Slides prepared
by John Loucks
ã 2002 South-Western/Thomson Learning TM
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Chapter 13
Production Planning
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Overview
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Production-Planning Hierarchy
Aggregate Planning
Master Production Scheduling
Types of Production-Planning and Control Systems
Wrap-Up: What World-Class Companies Do
3
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
4
Production Planning Horizons
Long-Range Capacity Planning
Long-Range
(years)
Aggregate Planning
Medium-Range
(6-18 months)
Master Production Scheduling
Short-Range
(weeks)
Production Planning and Control Systems
Very-Short-Range
(hours - days)
Pond Draining
Systems
Push
Systems
Pull
Systems
Focusing on
Bottlenecks
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Production Planning: Units of Measure
Long-Range Capacity Planning
Entire
Product Line
Aggregate Planning
Product
Family
Master Production Scheduling
Specific
Product Model
Production Planning and Control Systems
Labor, Materials,
Machines
Pond Draining
Systems
Push
Systems
Pull
Systems
Focusing on
Bottlenecks
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Aggregate Planning
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Why Aggregate Planning Is Necessary
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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
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Inputs
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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
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Outputs
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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
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Medium-Term Capacity Adjustments
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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
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Medium-Term Capacity Adjustments
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Inventory level
Finished goods inventory
Backorders/lost sales
Subcontract
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Approaches
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Informal or Trial-and-Error Approach
Mathematically Optimal Approaches
Linear Programming
Linear Decision Rules
Computer Search
Heuristics
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Pure Strategies for the Informal Approach
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Matching Demand
Level Capacity
Buffering with inventory
Buffering with backlog
Buffering with overtime or subcontracting
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Matching Demand Strategy
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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
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Developing and Evaluating
the Matching Production Plan
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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
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Level Capacity Strategy
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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
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Developing and Evaluating
the Level Production Plan
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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
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Developing and Evaluating
the Level Production Plan
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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 )
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Aggregate Plans for Services
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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
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Preemptive Tactics
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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
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Master Production Scheduling (MPS)
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Objectives of MPS
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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.
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Time Fences
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The rules for scheduling
1-2
weeks
2-4
weeks
4-6
weeks
6+
weeks
+/- 5%
+/- 10%
+/- 20%
Change
Change
Change
No Change
Frozen
Firm
Full
Open
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Time Fences
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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.
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Developing an MPS
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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
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Developing an MPS
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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
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Example: Master Production Scheduling
Arizona Instruments produces bar code scanners
for consumers and other manufacturers on a produceto-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.
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Example: Master Production Scheduling
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Demand Estimates
WEEK
1
2
3
4
5
6
CUSTOMERS
500 1000 500 200 700 1000
BRANCH WAREHOUSES
200 300 400 500 300 200
MARKET RESEARCH
PRODUCTION RESEARCH
0
50
0
0
10
0
10
0
0
0
0
0
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Example: Master Production Scheduling
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WEEK
Computations
1
2
3
4
5
6
CUSTOMERS
500 1000 500 200 700 1000
BRANCH WAREHOUSES
200 300 400 500 300 200
MARKET RESEARCH
PRODUCTION RESEARCH
0
50
0
0
10
0
10
0
0
0
0
0
TOTAL DEMAND
710 1350 900 700 1010 1200
BEGINNING INVENTORY
1120 410 560 1160 460 950
REQUIRED PRODUCTION
ENDING INVENTORY
0
1500 1500
0
1500 1500
410 560 1160 460 950 1250
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Example: Master Production Scheduling
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MPS for Bar Code Scanners
WEEK
1
SCANNER PRODUCTION
0
2
3
1500 1500
4
0
5
6
1500 1500
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Rough-Cut Capacity Planning
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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
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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 laborhours.
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?
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Example: Rough-Cut Capacity Planning
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Rough-Cut Capacity Analysis
WEEK
1
PRODUCTION
2
3
4
5
100 200 200 250 280
TOTAL
1030
LOAD
2400 4800 4800 6000 6720 24720
CAPACITY
5000 5000 5000 5000 5000 25000
UNDER or OVER LOAD
2600 200 200 1000 1720
280
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Example: Rough-Cut Capacity Planning
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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.
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Demand Management
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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
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Types of Production-Planning
and Control Systems
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Types of Production-Planning
and Control Systems
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Pond-Draining Systems
Push Systems
Pull Systems
Focusing on Bottlenecks
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Pond-Draining Systems
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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
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Push Systems
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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
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Pull Systems
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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
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Focusing on Bottlenecks
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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
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Synchronous Manufacturing
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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
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Synchronous Manufacturing
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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)
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Wrap-Up: World-Class Practice
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Push systems dominate and can be applied to almost
any type of production
Pull systems are growing in use. Most often applied
in repetitive manufacturing
Few companies focusing on bottlenecks to plan and
control production.
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End of Chapter 13
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