Industrial

Management
Topic 7 Production
Planning & Control

MEM575

Organizational Strategy and

Production Planning
Decision Level

Decision Process

Forecast Needed

Production
Planning and
Allocation

Annual Demand by
Item and Region

Plant Manager

Determines
seasonal plan by
product type

Monthly Demand
for 12 mths by
product types

Shop
Supervisor

Determines
monthly item
production
schedules

Monthly Demand
for 6 mths by items

Corporate
(Top Management)

It explains the relationship between planning structure and organizational structure

It also tells who are responsible for the for the decision making.
MEM575

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
MEM575

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).
MEM575

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
MEM575

Medium Range Planning

a. Aggregate Planning

MEM575

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.
MEM575

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

10

Aggregate Planning Inputs

Resources
Workforce
Facilities

Demand forecast
Policy statements

11

Subcontracting
Overtime
Inventory levels
Back orders

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

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.
MEM575

12

Change
Inv.
Levels

Part time
workers

Subcon

Vary
w/force
size

Counter
seasonal
(pdt &
service
mixing)

Back
Chase
ordering
strategy
Vary
prdn
rate

MEM575

Influencing
demand

Level
strategy

13

Chase vs. Level

Chase Approach

Level Approach

Advantages

Investment in inventory is low

Stable output rates and

workforce

Labor utilization in high

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

Advantages

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

14

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.
MEM575

15

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.
MEM575

16

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).
MEM575

17

Roofing Supplier Example

Month
Jan

Expected Demand
900

Production Days
22

Feb
Mar
Apr
May
June

700
800
1,200
1,500
1,100

18
21
21
22
20

6,200

124

Demand Per Day

(computed)
41
39
38
57
68
55

Table 13.2

Total expected demand

Average
requirement = Number of production days
6,200
=
= 50 units per day
124
MEM575

(demand per day)

18

Production rate per working day

Roofing Supplier Example - graphical

Forecast demand (demand per day)

70
60

Level production using average

monthly forecast demand

50
40
30

0
Jan

Feb

Mar

Apr

May

June

22

18

21

21

22

20

Figure 13.3
MEM575

= Month
= Number of
working days
19

Roofing Supplier Plan1 (level production)

Month

Expected
Demand/
Demand
forecast

Production Days
* 50 units per
day

Monthly
Inventory
Change

Ending
Inventoriy

Jan

900

22*50=1,100

+200

200

Feb

700

900

+200

400

Mar

800

1,050

+250

650

Apr

1,200

1,050

-150

500

May

1,500

1,100

-400

100

June

1,100

1,000

-100

6,200

1,850

Cost

Calculations

Inventory carrying

$9,250

(=1,850 units carried X $5 per unit)

Regular-time labor

49,600

(=10 workers X $40 per day X 124

days)

Other (OT, hiring, layoffs,

sub-con)
Total cost

0
$58,850

MEM575

20

Cumulative output/demand

Reduced in
inventory

Cumulative

Excess
Inventory

production
Cumulative
demand

Jan

Feb

Mar

Apr

MEM575

May

June

21

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

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

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

Cost

Calculations

Regular labor

$37,696

(=7.6 X $40 per day X 124

days)

Sub-con

14,880

(=1,488 X $10 per unit)

Total cost

$52,576

22

Production rate per working day

Roofing Supplier - graphical

Forecast demand

70
Level production
using lowest
monthly forecast
demand

60
50
40
30

0
Jan

Feb

Mar

Apr

May

June

22

18

21

21

22

20

MEM575

= Month
= Number of
working days
23

Roofing Supplier Plan3

Month

Expected
Demand
(Forecast)

Demand
Per Day
(daily
production)

Cost
(Demand
* 1.6 hr
per unit *
$5 per hr)

Cost
(Hiring)

Cost
(Layoff)

Total Cost

$7,200

Jan

900

41

$7,200

Feb

700

39

5,600

Mar

800

38

6,400

Apr

1,200

57

9,600

May

1,500

68

12,000

$5,700
(=19*$300)
$3,300
(=11*$300)

June

1,100

55

8,800

6,200

$49,600

$9,000

$1,200
(2*$600)
$600
(=1*$600)

6,800
7,000

15,300

15,300

$7,800
(=13*$600)

16,600

$9,600

Production = Expected Demand

$68,200
24

Production rate per working day

Roofing Supplier - graphical

Forecast demand and
monthly production

70
60
50
40
30

0
Jan

Feb

Mar

Apr

May

June

22

18

21

21

22

20

MEM575

= Month
= Number of
working days
25

Aggregate Planning
Example 1:

Period

Forecast 200

Total

200

300

400

500

200

1800

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
MEM575

26

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

Jul

Aug

Sept

Oct

Nov

Dec

Forecast

400

500

550

800

700

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

Layoff = RM 800 per worker

No backlog is allowed

Current work force = 8 workers

Labour hr per day = 8hrs

Labour hrs per DVD = 4 hrs

Max hrs for OT are 50% of

the normal working hrs

Work days per mth = 20 days

MEM575

Solutions

28

b. Master Production Schedule (MPS)

MEM575

29

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
MEM575

30

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
MEM575

31

MPS Examples
For Nancys Specialty Foods
Gross Requirements for Crabmeat Quiche
Day
Amount

6
50

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

MEM575

32

MEM575

33

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
MEM575

34

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
MEM575

35

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
MEM575

36

BOM Example
Independent Demand
Level

Product structure for Awesome (A)

12 Speaker kit w/
C(3) Std.
amp-booster

B(2) Std. 12 Speaker kit

E(2)

Dependent Demand

D(2)

F(2) Std. 12 Speaker

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

booster assembly

G(1)

D(2)

Amp-booster
12 Speaker

MEM575

12 Speaker

37

BOM Example
Level

Product structure for Awesome (A)

D(2)

Part B: 2 x number of As =
(2)(50) =
100
Std. 12 Speaker150
kit w/
C:
3
x
number
of
As
=
(3)(50)
=
BPart
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
numberbox
ofand
Cs =
(2)(150) =
300
Part G: 1installation
x numberkitofofFs
=
(1)(300)
300
wire,
G(1) =
D(2)
bolts, and screws

Amp-booster
12 Speaker

MEM575

12 Speaker

38

MEM575

39

Time-Phased Product Structure

Must have D and E
completed here so
production can
begin on B

Start production of D

1 week

2 weeks to
produce

B
2 weeks

A
2 weeks

1 week

1 week

2 weeks

C
3 weeks

F
1 week

D
|

4
5
MEM575
Time in weeks

Figure 14.4
40

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.

42

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
MEM575

43

MRP Structure
Data Files

Output Reports

BOM

MRP by
period report

Master
production schedule

MRP by
date report

Lead times
Planned order
report

(Item master file)

Inventory data

Purchasing 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

Figure 14.5

MEM575

44

e. Material Resource
MRP II Planning II
(MRP II)
Expanded MRP with emphasis
placed on integration
Financial

planning

Marketing
Engineering
Purchasing

Manufacturing
MEM575

45

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
MEM575

46

MRP - Example
Draw up a production schedule for 2000 units of product A.
Assume the units are required on week 20
A

MEM575

Item

LT

Batch
Qty

On
Hand

100

200

500

750

200

400

400

2000
48

Material Requirements Planning

A

MEM575

49

Material Requirements Planning

minus
Week

Item

Gross
Reqmt

On
Hand

Net
Reqmt

LT

Order
Week

Order
Qty

Remain

20

2000

2000

16

2000

MEM575

50

Material Requirements Planning

A

MEM575

51

Material Requirements Planning

minus
Week

Item

Gross
Reqmt

On
Hand

Net
Reqmt

LT

Order
Week

Order
Qty

Remain

20

2000

2000

16

2000

16

2000

200

1800

12

18(100)

16

2000

750

1250

13

3(500)

250

16

2000

400

1600

12

8(200)

MEM575

Batch
quantity

52

Material Requirements Planning

A

MEM575

53

Material Requirements Planning

Week

Item

Gross
Reqmt

On
Hand

Net
Reqmt

LT

Order
Week

Order
Qty

Remain

20

2000

2000

16

2000

16

2000

200

1800

12

18(100)

16

2000

750

1250

13

3(500)

250

16

2000

400

1600

12

8(200)

12

1800

1800

4(500)

200

12

1800

1800

9(200)

MEM575

54

Material Requirements Planning

A

MEM575

55

Material Requirements Planning

Week

Item

Gross
Reqmt

On
Hand

Net
Reqmt

LT

Order
Week

Order
Qty

Remain

20

2000

2000

16

2000

16

2000

200

1800

12

18(100)

16

2000

750

1250

13

3(500)

250

16

2000

400

1600

12

8(200)

12

1800

1800

4(500)

200

12

1800

1800

9(200)

13

1250

1250

MEM575

56

Material Requirements Planning

A

MEM575

57

Material Requirements Planning

Week

Item

Gross
Reqmt

On
Hand

Net
Reqmt

LT

Order
Week

Order
Qty

Remain

20

2000

2000

16

2000

16

2000

200

1800

12

18(100)

16

2000

750

1250

13

3(500)

250

16

2000

400

1600

12

8(200)

12

1800

1800

4(500)

200

12

1800

1800

9(200)

13

1250

1250

12

2(1600)

750

2450

7(400)

350

MEM575

58

Material Requirements Planning

A

MEM575

59

Material Requirements Planning

Week

Item

Gross
Reqmt

On
Hand

Net
Reqmt

LT

Order
Week

Order
Qty

Remain

20

2000

2000

16

2000

16

2000

200

1800

12

18(100)

16

2000

750

1250

13

3(500)

250

16

2000

400

1600

12

8(200)

12

1800

1800

4(400)

200

12

1800

1800

9(200)

13

1250

1250

12

2(1600)

750

2450

7(400)

350

2(1800)

3600

9(400)

MEM575

60

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
MEM575

61

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.

MEM575

62

Short Term Scheduling

MEM575

63

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

MEM575

64

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

Average job lateness =

MEM575

Total late days

Number of jobs
65

Sequencing Example
Apply the four popular sequencing rules
to these five jobs

Job
A

Job Work (Processing)

Time
(Days)
6

Job Due
Date
(Days)
8

B
C
D

2
8
3

6
18
15

23

MEM575

66

Sequencing Example
FCFS: Sequence A-B-C-D-E
Job
Sequence

Job Work
(Processing)
Time

Flow
Time

Job Due
Date

16

18

19

15

28

23

28

77
MEM575

Job
Lateness

11
67

Sequencing Example
FCFS: Sequence A-B-C-D-E
Job Work
Sum of Flow
total flow Job
timeDue
Jobcompletion
(Processing)
Job days
Average
time =
=
77/5
=
15.4
Number
Sequence
Time
Timeof jobs Date
Lateness
A

Total
job work time
6
6
8
Utilization = Sum of total flow time = 28/77 = 36.4%

B
Average
C number of
jobs in the system
D

0
2

Sum of total flow time

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

Total late days

E
9 = Number28of jobs = 23
5
Average
job lateness
11/5 = 2.2 days

28

77
MEM575

11
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
MEM575

69

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
MEM575

70

Johnsons Rule Example

Job

Work Center 1
(Drill Press)

Work Center 2
(Lathe)

10

12

MEM575

71

Johnsons Rule Example

Job

Work Center 1
(Drill Press)

Work Center 2
(Lathe)

10

12

MEM575

B E D C A

72

WORK CENTER 1

WORK CENTER 2

Job

Time In

Time Out

Time In

Time Out

10

10

22

10

20

22

29

20

28

29

33

28

33

33

35

Idle Time M1 = 2

MEM575

Idle Time M2 = 3 + 1 = 4

73

Johnsons Rule Example

Job

Work Center 1
(Drill Press)

Work Center 2
(Lathe)

10

12

Time

WC
1

10

B E D C A

20

28

33

WC
2

MEM575

74

Johnsons Rule Example

Job

Work Center 1
(Drill Press)

Work Center 2
(Lathe)

10

12

Time

WC
1

10

WC
2
Time 0 1

20

28

B
3

B E D C A

C
E

9 10 11 12 13

33

A
D

17 19 21 22 2325

MEM575

27

29

31

33 35

75

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.
MEM575

76

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.
MEM575

77

Finite Capacity Scheduling

MRP Data
Master
schedule
BOM
Inventory

Interactive Finite Capacity Scheduling

Routing files
Work center
information
Tooling
and other
resources

Priority
rules
Expert
systems
Simulation
models

Setups and
run time

MEM575

Figure 15.5

78

MEM575

79

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
MEM575

80

Service Systems Differ From

Manufacturing
Manufacturing

Services

Schedules machines
and materials

Schedule staff

Inventories used to
smooth demand

Seldom maintain inventories

Machine-intensive and
demand may be smooth

Labor-intensive and demand

may be variable

Scheduling may be bound by

union contracts

Legal issues may constrain

flexible scheduling

Few social or behavioral

issues

Social and behavioral issues

may be quite important
MEM575

81