Session 4

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  • Production and Operations Management - session#4/Summary of Overheads SAV
  • Production and Operations Management - session#4/Summary of Overheads SAV
  • Production and Operations Management - session#4/Summary of Overheads SAV
  • Production and Operations Management - session#4/Summary of Overheads SAV
  • Production and Operations Management - session#4/Summary of Overheads SAV
  • Production and Operations Management - session#4/Summary of Overheads SAV
  • Production and Operations Management - session#4/Summary of Overheads SAV
  • Production and Operations Management - session#4/Summary of Overheads SAV
  • Production and Operations Management - session#4/Summary of Overheads SAV
  • Production and Operations Management - session#4/Summary of Overheads SAV
  • Production and Operations Management - session#4/Summary of Overheads SAV
  • Production and Operations Management - session#4/Summary of Overheads SAV
  • Production and Operations Management - session#4/Summary of Overheads SAV
  • Production and Operations Management - session#4/Summary of Overheads SAV
  • Production and Operations Management - session#4/Summary of Overheads SAV
  • Production and Operations Management - session#4/Summary of Overheads SAV
  • Production and Operations Management - session#4/Summary of Overheads SAV
  • Production and Operations Management - session#4/Summary of Overheads SAV
  • Production and Operations Management - session#4/Summary of Overheads SAV
  • Production and Operations Management - session#4/Summary of Overheads SAV
  • Production and Operations Management - session#4/Summary of Overheads SAV
  • Production and Operations Management - session#4/Summary of Overheads SAV
  • Production and Operations Management - session#4/Summary of Overheads SAV
  • Production and Operations Management - session#4/Summary of Overheads SAV
  • Production and Operations Management - session#4/Summary of Overheads SAV
  • Production and Operations Management - session#4/Summary of Overheads SAV
  • Production and Operations Management - session#4/Summary of Overheads SAV
  • Production and Operations Management - session#4/Summary of Overheads SAV
  • Session 4

    1. 1. Lesson 4 <ul><li>Production-Planning Systems: </li></ul><ul><li>Aggregate Planning and </li></ul><ul><li>Master Production Scheduling </li></ul>
    2. 2. Overview <ul><li>Production-Planning Hierarchy </li></ul><ul><li>Aggregate Planning </li></ul><ul><li>Master Production Scheduling </li></ul><ul><li>Types of Production-Planning and Control Systems </li></ul>
    3. 3. Lesson 4 <ul><li>Readings: </li></ul><ul><ul><li>Textbook: chapter 9 </li></ul></ul><ul><li>Homework : </li></ul><ul><ul><li>Review and discussion questions: </li></ul></ul><ul><ul><li>4, 5, 7, 8, 9, 15, 18, 19 </li></ul></ul><ul><ul><li>Problems: </li></ul></ul><ul><ul><li>1, 3, 4, 8, 9, 10, 14, 15 </li></ul></ul>
    4. 4. Learning Objectives <ul><li>After completing this lesson you should be able to </li></ul><ul><li>explain what aggregate planning is and how it is useful </li></ul><ul><li>identify the variables decision makers have to work with in aggregate planning and some of the possible strategies they can use </li></ul><ul><li>prepare aggregate plans and compute their costs </li></ul><ul><li>describe the basic concepts of master production scheduling </li></ul><ul><li>prepare an MPS </li></ul><ul><li>explain the differences between the Push and Pull systems in Production Planning and Control </li></ul>
    5. 5. Production Planning Hierarchy Master Production Scheduling Production Planning and Control Systems Pond Draining Systems Aggregate Planning Push Systems Pull Systems Focusing on Bottlenecks Long-Range Capacity Planning
    6. 6. Production Planning Horizons Master Production Scheduling Production Planning and Control Systems Pond Draining Systems Aggregate Planning Push Systems Pull Systems Focusing on Bottlenecks Long-Range Capacity Planning Long-Range (years) Medium-Range (6-18 months) Short-Range (weeks) Very-Short-Range (hours - days)
    7. 7. Long-range Capacity Planning <ul><li>Long-range capacity planning is necessary to develop facilities & equipment, major suppliers, and production processes and become constraints on the medium- and short-range planning </li></ul>
    8. 8. Forecasting long-range Capacity Demand <ul><li>Consider the life of the input (e.g. facility is 10-30 yr) </li></ul><ul><li>Understand product life cycle as it impacts capacity </li></ul><ul><li>Anticipate technological developments </li></ul><ul><li>Anticipate competitors’ actions </li></ul><ul><li>Forecast the firm’s demand </li></ul>
    9. 9. Aggregate Planning
    10. 10. Why Aggregate Planning Is Necessary <ul><li>Fully load facilities and minimize overloading and underloading </li></ul><ul><li>Make sure enough capacity available to satisfy expected demand </li></ul><ul><li>Plan for the orderly and systematic change of production capacity to meet the peaks and valleys of expected customer demand </li></ul><ul><li>Get the most output for the amount of resources available </li></ul>
    11. 11. Aggregate Demand <ul><li>Total demand for all products. Must use the same unit of measure to facilitate planning at the highest level of a firm </li></ul><ul><li>When the types of items produced are similar, an aggregate production unit can correspond to an “average” item </li></ul><ul><li>When many different types of items are produced it would be more appropriate to consider aggregate units in terms of: weight (tons of steel), volume (gallons of gasoline), amount of work required (labor-hours, machine-hours), or dollar value </li></ul>
    12. 12. Inputs to Aggregate Planning <ul><li>A forecast of aggregate demand covering the selected planning horizon (3-18 months) </li></ul><ul><li>The alternative means available to adjust short- to medium-term capacity, to what extent each alternative could impact capacity and the related costs </li></ul><ul><ul><li>Examples: cost of inventory, back orders, Hiring / firing, Overtime, Subcontracting </li></ul></ul>
    13. 13. Inputs to Aggregate Planning <ul><li>The current status of the system in terms of workforce level, inventory level and production rate </li></ul><ul><li>Company policy regarding </li></ul><ul><ul><ul><li>workforce changes (layoffs, overtime) </li></ul></ul></ul><ul><ul><ul><li>subcontracting </li></ul></ul></ul><ul><ul><ul><li>inventory levels </li></ul></ul></ul><ul><ul><ul><li>back orders </li></ul></ul></ul>
    14. 14. Outputs <ul><li>A production plan: aggregate decisions for each period in the planning horizon about </li></ul><ul><ul><li>workforce level </li></ul></ul><ul><ul><li>inventory level </li></ul></ul><ul><ul><li>production rate </li></ul></ul><ul><li>Projected costs if the production plan was implemented </li></ul>
    15. 15. Medium-Term Capacity Adjustment Options <ul><li>Subcontract </li></ul>Workforce level Utilization of the work force Inventory
    16. 16. Medium-Term Capacity Adjustment Options <ul><li>Workforce level </li></ul><ul><ul><li>Hire or layoff full-time workers </li></ul></ul><ul><ul><li>Hire or layoff part-time workers </li></ul></ul><ul><ul><li>Hire or layoff contract workers </li></ul></ul><ul><li>Utilization of the work force </li></ul><ul><ul><li>Overtime </li></ul></ul><ul><ul><li>Idle time (undertime) </li></ul></ul><ul><ul><li>Reduce hours worked </li></ul></ul>
    17. 17. Medium-Term Capacity Adjustment Options <ul><li>Inventory level </li></ul><ul><ul><li>Finished goods inventory </li></ul></ul><ul><ul><li>Backorders/lost sales </li></ul></ul><ul><li>Subcontract </li></ul>
    18. 18. Aggregate Planning Approaches <ul><li>Informal or Trial-and-Error Approach </li></ul><ul><li>Mathematically Optimal Approaches </li></ul><ul><ul><li>Linear Programming </li></ul></ul><ul><ul><li>Linear Decision Rules </li></ul></ul><ul><li>Computer Search </li></ul><ul><li>Heuristics </li></ul>
    19. 19. Strategies for the Informal Approach <ul><li>Matching Demand </li></ul><ul><li>Level Capacity </li></ul><ul><ul><li>Buffering with inventory </li></ul></ul><ul><ul><li>Buffering with backlog </li></ul></ul><ul><ul><li>Buffering with overtime or subcontracting </li></ul></ul><ul><li>Mixed strategies: Combing elements from the above pure strategies </li></ul>
    20. 20. Matching Demand Strategy <ul><li>Capacity (Production) in each time period is varied to exactly match the forecasted aggregate demand in that time period </li></ul><ul><li>Capacity is varied by changing the workforce level </li></ul><ul><li>Finished-goods inventories are minimal </li></ul><ul><li>Labor and materials costs tend to be high due to the frequent changes </li></ul><ul><li>Employee moral can suffer </li></ul>
    21. 21. Developing and Evaluating the Matching Production Plan <ul><li>Production rate is dictated by the forecasted aggregate demand </li></ul><ul><li>Convert the forecasted aggregate demand into the required workforce level using production time information </li></ul><ul><li>The primary costs of this strategy are the costs of changing workforce levels from period to period, i.e., hirings and layoffs </li></ul>
    22. 22. Level Capacity Strategy <ul><li>Capacity (production rate) is held level (constant) over the planning horizon </li></ul><ul><li>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 </li></ul>
    23. 23. Pure Strategies
    24. 24. Choosing a Strategy <ul><li>Two important factors to be considered when selecting an aggregate plan </li></ul><ul><li>Cost </li></ul><ul><li>Company policy </li></ul><ul><li>Aggregate planners seek to match supply and demand within constraints imposed by policies and at minimum cost. </li></ul>
    25. 25. Aggregate planning process <ul><li>1. Sales forecast for each product: the quantities to be sold in each time period (weeks, months, or quarters) over the planning horizon (6 -18 months) </li></ul><ul><li>2. Total all the individual product or service forecasts into one aggregate demand </li></ul><ul><li>3. Transform the aggregate demand for each time period into production resource requirements (workers, materials, machines, etc.) </li></ul>
    26. 26. Aggregate planning process <ul><li>4. Develop alternative resource plans to support the cumulative aggregate demand and compute the cost for each. </li></ul><ul><li>5. Select the best alternative which satisfies aggregate demand and best meets the organization’s objectives. </li></ul>
    27. 27. Example <ul><li>Aggregate Demand </li></ul><ul><li>J F M A M J </li></ul><ul><li>200 200 300 400 500 200 </li></ul><ul><li>Capacity: Regular work-force can meet the average demand (1800 / 6 = 300 units / month) </li></ul><ul><li>Initial Inventory = 0 = Ending inventory </li></ul><ul><li>Costs: Regular time: $ 2 / unit </li></ul><ul><ul><li>Overtime $ 3 / unit </li></ul></ul><ul><ul><li>Subcontracting $ 6 / unit </li></ul></ul><ul><ul><li>Inventory (average)$1 / unit / month Backorder $ 5/ unit / month </li></ul></ul>
    28. 28. Example <ul><li>Policy: Steady rate of regular time-output </li></ul><ul><li>Use inventory, backordering, or subcontracting to meet uneven demand Plan 1 </li></ul>
    29. 29. Example: plan 1
    30. 30. Example <ul><li>Policy: Chasing demand </li></ul><ul><ul><li>Use inventory, backordering, overtime, or subcontracting to meet uneven demand </li></ul></ul><ul><ul><li>Maximum over time = 50 units / month </li></ul></ul><ul><li>plan 2 </li></ul>
    31. 31. Example: plan 2
    32. 32. Master Production Scheduling (MPS)
    33. 33. Introduction <ul><li>The MPS is the plan that states what is to be produced, how many are to be completed and when they are to be completed. </li></ul><ul><li>As contrasted with aggregate plans, MPS is more detailed: it deals with individual products and when they will be produced usually week by week </li></ul>
    34. 34. Objectives of MPS <ul><li>Determine the quantity and timing of completion of end items over a short-range planning horizon. </li></ul><ul><li>Schedule end items (finished goods and parts shipped as end items) to be completed promptly and when promised to the customer. </li></ul><ul><li>Avoid overloading or underloading the production facility so that production capacity is efficiently utilized and low production costs result. </li></ul>
    35. 35. Time Fences <ul><li>The rules for scheduling </li></ul>No Change +/- 5% Change +/- 10% Change +/- 20% Change Frozen Firm Full Open 1-2 weeks 2-4 weeks 4-6 weeks 6+ weeks
    36. 36. Time Fences <ul><li>The rules for scheduling: </li></ul><ul><ul><li>Do not change orders in the frozen zone </li></ul></ul><ul><ul><li>Do not exceed the agreed upon percentage changes when modifying orders in the other zones </li></ul></ul><ul><ul><li>Try to level load as much as possible </li></ul></ul><ul><ul><li>Do not exceed the capacity of the system when promising orders. </li></ul></ul>
    37. 37. Developing an MPS <ul><li>Using input information </li></ul><ul><ul><li>Customer orders (end items quantity, due dates) </li></ul></ul><ul><ul><li>Forecasts (end items quantity, due dates) </li></ul></ul><ul><ul><li>Inventory status (balances, planned receipts) </li></ul></ul><ul><ul><li>Production capacity (output rates, planned downtime) </li></ul></ul><ul><li>Schedulers place orders in the earliest available open slot of the MPS </li></ul>
    38. 38. Developing an MPS <ul><li>Schedulers must: </li></ul><ul><ul><li>estimate the total demand for products from all sources </li></ul></ul><ul><ul><li>assign orders to production slots </li></ul></ul><ul><ul><li>make delivery promises to customers, and </li></ul></ul><ul><ul><li>make the detailed calculations for the MPS </li></ul></ul><ul><li>As orders are slotted in the MPS, the effects on the production work centers are checked </li></ul><ul><ul><li>Rough cut planning - identify underloading or overloading of capacity </li></ul></ul>
    39. 39. Example <ul><li>A company produces three different products on a produce-to-stock basis. The demands for these products over the 8-week planning horizon are: </li></ul>
    40. 40. Example <ul><li>The safety stock levels, minimum lot size, and beginning inventory levels for the products are: </li></ul><ul><li>Prepare the next 8-week MPS. Assume ample production capacity exists </li></ul>
    41. 42. Example (continued) <ul><li>Assume that the final assembly line has a weekly capacity of 12000 hours available. Each product A requires 0.88 hours of final assembly capacity, and each product B and C require 0.66 and 1.08 hours respectively. </li></ul><ul><ul><li>Compute the actual final assembly hours required to produce the MPS for three products ( referred to as the load) . </li></ul></ul><ul><ul><li>Compare the load to the final assembly capacity available in each week. </li></ul></ul>
    42. 43. Example (continued) <ul><li>Sufficient final assembly capacity exists to produce the MPS </li></ul><ul><li>However, the MPS underloads final assembly in weeks 4, 6, 7 and 8 </li></ul><ul><li>What changes to the MPS would you recommend? </li></ul>
    43. 44. Demand Management <ul><li>Review customer orders and promise shipment of orders as close to request date as possible </li></ul><ul><li>Update MPS at least weekly.... work with Marketing to understand shifts in demand patterns </li></ul><ul><li>Produce to order..... focus on incoming customer orders </li></ul><ul><li>Produce to stock ..... focus on maintaining finished goods levels </li></ul><ul><li>Planning horizon must be as long as the longest lead time item </li></ul>
    44. 45. Types of Production-Planning and Control Systems
    45. 46. Types of Production-Planning and Control Systems <ul><li>Pond-Draining Systems </li></ul><ul><li>Push Systems </li></ul><ul><li>Pull Systems </li></ul><ul><li>Focusing on Bottlenecks </li></ul>
    46. 47. Pond-Draining Systems <ul><li>Emphasis on holding inventories (reservoirs) of materials to support production </li></ul><ul><li>Little information passes through the system </li></ul><ul><li>As the level of inventory is drawn down, orders are placed with the supplying operation to replenish inventory </li></ul><ul><li>May lead to excessive inventories and is rather inflexible in its ability to respond to customer needs </li></ul>
    47. 48. Push Systems <ul><li>Use information about customers, suppliers, and production to manage material flows </li></ul><ul><li>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 </li></ul><ul><li>Can result in great reductions of raw-materials inventories and in greater worker and process utilization than pond-draining systems </li></ul>
    48. 49. Pull Systems <ul><li>Look only at the next stage of production and determine what is needed there, and produce only that </li></ul><ul><li>Raw materials and parts are pulled from the back of the system toward the front where they become finished goods </li></ul><ul><li>Raw-material and in-process inventories approach zero </li></ul><ul><li>Successful implementation requires much preparation </li></ul>
    49. 50. Focusing on Bottlenecks <ul><li>Bottleneck Operations </li></ul><ul><ul><li>Impede production because they have less capacity than upstream or downstream stages </li></ul></ul><ul><ul><li>Work arrives faster than it can be completed </li></ul></ul><ul><ul><li>Binding capacity constraints that control the capacity of the system </li></ul></ul><ul><li>Optimized Production Technology (OPT) </li></ul>
    50. 51. Wrap-Up <ul><li>Push systems dominate and can be applied to almost any type of production </li></ul><ul><li>Pull systems are growing in use. Most often applied in repetitive manufacturing </li></ul><ul><li>Few companies focusing on bottlenecks to plan and control production. </li></ul>

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