IE 5551 - Production Planning and Inventory Control Saif Benjaafar

1. IE 5551 - Production Planning and Inventory Control Saif Benjaafar Industrial & Systems Engineering University of Minnesota

2. Course Objectives • Introduction to methods for managing production, inventory, and distribution systems • Topics covered include demand forecasting, capacity planning, production planning and scheduling, production and inventory control, and supply chain coordination • Use of quantitative models and analytical tools for supporting decisions in each of the above areas

3. Course Objectives (Continued…) • Special emphasis will be given to the link between operational issues and strategic objectives • Implications of various emerging technologies, business practices, and government regulations

4. Prerequisites • An introductory course in probability and statistics • An introductory course in linear programming • Knowledge of Microsoft Excel & Microsoft Solver

5. Texts • Factory Physics by Wallace Hopp and Mark Spearman • The Goal by EliyahuGoldratt • Lean Thinking by James Womack and Daniel Jones

6. Lecture Topics • Week 1 Introduction to Production Planning and Inventory Control • Week 2 Inventory Control – Deterministic Demand • Week 3 Inventory Control – Stochastic Demand • Week 4 Inventory Control – Stochastic Demand • Week 5 Inventory Control – Stochastic Demand • Week 6 Inventory Control – Time Varying Demand

7. Lecture Topics (Continued…) • Week 7Inventory Control – Multiple Echelons • Week 8 Demand Forecasting • Week 9 Demand Forecasting • Week 10 Production Planning and Scheduling • Week 11 Production Planning and Scheduling • Week 12 Managing Manufacturing Operations • Week 13 Managing Manufacturing Operations • Week 14 Managing Manufacturing Operations • Week 15 Project Presentations

8. Group Projects • Teams of 2 or 3 • Type of project • Problem solving • Case study • Reviews • Outcome • A proposal • Oral presentation • Written report

9. Problem Solving • A mathematical model • A computer model • Data collection and statistical analysis

10. Case Studies Focus on one company and document: • managerial practice • use of a technology • decision making processes

11. Reviews • An industry • An emerging technology • A managerial practice • Academic research

12. Example Industries • Electronics • Automotive • Food • Clothing • Medical devices • Energy

13. Example Technologies • RFID • Wireless communication and mobile computing • Online procurement portals • Social media

14. Example Practices • Outsourcing • Vendor managed inventory (VMI) • Delayed product differentiation • Collaborative forecasting, planning, & replenishment (CFPR) • Third & fourth party logistics (3/4PL) • Green/sustainable supply chains

15. This Year’s Theme • Energy efficient and sustainable supply chains • Energy consumption • Carbon footprint • Closed loop supply chains • Alternative sourcing, materials, processing

16. Production/Manufacturing Production/manufacturing is the process of converting raw materials or semi-finished products into finished products that have value in the market place. This process involves the contribution of labor, equipment, energy, and information.

17. The Production System Production System Raw materials Finished products Energy Labor Scrap Equipment Waste Information

18. Inventory Inventory is both an input and output of the production process. Inventory can be in the form of raw materials, semi-finished, and finished products.

19. The Inventory System Supply source Demand source Inventory

20. Distribution and sales Suppliers Fabrication Assembly Raw materials Component parts inventory Finished goods inventory The Production-Inventory System

21. The Supply Chain Assembly/ Manufacturing 1st tier suppliers Distribution centers 2nd tier suppliers Retailers

22. Supply Chain Management Supply Chain Management (SCM) is the set of functions concerned with the effective utilization of limited resources that may reside with one or more independent firms and the management of material, information, and financial flows within and between these firms, so as to satisfy customer demands and create profits for all firms.

23. Production Planning and Inventory Control Production planning and inventory control is the subset of SCM functions that focus on managing production operations and inventory throughout the supply chain.

24. Examples of Decisions

25. Examples of Decisions • What should we produce, how much, and when (forecasting)? • How much can we produce (capacity planning)? • How much do we have and how much do we need (inventory management)? • When should we produce (production planning and scheduling)?

26. A Hierarchy of Decisions Sales & Marketing Long term forecasting Transportation & Distribution Capacity Planning Warehousing & order fulfillment Network design & facility location Inventory Management Production Planning Production Scheduling

27. Example Performance Measures

28. Examples of Performance Measures • Cost (are products being created at minimum or acceptable cost?) • Quality (what are the specifications of the products? What percentages of shipped products meet specification?) • Variety (how many types of products are - or can be – simultaneously produced?) • Service (how long does it take to fulfill a customer order? how often are quoted lead times met?)

29. Examples of Performance Measures (continued…) • Flexibility (how quickly can existing resources be reconfigured to produce new products?) • Worker satisfaction (are workers and managers throughout the supply chain happy and motivated?) • Safety (are work environments safe for workers and the surrounding community?) • Environmental impact (how environmentally friendly are the supply chain processes and the products?)

30. The Bottom Line In the long run, the supply chain must be profitable by delivering value to the end customer and to do so over the long run.

31. Classification of the Production Process • Production quantity

32. Classification of the Production Process • Production quantity • Mass production • Batch production • Job shop production

33. Classification of the Production Process • Production quantity • Mass production • Batch production • Job shop production • Product variety

34. Classification of the Production Process • Production quantity • Mass production • Batch production • Job shop production • Product variety • Single product or product line • Family of similar products • One-of-a-kind products

35. Mass Production Systems

36. Mass Production Systems • Low product variety • High production volumes • Specialized labor • Dedicated equipment • High reconfiguration costs • Make-to-stock production

37. Batch Production Systems

38. Batch Production Systems • Medium product variety • Products are made in larger lots • products are made to stock • Programmable/reconfigurable equipment • Significant setup costs

39. Job Shops

40. Job Shops • High product variety • Products are made in small lots • Products are made to order • Flexible equipment and labor • Small setups

41. Classification of Production Systems (continued…) • Order fulfillment

42. Classification of Production Systems (continued…) • Order fulfillment • Make-to-stock systems (MTS) • Make-to-order systems (MTO) • Hybrid MTO/MTS

43. Classification of Production Systems (continued…) • Order fulfillment • Make-to-stock systems (MTS) • Make-to-order systems (MTO) • Hybrid MTO/MTS • Resource configuration

44. Classification of Production Systems (continued…) • Order fulfillment • Make-to-stock systems (MTS) • Make-to-order systems (MTO) • Hybrid MTO/MTS • Resource configuration • Product layout • Process layout • Cellular layout • Fixed position layout

45. Classification of Production Systems (continued…) • Inputs/outputs

46. Classification of Production Systems (continued…) • Inputs/outputs • Discrete production systems (discrete inputs and outputs - cars, computers, machine tools, etc) • Continuous production systems (continuous inputs and outputs - chemicals, textiles, food processing, pharmaceuticals) • Hybrid systems (Discrete inputs/continuous outputs or continuous inputs/discrete outputs - steel, plastics, recycling)

47. Process capabilities & business strategy • Example product attributes: price, quality, variety, service, demand uncertainty • Example process attributes: cost, quality, flexibility, lead time

48. A firm must choose a business strategy - attribute values for its portfolio of products - that differentiates it from the competition. • A firm must choose process capabilities, attribute values for its process, that support its business strategy.

49. A business strategy can be driven by market opportunities or by a competitive advantage in process capabilities. • In both cases, there must be a fit between process capability and business strategy.

50. Matching Process Choice with Product Strategy Choice Area of strategic fit Process flexibility Low High Low High Product variety