Planning Production Activity

1. Planning Production Activity Preview Planning Manufacturing Facilities Quantitative Tools in Production Planning Production Planning and Control Flexible Manufacturing Systems Assoc.Prof.Dr.B.G.Çetiner

2. Planning Production Activity Planning Manufacturing Facilities Plant Location: 7 Basic Steps in locating and building every new plant 1. Establish the need for a new plant 2. Determine best geographical area based on needs 3. Establish the requirements 4. Screen many communities 5. Pinpoint few communities for detailed study 6. Select the best location 7. Build the plant Assoc.Prof.Dr.B.G.Çetiner

3. Planning Production Activity Planning Manufacturing Facilities Plant Location Some of the factors affecting choice of region * Transportation (highway, rail, air, water) * Labor (supply, skill level, local wages, and attitudes) * Geographical location (raw materials, customers etc) * Utilities (supply and cost of water, electricity etc) * Business Climate (taxes, pollution controls, community) * Comfortableness (Climate, educational facilities etc) * Plant Sites (land cost etc) Assoc.Prof.Dr.B.G.Çetiner

4. Planning Production Activity Planning Manufacturing Facilities Plant Location Most important factors for plant location will vary with industry * For producing the bricks, plant has to be close to raw material * Aluminum production needs cheap electricity * High-technology electronic firms have tended to cluster together with technical professionals and educational institutions * Clothing manufacturers look for lower labor-cost areas Assoc.Prof.Dr.B.G.Çetiner

5. Planning Production Activity Planning Manufacturing Facilities Plant Design Nature of plant and its arrangement on the site Multistory plants: Conserve land area, permit use of gravity flow, and cheaper to heat Singlestory plants: More flexible, permit lighter foundations. Assoc.Prof.Dr.B.G.Çetiner

6. Planning Production Activity Planning Manufacturing Facilities Plant Layout Try to achieve most effective arrangement of physical facilities and personnel for making a product. Product Layout: Machines and personnel are arranged along the production line so minimum travel is obtained between processing steps Process Layout: All machines or activity of a particular type are located together. Useful for job-shop environment Assoc.Prof.Dr.B.G.Çetiner

7. Planning Production Activity Planning Manufacturing Facilities Plant Layout Try to achieve most effective arrangement of physical facilities and personnel for making a product. Fixed-position Layout: Product remains stationary. (for example; shipbuilding or mass construction) Group Technology: A set of products requiring similar processing equipment is identified, and a small group of the machines needed to make this set of similar products is placed together. Assoc.Prof.Dr.B.G.Çetiner

8. Planning Production Activity Plant Layout Product A 1 2 3 4 5 Planning Milling Grinding Drill Inspection Press Shipping Receiving Product B III III IV V Drill Turning Milling Painting Inspection Press Assoc.Prof.Dr.B.G.Çetiner

9. Product A Product B Planning Production Activity Plant Layout Planning Turning Grinding 1 3 II Shipping Receiving Painting 2 IV 4 III Drill Press I V 5 Milling Inspection Assoc.Prof.Dr.B.G.Çetiner

10. Planning Production Activity Quantitative Tools in Production Planning Economic Order Quantity (EOQ) to Inventory Break-Even Charts Learning Curves Assoc.Prof.Dr.B.G.Çetiner

11. Planning Production Activity Quantitative Tools in Production Planning Inventory Inventory Level Production Production Problem Assoc.Prof.Dr.B.G.Çetiner

12. EOQ= Planning Production Activity Quantitative Tools in Production Planning Economic Order Quantity (EOQ) to Inventory Consider an inventory item for which annual requirement is Runits. Storing each unit of the item in inventory will cost Idollars per year. Each batch involves a setup cost of S dollars. Assoc.Prof.Dr.B.G.Çetiner

13. a) EOQ= EOQ= EOQ is decreased (more flexible) b) Planning Production Activity Quantitative Tools in Production Planning Economic Order Quantity (EOQ) to Inventory a) If it costs $2 per unit to store an item for one year, $40 setup cost every time you produce a lot, and you use 1000 units per year, how many lots of what size should be produced each year b) What is the answer if setup cost is reduced to $10? Assoc.Prof.Dr.B.G.Çetiner

14. Planning Production Activity Quantitative Tools in Production Planning Economic Order Quantity (EOQ) to Inventory Q is batch quantity Annual Total Cost Annual Inventory Holding Cost Cost (Dollars) Annual Ordering Cost Order Quantity (Q) Assoc.Prof.Dr.B.G.Çetiner

15. Planning Production Activity Quantitative Tools in Production Planning Problem with Economic Order Quantity Why does the setup cost have to be so high? It doesn’t need to be. Solution is a) designing dies and tools to switch to new batch b) including simple cards (kanban) in each small lot Assoc.Prof.Dr.B.G.Çetiner

16. Planning Production Activity Quantitative Tools in Production Planning Break-Even Charts Break-even analysis divides costs into fixed and variable componentsto estimate the production levels for profitable operation. Assoc.Prof.Dr.B.G.Çetiner

17. F1 $100,000 R=UxS=TC1=F1+UxV1 BE1=U= = =1000 units S-V1 $250-$150 Planning Production Activity Quantitative Tools in Production Planning Break-Even Charts A plant may produce and sell U units of product up to a capacity of 2000 units. Fixed costs F1 of $100,000 must be paid in any case. The selling price is assumed a constant S=$250, regardless of volume, so that total revenue R=UxS. The unit variable cost V1 is assumed to be constant $150. Each unit sold makes a contribution C1 of C1=S-V1=$250-$150=$100 The break-even point BE1 is the production level U where total costs TC equals to total revenue R: Assoc.Prof.Dr.B.G.Çetiner

18. 500 Total Revenue Profit 400 Total Cost TC1 300 Thousands of dollars Production Capacity BE Point 200 100 Loss F1 $100,000 R=UxS=TC1=F1+UxV1 BE1=U= = =1000 units S-V1 $250-$150 400 800 1200 1600 2000 Units Sold (U) Planning Production Activity Quantitative Tools in Production Planning Break-Even Charts

19. 500 Total Revenue Profit 400 Total Cost TC1 300 Thousands of dollars Production Capacity BE Point 200 100 400 800 1200 1600 2000 Units Sold (U) BE After Automation Planning Production Activity Quantitative Tools in Production Planning Break-Even Charts (Automation) More efficient production F1=$180,000 and V2=$100 BE2=1200

20. In case of using maximum capacity, it is better to automate in this example Planning Production Activity Quantitative Tools in Production Planning Break-Even Charts (Automation) Total Cost Before=F1+UxV1=$100,000+2000x150=$400,000 Total Cost in Automation=F2+UxV2=$180,000+2000x100=$380,000 Total Revenue=UxS=2000x250=$500,000 Maximum Profit Before=Total Revenue-Total Cost=$500,000-$400,000 $100,000 Maximum Profit in Automation=Total Revenue-Total Cost =$500,000-$380,000 $120,000 Assoc.Prof.Dr.B.G.Çetiner

21. With Learning Curve Rate %90 If the first unit takes 1000 labor hours Second will take 900, Fourth will take 810, Eight will take 729 1000 500 300 100 Labor hours per unit Y 1 10 100 1000 Number of units produced n Planning Production Activity Quantitative Tools in Production Planning Learning Curves Assoc.Prof.Dr.B.G.Çetiner