CHAPTER6: PRODUCTION PLANNING & CONTROLweb.iku.edu.tr/~rgozdemir/IE250/lecture...
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CHAPTER6: PRODUCTION PLANNING & CONTROL Production planning is concerned with the determination of production, inventory, and work force levels to meet fluctuating demand 2 A typical manufacturing plant This plant must purchase materials, and perhaps parts, convert these materials into specific components, then assemble the components into several products offered to the customers
Transcript of CHAPTER6: PRODUCTION PLANNING & CONTROLweb.iku.edu.tr/~rgozdemir/IE250/lecture...
CHAPTER6: PRODUCTION PLANNING & CONTROL
Production planning is concerned with the determination of production, inventory, and work force levels to meet fluctuating demand
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A typical manufacturing plant
� This plant must purchase materials, and perhaps parts, convert these materials into specific components, then assemble the components into several products offered to the customers
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PRODUCTION PLANNING FUNCTIONS
Aggregate Planning
Master Production Schedule
Material Requirements Planning
Inventory Management
Production Scheduling
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AGGREGATE PLANNING
� Aggregate planning begins with the forecast of demand
� Aggregate planning translates demand forecasts into strategic decisions
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Planning strategies
� Zero Inventory Plan - Changing workforce levels –(cost effective, but poor long-run business strategy)
� Fixed Workforce Plan - Keeping inventory – allowing backlogging(increases motivation, commitment and efficiency, but builds up inventory, and decreases profits)
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Aggregate Planning Example
� A company is to plan workforce and production levels for the six-month period January to June.
Month Jan. Feb. March April May June
Demand 1280 640 900 1200 2000 1400
Working days 20 24 18 26 22 15
� Ending inventory in December (current month) is expected to be 500 units, and the firm would like to have 600 units on hand at the end of June
� Forecast demands over the next six months for a particular line of products are as follows:
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Example 1 Continued
� There are currently (end of December) 300 workers in the plant
� There are only three costs to be considered:� Cost of hiring workers = CH = $500 /worker
� Cost of firing workers = CF = $1000 /worker
� Cost of holding inventory = CI = $80/unit/month
� Cost of backordering = CB = $150/unit/month
� K = 0.15 (number of aggregate units produced by one worker in one day
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Level (Fixed) Workforce Plan
Fixed # of Workers =
Total demand
Total # of days x units/worker-day
Fixed # of Workers = = ≅ workers
Fixed Workforce Plan
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Zero Inventory Plan
Workers needed =
demand/month
days/month x units/worker-day
Zero Inventory Plan
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Inventory Management
� Inventory is a “buffer” between supply and demand
InventoryS(t) D(t)
Supply process (+) Demand process (–)
� S(t) and D(t) have different rates and timings due to endogenous and exogenous factors.
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Factors for Inventory
� Internal factors: are a matter of policy
� Economies of scale
� Operation smoothing
� Customer service
� External factors: are uncontrollable
� Uncertainty
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Inventory Types
� Types are classified according to the value added during the manufacturing process:
� Raw material inventories
� Work-in-process (WIP) inventories
� Finished goods inventories
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Costs in an Inventory System
Inventory
holding cost
Ordering /
setup cost
Purchasing /
production cost
Stockout
cost
Total Inventory Cost
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Inventory Holding Cost
H = i .c
Cost to carry
one unit of
inventory for one unit of time
Cost of carrying
$1 of inventory for
one unit of time
Cost / unit
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Fixed reorder quantity system
time
Inve
nto
ry le
ve
l
0
Q (order quantity)
Lead timeLead time
Reorder
point
Lead time
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Average inventory
=⋅
=
T
TQ 2/
time
Inve
nto
ry le
ve
l
0
Q (order quantity)
Average inventory
per time-unit
T (period length)
Total Inventory
2
TQ ⋅2
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Annual holding cost
Annual setup cost
Annual purchasing cost
Total Inventory Cost
Where,
c = unit cost ($/unit)
D = annual demand (units)
A = fixed ordering cost ($/order)
H = annual inventory holding cost ($/unit/year)
Q = lot size (quantity to be purchased per order)
2)(
QH
Q
DAcDQTC ++=
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Setup cost = Holding cost
Minimum total cost
Economic Order Quantity (EOQ)
2)(
QH
Q
DAQTC +=
Q* (EOQ) Q
Cost ($)
2
QH
(Holding cost)
Q
DA
(Setup cost)
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Economic Order Quantity (EOQ)
02
0)(
2=+−⇒=
H
Q
AD
dQ
QdTC
H
ADQ
2*=
Q* = Economic Order Quantity, EOQ (optimal lot size)
ic
ADQ
ic
ADQ
Qic
Q
AD 2*
2
2
2=⇒=⇒=
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Supplier
PlantEOQ-Example
� Lead time = 2 weeks
� Consumption rate = 4 parts /hr � Available time = 40 hours/wk
� A= $1000 (fixed cost per order)� c = $500 per unit� i = 20%
Q (order quantity)
Open order
Two weeks later
?
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EOQ-Example Continued
� Suppose plant should work in its full capacity for 52 weeks in one year.
� Annual consumption of raw material in plant = D = annual demand from supplier
parts/year832052160 =×=D
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Economic Order Quantity (EOQ)
unitsEOQH
ADQ 408
100
)8320)(1000(22* ==⇒=
Each inventory period length = Q* / D = 408 / 8320 = 0.049 years
0.049 x 52 weeks = 2.55 weeks
2.55 x 40 hours = 102 hours
EOQ
T
- D
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EOQ, T, and Reorder point (r)
0
Q* = 408
2.55 weeks
2 weeks
320
2.55 weeks
2 weeks
2.55 weeks
� EOQ = 408
� T = Q*/D= 2.55 weeks
� r = L x D= 2 x 160= 320L = lead time
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Structure of MRP System
Explosion of parent planned order into component gross requirement.
Netting to generate net requirements. Lot sizing and
offsetting
Master Production Schedule
Inventory Master
Parts File
Open Purchase Orders
Open Shop Orders
Bill of Material
(BOM)
Planned Orders Releases Purchasing/Manufacturing
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Netting procedure
Finding net requirementsGross requirement – (on hand inventory + scheduled receipts)
Computing lot sizesSimplest is “Lot-for-Lot”: Batch size = period’s net requirement
OffsettingSubtracting the Lead-time from the time at which orders are delivered
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Steps of MRP
� Explosion of parent into component items using BOM
� MRP performs netting calculation for each requirement of an item
� Generation of appropriate messages
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MRP – Example
� You are producing skateboards, and each consists of one unit of board, and two units of subassembly of roller-set. Roller-sets are produced inside the plant, and consist of two componentsrollers and axles. Prepare the MRP tables of all items.
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Skateboard assembly
MaterialInventory
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Product Structure /Bill-of-matreial (BOM)
MaterialInventory
Item A: Skateboard
Item B: Board Item C: Roller-set
Item D: Roller Item E: Axle
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Bill of Material (BOM)
A
D [ 2 ] E [ 1 ]
B [ 1 ] C [ 2 ]
Level 0
Level 1
Level 2
Parent of B and C
Components of A
2 units of C, and 1 unit of B to make 1 unit of A
2 units of D, and 1 unit of E to make 1 unit of C
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Master Production Schedule
Item A B C D E
Lead time (weeks) 1 2 1 3 2
Week 1 2 3 4 5 6 7 8 9 10
A 50 80
D 40 60
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Inventory Master Parts File
MaterialInventory
Work-in-processInventory
Finished goodInventory
Item A B C D E
Current inventory levels 10 20 50 30 20
Lot size L4L 100 L4L 200 150
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Open Orders Data
Scheduled Receipts (Due Dates)
ITEM / WEEKS 1 2 3 4 5 6 7 8 9
A
B 20
C 90
D 40
E
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MRP table for item A
WEEKS 1 2 3 4 5 6 7 8 9 10
Gross Requirements 50 80
Scheduled Receipts
Inventory on hand 10 10 10 10 10 0 0 0 0 0
Net Requirements 40 80
Planned Orders 40 80
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MRP table for item B
WEEKS 1 2 3 4 5 6 7 8 9
Gross Requirements 40 80
Scheduled Receipts 20
Inventory on hand 20 20 40 40 0 0 0 0 20
Net Requirements 80
Planned Orders 100
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MRP table for item C
WEEKS 1 2 3 4 5 6 7 8 9
Gross Requirements 80 160
Scheduled Receipts 90
Inventory on hand 50 140 140 140 60 60 60 60 0
Net Requirements 100
Planned Orders 100
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MRP table for item D
WEEKS 1 2 3 4 5 6 7 8 9
Gross Requirements 40 260
Scheduled Receipts 40
Inventory on hand 30 30 70 30 30 30 30 170 170
Net Requirements 230
Planned Orders 400
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MRP table for item E
WEEKS 1 2 3 4 5 6 7 8 9
Gross Requirements 100
Scheduled Receipts
Inventory on hand 20 20 20 20 20 20 20 70 70
Net Requirements 80
Planned Orders 150
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MRP Outputs
Planned Orders (Release Dates)
ITEM / WEEKS 1 2 3 4 5 6 7 8 9
A 40 80
B 100
C 100
D 400
E 150
