Planning

A

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Material Requirements Planning

Week
20

Item
A

Gross Reqmt
2000

On Hand
0

Net Reqmt
2000

LT
4

Order Week
16

Order Qty
2000

Remain
0

16
16 16 12 12 13 12 8

B
C D C D E E E

2000
2000 2000 1800 1800 1250 2(1600) 2(1800)

200
750 400 0 0 1250 750 0

1800
1250 1600 1800 1800 0 2450 3600
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4
3 4 3 4 3 3 3

12
13 12 9 8 9 5

18(100)
3(500) 8(200) 4(400) 9(200) 7(400) 9(400)

0
250 0 200 0 0 350 0
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Scheduling
Scheduling: Establishing the timing of the use of equipment, facilities and human activities in an organization
Effective scheduling can yield

Cost savings
Increases in productivity
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Sequencing
Sequencing: Determine the order in which jobs at a work center will be processed.

Workstation: An area where one person works, usually with special equipment, on a specialized job.

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Short Term Scheduling

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Sequencing Jobs
Specifies the order in which jobs should be performed at work centers

Priority rules are used to dispatch or sequence jobs

FCFS: First come, first served SPT: Shortest processing time EDD: Earliest due date

LPT: Longest processing time

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Total flow time Average completion time = Number of jobs Total job work time Utilization = Total flow time

Average Total flow time = number of jobs Total job work time in the system Total late days Number of jobs
65

Average job lateness =

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Sequencing Example
Apply the four popular sequencing rules to these five jobs
Job Work (Processing) Time (Days) 6 2 8 3 9
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Job A B C D E

Job Due Date (Days) 8 6 18 15 23

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Sequencing Example
FCFS: Sequence A-B-C-D-E
Job Sequence A B C D E Job Work (Processing) Time 6 2 8 3 9 28 Flow Time 6 8 16 19 28 77
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Job Due Date 8 6 18 15 23

Job Lateness 0 2 0 4 5 11
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Sequencing Example
FCFS: Sequence A-B-C-D-E
Job Work Sum of Flow total flow Job time Jobcompletion (Processing) Due Job days Average time = = 77/5 = 15.4 Number of jobs Date Sequence Time Time Lateness A
Total job work time 6 6 8 Utilization = Sum of total flow time = 28/77 = 36.4%

0 2

B Average C number of jobs in the system D

Sum of total flow time 8 16 18 0 = = 77/28 = 2.75 jobs Total job work time 3 19 15 4

Total late days E 9 = Number 28 23 5 Average job lateness of jobs = 11/5 = 2.2 days

28

77
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68

Sequencing N Jobs on Two Machines: Johnsons Rule

Johnsons Rule N 2 (N jobs; more than 2 jobs) Min processing time for sequencing a group of jobs through 2 work centers while min total idle time in the work centers
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Johnsons Rule
1. List all jobs and times for each work center 2. Choose the job with the shortest activity time. If that time is in the first work center, schedule the job first. If it is in the second work center, schedule the job last. 3. Once a job is scheduled, it is eliminated from the list 4. Repeat steps 2 and 3 working toward the center of the sequence
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Johnsons Rule Example

Job A B

Work Center 1 (Drill Press)

5 3

Work Center 2 (Lathe)

2 6

C
D E

8
10 7

4
7 12

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Johnsons Rule Example

Job A B

Work Center 1 (Drill Press)

5 3

Work Center 2 (Lathe)

2 6

C
D E

8
10 7

4
7 12

B E D C A

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WORK CENTER 1

WORK CENTER 2

Job B E

Time In 0 3

Time Out 3 10

Time In 3 10

Time Out 9 22

D
C A

10
20 28
Idle Time M1 = 2

20
28 33
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22
29 33

29
33 35
73

Idle Time M2 = 3 + 1 = 4

Johnsons Rule Example

Job A B

Work Center 1 (Drill Press)

5 3

Work Center 2 (Lathe)

2 6

C
D E
Time 0 3

8
10 7
10

4
7 12
20

B E D C A

28

33

WC 1 WC 2

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Johnsons Rule Example

Job A B

Work Center 1 (Drill Press)

5 3

Work Center 2 (Lathe)

2 6

C
D E
Time 0 3

8
10 7
10

4
7 12
20

B E D C A

28

33

WC 1 WC 2

E B
3 5 7

D E
9 10 11 12 13

C D
17 19 21 22 2325 27 29

A C
31

A
33 35

Time 0 1

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Johnsons Rule Example

Idle Time WC 1 = 2
Idle Time WC 2 = 3 + 1 = 4 The five jobs are completed in 35 hours. The WC 2 will have to wait 3 hours before first job at WC 1 is completed and will also wait for another 1 hour after completing job B.
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Limitations
Rules do not look beyond due dates. May be two work centers at the same due date. Which one is important Rules do not look upstream or downstream. Idle resources & bottleneck resources may be not recognized.
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Finite Capacity Scheduling

MRP Data Master schedule BOM Inventory Priority rules Expert systems Simulation models
Interactive Finite Capacity Scheduling

Routing files Work center information

Tooling and other resources

Setups and run time

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Figure 15.5

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MEM575

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Bottlenecks
Bottleneck work centers are constraints that limit output
Common occurrence due to frequent changes

Management techniques include:

Increasing the capacity of the constraint Cross-trained employees and maintenance

Alternative routings
Moving inspection and test Scheduling throughput to match bottleneck capacity
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Service Systems Differ From Manufacturing

Manufacturing
Schedules machines and materials Inventories used to smooth demand Machine-intensive and demand may be smooth Scheduling may be bound by union contracts Few social or behavioral issues

Services
Schedule staff Seldom maintain inventories Labor-intensive and demand may be variable Legal issues may constrain flexible scheduling Social and behavioral issues may be quite important
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