Tutoring Fundamentals of OM - UniBG of OM_2017.pdf · Tutoring Fundamentals of OM Operations...

Tutoring Fundamentals of OM

Operations Management

Dr. Alice Rondini

D. Alice Rondini Università degli Studi di Bergamo – Riproduzione Riservata 1

Agenda

Università degli Studi di Bergamo – Riproduzione Riservata 2

Introduction to production systems

Representation and classification of production systems

Production costs

Inventory management

Production Planning and Control

Agenda


• Production systems: objectives

• Production systems: generalities

• Production systems: operating conditions


Production costs




The production system

A production system is traditionally defined as a system that uses resources to transform

inputs into desired outputs.


Resources

to transform

Materials

Information

Customers

Staff and facilities/

equipment

Transformation

resources

INPUT Production process OUTPUT

Goods

and services

Environment

Production System: objectives


(HW)

Technological

choices

Choices of

management

tools/instruments

(SW)

Organisational

Choices

PRODUCTION

SYSTEM

OBJECTIVES

1. Productivity

2. Flexibility

3. Quality

4. Service

Performance

Internal External

Operating

Conditions

Production system: objectives


Internal

PerformancesExternal Performances

Productivity QualityCustomer

serviceFlexibility

Capital Project Pre and after sale Product

Labor Conformity Timeliness Mix

Materials Reliability Punctuality Volume

Plant/equipment Maintenability Regularity Plan

Technical

supportAvailability

It is possible also to measure the productivity of individual factors:

Productivity of capital:

Productivity of labor:

Productivity of materials:

These monetary indicators are built on budgetary data and have a very low diagnostic value

Productivity


PQ

K L M

0

PQ

KK 0

PQ

LL 0

PQ

MM 0

The productivity can be expressed as:

Q0 represents the output of the production system, expressed in monetary units (sales + Inventories -

Inventories initials),

K is the cost of capital, L is the cost of labor, M is the cost of materials

Overall Equipment Effectiveness (OEE)

OEE is an indicator to measure the effectiveness of the production plants

OEE = (A * S) * (Rv * Rq) * Rc

Availability

Efficiency

Quality

Availability takes into account the time loss due to failure and set-up

Quality takes into account the time loss due to scrap production

Efficiency takes into account the time loss due to low plant utilization and low production rate


Production System objectives: Quality


Quality

Project Conformity Reliability MaintainabilityTechnical support

Quality is the set of properties

and characteristics of a

particular product or service

that can satisfy the customer's

expressed or unexpressed

needs (ISO-UNI)

Characteristic of a

project to adjust

optimally to

market

expectations

Ability to deliver

products in

accordance with

the design

specifications

The ability of a

product / process to

maintain its

functional

properties

The ability of a

product / process

to recover the

operating

characteristics,

after having lost

them

The ability of a

production system to

provide an effective

technical support to

the use and

maintenance of

products

Production System objectives: Service


Service

Pre and after sale

Readiness (timeliness)

Punctuality Regularity Availability

Ability of a production

system to meet customer

needs in relation to extrinsic

characteristics of the product

/ service

Customer’s

support

processes/

services before

and after the

sale of the

product / service

Ability to

provide what

is required in

a short time

Ability to

minimize the

number and

size of orders

that are

delivered late

Predictability

of delivery

times

Ability to adapt

the delivery

times to not

ordinary

customer's

requests

The Production System objectives: Flexibility


Flexibility

ProductMix

(operational)

Volume

(elasticity)

Plan (management)

Ability to

introduce a new

product in a

short time and

with a low cost

Ability to produce

a mix of products

at short

changeover times

and with low costs

Ability to change

the production

volume without

significant changes

in the unit cost of

production

Ability to change

rapidly the

production plan to

deal with changes /

emergencies

The capacity of the production

system to respond to external

(exogenous) and internal

(endogenous) changes with

short and inexpensive

transients

The production system: operating conditions


(HW)

Technological

choises

Choice of

management

tools/instruments

(SW)

Organisational

Choises

Performance

Internal External

Operating

conditions

These conditions

describe the operating

characteristics of the

production system

Operating conditions of a production system


These are fundamental values that summarize the status of a

production system in different units of measurement

Set-up time

Lead Time

WIP (Work In Process)

Operating condition = state of a process that can influence a

given performance

Set-up time


It refers to the time required to get a machine, a device or a plant ready to produce a new

product (different from the previous produced and for which the equipment was set).

The set-up is linked, depending on every single situation and technology, for example to the

need to change tools (in machining), to make washing (in chemical production), to make

adjustments, etc..

The set-up entails a waste of productive time: the larger is the size of the set-up, the

higher is the waste of productive time.

Lead Time


In the most general sense the Lead Time is the time required to carry out an

operation or a set of operations

- Lead Time of supply: interim between the need for raw materials and the instant when

raw materials ordered are in the warehouse.

- Lead Time in storage: interim between when the material is placed in the warehouse

and when it is withdrawn

- Process Lead Time: interim between when you know about an order of production and

the related raw materials are available in the warehouse, and when the finished products

are stocked in the final warehouse.

Lead time vs. Cycle Time

Cycle time = max time spent at any station

1 2 3

4 min 5 min 4 min

Process Lead time = 4 + 5 + 4 = 13

Cycle time = max (4, 5, 4) = 5

ciclo

rateT

TH1


Throughput rate= The number of flow units going through the business process per unit time

WIP- Work in Process


WIP optimizes the use of machines, but it hides the problems of the factory, immobilizes the materials

and takes up space.

Before removing it, it is important to measure it.

To do so it is necessary to know:

the product structure (Bill of Materials)

the amount of each component (coefficient of use)

its relative value

the time of production / supply

the lot size

the delivery date

WIP (Work In Process): can be defined as the amount of materials that are involved in the

production process as raw materials, semi-finished or finished products. The WIP can also be

measured as hours of work conferred to the materials

Agenda



• Representation of a production system

• 3 axes classification

• Wortman classification

Production costs




Representation of a Production System


There are three ways to represent a production system:

1. STRUCTURAL APPEARANCE

2. PROCESS FLOWCHARTING

3. PROCEDURAL ISSUES

Structural appearance


It statically describes the physical set of units of a production system

The representation adopted is the layout. It represents on a map the allocation of all the technological

resources that are part of a production system.

It gives an idea of the physical layout of the various operating stations in the system.

Process Flowcharting


Process flowcharting is the use of a diagram to present the major elements of a process. It can be qualitative or quantitative.

It highlights the logical sequence of all the phases of a production system

It is an ideal methodology to analyze a process.

These basic elements can include:

• tasks or operations• flows of materials or customers• decision points• storage areas or queues.

Process Flowchart Symbols (ASME)


Operations

Inspection

Transportation

Delay

Storage

D

The procedural aspect


It emphasizes the operationalaspects, describing the variousfunctions and activities thatconstitute the operatingprocedure.

The typical instrument is theFlow-Chart

3-axis classification


Nature of the process

Technological Axis

Demand Fulfillment

Market Axis

Production methods

Repetitive

Single

Unitary Lot-size Continuous

Production on

forecasting

Production

to order

Production

Process

Plants

Manufacturing

Assembly

Management Axis

Technological Axis


Process plants Production

Technological

characteristics

‒ Irreversible chemical and

physical changes

‒ Bound technological cycle

‒ High relevance and criticality of

technological process

parameters

‒ High automation

‒ Physical and morphological changes can be irreversible (manufacturing) or not (assembling)

‒ Technological cycle not bound

Cost structure ‒ High plant and automation costs

‒ Low labor costs‒ High energy and maintenance

costs

‒ Manufacturing: high fixed cost and

variable labor costs

‒ Assembly: low fixed costs and high

labor costs

Example Steel, paper, cement, chemical pharmaceutical

Manufacturing: machining (turning,

milling,…)

Assembly: automotive, household

appliance

Market Axis


Production based on

forecasting

Production based on

orders (repetitive)

Production based on

orders (single)

Lead time Higher than the time

customers are willing

to wait

Lower than the time

customers are willing to

wait

Lower than the time

customers are willing to

wait

Products

characteristics

‒ Standard products‒ High and regular

demand volume

‒ Catalogue products: high range of products, but repetitiveconsumption

‒ Production starts after customer order

‒ Infinitive range of products: customersdefine the products features

‒ No repetitive consumption

‒ Design and engineering starts after the customer order

Example Grocery, householdappliance

Machinery Boat, industrial plants,

custom-made suit

Management Axis


Unitary production (one

of a kind production)

Lot-size production Continue

manufacturing

production

Characteristics ‒ Production of the exact

amount requested by

the customer

‒ Product consumption

not repetitive and not

predictable

‒ Not relevant set up cost

‒ The lot-size does not

depend directly on the

amount requested by the

customer, but it is based

on the characteristics of

the production/logistics

system

‒ Set up between two lots

‒ Product consumption is

repetitive

‒ The remaining quantity is

stored in the warehouse

for future order

‒ Single product

Example Boat, industrial plants,

custom-made suit

Printing, painting, textile,machining

Automotive, foundry

Wortmann Classification


FORNITORI

CLIENTI

MTS

ATO

MTO

PTO

ETO

Production based on Forecast

Production based on Order

CODP - Customer Order Decoupling Point

ENGINEER - PURCHASE - MAKE - ASSEMBLY - DELIVERY

SU

PP

LIE

RS

CU

ST

OM

ER

S

Agenda



Production costs




Classification of costs


COSTS

VARIABLE FIXED/STATIONARY

− Change according to

volume variation − Do not change at the volume

variation (within limits)

Variable costs


Variable costs are:

the cost of the raw materials

the cost of direct material of consumption

labor costs (if flexible)

the cost of energy

Fixed costs


Fixed costs are:- the cost of planned maintenance- the cost of fixed direct workforce (not flexible)- the depreciation of equipment- factory overheads

Agenda



Production costs




Inventory Management


- In the forecasting management the demand is not known a priori with

certainty, but it is sure only when it occurs.

- The demand shall be considered as a random variable. To ensure the

presence of material, it is necessary to have stocks.

Stock = any tangible goods (with the exception of building, plants and

transports) bought by the company and stored in a warehouse waiting to be

used.

Inventory Management


Manage inventory means:

- Decide what to order

- Decide how much to order

- Decide when to order

Example of methods:

- Reorder point: an order of a fixed quantity (EOQ) is placed when the stock reaches the reorder point

- Fixed Time-Period: an order of a variable quantity is placed in pre-determined intervals (such as a week or a month)

Reorder Point

0 Lead

timeOrder

Placed

Order

Received

TimeLead

timeOrder

Placed

Order

Received

Inve

nto

ry L

eve

l

Reorder point

Order qty


Main assumptions

-Demand is known with certainty

-Demand is relatively constant over

time

-No shortages are allowed

-Lead time for the receipt of orders

is constant

-The order quantity is received all at

once

-Economic Order Quantity (EOQ)

fixed quantity ordered

Reorder point: the EOQ Cost Curves


Ordering Cost

Order Quantity

Annual

cost ($)

Slope = 0

Minimum

total cost

Optimal order

Total Cost

Carrying Cost

The Economic Order Quantity (EOQ) is the quantity that minimizes the total cost

Reorder Point With A Safety Stock

Safety stock: extra stock that is maintained to mitigate risk of stock-out (inventory shortage)

due to uncertainties in supply and demand.

Reorder point

0

Inve

nto

ry le

ve

l

Time

Safety stock

LT LT


Fixed time period


Agenda



Production costs



• Aggregate Production Planning (APP)

• Master Production Schedule (MPS)

• Material Requirement Planning (MRP)

• Scheduling


Production Planning and Control: tasks


Make available all the information needed to:

Efficiently and effectively manage the flow of materials

Optimize the use of manpower and machinery

Coordinate internal activities with suppliers in order to get what

is needed

Communicate with customers to find the market needs

Production Planning and Control: objectives


To allow deliveries respecting the planned Lead Time

To ensure punctuality and timeliness in delivery

To keep the values of storage within acceptable limits

To ensure high utilization of machines, equipment, workforce

and materials

Planning takes into account materials and production resources

Levels of PPC

There are 5 levels of PPC, each of them

have different:

Objective

Planning horizon: the amount of time the

company will look into the future

Time bucket: planning defines what to

do in different "time periods" in the

planning horizon

Detail level

Planning frequencyDetail Scheduling

Material Requirement Plan (MRP)

Master Production Schedule (MPS)

Aggregate Production Planning (APP)

Strategic Business Plan


Detail level of PPC


Detail level

Planning horizon

Scheduling Labor, Materials, Machines

Strategic Business Plan production line

Aggregate Production Planning (APP) product family

Master Production Schedule – MPS specific product

Material Requirements Planning – MRP

product components

Production

control

At each level it must be defined:

The "priority" for what, how and when you

have to produce

The required and available capacity

How the differences between demand and

capacity can be solved

Characteristics of the PPC steps


Phase Input Output Horizon Constraints Objectives

Aggregate

Production

Planning

(APP)

Strategy

Target sales

Product Families

Production budget Many Years /

Multi years

Production

capacity

Staff

resources

Predisposition of the

necessary resources

(plants, MO, MP)

Make or Buy decisions

Material

Production

Scheduling

(MPS)

Data on:

Orders acquired

Sales Forecasting

Macro-cycles

Resources

Availability

Costs

Principal Plan

Production- Master

Production Schedule

(MPS)

6 – 12

months

Production

capacity

Staff

resources

Outsourcing

Stocks

Customer Satisfaction

Containment of

production costs

Resource Usage level

Minimization of fixed

assets

Material

Requirement

Plan

MPS

Stocks

WIP

Loops

Plan purchases /

production timed

7 – 30 days Resource Minimization of costs

Scheduling Time production Launches into

production

Detailed plan

activities

Plan staff

1 – 7 days Resource Punctuality

Quality

Production

control

Actual results of

production

Cost information

Reports, progress

indicators,

performance and cost

Various (at

will)

//// Progress Control

Assessment and

Diagnosis

Levels of PPC


Detail Scheduling





Aggregate Production Plann (APP)


The aggregate production plan (APP) shows in aggregate terms the

mission that the production has to achieve to meet the overall company

objectives

The APP is not the forecast of the demand, but the forecast of the

production

The APP provides the input to the following MPS: the sum of the detailed

MPS should match the APP



It provides the production plan that fulfils the market demand, minimizing costs and taking into account the following company constraints:

- Regular production capacity

- Overtime production capacity

- Stocks

- External production capacity

Outputs


- A production plan: aggregate decisions for each time bucket in the planning horizon about- workforce level

- inventory level

- production rate

- Projected costs if the production plan was implemented

Pure Chase and Pure Level Strategies


Levels of PPC

Detail Scheduling






The Master Production Schedule


The master production schedule (MPS) specifies which products have to be produced in the different time buckets of the planning horizon, in which quantity and when they have to be available in the warehouse

Objectives:

- Minimize costs

- Verify production capacity

- Facilitate order negotiation (ATP - Available To Promise)

Not confirmed

Customer orders

Salesforecasting

Formulation

MPSMPS

Stock

Confirmed

Customer orders

Demand

The master schedule (MPS)


Example of an MPS


Time bucket 1 2 3 4 5 6

Forecasted

demand75 50 30 40 70 20

Customer

order80 45 40 50 50 5

Project

Available50 70 20 80 30 60 40

MPS 100 100 100

ATP 25 10 45

Levels of PPC

Detail Scheduling






MRP Inputs & Outputs


Material

Requirements

Planning

Master Production Schedule

Planned Order Releases

Work Orders Purchase Orders Rescheduling Notices

BOM

Lead timeInventory

Computerized production planning system that aims at defining:- What to produce/order

- How much to produce/order

- When produce/order

Example of MRP


Time bucket 1 2 3 4 5 6 7 8

Gross requirements 0 50 80 10 0 60 10 25

Availability (stock) 15 (15) (15) 0 0 0 0 0 0

Scheduled receipts 0 0 0 0 0 0 0 0

Net requirements 0 35 80 10 0 60 10 25

Lot size 0 35 80 10 0 60 10 25

Planned order

releases35 80 10 0 60 10 25 0

Levels of PPC


Detail Scheduling





Scheduling

The scheduling specifies what, how much, when and where to produce considering:- A single lot of a single product in a single machine

- Very short time horizon (1 week)

- Short time bucket (day or hour)

- Data: planned production order (MRP), resource availability, current state of the production system

It is the last stage of planning before production occurs


Objectives in Scheduling


- Minimize average lateness

- Minimize average flowtime

- Minimize number of late jobs

- Maximize machine or labor utilization

- Minimize idle time

- Minimize work-in-process inventory

- Minimize set up time

- …

Critical aspects


Big quantity of technological and management data to consider

Uncertainty of the work dataVariability (es. product versions, urgencies, ecc.)

Unforeseeable factors (es. breakdown)

Hazardous factors (es. manufacture time, rendering, ecc.)

Difficulty in defining the objectives Is it better to aim at efficiency (es. saturation of machineries, reduced WIP, ...) or at

efficacy (reduced time of completion, minimizing of delays…)?

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