PRODUCTION MANAGEMENT - IV

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PRODUCTION PLANNING

the process of producing a specification or chart of the manufacturing operations to be performed by different functions and workstations over a particular time period. Production scheduling takes account of factors such as the availability of plant and materials, customer delivery requirements, and maintenance schedules

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PRODUCTION PLANNING HORIZONS

Long-Range Capacity Planning Aggregate Planning Master Production Scheduling Production Planning and Control Systems Pond Draining Systems Push Systems Pull Systems Long-Range (years) Medium-Range (6-18 months) Short-Range (weeks) Very-Short-Range (hours - days) Focusing on Bottlenecks
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PRODUCTION PLANNING: UNITS OF MEASURE Entire Product Line Product Family Specific Product Model Labor, Materials, Machines Focusing on Bottlenecks
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Long-Range Capacity Planning Aggregate Planning Master Production Scheduling Production Planning and Control Systems Pond Draining Systems Push Systems Pull Systems

AGGREGATE PLANNING
Importance Fully load facilities and minimize overloading and underloading Make sure enough capacity available to satisfy expected demand Plan for the orderly and systematic change of production capacity to meet the peaks and valleys of expected customer demand Get the most output for the amount of resources available
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Inputs
A forecast of aggregate demand covering the selected planning horizon (6-18 months) The alternative means available to adjust short- to medium-term capacity. The current status of the system in terms of workforce level, inventory level and production rate

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Outputs
A production plan: aggregate decisions for each period in the planning horizon about workforce level inventory level production rate Projected costs if the production plan was implemented

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Medium-Term Capacity Adjustments Workforce level Hire or layoff full-time workers Hire or layoff part-time workers Hire or layoff contract workers Utilization of the work force Overtime Idle time (undertime) Reduce hours worked
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Medium-Term Capacity Adjustments Inventory level Finished goods inventory Backorders(products are supplied after a period of waiting time./lost sales Subcontract

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Aggregate planning Strategies

Inventory carrying through constant work force Sub contracting Variable workforce Variable working hours Promotional activities Back ordering

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Inventory carrying through constant work force

Merits

Stable workforce Better quality products Job security Avoids hiring &firing costs Inventory carrying cost Difficulty in finding stable workforce Not suitable for perishable goods.

Demerits

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Sub contracting

Merits

Suitable for peak demand

Demerits

Control becomes difficult Sub contractor s becomes competitors.

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Variable workforce
Merits

Match between demand & production

Demerits

Cost of hiring Training cost & quality Job insecurity

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Variable working hours

Merits

Stable work force Cost of inventory

Demerits

Not able to meet large demand Over time wages are higher Idle time for employees Employee stress

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Back ordering
Merits

Inventory cost Suitable for low demand Customer waiting time Dissatisfaction Loss of sales Loss of good will

Demerits

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Aggregate Plans for Services

For standardized services, aggregate planning may be simpler than in systems that produce products For customized services, there may be difficulty in specifying the nature and extent of services to be performed for each customer customer may be an integral part of the production system Absence of finished-goods inventories as a buffer between system capacity and customer demand

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Master Production Scheduling (MPS)

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Objectives of MPS
Determine the quantity and timing of completion of end items over a short-range planning horizon. Schedule end items (finished goods and parts shipped as end items) to be completed promptly and when promised to the customer. Avoid overloading or underloading the production facility so that production capacity is efficiently utilized and low production costs result.

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Time Fences
l

The rules for scheduling 2-4 weeks

+/- 5% Change

4-6 weeks
+/- 10% Change

6+ weeks

1-2 weeks
No Change

+/- 20% Change

Frozen

Firm Full Open

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Time Fences
The rules for scheduling: Do not change orders in the frozen zone Do not exceed the agreed on percentage changes when modifying orders in the other zones Try to level load as much as possible Do not exceed the capacity of the system when promising orders. If an order must be pulled into level load, pull it into the earliest possible week without missing the promise.
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Developing an MPS
Using input information Customer orders (end items quantity, due dates) Forecasts (end items quantity, due dates) Inventory status (balances, planned receipts) Production capacity (output rates, planned downtime) Schedulers place orders in the earliest available open slot of the MPS

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Developing an MPS
Schedulers must: estimate the total demand for products from all sources assign orders to production slots make delivery promises to customers, and make the detailed calculations for the MPS

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Example: Master Production Scheduling Arizona Instruments produces bar code scanners for consumers and other manufacturers on a produce-to-stock basis. The production planner is developing an MPS for scanners for the next 6 weeks. The minimum lot size is 1,500 scanners, and the safety stock level is 400 scanners. There are currently 1,120 scanners in inventory. The estimates of demand for scanners in the next 6 weeks are shown on the next slide.

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Example: Master Production Scheduling Demand Estimates

WEEK
1 2 3 4 200 5 6

CUSTOMERS MARKET RESEARCH

500 1000 500

700 1000

BRANCH WAREHOUSES 200 300 400 500 300 200

0 50 0 0 0 0 0 10 0 0 0

PRODUCTION RESEARCH 10

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Example: Master Production Scheduling Computations

WEEK
3 4 1 2 5 6

CUSTOMERS MARKET RESEARCH TOTAL DEMAND

500 1000 500 200 700 1000

BRANCH WAREHOUSES 200 300 400 500 300 200

0 50 0 0 0 0 0 10 0 0 0

PRODUCTION RESEARCH10

710 1350 900 700 1010 1200

BEGINNING INVENTORY 1120 410 560 1160 460 950 REQUIRED PRODUCTION 0 1500 1500 0 1500 1500 ENDING INVENTORY
410 560 1160 460 950 1250

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Example: Master Production Scheduling MPS for Bar Code Scanners

WEEK
1 2 3 4 0 5 6

SCANNER PRODUCTION 0

1500 1500

1500 1500

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Types of Production-Planning and Control Systems

Pond-Draining Systems Push Systems Pull Systems Focusing on Bottlenecks

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Pond-Draining Systems
Emphasis on holding inventories (reservoirs) of materials to support production Little information passes through the system As the level of inventory is drawn down, orders are placed with the supplying operation to replenish inventory May lead to excessive inventories and is rather inflexible in its ability to respond to customer needs
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Push Systems
Use information about customers, suppliers, and production to manage material flows Flows of materials are planned and controlled by a series of production schedules that state when batches of each particular item should come out of each stage of production Can result in great reductions of raw-materials inventories and in greater workers and process utilization than pond-draining systems

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Pull Systems
Look only at the next stage of production and determine what is needed there, and produce only that Raw materials and parts are pulled from the back of the system toward the front where they become finished goods Raw-material and in-process inventories approach zero Successful implementation requires much preparation

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Focusing on Bottlenecks
Bottleneck Operations
Impede production because they have less capacity than upstream or downstream stages Work arrives faster than it can be completed

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Material Requirements Planning

Aggregate Planning Master Production Scheduling (MPS) Resource Requirements Planning Material Requirements Planning (MRP) Capacity Requirements Planning (CRP)
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Materials Requirements Planning

Computer based system Explodes Master Schedule (MPS) into required amounts of raw materials and subassemblies to support MPS Nets against current orders and inventories to develop production and purchased material ordering schedules

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Objectives of MRP
Improve customer service Reduce inventory investment Improve plant operating efficiency

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Elements of MRP
Inputs Service-Parts Orders and Forecasts Inventory Status File Master Production Schedule Bill of Materials File MRP System Outputs Inventory Transaction Data Order Changes Order Planned Order Schedule Planning Report Performance Exception Reports
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MRP Computer Program

Begins with number of end items needed Add service parts not included in MPS Explode MPS into gross requirements by consulting Bill of Materials file Modify gross requirements to get net requirements: Net Requirements = Gross Requirements + Allocated Inventory + Safety Stock- Inventory On
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Outputs of MRP
Planned order schedule - quantity of material to
be ordered in each time period Changes to planned orders - modifications to previous planned orders Secondary outputs: Exception reports (late orders) Performance reports(delivery promises/stockout incidents) Planning reports(reports used for future inventory)
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Example: MRP Schedule

LocoMopeds is a manufacturer of offroad mopeds. The following product structure diagram represents the bill of materials for its dual-carburetor Model 442 moped.
Level 0
ENGINE ASSEMBLY GAS TANK MOPED

Level 1

WHEEL ASSEMBLY (2)

FRAME

Level 2

MOTOR

CARBURETOR (2)

HUB ASSEMBLY

TIRE

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Example: MRP Schedule

Bill of Material
ParentComponent Level Code 442 442 GT WA F EA C WA T Code 0 EA 1 1 1 M 2 HA 2 Code Compon. Description Reqd

#442 Moped 1 Engine Assem. 1 2

Gas Tank 1 Wheel Assem. Frame 2 1 Motor 1 2 1

Carburetor 2 Tire Hub Assem. 1

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Lot-Sizing in MRP
Lot-size is the quantity ordered/produced at one time Large lots are preferred because:
Changeovers cost less and capacity greater Annual cost of purchase orders less Price breaks and transportation breaks can be utilized Small lots are preferred because: Lower inventory carrying cost Reduced risk of obsolescence Shorter cycle time to produce customer order
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Lot-Sizing Methods
Economic Order Quantity (EOQ) does not consider quantity discounts does not always provide the most economical approach with lumpy demand Lot-for-Lot (LFL) accommodates lumpy demand Period Order Quantity (POQ) The best method, resulting in least cost, depends on cost and demand patterns.

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Example: Lot-Sizing Decision

The net requirements for a material from an MRP schedule are: WEEK

1 2 3 4 5 6 7 8 NET REQUIREMENTS 1000 0 1300 800 12001300 0 800

It costs $400 to change over the machines for this material in the affected work center. It costs $0.40 per unit when one unit of this material must be carried in inventory from one week to the next. Identify the lot-sizing method that results in the least carrying and changeover costs for the 8-week schedule.
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Example: Lot-Sizing Decision

Lot-for-Lot Method
WEEK

1 NET REQUIREMENTS 1000 BEGINNING INVENTORY 0 PRODUCTION LOTS 1000 ENDING INVENTORY 0

2 3 4 5 6 0 1300 800 12001300 0 0 0 0 0 0 1300 800 12001300 0 0 0 0 0

7 8 0 800 0 0 0 800 0 0

Carrying Cost

= 0($.40) = $0

Changeover Cost = 6($400) = $2,400 Total = $2,400 KIRUBA DANIEL J

Example: Lot-Sizing Decision

Economic Order Quantity (EOQ) Method S = $400.00 D = [(Net Req. for 8 wks)/8 weeks)](50 weeks/year) = (6400/8)(50) = 40,000 C = ($0.40 per week)(50 weeks/year) = $20.00 2DS EOQ = = C

2(40,000)(400) = 20

1265
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Example: Lot-Sizing Decision

Economic Order Quantity (EOQ) Method
WEEK

1 2 3 4 5 6 7 8 NET REQUIREMENTS 1000 0 1300 800 12001300 0 800 BEGINNING INVENTORY 0 265 265 230 695 760 725 725 PRODUCTION LOTS 1265 0 1265126512651265 0 1265 ENDING INVENTORY 265 265 230 695 760 725 725 1190 Carrying Cost = 4855($.40) = $1,942 Changeover Cost = 6($400) = $2,400 Total = $4,342
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Example: Lot-Sizing Decision

Period Order Quantity (POQ) Method
POQ = (# Weeks/year)/(# Orders/year) = 50/(D/EOQ) = 50/(40,000/1,265) = 1.58 or 2 weeks
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Example: Lot-Sizing Decision

Period Order Quantity (POQ) Method
WEEK

1 NET REQUIREMENTS 1000 BEGINNING INVENTORY 0 PRODUCTION LOTS 1000 ENDING INVENTORY 0

2 3 4 5 6 7 0 1300 800 12001300 0 0 0 800 0 1300 0 0 2100 0 2500 0 800 0 800 0 1300 0 800

8 800 800 0 0

Carrying Cost = 2900($.40) = $1,160 Changeover Cost = 4($400) = $1,600 Total = $2,760
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Example: Lot-Sizing Decision

Summary
CarryingChg.Ovr. Method LFL EOQ POQ Cost 0 1,942 1,160 Total Cost 2,400 2,400 1,600 Cost 2,400 4,342 2,760

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Issues in MRP
Lot-Sizing Useful at lower levels but may drive excess inventory when applied at higher levels Net Change versus Regenerative MRP Net change may generate too many action notices Regenerative more costly to run but appears to be easier to manage

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Issues in MRP
Safety Stock Use depends on uncertainty of demand..... more uncertain the greater the need for safety stock Assemble-to-Order Firms MPS and MRP treated separately from Final Assembly Schedule(FAS) Use Modular Bill of Material

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KIRUBA DANIEL. J
Lecturer, MBA dept., Sri Venkateswara Institute of Information Technology & Management, Ettimadai, Coimbatore [email protected]

Thank You !

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