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Project and Production Management Module 9 Tactical Decisions and Review Prof Arun Kanda & Prof S.G....
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Transcript of Project and Production Management Module 9 Tactical Decisions and Review Prof Arun Kanda & Prof S.G....
Project and Production Management
Module 9
Tactical Decisions and Review
Prof Arun Kanda & Prof S.G. Deshmukh, Department of Mechanical Engineering,Indian Institute of Technology, Delhi
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MODULE 9: Tactical Decisions and Review
1.Basic Inventory Principles
2.Inventory Modeling
3.Material Requirements Planning
4.Job shop scheduling
5.Course Summary and Review
6. Illustrative Examples
7. Self Evaluation Quiz
8. Problems for Practice
9. Further exploration
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1. Basic Inventory Principles
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FUNCTIONS OF INVENTORIES
Inventories are Idle Resources maintained in various forms:
- Raw materials- Purchased & manufactured parts- Subassemblies- Finished productsSince inventories represent a sizable
investment in a logistic system, we must be aware of the functions they perform
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FIVE CATEGORIES OF STOCKSPIPELINE stock (in process stock, in transit stock)
CYCLE stocks (batch production owing to - economies of scale - technological requirements)
SEASONAL stocks ( time varying requirements of an item)
SAFETY stocks (supply and demand uncertainties, lead time uncertainties)
Stocks held for OTHER REASONS (- decoupling stages of production - price, quantity discounts, - speculation)
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INVENTORY RELATED COSTS • Procurement cost
Cost/order generally fixed (not dependent on order qty)
• Costs associated with existence of inventories
(supply exceeds demand) Cost/unit/unit time i C (i = inventory carrying cost rate)
• Costs associated with stock outs (demand exceeds supply) (cost/unit) (cost/unit/unit time)
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PROCUREMENT COSTS
Procurement cost Cost of goods
Cost/order generally fixed Ordering cost
(not dependent on order qty)
- Administrative component
- Handling
- Transportation
- Inspection of arrivals
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INVENTORY HOLDING COSTS
Costs associated with existence of inventories (supply exceeds demand) Cost/unit/unit time i C (i = inventory carrying cost rate)
- Storage and handling - Interest on tied up capital - Property taxes - Insurance - Spoilage - Obsolescence - Pilferage
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SHORTAGE COSTS
Costs associated with stock outs
(demand exceeds supply)
(cost/unit) (cost/unit/unit time)
- Additional costs of special order
- Backorder, if possible
- Loss of customer goodwill
- Lost sales
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SELECTIVE INVENTORY CONTROL
In a large number there are
Typical organisations deal with a large variety of stocked items
PARETO’s Law
(10,000 – 100,000 …is not uncommon)Depending on rankings of• VALUE ((Annual demand X unit price)) ABC Analysis
(Always Better Control)• CRITICALITY (Vital, Essential, Desirable) VED Analysis
• USAGE FREQUENCY FSN Analysis(Fast moving, Slow moving, Non moving)
Based on product characteristics, suitable policies can be chosen
USAGE FREQUENCY
significant few insignificant many
A B C
N
S
F
V
E
D
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ABC ANALYSIS
5-10% items account for about 75% value15-20% items account for about 15% valueBalance items account for about 10% value (or A class ≥ 6 items average annual usage C class ≤ 0.5 items average annual usage B in between)
Where, Average Annual usage= ofitemsoTotayeartialTotalMater
.ln/cos
25
50
75
90100
25 50 75 10010
Percent of number of inventory items
A
B
C
Pe
rce
nt
of
av
era
ge
in
ve
nto
ry i
nv
es
tme
nt
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OBJECTIVE OF ABC ANALYSIS:Rationalization of Ordering Policies
EQUAL TREATMENT TO ALLItem no. Annual Consumption
Value (Rs.)
Number of Orders
Value per order Average inventory
1
2
3
60,000
4,000
1,000
4
4
4
15,000
1,000
250
7500
500
125
Total Inventory: Rs. 8125
PREFERENTIAL TREATMENT on basis of ABC analysis
1
2
3
60,000
4,000
1,000
8
3
1
7,500
1,333
1,000
3750
667
500
Total Inventory Rs 4917
The optimum no of orders can be arrived at by using models of inventory control eg. EOQ
Q* =icdo2
time
inve
ntor
y
Ann
ual c
ost
Q*
Total cost
carriage
ordering
DETERMINATION OF REORDER POINTReorder point = Max. reasonable demand during lead time
= expected demand during lead time + safety stock
(usually pre specified by management)
K= 0; risk of shortage = 50% service level = 50%K= 0; risk of shortage = 15.87% service level = 84.13% K= 0; risk of shortage = 2.28% service level = 97.72% K= 0; risk of shortage = 0.13% service level = 99.87%
Higher safety stock
A class items have relatively low service levels (0.8 or so)- Lower safety stocks- Tighter control & efficient expediting
B class items handled routinely with service levels of 0.95 or so
C class items should be present in ample supply, minimum records, controls, procedure very high service levels (0.95 to 0.98)
Prob. of stockout
Total demand in lead timexL + kLxL
kL
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POLICY IMPLICATIONS OF SELECTIVE INVENTORY CONTROL
ABC analysisA class items need continuous rigourous control
(use of mathematical models justified)
B class items – relaxed control (periodic review)
C class items – simple rules of thumb
V class items call for a high level of service
E class items call for medium level of service
D class items call for tolerable level of service
jointly determine service levels
FSN analysisFast most inventory models apply to this class
Slow ( spare parts etc)
Non – moving (dead stock) (optimal stock disposal rules)
VED analysis
% riskOf shortage
(min)
(max)
ABC
VED
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A SAMPLE SET OF SERVICE LEVELS FORDIFFERENT CATEGORIES OF ITEMS
V E D
A 0.80 0.75 0.6
B 0.95 0.90 0.85
C 0.99 0.97 0.95
V E D
A 0.7 0.6 0.5
B 0.9 0.8 0.7
C 0.95 0.9 0.85
High cost ofstockout
Low cost ofstockout
dec
reas
ing
dec
reas
ing
decreasing
decreasing
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OBJECTIVE OF INVENTORY MANAGEMENT SYSTEM
An inventory system consists of a set of rules and procedures that allow
for routine decisions on when & how much to order of each item needed
in the manufacturing or procurement process,
which call attention to the non-routine situations, the rules do not cover &
which provide managers with the necessary information to make these
decisions effectively.
The objective of a well designed procedure should be the minimization
of the costs incurred in the inventory system, attaining at the same time
the customer service level specified by the company policies.
1
2
3
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STRUCTURE OF A TYPICAL COMPUTERISED
INVENTORY MANAGEMENT SYSTEM
Basic sub systems or modules:-
• Transactions and file maintenance module
• Decision rules module
• System integrative module
• System-management interaction and evaluation module
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TRANSACTIONS ANDFILE MAINTENANCE MODULE
Book keeping of inventory control – Entry, auditing, control and processing of inventory transactions
NECESSITY: Continuous updating to provide accurate information on -Available stock (on hand and on order)-Customer order status-Cost of items-Delivery lead times-Source of acquisition-Ordering restrictions- …
DEVELOPMENT: mainly the area of data processing.
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THE DECISION RULES MODULEThis is concerned with the fundamental components of inventory
planning and control procedures aimed at answering when and how
much to order of each item to maintain inventories at the right level.
A forward looking system should include forecasting capabilities safety
stocks (to account for unavoidable in accuracies) decision rules are
needed to guarantee some desired level of customer service.
EOQ, q* =icdo2
Use EOQ and continuous monitoring
Order in lots of 3 months demand if stock at hand is less than ROP
Order in lots of 6 months demand if stock on hand is less than ROP
A-class C-classB-class
ITEM
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SYSTEM INTEGRATIVE MODULE
The various items being controlled, depending on their
inherent characteristics require specific degree of
management attention and service levels that can be
achieved by using some appropriate stock policy
Decision rules Distinct inventory policies
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SYSTEM MANAGEMENT INTERACTION AND EVALUATION MODULE
Intended to provide management with such information as to permit evaluation Evaluation of operating performance Identify problem areasAllow for management selection of policy
variables (system parameters)
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SUMMARY & CONCLUSIONS
- Omnipresence of inventories (‘necessary evil’)
- Nature of inventory related costs
- Principles of selective inventory management
ABC analysis
VED analysis
FSN analysis
- Ordering rules and reorder point determination
- Policy implications of selective inventory management
- Features of a computerized inventory management system
- Relevance ? – independent vs. dependent demand systems
- MRP vs. conventional inventory management
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2. Inventory Modelling
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LOT SIZING
- When to order ?- How much to order ?
Decision variables are Order quantity, q per lot Maximum backorder level, b (in class III, IV)
Reorder point
Lead time
Order qty., q
NO
BA
CK
LO
GG
ING
PURCHASE
Inv.
I
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PRODUCTION
q
Inv.
II
LOT SIZING
- When to order ?- How much to order ?
Decision variables are Order quantity, q per lot Maximum backorder level, b (in class III, IV)
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LOT SIZING
- When to order ?- How much to order ?
Decision variables are Order quantity, q per lot Maximum backorder level, b (in class III, IV)
q
bBA
CK
LO
GG
ING
Inv.
III
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LOT SIZING
- When to order ?- How much to order ?
Decision variables are Order quantity, q per lot Maximum backorder level, b (in class III, IV)
b
Inv.
IV
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ANALYSIS
BROAD APPRAOCH
(1) Identify the cost components in each cycle (of length t)
(2) Express costs in terms of decisions variables (order qty, q and backorder level, b)
(3) Develop annual cost by multiplying (1) by number of cycles/year
(4) Optimize to find q*, b*
Carrying cost Shortage cost Set up or order cost
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VARIATIONS IN THE LOT-SIZE FORMULE
WITHOUT BACKLOGGING
02
1
3 *b,
CdC
*q
C = unit cost (Rs/piece)C1 = i X C = carrying cost (Rs/unit/time)C2 = shortage/backlogging cost (Rs/unit/time)C3 = order cost (Rs/order)
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VARIATIONS IN THE LOT-SIZE FORMULE
C = unit cost (Rs/piece)C1 = i X C = carrying cost (Rs/unit/time)C2 = shortage/backlogging cost (Rs/unit/time)C3 = order cost (Rs/order)
012
1
3
*b,
)p/d(CdC
*q
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VARIATIONS IN THE LOT-SIZE FORMULE
C = unit cost (Rs/piece)C1 = i X C = carrying cost (Rs/unit/time)C2 = shortage/backlogging cost (Rs/unit/time)C3 = order cost (Rs/order)
b
WITH BACKLOGGING
2
21
1
32C
CCC
dC*q
21
1
CC*qC
*b
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VARIATIONS IN THE LOT-SIZE FORMULE
C = unit cost (Rs/piece)C1 = i X C = carrying cost (Rs/unit/time)C2 = shortage/backlogging cost (Rs/unit/time)C3 = order cost (Rs/order)
b
2
21
1
3
12
CCC
)p/d(CdC
*q
21
1 1CC
)p/d(*qC*b
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1. Demand fixed at constant rate of d units/unit time
2. Replenishments made when inventory reaches zero level so that no shortages occur.
3. Fixed lot size q.
4. Infinite replenishment rate
5. Lead time is known
6. The unit carrying cost, c, is constant Rs/unit/unit time.
7. The replenishment cost, C3 is constant Rs/Order.
ASSUMPTIONS inCLASSICAL LOT-SIZE SYSTEM
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SENSITIVITY STUDIES ON CLASSICAL LOT-SIZE MODEL
AN
NU
AL
CO
ST
S
LOT SIZE qq1
q*
q2
TC
TCmin
Total cost
Carrying cost
Order cost
221 iCqqC
qdC3
q
Inv.Level
Avg
. In
ven
tory
= q
/2
qdCqC
)q(K31
2
1
32CdC
*q 312 CdCTCmin
Sensitivity Q = bq*, b > 0
b 0.5 0.8 0.9 1.0 1.1 1.2 1.5 2.0
TC/TCmin 1.250 1.025 1.006 1.000 1.005 1.017 1.083 1.29
bb
)b(TC
TCbmin 2
121 2
1
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EOQ WITH QUANTITY DISCOUNTS
Total annual cost = dCCqdq
C 312
Annual usage
Example
Annual demand = 5000 partsOrder cost = Rs 49Inventory carrying cost = Re 1 per part/year
7001
4950002
)(EOQ
Discount schedule
Order quantity Unit cost/part
0 – 999
1000 – 2499
2500 – over
Rs 5
Rs 4.85
Rs 4.75
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TOTAL ANNUAL COSTS for THREE ORDERING POLICIESORDER
QTY.ANNUAL HOLDING
COSTANNUAL
ORDER COST
PURCHASE COST
TOTAL
700
1000
2500
350
500
1250
350
245
98
25,000
24,250
23,750
25,700
24,995
25,098
OPERATING AT A LOT-SIZE of 1000 rather than EOQ of 700 is WARRANTED HERE
ANNUALCOSTS
q700 2500
25,700
TAC(Rs 5)
1000
TAC(Rs 4.85)
TAC(Rs 4.75)
25,098
24,995
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AN EXAMPLE ILLUSTRATING SHIFT OF EOQs
991Quantity
100 and over2Rs
tcosUnit
Re 1
D = 250/yrC3 = Rs 5/orderi = 20%
79220
525022
)(.XX
)Rs(EOQ 112120
525021
)(.XX
)Rs(EOQ
IN THIS CASE A LOT SIZE OF 112 RESULTS IN MINIMUM COST
ANNUALCOSTS
qEOQ=79 112100
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DETERMINISTIC SINGLE ITEM MODEL
NOTATION
d = demand rate (units per unit time)P = production rate (unit per unit time)Q = order/production quantityT = cycle lengthB = maximum backorder level permittedImax = maximum on-hand inventory levelC = unit item costC1 = inventory carrying cost in Rs/unit/unit time = iCC2 = shortage cost in Rs/unit/unit time (back logged demand)C2 = shortage cost/unit short independent of time (lost sales)C3 = set up cost per order/batch
t1 t2
tp
t3 t4
t
Imax
0
-b
Rate of fall, dRate of rise p-d
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Cycle time t = q/d
Time to produce a lot, tp = q/p max. inventory, Imax =
t1 = time for backorder b to be cleared once production starts
t2 = time for inventory level to build up from zero to Imax
t3 = time for inventory level to drop to zero from Imax at constant demand, d
t4 = time for backlog b to buildup at a demand rate, d
dpb
dpImax
db
dImax
b)dp(pq
b)pd
(q 1
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COSTS/CYCLE
During (t2 + t3) there is inventory andcarrying costs = ½ Imax (t2 + t3) c1
During ( t1 + t4) there is shortage cost = ½ b (t1 + t4) C2 + C’2 b
Ordering / replenishment cost per cycle = C3
Notice that
)dp(dp
bddp
b)tt(
11
41
)dp(dp
Iddp
I)tt( axmaxm
11
32
bpd
qI& axm
1
t1 t2 t3 t4
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AVERAGE ANNUAL COSTS K (q, b)
K (b, q) = t
Ctb
'Ct
ttbC
tttI
Caxm 3
241
232
122
Substituting for t, (t1 + t4), (t2 + t3) & Imax in terms of q, b we obtain
K (b, q) =
qdC
qbd'C
)p/d(qbC
)p/d(qb)p/d(qC 32
221
12121 2
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OPTIMAL RESULTSAnnual cost is K (b, q)
The solution of these simultaneous equations yields the optimum values q* and b* as follows:
0
bK
qK
2
21
2111
3
)()/1(
2*
)'( 2
2
C
CC
CCCpdC
dCq
dC
21
21 1CC
)p/d)(d'C*qC(*b
and
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FAST vs SLOW MOVING ITEMSSlow moving items• Low level of demand• Frequent periods of no usage
Likely to be between 50-100 units/yr
Peterson & Silver (1979) recommend classifying items according to demand over the replenishment lead time:
An expected lead time demand of 10 units or larger puts the item in the fast mover’s class, while an expected lead time demand of less than 10 units defines a slow mover
Thresholds difficult to define [ depend on item nature]
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CONTINUOUS (PERPETUAL) REVIEW SYSTEM WITH REPLENISHMENT ORDER QTY. Q AND REORDER LEVEL R
Amt. of inventory on hand
Reorder level, R
Safety stock (s s)
Avg. lead time usage (U)
Amt. used during Lead time
Amt. of inventory on hand
Amt. of inventory on hand
Amt. of inventory on hand
Amt. of inventory on hand
Amt. of inventory on hand
Amt. of inventory on hand
U1 U2U3
Q
LT1
LT2
LT3
QOrder qty, Q
Time
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COMPUTATIONS FOR RU = Lead time demand
LT = Lead time (working days)
D = daily demand
Z is obtained from the NORMAL TABLES based on
• A pre specified stockout probability, P
• Optimal stockout frequency based on costs of shortage and carrying inventory
LT__
d_
U_
2)d_
)(VarLT(LT__
)Vard()U(Var
)U(Varu
uZUR
)u,U(N 2
Z Probability of stockout
either
or
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EXAMPLE (p305, ch. 10)Per unit holding cost = Re 1/yrOrdering policy : 4 times a yrPre specified service level : 1 stockout/3 yrs
SQ/yr = 0.33
LEAD Times from SUPPLIER
Order
placed
1/7 2/3 3/16 4/6 5/2 6/2
Order received 1/18 2/21 4/20 4/28 5/20 6/23
Lead times
Calendar days
Working days
11
7
18
12
35
25
22
16
18
14
21
15
Month/day
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Similar data on demands for last six months yield
EXAMPLE (p305, ch. 10)
d = 40 units/day
Var (d) = 30 (units/day)2
LT = 7 + 12 +25 + 16 + 14 + 156
= 14.83 days
Var (LT) = (7 – 14.83)2 + (12 – 14.83)2 + …
6 -1= 34.97 (day)2
(contd.)
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EXAMPLE (contd.)
3975640 29734831430 ,)().().)(()U(Var
08304330
..
nyr/SO
3593831440 .).)((U Units demanded per lead time
523739756 .,u Units per lead time
Desired SO/yr = 0.33 (as stated earlier)
P = desired probability of stockout per order cycle
From tables Z = 1.39
SS = 1.39 (237.5) = 330.1
R = 593.3 + 330.1 = 923.4
Z
0.083
Order cycles/yr = 4 (given) = n
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IMPROVING RELIABILITY OF LEAD TIME
Safety stock = 1.39 (21.09) = 29 ( compared to 330 earlier)
R = 622 (compared to 923 earlier)
Inventory lowered by 301 units
Annul savings = Rs 1 X 301 = Rs 301
Thus it is worthwhile to improve reliability of lead time
If var (LT) = 0
Then var (U) = 30 X 14.83 = 444.9
u = 444.9 = 21.09 units per lead time
(compared to the original 237.5)
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OPTIMAL STOCKOUT FREQUENCY AND IMPLIED BACKORDER COSTS
Cost of shortage X Optimal SO/yr = Inventory carrying cost
Shortage cost = Rs 10
Z = 1.96 (from normal tables)
R* = 593.3 + 1.96(237.5) = 593.3 + 465.5 = 1058.8
For R = 926
SO/yr = C1/shortage cost
0.33 = 1/shortage cost
CB = 1/0.33 = Rs 3 (implied shortage cost)
optimal SO/yr = 1/10 = 0.10
P* = SO/yr = 0.01 = 0.025n 4
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INVENTORY CONTROL POLICIESCONTINUOUS REVIEW SYSTEMS
• (S, Q) policy – when available inventory reaches level s, order Q • (s, S) policy – when available inventory becomes equal to or less
than s, order upto level S
PERIODIC REVIEW SYSTEMS• (nQ, s, R) policy – If at a review time the available inv. < s, an amt. nQ is ordered (n=1,2,3) n is such that after the order is placed, the avail. Inv. Reaches a level
in (s, s+Q)• (S, R) policy – At each review time a sufficient qty. is ordered
to bring the level of ave. inv. upto S.• (s, S, R) policy – If at a review time, the available inv. < s a
sufficient qty. is ordered to bring level upto S, otherwise no order is placed
Available inventory = inventory on hand + amount on order - Units back ordered
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Lead time
Reorder point
Avg.Lead time consumption
Reserve stock
Safety stock
Demand uncertainties
Lead time uncertainties
Sto
ck
Avg. demand for maximum delay
Probability of delay
a) Avg. demand during avg. lead time (buffer)
b) Variations in demand during avg. lead time, depending on service level (reserve stock)
a) Avg. demand during delivery delays (safety stock)
)LXD(
)kx( LD
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EXAMPLEFor the following data work out the costs under both• A continuous review, fixed order qty (Q system)• A periodic review, variable order qty (P system)• Avg. annual demand = 20,000 units• Std. deviation of demand per week = 50 units• Unit price = Rs 10• Ordering cost = Rs 100• Inventory carrying cost rate = 20%• Avg. lead time = 4 weeks• Max. delay = 3 week• Probability of delay = 0.31• Service level = 95% (prob. Of stockout during lead
time = 5%)
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Q systemunits 1414
x).(x,x
qty Order 1020
100000202
Safety Reserve Buffer point reorder
units 1540 4 x 52
20,000 time lead during demand avg. Buffer
time lead during demand of deviation std. x k stock Reserve units 164 50) x 4( 1.64
delay of yprobabilit x delay max during demand Avg. stock Safety
units .x.x)3 x 20,000
( 358310115431052
units 2062 358 164 1540 point Reorder
time
S2062
Stock level
Q = 1414
Lead time = 4 weeks1.64
Mean,
0.95
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P system
wks.3.7 weeks52 x,
years,Demand
EOQ periodReview
000201414
000201414
Can be rounded off to either 3 or 4 weeks depending on cost consideration
3 weeks1733 Rs 100 Rs x
352
cost ordering Annual
1,154 Rs .xxx17.3320,000
cost carrying inventory Annual 2001021
Total inv. Cost = 1733 + 1154 = Rs 2887
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4 weeks1300 Rs 100 x
452
cost ordering Annual
1,154 Rs .xxx13
20,000 cost carrying inventory Annual 20010
21
Total inv. Cost = 1300 + 1154 = Rs 2840
Review period is 4 weeks
Desired inventory level = Buffer + Reserve + safety = 3668
units 3080 8 x52
20,000 Buffer
units 230 1.64 x 50 x 8 Reserve
units 350 0.31 x 3 x )(20,000/52 Safety
P system module 9:Tactical Decisions and Review
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SAFETY STOCK DETERMINATIONIssues
1) What is the optimal level of protection ?How often do we tolerate running out of stock ?
Tradeoff between holding costs & shortages
2) What reorder level should we set to achieve to achieve this theoretically optimal protection ?
Practical question answered through statistics.
Chosen reorder level
Distribution of lead time demand
Prob. Of stockout
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SUMMARY
The EOQ formula with sensitivity analysis was discussedMany variations of the lot size formula with and without backlogging for purchase and production situations were consideredQuantity discounts were exploredThe P & Q policies for inventory control were comparedSafety stock determination in inventory systems was considered
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3. Material Requirements Planning
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WHAT MRP DOES ?
•Dependent demand•lumpy
MRP
DETAILED SCHEDULE FOR
RAW MATERIALS &
COMPONENTS
USED IN THE END PRODUCTS
MASTER SCHEDULE
FOR END ITEMS
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Independent Demand:
• Demand unrelated to demand of other products (end products, spare parts)
• Usually forecast• Conventional inventory control (EOQ,
Wagner/Whitin) applicable.
INDEPENDENT VS DEPENDENT DEMAND
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.
Dependent Demand:Demand directly related to demand of some
other product (components, raw materials, subassemblies)
• Requirements derived from delivery schedule of end items.
• MRP is the appropriate tool for planning & control of manufacture inventories raw materialsWIPComponent partsSubassemblies
INDEPENDENT VS DEPENDENT DEMAND
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LUMPY DEMAND
CONTINUOUS DEMANDAssumed in economic lot size formula
LUMPY DEMANDTYPICAL OF MRP APPLICATIONS(raw materials, components sub-assemblies consumed in Large increments corresponding to a certain batch of final product)
TIME
Avg.rate ofdemand
Inv.LEVEL
TIME
Inv.LEVEL t1 t2 t3 t4 t5 t6
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LEAD TIMES
In MRP, lead times are used to determine starting dates for assembling final products and subassemblies, for producing
component parts, and for ordering raw materials.
Ordering Lead Time:(for purchased parts)
Initiation of purchase requisition
Receipt of item from vendor(off shelf / fabricate)
Manufacturing Lead Time:
Place order Item deliveredProcess part through sequence of machines as given on route sheet (operation + non-productive times)
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• The master production schedule and other
order data.
• The bill of materials file. (The product
structure)
• The inventory record file.
INPUTS TO MRP module 9:Tactical Decisions and Review
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COMMON USE ITEMS
MRP collects the common use items from different products to effect economics in ordering the raw materials and manufacturing the components/sub assemblies
C1 C2 C3 Cn
P1 P2 P3 PN
BASIC RAW MATERIAL
COMPONENTS
PRODUCTS
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STRUCTURE OF AN MRP SYSTEM
Gross &Net requirementsreport
Capacity vsLoad report
Shop floorPlanningreport
Production OrderStatus & exceptionsreport
ServiceParts
requirements
Salesforecasts
Customerorders
Inventorytransactions
MasterProductionschedule
Engg.changes
InventoryRecord
file
MRPPROCESSOR
Bill ofMaterials
file
OUT PUTREPORTS
…
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MASTER PRODUCTION SCHEDULE
(a) What end products are to be produced?
(b) How many of each product to be produced?
(c) When the products are to be ready for shipment?
TYPICAL INFORMATION IN MPS:
DEMANDOften excluded from MPS, since it does not include
end product demand.
Demand for individual component Parts (for repair and service)
Firms customer orders
Forecasted demand
Week no 6 7 8 9 10
Product P1 50 100
Product P2 70 80 25
Etc.
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BILL OF MATERIALS (BOM) FILE
C1 C2 C3 C4 C5 C6
S1 S2
P1
(1) (2)
(1) (4) (1) (2) (2) (1)
Level 0(product)
Level 1(sub-assemblies)
Level 2(raw materials)
Sub assembly S1 is the PARENT of components C1, C2 & C3. Any engg. Changes affecting product
structure must be fed to BOM file.
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• Accurate current data on inventory status
• Generally computerized (item master file)
• Lead times must be established in inventory
Record file
INVENTORY RECORD FILE
• INVENTORY TRANSACTIONS (issue, arrivals, order placement/realization) MUST BE KEPT CURRENT
OrderingLead time
ManufacturingLead time
Purchasingrecords
ProcessRoutesheets
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INPUTS FOR MRP EXAMPLE
C1 C2 C3 C4 C5 C6
S1 S2
P1
(1) (2)
(1) (4) (1) (2) (2) (1)C4 C6 C7 C2 C8
S3 S4
P2
(1) (1)
(1) (4) (2) (2) (1)
M4
PRODUCT STRUCTURE FOR PRODUCTS P1 & P2
MasterProductionSchedule
Initial inventory status for M4
Assembly Manufacturing Ordering
P1 = 1
P2 = 1
S2 = 1
S3 = 1
C4 = 2 M4 = 3
Lead times (in weeks)
258070P2
10050P1
109876Week
PLANNED ORDER RELEASESNET REQUIREMENTS
90ON HAND40SCHEDULED RECEIPTS
GROSS REQUIREMENTSITEM RAW MATERIAL M4
654321PERIOD
50
BASIC MRP LOGIC
Input MPS, BOM, Inventory Status, Lead timesDo Parts ExplosionOffset requirements by lead timesNetting of requirements from Gross by considering availabilitiesLot sizing of net requirements for procurement or production
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PERIOD 1 2 3 4 5 6 7 8 9 10
ITEM PRODUCT P150 100GROSS REQUIREMENTS
SCHEDULED RECEIPTS
ON HAND 0
NET REQUIREMENTS 50 100
PLANNED ORDER RELEASES 50 100
ITEM PRODUCT P270 80 25GROSS REQUIREMENTS
SCHEDULED RECEIPTS
ON HAND 0
NET REQUIREMENTS 70 80 25
PLANNED ORDER RELEASES 70 80 25
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PERIOD 1 2 3 4 5 6 7 8 9 10
ITEM SUB ASSEMBLY S2100 200GROSS REQUIREMENTS
SCHEDULED RECEIPTS
ON HAND
NET REQUIREMENTS 100 200
PLANNED ORDER RELEASES 100 200
ITEM SUB ASSEMBLY S370 80 25GROSS REQUIREMENTS
SCHEDULED RECEIPTS
ON HAND
NET REQUIREMENTS 70 80 25
PLANNED ORDER RELEASES 70 80 25
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PERIOD 1 2 3 4 5 6 7 8 9 10
ITEM COMPONENT C470 280 25 400GROSS REQUIREMENTS
SCHEDULED RECEIPTS
ON HAND
NET REQUIREMENTS 70 280 25 400
PLANNED ORDER RELEASES 70 280 25 400
ITEM RAW MATERIAL M470 280 25 400GROSS REQUIREMENTS
SCHEDULED RECEIPTS 40
ON HAND 50 90 20
NET REQUIREMENTS -20 260 25 400
PLANNED ORDER RELEASES 260 25 400
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1. Order release notice, to place orders that have been
planned by the MRP system
2. Reports showing planned orders to be released in future
periods.
3. Rescheduling notices, indicating changes in due dates for
open orders.
4. Cancellation notices, including cancellation of open orders
because of changes in the master schedule
5. Reports on inventory status.
MRP OUTPUT REPORTSPrimary Outputs:
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1. Performance reports of various types – costs, item usage,
actual vs planned lead times and other measures of
performance.
2. Exceptions reports showing – deviations from schedule,
overdue orders, scrap, and so on.
3. Inventory forecasts indicating projected inventory levels
(both aggregate inventory as well as item inventory) in
future periods.
MRP OUTPUT REPORTSSecondary Outputs
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1. Reduction in inventory (30-50% in WIP)
2. Improved customer service (late orders reduced by 90%)3. Quicker response to changes in demand and master
schedule.
4. Greater productivity
5. Reduced set up and product changeover costs
6. Better machine utilization
7. Increased sales and reductions in sales price.
BENEFITS OF MRP module 9:Tactical Decisions and Review
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EVOLUTION OF MRP
Manufacturing ResourcePlanning
• Links up the closed loop MRP system with the financial systems of the company
(Links functions-Capacity planning-Inventory management-Shop floor control-MRP)
Improved computational efficiency of computers
Unrealistic M/c schedules, ignoring plant capacities
Not only plans priorities but provides feedback to executing the priority plan
AN IMPROVED ORDERING METHOD
PRIORITY PLANNING
CLOSED LOOP MRP
MRP II
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Uses closed loop MRP Integrated System has MRP, Capacity planning, shop
floor, control, vendor scheduling etc. MRP system used to help plan sales, engg, production,
purchasing, etc
No shortage lists of override the production schedules.
System has MRP, capacity planning shop floor control, but no vendor scheduling
Used as a production control system
Needs help from shortage list
Inventory higher than need be
FOR CLASSES OF MRP USERSClass A (most advanced)
Class B
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System used for inventory Ordering rather than scheduling
Scheduling by shortage list
Master schedule over loaded
MRP working in the data processing department only
Inventory records are poor
Master schedule, if it exists at all is overstated and
mismanaged
Relies on shortage list & expediting rather than MRP
FOR CLASSES OF MRP USERSClass C
Class D (beginner)
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IT IS AN OPERATIONAL & FINANCIAL SYSTEM Company wide, Sales, Production, Engineering,
inventories, cash flows
All operating data expressed in money terms
IT IS A SIMULATOR
“What if” questions Simulate probable outcomes of alternative production
plans and management decisions.
ADDITIONAL FUNCTIONS OF MRP II
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SUMMARY
Dependent vs Independent DemandMRP is useful for planning requirements of components and parts knowing end item demandMajor inputs to MRP include Master Production Schedule, BOM, Inventory and Lead TimesThe MRP logic goes through Explosion, Offsetting, Netting and Lot sizing
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SUMMARY (Contd)
Major benefits of MRP include improved planning, lesser inventories, shorter lead times
However MRP does not integrate cost functions in different departments
MRPII (Manufacturing Resource Planning)
links the financial functions across the organization
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4. Job Shop Scheduling
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NATURE OF JOB PRODUCTION
Variety of jobs producedBoth nature and demand of jobs is unpredictableConsists of general purpose machinesEach job depending on its technological requirements, demands processing on machines in a certain orderJobs queue before machines or there may be idle machines
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OBJECTIVES IN JOB SHOP SCHEDULING
Minimize total processing time or makespan
Minimize mean flow time
Minimize idle time of machines
Minimize mean lateness/earliness
Minimize mean tardiness
Minimize number of tardy jobs
Minimize mean queue time
Minimize the number of jobs in the system
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COMPLEXITY OF THE PROBLEM
With n jobs to be processed on m machines the number of possible sequences is (n!)mn 5 10 15 20
m 2 4 5 5
(n!)m 14400 1,73x1026 3.8x1060 8.5x1091
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PRELIMINARY DEFINITIONS
A job shop is characterised byNo of jobs (n)Number of Machines (m)Pattern of arrival of jobs (static/dynamic)Objective of scheduling(minimise
inventory, makespan, maximum tardiness, lateness…)
Sequencing rule (FCFS, LIFO, SPT, LPT, EDD ...)
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DEFINITIONS-I
Job arrivaltime, ai
Start ofprocessing
Completiontime ,Ci
Waiting time, wi
Processing time, ti
Flow time, Fi = wi + ti = Ci - ai = Time job spends on the shop floor, waiting and being processed
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DEFINITIONS II
Job arrivaltime, ti
Start ofProcessing
Completiontime, Ci
Due Date, di
Job lateness, Li = Ci- di (could be positive or negative)Job earliness, Ei = max (0, -Li)Job tardiness, Ti = max (0, Li)
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N/1 PROBLEM
All sequences for the n/1 problem have the same makespan
Therefore other objectives are relevantmean flowtimeaverage inventorymean latenessmean completion time
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RELATIONSHIP BETWEEN F AND OTHER VARIABLES
Fi = Ci -ai = wi + tiLi = Ci - diFrom these equations it is easy to see that a sequence that minimises mean F also simultaneously minimisesmean Completion timesmean Waiting timesmean Lateness
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INVENTORY VARIATION FOR AN ARBITRARY N/1 SEQUENCE
Inventory
1 2 3 n-1 n
Job under process (Total Time T)
n
n-1
n-2
2
1
Avg inventory = [nt1+ (n-1)t2 + … 1 tn]/TAvg inventory I = Area /TSumming horizontal strips:Area = F1 + F2 + … +Fn= n avg Flow timeThus T(avg inventory) = n (avg flow time)
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SPT vs LPT
n
T
LPT
SPT
LPT maximizes what SPT minimises
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SPT RULE
Thus the rule that minimizes mean flow time also minimises the mean inventoryIt is seen that the SPT (Shortest Processing Time Rule) minimisesmean inventory mean flow timemean waiting timemean completion timemean lateness
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AN EXAMPLE
Six jobs with processing times
4, 8 5, 9, 2 and 6 respectively
Due dates 10, 8, 12, 15, 9 and 20 respectively
Solution
The SPT sequence is 5(2), 1(4), 3(5), 6(6), 2(8) , 4(9)
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EXAMPLE (Contd)
The SPT sequence is 5(2), 1(4), 3(5), 6(6), 2(8) , 4(9)
Completion (Flow Times) are
2, 6, 11, 17, 25, 34
Due Dates are job (due date)
5(9), 1(10), 3(12), 6(20), 2(8) , 4(15)
Lateness values are
-7, -4, -1, -3, 17, 19
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RESULTS
SPT sequence: 5 1 3 6 2 4
Mean Flow time: 95/6 =15.833
Average Inventory : (6*95)/(6*34)= 2.794
Mean Lateness: 21/6 =3.5
Mean Tardiness: 36/6 =6
Mean Earliness: 15/6 =2.5
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Task Processing time
Due date
Slack time
1 5 15 10
2 8 10 2
3 6 15 9
4 3 25 22
5 10 20 10
6 14 40 26
7 7 45 38
8 3 50 47
EXAMPLE 2 module 9:Tactical Decisions and Review
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Rule Objective
Mean Flow Time
Weighted Mean Flow time
Mean Lateness
Maximum Tardiness
No of Tardy jobs
Mean Tardiness
SPT MFT,AVG INV,
23.9 29.0 -3.6 22 4 7.8
WSPT WMFT 27.0 27.5 -0.5 36 4 10.6
EDD Max job lateness/tardiness
32.0 31.7 4.5 9 6 5. 0
Hodgson No of tardy jobs
29.1 29.9 1.6 36 2 9.0
SLACK Mean tardiness (heuristic)
32.1 31,1 4.6 9 6 5,0
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n/2 PROBLEM
n job 2 machine
Flowshop
Different sequences now have different completion times (makespan)
Therefore unlike the n/1 problem minimizing the makespan is a legitimate objective
Johnson’s Rule is commonly used to solve the problem
A B
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AN EXAMPLE
Time on M/c A Time on M/c B
Job1 10 2
Job2 5 7
Job3 4 10
Job 4 12 8
Job 5 9 6
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JOHNSON’S SEQUENCE
M/c A
M/c B
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n/3 FLOWSHOP
Notion of dominance
M/c A
M/c B
M/c C
1 10 4 5
2 12 6 2
3 8 8 5
4 9 7 4
5 14 3 8
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n/3 FLOWSHOP
When Dominance does not exist
M/c A
M/c
B
M/c
C
1 10 8 6
2 4 6 9
3 8 4 4
4 6 2 8
5 5 8 3
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COMPUTATIONSM/c A+B M/c B+C
1
2
3
4
5
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COMPUTATIONSM/c A+B M/c B+C
1
2
3
4
5
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2/m/JJOBSHOP
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PRACTICAL SOLUTIONS TO JOBSHOP TRAINING
Priority Dispatching Rules FCFS SPT EDD SLACK RANDOM LRPT (Least Remaining Processing Time) S/OPR (Min Ratio oof job slack time to the number of
operations remaining LCFS DS (Least Dynamic Slack) DS/PT Minimum ratio of Dynamic Slack to remaining
Processing Time
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SUMMARY AND CONCLUSIONS
The complexity of Job Shop Scheduling
n/1 problem
n/2 flow shop problem
n/ 3 problem
2/m/job shop
General job shops
Simulation
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5. Course Summary and Review
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PROJCT MANAGEMENT (CONTENTS)
A. PROJECT MANAGEMENT (19 Lectures)a.1 Project conception and appraisal ( 5 lectures)Concept of a project, historical perspective, various issues: Time, cost, Quality, Project Identification and Screening: Various methods and frameworks, Factors for project appraisal, Criteria for project selection, Financial measures, some examplesa.2 Project Planning ( 4 lectures)Project representation, network concepts, Consistency and Redundancy in Project Networks, Activity on arc representation, concept of scheduling, Critical Path Method, Basic Scheduling with A-O-A, Activity on node representation, Basic Scheduling with A-O-N Networksa.3 Project crashing and Resource considerations ( 5 lectures )Probabilistic Scheduling: Uncertainty and probabilistic considerations in project, PERT, Three-estimate approach, Project Scheduling with Probabilistic Activity Times, Heuristic approach for Linear Time-Cost Tradeoffs in Projects, Resource Profiles and leveling, Limited Resource Allocationa.4 Project Implementation:( 5 lectures ) Considerations in implementation, Project Monitoring and Control with PERT / Cost, Behavioral and human issues, Team Building, Desirable attributes of project leader, computers in project management , Project Completion, Review
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PRODUCTION MANAGEMENT(CONTENTS)b.1 Strategic decisions in production management (5 lectures )
Concept of a production system, historical perspectives on production system, a generalized model of production system, Concept of a life cycle, various stages in life cycle, implications for managerial decision making vis-à-vis life cycle, Financial Evaluation Of Production Related Decisions: Typical Performance Measures of a Production System, Criteria such as net present value, rate of return, Financial Evaluation of Capital Decisions, concept of a decision tree, evaluation of riskb.2 Product and process selection ( 4 lectures )Designing Products and Services: Factors for New product/service introduction, product mix decisions using linear programming approach, stochastic product mix decisionsb.3 Facility Location and Layout ( 4 lectures )Considerations in Plant Location, various models for location (gravity etc.), Process Layouts, Product Layouts, comparison of process and product layout, concept of Assembly Line Balancing, heuristic approaches for assembly line balancing (rank position weight etc.), Cellular Layoutsb.4 Production planning over the short Term Horizon ( 4 lectures )Demand Forecasting, various methods for forecasting (qualitative and quantitative), Aggregate Production Planning (APP), models for APPb.5 Tactical decisions and review (5 lectures )Inventory: necessity, and costs involved, deterministic inventory models, Dependant demand systems, Material Requirements Planning, Scheduling of Job Shops, various heuristics for scheduling, course review
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Project and Production Management
Project Conception and AppraisalProject Management: An OverviewProject Identification and ScreeningProject Appraisal: Part IProject Appraisal: Part IIProject Selection
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Project Management
Project PlanningProject Representation
Consistency and Redundancy in Project Networks
Basic Scheduling with A-O-A Networks
Basic Scheduling with A-O-N Networks
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Project Management
Project Crashing and ResourcesProject Scheduling with Probabilistic Activity TimesLinear Time-Cost Tradeoffs in Projects: A Heuristic ApproachResource Profiles and levelingProject crashing with multiple objectivesLimited Resource Allocation
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Project Management
Project ImplementationProject Monitoring and Control with PERT / Cost
Team Building and Leadership in Projects
Organizational and behavioral issues
Computers in project management
Project Completion and Review
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Project & Production Management
Project Conception and AppraisalProject Management: An OverviewProject Identification and ScreeningProject Appraisal: Part IProject Appraisal: Part IIProject Selection
Project PlanningProject RepresentationConsistency and Redundancy in Project NetworksBasic Scheduling with A-O-A NetworksBasic Scheduling with A-O-N Networks
Project Crashing and ResourcesProject Scheduling with Probabilistic Activity TimesLinear Time-Cost Tradeoffs in Projects: A Heuristic ApproachResource Profiles and levelingProject crashing with multiple objectivesLimited Resource Allocation
Project ImplementationProject Monitoring and Control with PERT / CostTeam Building and Leadership in ProjectsOrganizational and behavioral issuesComputers in project managementProject Completion and Review
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Production Management
Strategic Decisions in Production ManagementIntroduction to Production Systems and a Generalized Model of ProductionLife cycle of a Production System and Major managerial DecisionsPerformance Measures of a Production SystemFinancial Evaluation of Capital Decisions Decision Trees and evaluation of risk
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Production Management
Product and Process SelectionIntroducing New Products and Services I
Introducing new products and services II
Product Mix Decisions
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Production Management
Facility Location and LayoutPlant Location
Process Layouts
Product Layouts and Assembly Line Balancing
Cellular Layouts
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Production Management
Production Over the Medium Term HorizonDemand Forecasting: General considerations
Models for forecasting
Aggregate Production Planning I
Aggregate Production Planning II
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Production Management
Production Over the Medium Term HorizonDemand Forecasting: General considerations
Models for forecasting
Aggregate Production Planning I
Aggregate Production Planning II
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Production Management
Tactical Decisions over the Short Term HorizonInventory considerations and various factors
Inventory modeling
Material Requirements Planning`
Scheduling of Job Shops
Course summary and review
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WHAT IS A PROJECT?
PURPOSEAn undertaking or venture to accomplish some objective or goal
STRUCTURE A set of interrelated jobs whose accomplishment leads to the completion of the project
COMPONENTSJobs or activities consume time and resources and are governed by precedence relations
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PROJECTS AS AGENTS OF CHANGE
State A
State B
Alternative Projects(Paths)
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FEATURES OF PROJECTS
Well defined collection of jobs
Generally non-repetitive, one time effort
Jobs interrelated through precedence
Jobs otherwise independent
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PROJECT FEATURES (Continued)
Jobs consume time and resources
Coordination needed between
individuals, groups & organisations
Constant pressure of conformance to
time/cost /performance goals
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A Project as a Production SystemMass production
Batch Production
Job Production
Q
Quantity to be Made
P (No. of Products or “VARIETY”)
Projects
1
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LIFE CYCLE OF A PROJECT
Selection of the project
Project Planning Scope of work & network development
Basic Scheduling
Time Cost tradeoffs
Resource Considerations in projects
Project Implementation
Project Completion and Audit
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Motivation in Introducing New Products
To satisfy need
For profit
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CONTRIBUTION TO NEW PRODUCT IDEAS
Sales and Marketing (close touch with customer)
Top management (Active listener to visitor and customer feedback)
Production department (limited to production ease and economics)
Research and Development (prompted by new developments in materials & technology)
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GENERATION OF NEW PRODUCT IDEAS
Brain storming (preferably by interdisciplinary team)
Team apprised of Company objectives & long term goals Current economic scenario Preferred field of activity (expertise) Approximate budget for new product
Each one generates ideas which are recorded without criticism or evaluation
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EVALUATION OF NEW PRODUCT IDEAS
The evaluation of the new product ideas could be done on a number of criteria Likely demand and pattern of growth Ease of raw material availability Availability of Production technology Competition and likely market share Likely revenues and costs of operation The product life cycle
An example to illustrate this process is taken up next
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AN EXAMPLE OF SCREENING OF IDEAS
Idea/
factor
Demand Competition
Ease of Raw Mtl
Cost of processing
Likely profit
Score
Computer peripherals
6 3 6 5 6 26
Fast food 8 6 9 7 5 35
Fashion clothing
4 5 7 4 4 24
Soaps and detergents
9 2 7 6 4 28Each factor evaluated on a scale of 1(least desirable) – 10 (most desirable)
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Undesirable outputs
Economic/Social/Political
Environment -dynamic -uncertain
Transformation
FEED BACK
INPUT(S) OUTPUT(S)
-Men
-Machines
-Materials
-Money
-Information
-Energy ----------
Useful Goods or Services
(Effluents, Fumes etc.)
A PRODUCTION SYSTEM AS AN INPUT-OUTPUT SYSTEM
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AN EXAMPLE OF SCREENING OF IDEAS
Idea/
factor
Demand Competition
Ease of Raw Mtl
Cost of processing
Likely profit
Score
Computer peripherals
6 3 6 5 6 26
Fast food 8 6 9 7 5 35
Fashion clothing
4 5 7 4 4 24
Soaps and detergents
9 2 7 6 4 28Each factor evaluated on a scale of 1(least desirable) – 10 (most desirable)
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CUSTOMER NEEDS AND DESIRES
Desires Natural, as hunger,
shelter, love and security
Generated by exposure to circumstances and temptations
(as in advertisements on media, TV,neighbour)
Needs When a desire becomes
strong enough and warrants fulfilment, it becomes a need.
Customer demand is based on real or artificially generated needs
Needs are constantly changing
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MORTALITY OF IDEAS
Screening Economic evaluation Development Testing Commercialization Number
of ideas
Time
35-40 ?
3-24 months ?
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Price Quality
COMPETITION
Reduced Customerlead times satisfaction
NEW CHALLENGES IN PRODUCTION
• More producers• Demanding customers
Greater variety
module 9:Tactical Decisions and Review
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PRODUCTION AS A PART OF THE SUPPLY CHAIN
Transformation process
Vendors Warehouses Retailers
module 9:Tactical Decisions and Review
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CONCLUSIONS
This course has focussed on the Life Cycle issues in Projects and Production Systems
The Strategic, Operational and Tactical Issues in Projects and Production Systems have been discussed
The approach has been on conceptual issues as well as modelling of key processes and decisions
module 9:Tactical Decisions and Review
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module 9:Tactical Decisions and Review
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module 9:Tactical Decisions and Review
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