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Transcript of Irwin/McGraw-Hill Operations Planning Horizons Long Range Planning - Annual planning, with a time...
Irwin/McGraw-Hill
Operations Planning Horizons• Long Range Planning - Annual planning, with a time horizon greater than one year
• Aggregate Planning - Intermediate planning with a time horizon of 6 to 18 months with monthly or quarterly increments
• Short Range Planning - Weekly planning with a time horizon of one day to six months
Irwin/McGraw-Hill
Aggregate Planning
Product group or broad category (Aggregation)
Medium-Range: 6-18 months Goal: Specify the optimal combination of
production rate
workforce level
inventory on hand
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Master scheduling
Material requirements planning
Order schedulingWeekly workforce andcustomer scheduling
Daily workforce and customer scheduling
Process planning
Strategic capacity planning
Sales and operations (aggregate) planning
Longrange
Intermediaterange
Shortrange
ManufacturingServices
Exhibit 13.1Exhibit 13.1
Sales plan Aggregate operations plan
Forecasting & demand management
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Balancing Aggregate Demand and Aggregate Production Capacity
0
2000
4000
6000
8000
10000
Jan Feb Mar Apr May Jun
45005500
7000
10000
8000
6000
0
2000
4000
6000
8000
10000
Jan Feb Mar Apr May Jun
4500 4000
90008000
4000
6000
Suppose the figure to the right represents forecast demand in units
Suppose the figure to the right represents forecast demand in units
Now suppose this lower figure represents the aggregate capacity of the company to meet demand
Now suppose this lower figure represents the aggregate capacity of the company to meet demand
What we want to do is balance out the production rate, workforce levels, and inventory to make these figures match up
What we want to do is balance out the production rate, workforce levels, and inventory to make these figures match up
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Key Strategies for Meeting Demand
Chase - Match production rate to order rate by hiring and laying off employees
Level - Maintain a stable work force working at a constant output rate; shortages and surpluses are absorbed by fluctuating inventory levels, backlogs and lost sales
Some combination of the two
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Required Inputs to the Production Planning System
Planning for
production
External capacity
Competitors’behavior
Raw material availability
Market demand
Economic conditions
Currentphysical capacity
Current workforce
Inventory levels
Activities required for production
External to firm
Internal to firm
Strategic Capacity Planning
Capacity can be defined as the ability to hold, receive, store, or accommodate; a measure of an organization’s ability to provide customers with the demanded services or goods in the amount requested and in a timely manner
Strategic capacity planning is an approach for determining the overall capacity level of capital intensive resources, including facilities, equipment, and overall labor force size
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Estimating Capacity
Must differentiate between theoretical capacity (what can be achieved under ideal conditions in a short period of time), and achievable capacity (considering equipment problems, maintenance requirements, material problems, worker errors)
Must select a yardstick to measure it, such as tons per hour (tph) of steel or number of patient days in a hospital
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Management Decisions That Affect Capacity in the Intermediate Term
Subcontracting or outsourcing production Changing the mix of products produced Adding people to the production process Increasing the motivation of employees Increasing the operating rate of a machine Improving quality of raw materials,
processes, etc. Increasing product yield (quantity of
output/quantity of input, or the % of useful output)
Capacity Utilization
Where:Capacity used = rate of output actually achieved, and Best operating level = capacity for which the process was designed
level operating Best
usedCapacity rate nutilizatioCapacity
Example of Capacity Utilization
During one week of production, a plant produced 83 units of a product. Its historic highest or best utilization recorded was 120 units per week. What is this plant’s capacity utilization rate?
During one week of production, a plant produced 83 units of a product. Its historic highest or best utilization recorded was 120 units per week. What is this plant’s capacity utilization rate?
Answer: Capacity utilization rate = Capacity used .
Best operating level = 83/120 =0.69 or 69%
Answer: Capacity utilization rate = Capacity used .
Best operating level = 83/120 =0.69 or 69%
Economies & Diseconomies of Scale
100-unitplant
200-unitplant 300-unit
plant
400-unitplant
Volume
Averageunit costof output
Economies of Scale and the Experience Curve workingEconomies of Scale and the Experience Curve working
Diseconomies of Scale start workingDiseconomies of Scale start working
The Experience Curve
As plants produce more products, they gain experience in the best production methods and reduce their costs per unit
As plants produce more products, they gain experience in the best production methods and reduce their costs per unit
Total accumulated production of units
Cost orpriceper unit
Yesterday
Today
Tomorrow
Capacity Flexibility
Flexible plants
Flexible processes
Flexible workers
Capacity Planning: Balance
Stage 1 Stage 2 Stage 3Unitsper
month6,000 7,000 5,000
Unbalanced stages of productionUnbalanced stages of production
Stage 1 Stage 2 Stage 3Unitsper
month6,000 6,000 6,000
Balanced stages of productionBalanced stages of production
Maintaining System Balance: Output of one stage is the exact input requirements for the next stage
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Determining Capacity Requirements
Forecast sales within each individual product line
Calculate equipment and labor requirements to meet the forecasts
Project equipment and labor availability over the planning horizon
Identify bottlenecks
Capacity Utilization & Service Quality
The best operating point is between 70% and 90% of capacity; over 90% is undesirable
Why do you think that this is so?
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Utilization and Time in System
0
30
60
90
120
150
50% 60% 70% 80% 90% 100%Utilization
Tim
e in
Sys
tem
70
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Capacity - Summary Capacity decisions should be made carefully, as
they can commit significant resources to assets that cannot be changed easily or economically.
Capacity is affected by management decisions regarding the number of hours worked, product mix, staffing levels, machine capabilities, level of quality, and product yield.
Watch out for the “Bermuda Triangle” of operational complexity, where management difficulty exceeds management ability (management bottleneck!).
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Enterprise Resource Planning Systems
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Enterprise Resource Planning (ERP) Systems
Enterprise Resource Planning Systems is a computer system that integrates application programs in accounting, sales, manufacturing, and other functions in the firm
This integration is accomplished through a database shared by all the application programs
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SAP AG’S R/3 SAP AG, A German firm, is a
world leader in ERP software.-Designed to operate in a three-tier client/server configuration-Applications are fully integrated so that data are shared between all applications
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R/3 System Functional Components
R/3 SystemFunctional
ComponentsSales & Distribution Human Resources
Manufacturing & Logistics
Financial Accounting
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Financial Accounting
Financials
Controlling
Asset management
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Human Resources
Payroll Benefits administration Applicant data administration Personnel development planning Workforce planning Schedule & shift planning Time management Travel expense accounting
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Manufacturing & Logistics
Materials management
Plant maintenance
Quality management
Production planning & control
Project management system
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Sales and Distribution
Prospect & customer management Sales order management Configuration management Distribution Export controls Shipping and transportation
management Billing, invoicing, and rebate
processing
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Reasons for Implementing SAP R/3
Desire to standardize and improve processes
To improve the level of systems integration
To improve information quality