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Chapter 13Chapter 13

Production Planning

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OverviewOverview

Production-Planning Hierarchy Aggregate Planning Master Production Scheduling Types of Production-Planning and Control Systems Wrap-Up: What World-Class Companies Do

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Production Planning HierarchyProduction Planning Hierarchy

Master Production Scheduling

Production Planning and Control Systems

Pond DrainingSystems

Aggregate Planning

PushSystems

PullSystems

Focusing onBottlenecks

Long-Range Capacity Planning

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Production Planning HorizonsProduction Planning Horizons

Master Production Scheduling

Production Planning and Control Systems

Pond DrainingSystems

Aggregate Planning

PushSystems

PullSystems

Focusing onBottlenecks

Long-Range Capacity PlanningLong-Range

(years)

Medium-Range(6-18 months)

Short-Range(weeks)

Very-Short-Range(hours - days)

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Production Planning: Units of MeasureProduction Planning: Units of Measure

Master Production Scheduling

Production Planning and Control Systems

Pond DrainingSystems

Aggregate Planning

PushSystems

PullSystems

Focusing onBottlenecks

Long-Range Capacity PlanningEntire

Product Line

ProductFamily

SpecificProduct Model

Labor, Materials,Machines

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Aggregate Planning

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Why Aggregate Planning Is NecessaryWhy Aggregate Planning Is Necessary

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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InputsInputs

A forecast of aggregate demand covering the selected planning horizon (6-18 months)

The alternative means available to adjust short- to medium-term capacity, to what extent each alternative could impact capacity and the related costs

The current status of the system in terms of workforce level, inventory level and production rate

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OutputsOutputs

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 AdjustmentsMedium-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

. . . more

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Medium-Term Capacity AdjustmentsMedium-Term Capacity Adjustments

Inventory level Finished goods inventory Backorders/lost sales

Subcontract

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ApproachesApproaches

Informal or Trial-and-Error Approach Mathematically Optimal Approaches

Linear Programming Linear Decision Rules

Computer Search Heuristics

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Pure Strategies for the Informal ApproachPure Strategies for the Informal Approach

Matching Demand Level Capacity

Buffering with inventory Buffering with backlog Buffering with overtime or subcontracting

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Matching Demand StrategyMatching Demand Strategy

Capacity (Production) in each time period is varied to exactly match the forecasted aggregate demand in that time period

Capacity is varied by changing the workforce level Finished-goods inventories are minimal Labor and materials costs tend to be high due to the

frequent changes

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Developing and Evaluatingthe Matching Production Plan

Developing and Evaluatingthe Matching Production Plan

Production rate is dictated by the forecasted aggregate demand

Convert the forecasted aggregate demand into the required workforce level using production time information

The primary costs of this strategy are the costs of changing workforce levels from period to period, i.e., hirings and layoffs

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Level Capacity StrategyLevel Capacity Strategy

Capacity (production rate) is held level (constant) over the planning horizon

The difference between the constant production rate and the demand rate is made up (buffered) by inventory, backlog, overtime, part-time labor and/or subcontracting

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Developing and Evaluatingthe Level Production Plan

Developing and Evaluatingthe Level Production Plan

Assume that the amount produced each period is constant, no hirings or layoffs

The gap between the amount planned to be produced and the forecasted demand is filled with either inventory or backorders, i.e., no overtime, no idle time, no subcontracting

. . . more

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Developing and Evaluatingthe Level Production Plan

Developing and Evaluatingthe Level Production Plan

The primary costs of this strategy are inventory carrying and backlogging costs

Period-ending inventories or backlogs are determined using the inventory balance equation:

EIt = EIt-1 + (Pt - Dt )

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Aggregate Plans for ServicesAggregate 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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Preemptive TacticsPreemptive Tactics

There may be ways to manage the extremes of demand:

Discount prices during the valleys.... have a sale Peak-load pricing during the highs .... electric

utilities, Nucor

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Master Production Scheduling (MPS)

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Objectives of MPSObjectives 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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The rules for scheduling

No Change+/- 5%

Change

+/- 10%

Change

+/- 20%

Change

+/- 20%

ChangeFrozen

Firm

FullOpen

1-2 weeks

2-4weeks

4-6weeks

6+ weeks

Time FencesTime Fences

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Time FencesTime 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 MPSDeveloping 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 . . . more

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Developing an MPSDeveloping 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 SchedulingExample: 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 SchedulingExample: Master Production Scheduling

Demand Estimates

CUSTOMERS

BRANCH WAREHOUSES

MARKET RESEARCH

PRODUCTION RESEARCH

500

200

0

10

1

0

50

300

1000

0

0

500

400

2 3 4

200

000

300500

0100

700

65

1000

200

WEEK

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Example: Master Production SchedulingExample: Master Production Scheduling

Computations

CUSTOMERS

BRANCH WAREHOUSES

MARKET RESEARCH

PRODUCTION RESEARCH

500

200

0

10

1

0

50

300

1000

0

0

500

400

2 3 4

200

000

300500

0100

700

65

1000

200

WEEK

TOTAL DEMAND

BEGINNING INVENTORY

REQUIRED PRODUCTION

ENDING INVENTORY

710

1120

0

410 560

1500

410

1350

1160

1500

900

560

700

1250950460

4601160

150015000

1010 1200

950

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Example: Master Production SchedulingExample: Master Production Scheduling

MPS for Bar Code Scanners

SCANNER PRODUCTION 0 1500 1500 150015000

1 2 3 4 65

WEEK

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Rough-Cut Capacity PlanningRough-Cut Capacity Planning

As orders are slotted in the MPS, the effects on the production work centers are checked

Rough cut capacity planning identifies underloading or overloading of capacity

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Example: Rough-Cut Capacity PlanningExample: Rough-Cut Capacity Planning

Texprint Company makes a line of computer printers on a produce-to-stock basis for other computer manufacturers. Each printer requires an average of 24 labor-hours. The plant uses a backlog of orders to allow a level-capacity aggregate plan. This plan provides a weekly capacity of 5,000 labor-hours.

Texprint’s rough-draft of an MPS for its printers is shown on the next slide. Does enough capacity exist to execute the MPS? If not, what changes do you recommend?

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Example: Rough-Cut Capacity PlanningExample: Rough-Cut Capacity Planning

Rough-Cut Capacity Analysis

PRODUCTION 100 200 200 280250

1 2 3 4 5

WEEK

TOTAL

1030

LOAD 2400 4800 4800 67206000 24720

CAPACITY 5000 5000 5000 50005000 25000

UNDER or OVER LOAD 2600 200 200 17201000 280

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Example: Rough-Cut Capacity PlanningExample: Rough-Cut Capacity Planning

Rough-Cut Capacity Analysis The plant is underloaded in the first 3 weeks

(primarily week 1) and it is overloaded in the last 2 weeks of the schedule.

Some of the production scheduled for week 4 and 5 should be moved to week 1.

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Demand ManagementDemand Management

Review customer orders and promise shipment of orders as close to request date as possible

Update MPS at least weekly.... work with Marketing to understand shifts in demand patterns

Produce to order..... focus on incoming customer orders

Produce to stock ..... focus on maintaining finished goods levels

Planning horizon must be as long as the longest lead time item

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Types of Production-Planningand Control Systems

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Types of Production-Planningand Control Systems

Types of Production-Planningand Control Systems

Pond-Draining Systems Push Systems Pull Systems Focusing on Bottlenecks

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Pond-Draining SystemsPond-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 SystemsPush 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 worker and process utilization than pond-draining systems

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Pull SystemsPull 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 BottlenecksFocusing on Bottlenecks

Bottleneck Operations Impede production because they have less capacity

than upstream or downstream stages Work arrives faster than it can be completed Binding capacity constraints that control the

capacity of the system Optimized Production Technology (OPT) Synchronous Manufacturing

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Synchronous ManufacturingSynchronous Manufacturing

Operations performance measured by throughput (the rate cash is generated by sales) inventory (money invested in inventory), and operating expenses (money spent in converting

inventory into throughput) . . . more

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Synchronous ManufacturingSynchronous Manufacturing

System of control based on: drum (bottleneck establishes beat or pace for other

operations) buffer (inventory kept before a bottleneck so it is

never idle), and rope (information sent upstream of the bottleneck

to prevent inventory buildup and to synchronize activities)

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Wrap-Up: World-Class PracticeWrap-Up: World-Class Practice

Push systems dominate and can be applied to almost any type of production

Pull systems are growing in use. Most often applied in repetitive manufacturing

Few companies focusing on bottlenecks to plan and control production.

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Chapter 13 HWChapter 13 HW

Problem # 16 on page 530 Due on next Tuesday in class