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Topic 3
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By the end of this topic, you should be able to: Define inventory;
State the functions and types of inventory;
List the requirements for effective inventorymanagement;
Identify inventory models for independent demand;
Explain dependent inventory model requirement;
Describe the MRP structure; and Determine lot-sizes in a MRP system.
2
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Inventory
Why do you think that Inventory isimportant for an organization?
Stored resource that is used tosatisfy current or future need iscalled inventory.
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Functions of Inventory
To provide a stock of goodsTo avoid shortages or stock-outs due to
bad weather, quality problems orimproper delivery.To reduce the cost of goods by
minimizing purchasing and inventory
costTo allow operations to continue smoothly
with the use of work-in-processinventory.
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Inventory
types
Raw materialWork-in-progress
(WIP)
Maintenance/
Repair/Operating
(MRO)
supply
Finished
good
5
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1010 2020 3030 4040 5050 6060 7070 8080 9090 100100Percentage of itemsPercentage of items
Percentageof
dollarv
alue
Percen
tageof
dollarv
alue
100100
9090
8080
7070
6060
5050
4040
3030
2020
1010
00
Class C
Class A
Class B
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ABC analysis - steps
1. Classify the items of inventories, determining theexpected use in units and the price per unit for eachitem.
2. Determine the total value of each item by multiplyingthe expected units by its units price
3. Rank the items in accordance with the total value,giving first rank to the item with highest total valueand so on.
4. Compute the ratios (percentage) of number of units ofeach item to total units of all items and the ratio oftotal value of each item to total value of all items.
5. Combine items on the basis of their relative value toform three categories: -A, B and C.
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ABC analysis - example
A firm has 7 different items in its inventory. The firm wishes tointroduce an ABC inventory system. Suggest a breakdown of theitems into A, B & C classifications
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ABC analysis - example
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Activity 8
Rank the itemsand assignthem to theA,B or C class
Item RM Value AnnualUsage
1 0.01 1200
2 0.03 1200003 0.45 100
4 1.00 44000
5 4.50 9006 0.90 350
7 0.30 70000
8 1.50 200
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Inventory models
Independent demandsdemands of various items
unrelated to each other
Dependant demandsneed of any one item is
the need for some other item
12
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Holding Cost cost associated with maintaining the inventory warehouse and
protecting
Setup Cost
arranging specific equipment setups, filling out the required papersand moving out the previous stock of material
Ordering Cost
clerical cost to prepare the purchase and production order such as
counting items and calculating order quantities
Shortage Cost
Associated with demand when stocks have been depleted. Whensales are lost because of stock-outs, the firm loses both profit marginon unmade sales and its customers good will. Some will even sufferwith lateness penalties.
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Inventory models
Fix-order Quantity/
EOQ model
Fixed-time Period/
Fixed Order
Interval System
Quantity Discount
14
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Notations
The following are the notation that will beused in developing the inventory models.
D = Annual demand
Q = Quantity ordered (in units)
S = Annual Setup/Ordering cost per order
H = Annual Holding Cost per unit
C = Total annual Cost
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HowHowMuch?Much?
When!When!
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Bird feeder container.Sales are 18 units/week.Supplier charges = $60/unitOrder cost = $45Annual holding cost = 25% of unit valueMuseum operates = 52weeks/yearManagement decision 390 unit lot sizeWhat is the annual cost?Would lot size 468 be better?
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1.1. Demand rate is constantDemand rate is constant
2.2. No constraints on lot sizeNo constraints on lot size3.3. Only relevant costs are holding andOnly relevant costs are holding and
ordering/setupordering/setup
4.4. Decisions for items are independentDecisions for items are independentfrom other itemsfrom other items
5.5. No uncertainty in lead time or supplyNo uncertainty in lead time or supply
AssumptionsAssumptions
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Inventory depletionInventory depletion
(demand rate)(demand rate)ReceiveReceive
orderorder
1 cycle1 cycle
On-h
an
dinventory(u
nits)
On-h
an
dinventory(u
nits)
TimeTime
AverageAverage
cyclecycle
inventoryinventory
QQ22
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Annualcost
(dollars)
Annua
lcost(dol
lars)
Lot Size (Lot Size (QQ))
Holding cost (Holding cost (HCHC))
Ordering cost (Ordering cost (OCOC))
Total cost =Total cost = HCHC++ OCOC
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Example 15.2Example 15.2
30003000
20002000
10001000
00
| | | | | | | |
5050 100100 150150 200200 250250 300300 350350 400400
Lot Size (Lot Size (QQ))
Annualcost(d
ollars)
Annualcost(d
ollars)
Total cost = (Total cost = (HH) + () + (SS))DD
QQQQ
22
Holding cost = (Holding cost = (HH))QQ
22
Ordering cost = (Ordering cost = (SS))DDQQ
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Total cost = (Total cost = (HH) + () + (SS))DD
QQQQ
22
Holding cost = (Holding cost = (HH))QQ
22
Ordering cost = (Ordering cost = (SS))DDQQ
Example 15.2Example 15.2
30003000
20002000
10001000
00
| | | | | | | |
5050 100100 150150 200200 250250 300300 350350 400400
Lot Size (Lot Size (QQ))
Annualcost(d
ollars)
Annualcost(d
ollars)
Bird feeder costs
C= (H) + (S)Q
2
D
Q
D = (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15S= $45 Q= 390 units
C = $2925 + $108 = $3033
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30003000
20002000
10001000
00
| | | | | | | |
5050 100100 150150 200200 250250 300300 350350 400400
Lot Size (Lot Size (QQ))
Annualcost(d
ollars)
Annualcost(d
ollars)
Total cost = (Total cost = (HH) + () + (SS))DD
QQQQ
22
Holding cost = (Holding cost = (HH))QQ
22
Ordering cost = (Ordering cost = (SS))DDQQ
Bird feeder costs
C= (H) + (S)Q
2
D
Q
D = (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15S= $45 Q= 390 units
C = $2925 + $108 = $3033
CurrentCurrentcostcost
CurrentCurrent
Example 15.2Example 15.2
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30003000
20002000
10001000
00
| | | | | | | |
5050 100100 150150 200200 250250 300300 350350 400400
Lot Size (Lot Size (QQ))
Annualcost(d
ollars)
Annualcost(d
ollars)
Total cost = (Total cost = (HH) + () + (SS))DD
QQQQ
22
Holding cost = (Holding cost = (HH))QQ
22
Ordering cost = (Ordering cost = (SS))DDQQ
Bird feeder costs
C= (H) + (S)Q
2
D
Q
D = (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15S= $45 Q= 390 units
C = $2925 + $108 = $3033
CurrentCurrentcostcost
CurrentCurrent
Example 15.2Example 15.2
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30003000
20002000
10001000
00
| | | | | | | |
5050 100100 150150 200200 250250 300300 350350 400400
Lot Size (Lot Size (QQ))
Annualcost(d
ollars)
Annualcost(d
ollars)
Total cost = (Total cost = (HH) + () + (SS))DD
QQQQ
22
Holding cost = (Holding cost = (HH))QQ
22
Ordering cost = (Ordering cost = (SS))DDQQ
Bird feeder costs
C= (H) + (S)Q
2
D
Q
D = (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15S= $45 Q= 468468 units
CurrentCurrentcostcost
CurrentCurrent
Example 15.2Example 15.2
C = $3510 + $90 = $3600
HQ
SD
=
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EOQformula:
H
DSQ
H
DSQ
HQDS
HSS
2*
2
2
2
2
2
=
=
=
=
H
DSQ
H
DSQ
HQDS
HQ
SS
D
2*
2
2
2
2
2
=
=
=
=
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30003000
20002000
10001000
00
| | | | | | | |
5050 100100 150150 200200 250250 300300 350350 400400
Lot Size (Lot Size (QQ))
Annualcost(d
ollars)
Annualcost(d
ollars)
Total cost = (Total cost = (HH) + () + (SS))DD
QQQQ
22
Holding cost = (Holding cost = (HH))QQ
22
Ordering cost = (Ordering cost = (SS))DDQQ
CurrentCurrentcostcost
CurrentCurrent
Example 15.2Example 15.2
Bird feeder costs
D = (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15
S= $45 Q= EOQ
C= (H) + (S)Q
2
D
QEOQ =
2DSH
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30003000
20002000
10001000
00
| | | | | | | |
5050 100100 150150 200200 250250 300300 350350 400400
Lot Size (Lot Size (QQ))
Annualcost(d
ollars)
Annualcost(d
ollars)
Total cost = (Total cost = (HH) + () + (SS))DD
QQQQ
22
Holding cost = (Holding cost = (HH))QQ
22
Ordering cost = (Ordering cost = (SS))DDQQ
CurrentCurrentcostcost
CurrentCurrent
Example 15.2Example 15.2
Bird feeder costs
D = (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15
S= $45 Q= 75
C= (H) + (S)Q
2
D
QEOQ =
2DSH
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30003000
20002000
10001000
00
| | | | | | | |
5050 100100 150150 200200 250250 300300 350350 400400
Lot Size (Lot Size (QQ))
Annualcost(d
ollars)
Annualcost(d
ollars)
Total cost = (Total cost = (HH) + () + (SS))DD
QQQQ
22
Holding cost = (Holding cost = (HH))QQ
22
Ordering cost = (Ordering cost = (SS))DDQQ
CurrentCurrentcostcost
CurrentCurrent
Example 15.2Example 15.2
Bird feeder costs
D = (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15
S= $45 Q= 75
C= (H) + (S)Q
2
D
QEOQ =
2DSH
C = $562 + $562 = $1124
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30003000
20002000
10001000
00
| | | | | | | |
5050 100100 150150 200200 250250 300300 350350 400400
Lot Size (Lot Size (QQ))
Annualcost(d
ollars)
Annualcost(d
ollars)
Total cost = (Total cost = (HH) + () + (SS))DD
QQQQ
22
Holding cost = (Holding cost = (HH))QQ
22
Ordering cost = (Ordering cost = (SS))DDQQ
CurrentCurrentcostcost
CurrentCurrent
Example 15.2Example 15.2
Bird feeder costs
D = (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15
S= $45 Q= 75
C= (H) + (S)Q
2
D
QEOQ =
2DSH
C = $562 + $562 = $1124
LowestLowest
costcost
BestBest QQ
(EOQ)(EOQ)
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Example 15.2Example 15.2
30003000
20002000
10001000
00
| | | | | | | |
5050 100100 150150 200200 250250 300300 350350 400400
Lot Size (Lot Size (QQ))
Annualcost(d
ollars)
Annualcost(d
ollars)
Total cost = (Total cost = (HH) + () + (SS))DD
QQQQ
22
Holding cost = (Holding cost = (HH))QQ
22
Ordering cost = (Ordering cost = (SS))DDQQ
CurrentCurrentcostcost
CurrentCurrent
Bird feeder costs
D = (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15
S= $45 Q= 75
C= (H) + (S)Q
2
D
QEOQ =
2DSH
C = $562 + $562 = $1124
LowestLowest
costcost
BestBest QQ
(EOQ)(EOQ)
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LowestLowest
costcost
BestBest QQ
(EOQ)(EOQ)
Example 15.2Example 15.2
30003000
20002000
10001000
00
| | | | | | | |
5050 100100 150150 200200 250250 300300 350350 400400
Lot Size (Lot Size (QQ))
Annualcost(d
ollars)
Annualcost(d
ollars)
Total cost = (Total cost = (HH) + () + (SS))DD
QQQQ
22
Holding cost = (Holding cost = (HH))QQ
22
Ordering cost = (Ordering cost = (SS))DDQQ
CurrentCurrentcostcost
CurrentCurrent
Bird feeder costs
D = (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15
S= $45 Q= 75
C= (H) + (S)Q
2
D
QEOQ =
2DSH
C = $562 + $562 = $1124
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LowestLowest
costcost
BestBest QQ
(EOQ)(EOQ)
Example 15.2Example 15.2
30003000
20002000
10001000
00
| | | | | | | |
5050 100100 150150 200200 250250 300300 350350 400400
Lot Size (Lot Size (QQ))
Annualcost(d
ollars)
Annualcost(d
ollars)
Total cost = (Total cost = (HH) + () + (SS))DD
QQQQ
22
Holding cost = (Holding cost = (HH))QQ
22
Ordering cost = (Ordering cost = (SS))DDQQ
CurrentCurrentcostcost
CurrentCurrent
Bird feeder costs
D = (18 /week)(52 weeks) = 936 unitsH= 0.25 ($60/unit) = $15
S= $45 Q= 75
C= (H) + (S)Q
2
D
QEOQ =
2DSH
C = $562 + $562 = $1124
Time between orders
TBOEOQ
= = 75/936 = 0.080 yearEOQ
D
TBOEOQ = (75/936)(12) = 0.96 months
TBOEOQ = (75/936)(52) = 4.17 weeks
TBOEOQ = (75/936)(365) = 29.25 days
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Activity 9
A company that markets a product Z would liketo reduce its inventory cost by determining theoptimal number of Z to obtain per order. The
annual demand is 1960 units, thesetup/ordering cost is RM5 per order, and theholding cost per unit per year is RM1.
(a) Calculate the optimal number of units perorder.
(b) If a 260-day working per year, find thenumber of orders, N.
(c) Calculate the total inventory costs.
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HowHowMuch?Much?
When!When!
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Inventory
models
Master
Production
Schedule
(MPS)
Bill of
Material
(BOM)
Accurate
Inventory
Records
Purchase
Order
Standing
Lead Time
for each
component
38
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Bills ofmaterials
Engineeringand process
designs
Inventorytransactions
Inventoryrecords
Othersources
of demand
Authorizedmaster production
schedule
Materialrequirements
plan
MRPMRP
explosionexplosion
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Seat cushion
Seat-frameboards
Frontlegs A
Ladder-backchair
Backlegs
Leg supports
Back slats
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J (4)Seat-frame
boards
I (1)
Seatcushion
H (1)
Seatframe
G (4)
Backslats
F (2)
Backlegs
C (1)Seat
subassembly
D (2)Frontlegs
B (1)Ladder-backsubassembly
E (4)Leg
supports
AALadder-backLadder-back
chairchair
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Ladder-back chair
Kitchen chair
Desk chair
1 2
April May
3 4 5 6 7 8
Aggregateproduction planfor chair family
200
670670
200
150
120
200
150
200
120
670670
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Item: CDescription: Seat subassembly
Lot Size: 230 unitsLead Time: 2 weeks
Grossrequirements
1 2 3 4 5 6 7 8
Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
Week
150150
230230
00
00
00
00
120120
00 00
150150
00
120120
00 00
37
0000
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Item: CDescription: Seat subassembly
Lot Size: 230 unitsLead Time: 2 weeks
Grossrequirements 150150
1
230230
00
2
00
00
3
00
120120
4
00
5
00
150150
6
00
120120
7
00
8
00Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
37
Week
0000
Explanation:Gross requirements are the total demand forthe two chairs. Projected on-hand inventoryin week 1 is 37 + 230 150
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Item: CDescription: Seat subassembly
Lot Size: 230 unitsLead Time: 2 weeks
Grossrequirements 150150
1
230230
117117
00
2
00
00
3
00
120120
4
00
5
00
150150
6
00
120120
7
00
8
00Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
37
Week
0000
Explanation:Gross requirements are the total demand forthe two chairs. Projected on-hand inventoryin week 1 is 37 + 230 150 = 117 units.
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Item: CDescription: Seat subassembly
Lot Size: 230 unitsLead Time: 2 weeks
Grossrequirements 150150
1
230230
117117
00
2
00
00
3
00
120120
4
00
5
00
150150
6
00
120120
7
00
8
00Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
37
Week
0000
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Item: CDescription: Seat subassembly
Lot Size: 230 unitsLead Time: 2 weeks
Grossrequirements 150150
1
230230
117117
00
2
00
00
3
00
120120
4
00
5
00
150150
6
00
120120
7
00
8
00Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
37
Week
0000
Projected on-handinventory balanceat end of week t
Inventory onhand at endof week t - 1
Grossrequirements
in week t
Scheduledor plannedreceipts in
week t
= +
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Item: CDescription: Seat subassembly
Lot Size: 230 unitsLead Time: 2 weeks
Grossrequirements 150150
1
230230
117117
00
2
00
00
3
00
120120
4
00
5
00
150150
6
00
120120
7
00
8
00Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
37
Week
0000
117117 117117 33 33 153153 273273 273273
Projected on-handinventory balanceat end of week t
Inventory onhand at endof week t - 1
Grossrequirements
in week t
Scheduledor plannedreceipts in
week t
= +
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Item: CDescription: Seat subassembly
Lot Size: 230 unitsLead Time: 2 weeks
Grossrequirements 150150
1
230230
117117
00
2
00
00
3
00
120120
4
00
5
00
150150
6
00
120120
7
00
8
00Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
37
Week
0000
117117 117117 33 33 153153 273273 273273
Explanation:
Without a new order in week 4,there will be a shortage of threeunits: 117 + 0 + 0 120 = 3units.
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Item: CDescription: Seat subassembly
Lot Size: 230 unitsLead Time: 2 weeks
Grossrequirements 150150
1
230230
117117
00
2
00
00
3
00
120120
4
00
5
00
150150
6
00
120120
7
00
8
00Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
37
Week
0000
117117 117117
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Item: CDescription: Seat subassembly
Lot Size: 230 unitsLead Time: 2 weeks
Grossrequirements 150150
1
230230
117117
00
2
00
00
3
00
120120
4
00
5
00
150150
6
00
120120
7
00
8
00Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
37
Week
0000
117117 117117 227227
230230
Explanation:Adding the planned receiptbrings the balance to117 + 0 + 230230 120 = 227 units.
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Item: CDescription: Seat subassembly
Lot Size: 230 unitsLead Time: 2 weeks
Grossrequirements 150150
1
230230
117117
00
2
00
00
3
00
120120
4
00
5
00
150150
6
00
120120
7
00
8
00Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
37
Week
0000
117117 117117 227227
230230
Explanation:Adding the planned receiptbrings the balance to117 + 0 + 230230 120 = 227 units.
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Item: CDescription: Seat subassembly
Lot Size: 230 unitsLead Time: 2 weeks
Grossrequirements 150150
1
230230
117117
00
2
00
00
3
00
120120
4
00
5
00
150150
6
00
120120
7
00
8
00Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
37
Week
0000
117117 117117 227227
230230
230230
Explanation:Offsetting for a two-week lead timeputs the corresponding plannedorder release back to week 2.
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Item: CDescription: Seat subassembly
Lot Size: 230 unitsLead Time: 2 weeks
Grossrequirements 150150
1
230230
117117
00
2
00
00
3
00
120120
4
00
5
00
150150
6
00
120120
7
00
8
00Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
37
Week
0000
117117 117117 227227
230230
230230
Explanation:Offsetting for a two-week lead timeputs the corresponding plannedorder release back to week 2.
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Item: CDescription: Seat subassembly
Lot Size: 230 unitsLead Time: 2 weeks
Grossrequirements 150150
1
230230
117117
00
2
00
00
3
00
120120
4
00
5
00
150150
6
00
120120
7
00
8
00Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
37
Week
0000
117117 117117 227227
230230
230230
227227 7777 4343
Explanation:The first planned order lastsuntil week 7, when projectedinventory would drop to 43.
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Item: CDescription: Seat subassembly
Lot Size: 230 unitsLead Time: 2 weeks
Grossrequirements 150150
1
230230
117117
00
2
00
00
3
00
120120
4
00
5
00
150150
6
00
120120
7
00
8
00Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
37
Week
0000
117117 117117 227227
230230
230230
227227 7777
230230
Explanation:Adding the second plannedreceipt brings the balance to77 + 0 + 230230 120 = 187.
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Item: CDescription: Seat subassembly
Lot Size: 230 unitsLead Time: 2 weeks
Grossrequirements 150150
1
230230
117117
00
2
00
00
3
00
120120
4
00
5
00
150150
6
00
120120
7
00
8
00Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
37
Week
0000
117117 117117 227227
230230
230230
227227 7777
230230
Explanation:Adding the second plannedreceipt brings the balance to77 + 0 + 230230 120 = 187.
187187
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Item: CDescription: Seat subassembly
Lot Size: 230 unitsLead Time: 2 weeks
Grossrequirements 150150
1
230230
117117
00
2
00
00
3
00
120120
4
00
5
00
150150
6
00
120120
7
00
8
00Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
37
Week
0000
117117 117117 227227
230230
230230
227227 7777
230230
187187
230230
Explanation:The corresponding plannedorder release is for week 5.
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Item: CDescription: Seat subassembly
Lot Size: 230 unitsLead Time: 2 weeks
Grossrequirements 150150
1
230230
117117
00
2
00
00
3
00
120120
4
00
5
00
150150
6
00
120120
7
00
8
00Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
37
Week
0000
117117 117117 227227
230230
230230
227227 7777
230230
187187
230230
187187
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Item: CDescription: Seat subassembly
Lot Size: P= 3Lead Time: 2 weeks
Grossrequirements
1 2 3 4 5 6 7 8
Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
Week
150150
230230
117117
120120 150150 120120
37 117117 117117
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Item: CDescription: Seat subassembly
Lot Size: P= 3Lead Time: 2 weeks
Gross
requirements 150150
1
230230
117117
2 3
120120
4 5
150150
6
120120
7 8
Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
37
Week
117117 117117
POQlot
size
Gross requirementsfor weeks4, 5, and 6
Inventory atend of week 3=
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Item: CDescription: Seat subassembly
Lot Size: P= 3Lead Time: 2 weeks
Gross
requirements 150150
1
230230
117117
2 3
120120
4 5
150150
6
120120
7 8
Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
37
Week
117117 117117
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Item: CDescription: Seat subassembly
Lot Size: P= 3Lead Time: 2 weeks
Gross
requirements 150150
1
230230
117117
2 3
120120
4 5
150150
6
120120
7 8
Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
37
Week
117117 117117
(120 + 0 + 150)
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Item: CDescription: Seat subassembly
Lot Size: P= 3Lead Time: 2 weeks
Gross
requirements 150150
1
230230
117117
2 3
120120
4 5
150150
6
120120
7 8
Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
37
Week
117117 117117
(120 + 0 + 150) 117
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Item: CDescription: Seat subassembly
Lot Size: P= 3Lead Time: 2 weeks
Gross
requirements 150150
1
230230
117117
2 3
120120
4 5
150150
6
120120
7 8
Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
37
Week
117117 117117
(120 + 0 + 150) 117 = 153 units
153153
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Item: CDescription: Seat subassembly
Lot Size: P= 3Lead Time: 2 weeks
Gross
requirements 150150
1
230230
117117
2 3
120120
4 5
150150
6
120120
7 8
Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
37
Week
117117 117117
(120 + 0 + 150) 117 = 153 units
153153
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Item: CDescription: Seat subassembly
Lot Size: P= 3Lead Time: 2 weeks
Gross
requirements 150150
1
230230
117117
2 3
120120
4 5
150150
6
120120
7 8
Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
37
Week
117117 117117
(120 + 0 + 150) 117 = 153 units
153153
150150
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Item: C
Description: Seat subassembly
Lot Size: P= 3
Lead Time: 2 weeks
Gross
requirements150150
1
230230
117117
2 3
120120
4 5
150150
6
120120
7 8
Scheduledreceipts
Projectedon-handinventory
Plannedreceipts
Planned orderreleases
37
Week
117117 117117
(120 + 0 + 150) 117 = 153 units
153153
150150
153153
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Item: CDescription: Seat subassembly
Lot Size: P= 3Lead Time: 2 weeks
Gross
requirements 150150
1
230230
117117
2 3
120120
4 5
150150
6
120120
7 8
Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
37
Week
117117 117117
(120 + 0) 0 = 120 units
153153
150150
153153
150150 00 00 00
120120
120120
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Item: CDescription: Seat subassembly Lot Size:P= 3Lead Time: 2 weeks
Gross
requirements 150150
1
230230
117117
2 3
120120
4 5
150150
6
120120
7 8
Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
37
Week
117117 117117
153153
150150
153153
150150 00 00 00
120120
120120
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Item: CDescription: Seat subassembly Lot Size: L4LLead Time: 2 weeks
Gross
requirements
1 2 3 4 5 6 7 8
Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
Week
150150
230230
117117
120120 150150 120120
37 117117 117117
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Item: CDescription: Seat subassembly Lot Size: L4LLead Time: 2 weeks
Gross
requirements 150150
1
230230
117117
2 3
120120
4 5
150150
6
120120
7 8
Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
37
Week
117117 117117
L4Llot
size
Gross requirementsin week 4
Inventory balanceat end of week 3=
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Item: CDescription: Seat subassembly Lot Size: L4LLead Time: 2 weeks
Gross
requirements 150150
1
230230
117117
2 3
120120
4 5
150150
6
120120
7 8
Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
37
Week
117117 117117
= 120 117 = 3L4Llot
size
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Item: CDescription: Seat subassembly Lot Size: L4LLead Time: 2 weeks
Gross
requirements 150150
1
230230
117117
2 3
120120
4 5
150150
6
120120
7 8
Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
37
Week
117117 117117
3
= 120 117 = 3L4Llot
size
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Item: CDescription: Seat subassembly Lot Size: L4LLead Time: 2 weeks
Gross
requirements 150150
1
230230
117117
2 3
120120
4 5
150150
6
120120
7 8
Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
37
Week
117117 117117
3
3
0
= 120 117 = 3L4Llot
size
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Item: CDescription: Seat subassembly Lot Size: L4LLead Time: 2 weeks
Gross
requirements 150150
1
230230
117117
2 3
120120
4 5
150150
6
120120
7 8
Scheduledreceipts
Projectedon-hand
inventory
Plannedreceipts
Planned orderreleases
37
Week
117117 117117
3
3
0 00
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Item: CDescription: Seat subassembly Lot Size: L4LLead Time: 2 weeks
Gross
requirements 150150
1
230230
117117
2 3
120120
4 5
150150
6
120120
7 8
Scheduledreceipts
Projectedon-hand
inventoryPlannedreceipts
Planned orderreleases
37
Week
117117 117117
3
3
0
150
00
150
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Item: CDescription: Seat subassembly Lot Size: L4LLead Time: 2 weeks
Gross
requirements 150150
1
230230
117117
2 3
120120
4 5
150150
6
120120
7 8
Scheduledreceipts
Projectedon-hand
inventoryPlannedreceipts
Planned orderreleases
37
Week
117117 117117
3
3
0
150
00
150
0
120
120
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Item: CDescription: Seat subassembly Lot Size: L4LLead Time: 2 weeks
Gross
requirements 150150
1
230230
117117
2 3
120120
4 5
150150
6
120120
7 8
Scheduledreceipts
Projectedon-hand
inventoryPlannedreceipts
Planned orderreleases
37
Week
117117 117117
3
3
0
150
00
150
0
120
120
0
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The FOQ rule generates high averageThe FOQ rule generates high averageinventory because it creates remnants.inventory because it creates remnants.
The POQ rule reducesThe POQ rule reduces
average on-hand inventoryaverage on-hand inventory
because it does a betterbecause it does a better
job of matching orderjob of matching order
quantity to requirements.quantity to requirements. The L4L rule minimizesThe L4L rule minimizes
inventory investmentinventory investment
but maximizes the number of orders placed.but maximizes the number of orders placed.
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Material requirements plan
Action notices Releasing new orders Adjusting due dates
Priority reports Dispatch lists Supplier schedules
Capacity reports Capacity requirements planning Finite capacity scheduling Input-output control
Manufacturing resources plan
Performance reportsCost andprice data
Routingsand time
standards
MRPMRPexplosionexplosion
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J (4)Seat-frame
boards
H (1)Seat
frame
I (1)Seat
cushion
C (1)Seatsubassembly
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Item: Seat subassemblyLot size: 230 units
Leadtime: 2 weeks
Gross
requirements 150150
1
230230
117117
2 3
120120
4 5
150150
6
120120
7 8
Scheduledreceipts
Projectedon-hand
inventoryPlannedreceipts
Planned orderreleases
37
Week
117117 117117
0 00 0
00 00 000 00 0
227 227 77 187 187
230230
230230
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Item: Seat subassemblyLot size: 230 units
Leadtime: 2 weeks
Grossrequirements
150150
1 2 3
120120
4 5
150150
6
120120
7 8
Plannedreceipts
Plannedorderreleases
Week
0 00 0
230
230
230
230
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Item: Seat subassemblyLot size: 230 units
Leadtime: 2 weeks
Grossrequirements
150150
1 2 3
120120
4 5
150150
6
120120
7 8
Plannedreceipts
Plannedorderreleases
Week
0 00 0
230
230
230
230
Item: Seat framesLot size: 300 units
Leadtime: 1 week
Grossrequirements
1
00
2 3 4 5 6 7 8
Scheduled
receipts
Projectedon-handinventory
Plannedreceipts
Plannedorderreleases
40
Week
00
00
00300 00 0
Item: Seat cushionLot size: L4L
Leadtime: 1 week
Grossrequirements
1
00
2 3 4 5 6 7 8
Scheduled
receipts
Projectedon-handinventory
Plannedreceipts
Plannedorderreleases
0
Week
00
00
000 00 0
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Item: Seat subassemblyLot size: 230 units
Leadtime: 2 weeks
Grossrequirements 150150
1 2 3
120120
4 5
150150
6
120120
7 8
Plannedreceipts
Plannedorderreleases
Week
0 00 0
230
230
230
230
Item: Seat framesLot size: 300 units
Leadtime: 1 week
Grossrequirements
0
1
0
2 3 4 5 6 7 8
Scheduled
receipts
Projectedon-handinventory
Plannedreceipts
Plannedorderreleases
40
Week
230
0 0 0300 00 0
Item: Seat cushionLot size: L4L
Leadtime: 1 week
Grossrequirements
0
1
0
2 3 4 5 6 7 8
Scheduled
receipts
Projectedon-handinventory
Plannedreceipts
Plannedorderreleases
0
Week
230
0 0 00 00 0
Usage quantity: 1Usage quantity: 1 Usage quantity: 1Usage quantity: 1
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Item: Seat subassemblyLot size: 230 units
Leadtime: 2 weeks
Grossrequirements 150150
1 2 3
120120
4 5
150150
6
120120
7 8
Plannedreceipts
Plannedorderreleases
Week
0 00 0
230
230
230
230
Item: Seat framesLot size: 300 units
Leadtime: 1 week
Grossrequirements
00
1
00
2 3
00
4 5 6 7 8
Scheduled
receipts
Projectedon-handinventory
Plannedreceipts
Plannedorderreleases
40
Week
230 2300
00 00 00300 00 0
Item: Seat cushionLot size: L4L
Leadtime: 1 week
Grossrequirements
00
1
00
2 3
00
4 5 6 7 8
Scheduled
receipts
Projectedon-handinventory
Plannedreceipts
Plannedorderreleases
0
Week
230 2300
00 00 000 00 0
Usage quantity: 1Usage quantity: 1 Usage quantity: 1Usage quantity: 1
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Item: Seat subassemblyLot size: 230 units
Leadtime: 2 weeks
Grossrequirements 150150
1 2 3
120120
4 5
150150
6
120120
7 8
Plannedreceipts
Plannedorderreleases
Week
0 00 0
230
230
230
230
Item: Seat framesLot size: 300 units
Leadtime: 1 week
Grossrequirements
00
1
00
4040
2 3
00
4 5
00
6
00
7 8
Scheduled
receipts
Projectedon-handinventory
Plannedreceipts
Plannedorderreleases
40
Week
110110 110110
230 2300 0
00 00 00300 00 0
110 180 180 180 180
300
300
Item: Seat cushionLot size: L4L
Leadtime: 1 week
Grossrequirements
00
1
00
00
2 3
00
4 5
00
6
00
7 8
Scheduled
receipts
Projectedon-handinventory
Plannedreceipts
Plannedorderreleases
0
Week
00 00
230 2300 0
00 00 000 00 0
0 0 0 0 0
230
230
230
230
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Item: Seat framesLot size: 300 units
Leadtime: 1 week
Grossrequirements
1 2 3 4 5 6 7 8
Plannedreceipts
Plannedorderreleases
Week
300
300
Item: Seat cushionLot size: L4L
Leadtime: 1 week
Grossrequirements
1 2 3 4 5 6 7 8
Plannedreceipts
Plannedorderreleases
Week
230
230
230
230
00 00 00 00230 2300 000 00 00 00230 2300 0
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Item: Seat framesLot size: 300 units
Leadtime: 1 week
Grossrequirements
1 2 3 4 5 6 7 8
Plannedreceipts
Plannedorderreleases
Week
300
300
Item: Seat cushionLot size: L4L
Leadtime: 1 week
Grossrequirements
1 2 3 4 5 6 7 8
Plannedreceipts
Plannedorderreleases
Week
230
230
230
230
00 00 00 00230 2300 000 00 00 00230 2300 0
Grossrequirements
1
00
2 3 4 5 6 7 8
Scheduled
receipts
Plannedreceipts
Plannedorderreleases
200
Week
00 00 000 00 0
Projectedon-handinventory
Item: Seat-frame boardsLot size: 1500 units
Leadtime: 1 week
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Item: Seat framesLot size: 300 units
Leadtime: 1 week
Grossrequirements
1 2 3 4 5 6 7 8
Plannedreceipts
Plannedorderreleases
Week
300
300
Item: Seat cushionLot size: L4L
Leadtime: 1 week
Grossrequirements
1 2 3 4 5 6 7 8
Plannedreceipts
Plannedorderreleases
Week
230
230
230
230
00 00 00 00230 2300 000 00 00 00230 2300 0
Grossrequirements
00
1
00
2 3
12001200
4 5
00
6
00
7 8
Scheduled
receipts
Plannedreceipts
Plannedorderreleases
200
Week
0 00 0
00 00 000 00 0
Projectedon-handinventory
Item: Seat-frame boardsLot size: 1500 units
Leadtime: 1 week
Usage quantity: 4Usage quantity: 4
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Item: Seat framesLot size: 300 units
Leadtime: 1 week
Grossrequirements
1 2 3 4 5 6 7 8
Plannedreceipts
Plannedorderreleases
Week
300
300
Item: Seat cushionLot size: L4L
Leadtime: 1 week
Grossrequirements
1 2 3 4 5 6 7 8
Plannedreceipts
Plannedorderreleases
Week
230
230
230
230
00 00 00 00230 2300 000 00 00 00230 2300 0
Grossrequirements
00
1
00
200200
2 3
12001200
4 5
00
6
00
7 8
Scheduled
receipts
Plannedreceipts
Plannedorderreleases
200
Week
200200 200200
0 00 0
00 00 000 00 0
500 500 500 500 500
1500
1500
Projectedon-handinventory
Item: Seat-frame boardsLot size: 1500 units
Leadtime: 1 week
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Authorizedproduction
plan
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Authorizedproduction
plan
Prospective masterproduction
schedule
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Are resourcesavailable?
Authorizedproduction
plan
Prospective masterproduction
schedule
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NoNoAre resources
available?
Authorizedproduction
plan
Prospective masterproduction
schedule
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No
YesYes
Are resourcesavailable?
Authorizedproduction
plan
Prospective masterproduction
schedule
Authorized master
production schedule
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NoNo
YesYes
Are resourcesavailable?
Authorizedproduction
plan
Prospective masterproduction
schedule
Materialrequirements
planning
Authorized master
production schedule
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MPS quantityMPS quantity
(0 for week 1)(0 for week 1)Inventory =Inventory = + =+ =
55 chairs55 chairs
currently incurrently in
stockstock
38 chairs already38 chairs already
promised forpromised for
delivery in week 1delivery in week 1
1717
chairschairs
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MPS quantity(0 for week 1)
Inventory = + =55 chairs
currently instock
38 chairs alreadypromised for
delivery in week 1
17chairs
Item: Ladder-back chair
MPS start
MPS quantity
Projected on-handInventory
Customer orders(booked)
Forecast
QuantityOn Hand:
April
55 1 2
30 30
38 27
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MPS quantity(0 for week 1)
Inventory = + =55 chairs
currently instock
38 chairs alreadypromised for
delivery in week 1
17chairs
Explanation:Forecast is less than bookedorders in week 1; projectedon-hand inventorybalance = 55 + 0 38 = 17.
Item: Ladder-back chair
MPS start
MPS quantity
Projected on-handInventory
Customer orders(booked)
Forecast
QuantityOn Hand:
April
55 1 2
30 30
38 27
17
0
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MPS quantity(0 for week 1)
Inventory = + =55 chairs
currently instock
38 chairs alreadypromised for
delivery in week 1
17chairs
Explanation:Forecast exceeds booked orders inweek 2; projected on-hand inventorybalance = 17 + 0 30 = 13. Theshortage signals a need to schedule anMPS quantity for completion in week 2.
Explanation:Forecast is less than bookedorders in week 1; projectedon-hand inventorybalance = 55 + 0 38 = 17.
Item: Ladder-back chair
MPS start
MPS quantity
Projected on-handInventory
Customer orders(booked)
Forecast
QuantityOn Hand:
April
55 1 2
30 30
38 27
17 -13
0 0
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Item: Ladder-back chair Order Policy: 150 unitsLead Time: 1 week
Forecast
1
3838
3030
2
2727
3030
3
2424
3030
4
88
5
00
3535
6
00
3535
7
00
8
00
Customerorders(booked)
Projectedon-handinventory
MPS quantity
MPS start
35353535
April May
3030
Quantityon Hand:
55
17
0
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Item: Ladder-back chair Order Policy: 150 unitsLead Time: 1 week
Forecast
1
3838
3030
2
2727
3030
3
2424
3030
4
88
5
00
3535
6
00
3535
7
00
8
00
Customerorders(booked)
Projectedon-handinventory
MPS quantity
MPS start
35353535
April May
3030
Quantityon Hand:
55
17
0
137137
150
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Item: Ladder-back chair Order Policy: 150 unitsLead Time: 1 week
Forecast
1
3838
3030
2
2727
3030
3
2424
3030
4
88
5
00
3535
6
00
3535
7
00
8
00
Customerorders(booked)
Projectedon-handinventory
MPS quantity
MPS start
35353535
April May
3030
Quantityon Hand:
55
17
0
137137
150
Explanation:
On-hand inventory balance= 17 + 150 30 = 137137. TheMPS quantity is needed toavoid a shortage of 30 17 = 13chairs in week 2.
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Item: Ladder-back chairOrder Policy: 150 unitsLead Time: 1 week
Forecast
1
3838
3030
2
2727
3030
3
2424
3030
4
88
5
00
3535
6
00
3535
7
00
8
00
Customerorders(booked)
Projectedon-handinventory
MPS quantity
MPS start
35353535
April May
3030
Quantityon Hand:
55
17
0
137137
150
Explanation:The time needed to assemble
150150 chairs is one week. Theassembly department muststart assembling chairs in week1 to have them ready by week 2.
150
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Item: Ladder-back chairOrder Policy: 150 unitsLead Time: 1 week
Forecast
1
3838
3030
2
2727
3030
3
2424
3030
4
88
5
00
3535
6
00
3535
7
00
8
00
Customerorders(booked)
Projectedon-handinventory
MPS quantity
MPS start
35353535
April May
3030
Quantityon Hand:
55
17 137 107
0 150 0
150 0
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Item: Ladder-back chairOrder Policy: 150 unitsLead Time: 1 week
Forecast
1
3838
3030
2
2727
3030
3
2424
3030
4
88
5
00
3535
6
00
3535
7
00
8
00
Customerorders(booked)
Projectedon-handinventory
MPS quantity
MPS start
35353535
April May
3030
Quantityon Hand:
55
17 137 107 77
0 150 0 0
150 0 0
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Item: Ladder-back chairOrder Policy: 150 unitsLead Time: 1 week
Forecast
1
3838
3030
2
2727
3030
3
2424
3030
4
88
5
00
3535
6
00
3535
7
00
8
00
Customerorders(booked)
Projectedon-handinventory
MPS quantity
MPS start
35353535
April May
3030
Quantityon Hand:
55
17 137 107 77 42
0 150 0 00
150 0 00
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Item: Ladder-back chairOrder Policy: 150 unitsLead Time: 1 week
Forecast
1
3838
3030
2
2727
3030
3
2424
3030
4
88
5
00
3535
6
00
3535
7
00
8
00
Customerorders(booked)
Projectedon-handinventory
MPS quantity
MPS start
35353535
April May
3030
Quantityon Hand:
55
17 137 107 77 42 7
0 150 0 00 0
150 0 00 0
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Item: Ladder-back chairOrder Policy: 150 unitsLead Time: 1 week
Forecast
1
3838
3030
2
2727
3030
3
2424
3030
4
88
5
00
3535
6
00
3535
7
00
8
00
Customerorders(booked)
Projectedon-handinventory
MPS quantity
MPS start
35353535
April May
3030
Quantityon Hand:
55
17 137 107 77 42 7 122
0 150 1500 00 0
150 1500 00 0
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Item: Ladder-back chairOrder Policy: 150 unitsLead Time: 1 week
Forecast
1
3838
3030
2
2727
3030
3
2424
3030
4
88
5
00
3535
6
00
3535
7
00
8
00
Customerorders(booked)
Projectedon-handinventory
MPS quantity
MPS start
35353535
April May
3030
Quantityon Hand:
55
17 137 107 77 42 7 122 87
0 150 1500 00 0 0
150 1500 00 0 0 0
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Item: Ladder-back chairOrder Policy: 150 units
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Item: Ladder-back chairLead Time: 1 week
Forecast
1
3838
3030
2
2727
3030
3
2424
3030
4
88
5
00
3535
6
00
3535
7
00
8
00
Customerorders
(booked)Projectedon-handinventory
MPS quantity
MPS start
35353535
April May
3030
Quantity
on Hand: 55
17 137 107 77 42 7 122 87
0 150 1500 00 0 0
150 1500 00 0 0
Available-to-promise (ATP)inventory
0
Item: Ladder-back chairOrder Policy: 150 units
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Item: Ladder back chairLead Time: 1 week
Forecast
1
3838
3030
2
2727
3030
3
2424
3030
4
88
5
00
3535
6
00
3535
7
00
8
00
Customerorders
(booked)Projectedon-handinventory
MPS quantity
MPS start
35353535
April May
3030
Quantity
on Hand: 55
17 137 107 77 42 7 122 87
0 150 1500 00 0 0
150 1500 00 0 0
Available-to-promise (ATP)inventory
1717
0
Explanation:The total of customer ordersbooked until the next MPS
receipt is 38 units. The ATP =55 (on-hand) + 0 (MPSquantity) 38 = 1717.
Item: Ladder-back chairOrder Policy: 150 unitsL d Ti 1 k
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Item: Ladder back chairLead Time: 1 week
Forecast
1
3838
3030
2
2727
3030
3
2424
3030
4
88
5
00
3535
6
00
3535
7
00
8
00
Customerorders
(booked)Projectedon-handinventory
MPS quantity
MPS start
35353535
April May
3030
Quantity
on Hand: 55
17 137 107 77 42 7 122 87
0 150 1500 00 0 0
150 1500 00 0 0
Available-to-promise (ATP)inventory
1717 9191
0
Explanation:The total of customer orders
booked until the next MPSreceipt is 27 + 24 + 8 = 59units. The ATP = 150 (MPSquantity) 59 = 9191units.
Item: Ladder-back chairOrder Policy: 150 unitsL d Ti 1 k
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Item: Ladder back chairLead Time: 1 week
Forecast
1
3838
3030
2
2727
3030
3
2424
3030
4
88
5
00
3535
6
00
3535
7
00
8
00
Customerorders
(booked)Projectedon-handinventory
MPS quantity
MPS start
35353535
April May
3030
Quantity
on Hand: 55
17 137 107 77 42 7 122 87
0 150 1500 00 0 0
150 1500 00 0 0
Available-to-promise (ATP)inventory
1717 9191 150
0
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Week
1 2 3 4 5 6 7 8 9 10
0 150 0 0 0 0 150 0 0 0MPSquantity
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WeekWeek
1 2 3 4 5 6 7 8 9 10
0 150 0 0 0 0 150 0 0 0MPSquantity
DemandDemandtimetime
fencefence
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Item: AOrder Policy: 50 unitsLead Time: 1 week
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Lead Time: 1 week
Forecast
Customerorders
(booked)Projectedon-handinventory
MPS quantity
MPS start
WeekQuantity
on Hand: 5
Available-to-promise (ATP)inventory
1
3030
1010
2
2020
4040
3
55
1010
4
88
5
00
00
6
22
4040
7
00
8
00
2020002020
25
50
3030
7
00
8
00
1010
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Manufacturing resource planCost and
financial data
Purchasingreports
Financial/accounting
reports
Sales andmarketing
reports
Humanresourcereports
Manufacturingreports
Inventory recordsInventory transactions
Bills of materialsRoutings
Time standards
MRPMRP
explosionexplosion
Master production schedule
Customer orders Forecasts
Material requirements plan
ProductionProduction
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PlanPlanTru-RainbowTru-Rainbow
CompanyCompany
15001500
12501250
10001000
750750
500500
250250
00
| | | |
11 22 33 44QuarterQuarter
Pai
nt(t
housandsof
gallons)
Paint(t
housandsof
gallons)
RequirementsRequirements
ProductionProduction
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PlanPlanTru-RainbowTru-Rainbow
CompanyCompany
15001500
12501250
10001000
750750
500500
250250
00
| | | |
11 22 33 44QuarterQuarter
Pai
nt(t
housandsof
gallons)
Paint(t
housandsof
gallons)
Production planProduction plan
RequirementsRequirements
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ProductionProductionI tInventory
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PlanPlanTru-RainbowTru-Rainbow
CompanyCompany
110110
400400
15001500
12501250
10001000
750750
500500
250250
00
| | | |
11 22 33 44QuarterQuarter
Pai
nt(t
housandsof
gallons)
Paint(t
housandsof
gallons)
510510
300300
InventoryInventoryconsumptionconsumption
Production planProduction plan
RequirementsRequirements
InventoryInventory
accumulationaccumulation
ProductionProductionInventoryInventory
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PlanPlanTru-RainbowTru-Rainbow
CompanyCompany
110110
400400
15001500
12501250
10001000
750750
500500
250250
00
| | | |
11 22 33 44QuarterQuarter
Paint(t
housandsof
gallons)
Paint(t
housandsof
gallons)
510510
300300
InventoryInventoryconsumptionconsumption
Production planProduction plan
RequirementsRequirements
InventoryInventory
accumulationaccumulation
ProductionProduction
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PlanningPlanning
TableauTableauTru-RainbowTru-Rainbow
CompanyCompany
ProductionProduction
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PlanningPlanning
TableauTableauTru-RainbowTru-Rainbow
CompanyCompany Total Cost
Quarter Cost
ProductionProduction
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PlanningPlanning
TableauTableauTru-RainbowTru-Rainbow
CompanyCompany Total Cost
Quarter Cost
1 250($0) + 30($1.00) + 20($1.90) = $68
ProductionProduction
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PlanningPlanning
TableauTableauTru-RainbowTru-Rainbow
CompanyCompany Total Cost
Quarter Cost
1 250($0) + 30($1.00) + 20($1.90) = $682 420($1.30) + 90($1.80) + 340($1.00) = 1,048
ProductionProduction
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PlanningPlanning
TableauTableauTru-RainbowTru-Rainbow
CompanyCompany Total Cost
Quarter Cost
1 250($0) + 30($1.00) + 20($1.90) = $682 420($1.30) + 90($1.80) + 340($1.00) = 1,0483 110($1.30) + 90($1.80) + 200($2.20)
+ 750($1.00) + 150($1.50) = 2,100
ProductionProduction
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PlanningPlanning
TableauTableauTru-RainbowTru-Rainbow
CompanyCompany Total Cost
Quarter Cost
1 250($0) + 30($1.00) + 20($1.90) = $682 420($1.30) + 90($1.80) + 340($1.00) = 1,0483 110($1.30) + 90($1.80) + 200($2.20)
+ 750($1.00) + 150($1.50) = 2,1004 450($1.00) + 90($1.50) + 110($1.90) = 794
Total $4,010
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1 450 90 20 5602 450 90 200 7403 750 150 200 1,1004 450 90 110 650
Totals 2,100 420 530 3,050
Regular-Time Overtime Subcon-Quarter Production Production tracting Total
Anticipation Inventory
Quarter Quantity
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1 450 90 20 5602 450 90 200 7403 750 150 200 1,1004 450 90 110 650
Totals 2,100 420 530 3,050
Regular-Time Overtime Subcon-Quarter Production Production tracting Total
Anticipation Inventory
Quarter Quantity
1 250 + 560 300 = 510
2 510 + 740 850 = 4003 400 + 1,100 1,500 = 04 0 + 650 350 = 300
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Topic 4
Alternatives Quarter
12
34
TotalCapacity
Unuse
dCapacit
y
Requirements
Quarter
Subcontract
Overtime
Regulartime
Subcontract
Overtime
Regulartime
Subcontract
Overtime
Regulartime
Subcontract
Overtime
Regulartime
Beginning
inventory1
2
3
4
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By the end of this topic, you should beable to: Discuss the aggregate planning
strategies; Describe some of the methods used in
aggregate planning;
Identify assignment method, sequencingrules and Johnsons rule; and
Explain shop loading, sequencingmonitoring.
147
Planning RelationshipsPlanning Relationships
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g pg p
BusinessBusinessor annualor annual
planplan
Planning RelationshipsPlanning Relationships
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g pg p
BusinessBusinessor annualor annual
planplan
ProductionProductionor staffingor staffingplanplan
Planning RelationshipsPlanning Relationships
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g pg p
MPS orMPS orworkforceworkforcescheduleschedule
BusinessBusinessor annualor annual
planplan
ProductionProductionor staffingor staffingplanplan
Planning RelationshipsPlanning Relationships
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g pg p
MPS orMPS orworkforceworkforcescheduleschedule
BusinessBusinessor annualor annual
planplan
ProductionProductionor staffingor staffingplanplan
Planning RelationshipsPlanning Relationships
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g pg p
MPS orMPS orworkforceworkforcescheduleschedule
BusinessBusinessor annualor annual
planplan
ProductionProductionor staffingor staffingplanplan
Managerial InputsManagerial Inputs
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Aggregate
plan
Managerial InputsManagerial Inputs
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Aggregate
plan
Customer needs
Demand forecasts
Competition behavior
Distribution and marketing
Managerial InputsManagerial Inputs
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Cost data
Financial condition
of firm
Accounting and finance
Aggregate
plan
Customer needs
Demand forecasts
Competition behavior
Distribution and marketing
Managerial InputsManagerial Inputs
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Labor-market conditions
Training capacity
Human resources
Cost data
Financial condition
of firm
Accounting and finance
Aggregate
plan
Customer needs
Demand forecasts
Competition behavior
Distribution and marketing
Managerial InputsManagerial Inputs
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New products
Product design changes
Machine standards
Engineering
Labor-market conditions
Training capacity
Human resources
Cost data
Financial condition
of firm
Accounting and finance
Aggregate
plan
Customer needsDemand forecasts
Competition behavior
Distribution and marketing
Managerial InputsManagerial Inputs
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Supplier capabilities
Storage capacity
Materials availability
Materials
New products
Product design changes
Machine standards
Engineering
Labor-market conditions
Training capacity
Human resources
Cost data
Financial condition
of firm
Accounting and finance
Aggregate
plan
Customer needsDemand forecasts
Competition behavior
Distribution and marketing
Managerial InputsManagerial Inputs
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Supplier capabilities
Storage capacity
Materials availability
Materials
Current machine capacitiesPlans for future capacities
Workforce capacitiesCurrent staffing level
Operations
New products
Product design changes
Machine standards
Engineering
Labor-market conditions
Training capacity
Human resources
Cost data
Financial condition
of firm
Accounting and finance
Aggregate
plan
Customer needsDemand forecasts
Competition behavior
Distribution and marketing
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Minimize Costs/Maximize ProfitsMinimize Costs/Maximize Profits
Maximize Customer ServiceMaximize Customer Service
Minimize Inventory InvestmentMinimize Inventory Investment Minimize Changes in ProductionMinimize Changes in Production
RatesRates
Minimize Changes in WorkforceMinimize Changes in WorkforceLevelsLevels
Maximize Utilization of Plant andMaximize Utilization of Plant and
EquipmentEquipment 160
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TABLE 14.1 PLANNING STRATEGIES FOR AGGREGATE PLANS
Possible Alternatives Possible AlternativesStrategy during Slack Season during Peak Season
4. Level #2: constant Layoffs, building antici- Hiring, depleting antici-outputrate pation inventory, pation inventory, over-
undertime, vacations time, subcontracting,backorders, stockouts
1. Chase #1: vary workforce Layoffs Hiringlevel to match demand
2. Chase #2: vary output Layoffs, undertime, Hiring, overtime,rateto match demand vacations subcontracting
3. Level #1: constant No layoffs, building No hiring, depletingworkforcelevel anticipation inventory, anticipation inventory,
undertime, vacations overtime, subcontracting,backorders, stockouts
Aggregate Planning ProcessAggregate Planning Process
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gg g ggg g g
Determinerequirements forplanning horizon
Aggregate Planning ProcessAggregate Planning Process
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gg g ggg g g
Determinerequirements forplanning horizon
Identify alternatives,constraints, and costs
Aggregate Planning ProcessAggregate Planning Process
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gg g ggg g g
Determinerequirements forplanning horizon
Identify alternatives,constraints, and costs
Prepare prospectiveplan for
planning horizon
Aggregate Planning ProcessAggregate Planning Process
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gg g ggg g g
Determinerequirements forplanning horizon
Identify alternatives,constraints, and costs
Prepare prospectiveplan for
planning horizon
Is the planacceptable?
Aggregate Planning ProcessAggregate Planning Process
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gg g g
Determinerequirements forplanning horizon
Identify alternatives,constraints, and costs
Prepare prospectiveplan for
planning horizon
Is the planacceptable?
NoNo
Aggregate Planning ProcessAggregate Planning Process
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gg g g
Determinerequirements forplanning horizon
Identify alternatives,constraints, and costs
Prepare prospectiveplan for
planning horizon
Implement andupdate the plan
Is the planacceptable?
NoNo
YesYes
Aggregate Planning ProcessAggregate Planning Process
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gg g g
Determinerequirements forplanning horizon
Identify alternatives,constraints, and costs
Prepare prospectiveplan for
planning horizon
Move aheadto next
planning session
Implement andupdate the plan
Is the planacceptable?
NoNo
YesYes
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Regular-Time CostsRegular-Time Costs
Overtime CostsOvertime Costs
Hiring andHiring and
Layoff CostsLayoff Costs
InventoryInventory
Holding CostsHolding Costs Backorder and Stockout CostsBackorder and Stockout Costs
169
Dock Aisle
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170
DockDock AisleAisle
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TIME PERIODTIME PERIOD
11 22 33 44 55 66 TotalTotal
Requirement*Requirement* 66 1212 1818 1515 1313 1414 7878
Current employment = 10 part-time clerksCurrent employment = 10 part-time clerks * Number of part-time employees* Number of part-time employees
171
DockDock AisleAisle
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TIME PERIODTIME PERIOD
11 22 33 44 55 66 TotalTotal
Requirement*Requirement* 66 1212 1818 1515 1313 1414 7878
Current employment = 10 part-time clerksCurrent employment = 10 part-time clerks
1.1. No more than 10 new hires in any periodNo more than 10 new hires in any period
2.2. No backorders are permittedNo backorders are permitted
3.3. Overtime can not exceed 20% of regular-time capacityOvertime can not exceed 20% of regular-time capacity
4.4. The following costs can be assigned:The following costs can be assigned:
Regular-time wageRegular-time wage $2,000/period at 20 hours/week$2,000/period at 20 hours/weekOvertime wagesOvertime wages 150% of regular-time150% of regular-time
HiringHiring $1,000/person$1,000/person
LayoffsLayoffs $500/person$500/person
* Number of part-time employees* Number of part-time employees
172
Dock Aisle
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TIME PERIODTIME PERIOD
11 22 33 44 55 66 TotalTotal
Requirement*Requirement* 66 1212 1818 1515 1313 1414 7878
Current employment = 10 part-time clerksCurrent employment = 10 part-time clerks
1.1. No more than 10 new hires in any periodNo more than 10 new hires in any period
2.2. No backorders are permittedNo backorders are permitted
3.3. Overtime can not exceed 20% of regular-time capacityOvertime can not exceed 20% of regular-time capacity
4.4. The following costs can be assigned:The following costs can be assigned:
Regular-time wageRegular-time wage $2,000/period at 20 hours/week$2,000/period at 20 hours/weekOvertime wagesOvertime wages 150% of regular-time150% of regular-time
HiringHiring $1,000/person$1,000/person
LayoffsLayoffs $500/person$500/person
Peak Requirement
173
Dock Aisle
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TIME PERIODTIME PERIOD
11 22 33 44 55 66 TotalTotal
Requirement*Requirement* 66 1212 1818 1515 1313 1414 7878
Current employment = 10 part-time clerksCurrent employment = 10 part-time clerks
1.1. No more than 10 new hires in any periodNo more than 10 new hires in any period
2.2. No backorders are permittedNo backorders are permitted
3.3. Overtime can not exceed 20% of regular-time capacityOvertime can not exceed 20% of regular-time capacity
4.4. The following costs can be assigned:The following costs can be assigned:
Regular-time wageRegular-time wage $2,000/period at 20 hours/week$2,000/period at 20 hours/weekOvertime wagesOvertime wages 150% of regular-time150% of regular-time
HiringHiring $1,000/person$1,000/person
LayoffsLayoffs $500/person$500/person
Peak Requirement
1.20w= 18 employees in peak period
174
Dock Aisle
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TIME PERIODTIME PERIOD
11 22 33 44 55 66 TotalTotal
Requirement*Requirement* 66 1212 1818 1515 1313 1414 7878
Current employment = 10 part-time clerksCurrent employment = 10 part-time clerks
1.1. No more than 10 new hires in any periodNo more than 10 new hires in any period
2.2. No backorders are permittedNo backorders are permitted
3.3. Overtime can not exceed 20% of regular-time capacityOvertime can not exceed 20% of regular-time capacity
4.4. The following costs can be assigned:The following costs can be assigned:
Regular-time wageRegular-time wage $2,000/period at 20 hours/week$2,000/period at 20 hours/weekOvertime wagesOvertime wages 150% of regular-time150% of regular-time
HiringHiring $1,000/person$1,000/person
LayoffsLayoffs $500/person$500/person
Peak Requirement
1.20w= 18 employees in peak period
w
= = 15 employees
18
1.20
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Dock Aisle
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TIME PERIODTIME PERIOD
11 22 33 44 55 66 TotalTotal
Requirement*Requirement* 66 1212 1818 1515 1313 1414 7878
Current employment = 10 part-time clerksCurrent employment = 10 part-time clerks
1.1. No more than 10 new hires in any periodNo more than 10 new hires in any period
2.2. No backorders are permittedNo backorders are permitted
3.3. Overtime can not exceed 20% of regular-time capacityOvertime can not exceed 20% of regular-time capacity
4.4. The following costs can be assigned:The following costs can be assigned:
Regular-time wageRegular-time wage $2,000/period at 20 hours/week$2,000/period at 20 hours/weekOvertime wagesOvertime wages 150% of regular-time150% of regular-time
HiringHiring $1,000/person$1,000/person
LayoffsLayoffs $500/person$500/person
Peak Requirement
1.20w= 18 employees in peak period
w
= = 15 employees
18
1.20
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Scheduling ServicesScheduling Services
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DayDay MM TT WW ThTh FF SS SuSu
Number of employeesNumber of employees 66 44 88 99 10*10* 33 22
Required employeesRequired employees
178
Scheduling ServicesScheduling Services
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DayDay MM TT WW ThTh FF SS SuSu
Number of employeesNumber of employees 66 44 88 99 10*10* 33 22
EmployeeEmployee 11
Required employeesRequired employees
179
Scheduling ServicesScheduling Services
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DayDay MM TT WW ThTh FF SS SuSu
Number of employeesNumber of employees 66 44 88 99 10*10* 33 22
EmployeeEmployee 11 XX XX XX XX XX
Required employeesRequired employees
180
Scheduling ServicesScheduling Services
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DayDay MM TT WW ThTh FF SS SuSu
Number of employeesNumber of employees 66 44 88 99 10*10* 33 22
EmployeeEmployee 11 XX XX XX XX XX
RequirementRequirement 55 33 77 88 9*9* 33 22
Required employeesRequired employees
181
Scheduling ServicesScheduling Services
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DayDay MM TT WW ThTh FF SS SuSu
Number of employeesNumber of employees 66 44 88 99 10*10* 33 22
EmployeeEmployee 11 XX XX XX XX XX
RequirementRequirement 55 33 77 88 9*9* 33 22EmployeeEmployee 22 XX XX XX XX XX
Required employeesRequired employees
182
Scheduling ServicesScheduling Services
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DayDay MM TT WW ThTh FF SS SuSu
Number of employeesNumber of employees 66 44 88 99 10*10* 33 22
EmployeeEmployee 11 XX XX XX XX XX
RequirementRequirement 55 33 77 88 9*9* 33 22EmployeeEmployee 22 XX XX XX XX XX
RequirementRequirement 44 22 66 77 8*8* 33 22
Required employeesRequired employees
183
Scheduling ServicesScheduling Services
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DayDay MM TT WW ThTh FF SS SuSu
Number of employeesNumber of employees 66 44 88 99 10*10* 33 22
EmployeeEmployee 11 XX XX XX XX XX
RequirementRequirement 55 33 77 88 9*9* 33 22EmployeeEmployee 22 XX XX XX XX XX
RequirementRequirement 44 22 66 77 8*8* 33 22
EmployeeEmployee 33 XX XX XX XX XX
Required employeesRequired employees
184
Scheduling ServicesScheduling Services
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DayDay MM TT WW ThTh FF SS SuSu
Number of employeesNumber of employees 66 44 88 99 10*10* 33 22
EmployeeEmployee 11 XX XX XX XX XX
RequirementRequirement 55 33 77 88 9*9* 33 22EmployeeEmployee 22 XX XX XX XX XX
RequirementRequirement 44 22 66 77 8*8* 33 22
EmployeeEmployee 33 XX XX XX XX XX
RequirementRequirement 33 11 55 66 7*7* 33 22
Required employeesRequired employees
185
Scheduling ServicesScheduling Services
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DayDay MM TT WW ThTh FF SS SuSu
Number of employeesNumber of employees 66 44 88 99 10*10* 33 22
EmployeeEmployee 11 XX XX XX XX XX
RequirementRequirement 55 33 77 88 9*9* 33 22EmployeeEmployee 22 XX XX XX XX XX
RequirementRequirement 44 22 66 77 8*8* 33 22
EmployeeEmployee 33 XX XX XX XX XX
RequirementRequirement 33 11 55 66 7*7* 33 22EmployeeEmployee 44 XX XX XX XX XX
Required employeesRequired employees
186
Scheduling ServicesScheduling Ser