Chapter 13

1. Chapter 13 Production Planning

2. Production Planning Hierarchy Long-Range Capacity Planning Aggregate Planning Master Production Scheduling Production Planning and Control Systems Pond Draining Systems Push Systems Pull Systems Focusing on Bottlenecks

3. Production Planning Horizons Long-Range (years) Long-Range Capacity Planning Medium-Range (6-18 months) Aggregate Planning Short-Range (weeks) Master Production Scheduling Very-Short-Range (hours - days) Production Planning and Control Systems Pond Draining Systems Push Systems Pull Systems Focusing on Bottlenecks

4. Production Planning: Units of Measure Entire Product Line Long-Range Capacity Planning Product Family Aggregate Planning Specific Product Model Master Production Scheduling Labor, Materials, Machines Production Planning and Control Systems Pond Draining Systems Push Systems Pull Systems Focusing on Bottlenecks

5. Aggregate Planning

6. Why Aggregate Planning Is Necessary • Fully load facilities and minimize overloading and underloading • Make sure enough capacity available to satisfy expected demand • Plan for the orderly and systematic change of production capacity to meet the peaks and valleys of expected customer demand • Get the most output for the amount of resources available

7. Inputs • A forecast of aggregate demand covering the selected planning horizon (6-18 months) • The alternative means available to adjust short- to medium-term capacity, to what extent each alternative could impact capacity and the related costs • The current status of the system in terms of workforce level, inventory level and production rate

8. Outputs • A production plan: aggregate decisions for each period in the planning horizon about • workforce level • inventory level • production rate • Projected costs if the production plan was implemented

9. Medium-Term Capacity Adjustments • Workforce level • Hire or layoff full-time workers • Hire or layoff part-time workers • Hire or layoff contract workers • Utilization of the work force • Overtime • Idle time (undertime) • Reduce hours worked • . . . more

10. Medium-Term Capacity Adjustments • Inventory level • Finished goods inventory • Backorders/lost sales • Subcontract

11. Approaches • Informal or Trial-and-Error Approach • Mathematically Optimal Approaches • Linear Programming • Linear Decision Rules • Computer Search • Heuristics

12. Pure Strategies for the Informal Approach • Matching Demand • Level Capacity • Buffering with inventory • Buffering with backlog • Buffering with overtime or subcontracting

13. Matching Demand Strategy • Capacity (Production) in each time period is varied to exactly match the forecasted aggregate demand in that time period • Capacity is varied by changing the workforce level • Finished-goods inventories are minimal • Labor and materials costs tend to be high due to the frequent changes

14. Developing and Evaluatingthe Matching Production Plan • Production rate is dictated by the forecasted aggregate demand • Convert the forecasted aggregate demand into the required workforce level using production time information • The primary costs of this strategy are the costs of changing workforce levels from period to period, i.e., hirings and layoffs

15. Level Capacity Strategy • Capacity (production rate) is held level (constant) over the planning horizon • 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

16. Developing and Evaluatingthe Level Production Plan • Assume that the amount produced each period is constant, no hirings or layoffs • The gap between the amount planned to be produced and the forecasted demand is filled with either inventory or backorders, i.e., no overtime, no idle time, no subcontracting • . . . more

17. Developing and Evaluatingthe Level Production Plan • The primary costs of this strategy are inventory carrying and backlogging costs • Period-ending inventories or backlogs are determined using the inventory balance equation: EIt = EIt-1 + (Pt - Dt )

18. Aggregate Plans for Services • For standardized services, aggregate planning may be simpler than in systems that produce products • For customized services, • there may be difficulty in specifying the nature and extent of services to be performed for each customer • customer may be an integral part of the production system • Absence of finished-goods inventories as a buffer between system capacity and customer demand

19. Preemptive Tactics • There may be ways to manage the extremes of demand: • Discount prices during the valleys.... have a sale • Peak-load pricing during the highs .... electric utilities, Nucor

20. Master Production Scheduling (MPS)

21. Objectives of MPS • Determine the quantity and timing of completion of end items over a short-range planning horizon. • Schedule end items (finished goods and parts shipped as end items) to be completed promptly and when promised to the customer. • Avoid overloading or underloading the production facility so that production capacity is efficiently utilized and low production costs result.

22. Time Fences • The rules for scheduling 6+ weeks 4-6 weeks 2-4 weeks +/- 20% Change 1-2 weeks +/- 10% Change +/- 5% Change No Change Frozen Firm Full Open

23. Time Fences • The rules for scheduling: • Do not change orders in the frozen zone • Do not exceed the agreed on percentage changes when modifying orders in the other zones • Try to level load as much as possible • Do not exceed the capacity of the system when promising orders. • If an order must be pulled into level load, pull it into the earliest possible week without missing the promise.

24. Developing an MPS • Using input information • Customer orders (end items quantity, due dates) • Forecasts (end items quantity, due dates) • Inventory status (balances, planned receipts) • Production capacity (output rates, planned downtime) • Schedulers place orders in the earliest available open slot of the MPS • . . . more

25. Developing an MPS • Schedulers must: • estimate the total demand for products from all sources • assign orders to production slots • make delivery promises to customers, and • make the detailed calculations for the MPS

26. Example: Master Production Scheduling Arizona Instruments produces bar code scanners for consumers and other manufacturers on a produce-to-stock basis. The production planner is developing an MPS for scanners for the next 6 weeks. The minimum lot size is 1,500 scanners, and the safety stock level is 400 scanners. There are currently 1,120 scanners in inventory. The estimates of demand for scanners in the next 6 weeks are shown on the next slide.

27. WEEK 1 2 3 4 5 6 1000 700 CUSTOMERS 500 500 200 1000 300 300 BRANCH WAREHOUSES 200 400 500 200 MARKET RESEARCH 0 50 0 0 10 0 PRODUCTION RESEARCH 10 0 0 0 0 0 Example: Master Production Scheduling • Demand Estimates

28. Example: Master Production Scheduling • Computations WEEK 1 2 3 4 5 6 1000 700 CUSTOMERS 500 500 200 1000 300 300 BRANCH WAREHOUSES 200 400 500 200 MARKET RESEARCH 0 50 0 0 10 0 PRODUCTION RESEARCH 10 0 0 0 0 0 TOTAL DEMAND 710 900 1350 700 1010 1200 460 410 BEGINNING INVENTORY 1120 560 1160 950 REQUIRED PRODUCTION 0 1500 1500 0 1500 1500 ENDING INVENTORY 410 560 1160 460 950 1250

29. WEEK 1 2 3 4 5 6 SCANNER PRODUCTION 0 1500 1500 0 1500 1500 Example: Master Production Scheduling • MPS for Bar Code Scanners

30. Rough-Cut Capacity Planning • As orders are slotted in the MPS, the effects on the production work centers are checked • Rough cut capacity planning identifies underloading or overloading of capacity

31. Example: Rough-Cut Capacity Planning Texprint Company makes a line of computer printers on a produce-to-stock basis for other computer manufacturers. Each printer requires an average of 24 labor-hours. The plant uses a backlog of orders to allow a level-capacity aggregate plan. This plan provides a weekly capacity of 5,000 labor-hours. Texprint’s rough-draft of an MPS for its printers is shown on the next slide. Does enough capacity exist to execute the MPS? If not, what changes do you recommend?

32. Example: Rough-Cut Capacity Planning • Rough-Cut Capacity Analysis WEEK 1 2 3 4 5 TOTAL PRODUCTION 100 200 200 250 280 1030 LOAD 2400 4800 4800 6000 6720 24720 25000 CAPACITY 5000 5000 5000 5000 5000 280 UNDER or OVER LOAD 2600 200 200 1000 1720

33. Example: Rough-Cut Capacity Planning • Rough-Cut Capacity Analysis • The plant is underloaded in the first 3 weeks (primarily week 1) and it is overloaded in the last 2 weeks of the schedule. • Some of the production scheduled for week 4 and 5 should be moved to week 1.

34. Demand Management • Review customer orders and promise shipment of orders as close to request date as possible • Update MPS at least weekly.... work with Marketing to understand shifts in demand patterns • Produce to order..... focus on incoming customer orders • Produce to stock ..... focus on maintaining finished goods levels • Planning horizon must be as long as the longest lead time item

35. Types of Production-Planningand Control Systems

36. Types of Production-Planningand Control Systems • Pond-Draining Systems • Push Systems • Pull Systems • Focusing on Bottlenecks

37. Pond-Draining Systems • Emphasis on holding inventories (reservoirs) of materials to support production • Little information passes through the system • As the level of inventory is drawn down, orders are placed with the supplying operation to replenish inventory • May lead to excessive inventories and is rather inflexible in its ability to respond to customer needs

38. Push Systems • Use information about customers, suppliers, and production to manage material flows • 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 • Can result in great reductions of raw-materials inventories and in greater worker and process utilization than pond-draining systems

39. Pull Systems • Look only at the next stage of production and determine what is needed there, and produce only that • Raw materials and parts are pulled from the back of the system toward the front where they become finished goods • Raw-material and in-process inventories approach zero • Successful implementation requires much preparation

40. Focusing on Bottlenecks • Bottleneck Operations • Impede production because they have less capacity than upstream or downstream stages • Work arrives faster than it can be completed • Binding capacity constraints that control the capacity of the system • Optimized Production Technology (OPT) • Synchronous Manufacturing

41. Synchronous Manufacturing • Operations performance measured by • throughput (the rate cash is generated by sales) • inventory (money invested in inventory), and • operating expenses (money spent in converting inventory into throughput) • . . . more

42. Synchronous Manufacturing • System of control based on: • drum (bottleneck establishes beat or pace for other operations) • buffer (inventory kept before a bottleneck so it is never idle), and • rope (information sent upstream of the bottleneck to prevent inventory buildup and to synchronize activities)