Operations Planning and
Control Systems
35E00100 Service Operations and Strategy
#0 Fall 2015
Contents
Planning and control systems
Aggregate planning
 Production planning issues
 Workforce planning considerations
Planning and scheduling at Air New Zealand
Sales Planning at Vaisala
MPC systems
 Push – MRP
 Pull – JIT
 MPC integration
Development possibilities in manufacturing
Key points
Useful material:
Hopp, W. & Spearman, M. (2000), Factory Physics, Chapters 3, 4, 5 and 16
Vollmann, T., W. Berry & C. Whybark (1997) Chr 9 in Manufacturing Planning and Control Systems
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Basic Manufacturing Planning and
Control (MPC) System
Resource
planning
Aggregate production
planning
Demand
management
Master production
scheduling
Aggregate
Planning
Material requirements
planning
Capacity
planning
Production
scheduling
Vendor
systems
35E00100 Service Operations and Strategy #0
Shop floor
control
3
Detailed
Planning
Execution
Vollmann et al.
1997
Aalto/BIZ Logistics
Demand Management
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Pyramid Forecasting Technique
$
Level 1
- All business
x
z
Level 2
- Product groups
x1
x2
z1
...
z9
Level 3
- Individual items
Gaming???
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Newberry and Bhame 1981
Vollmann et al. 1997, 320-325
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Resource Planning
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Aggregate Production Planning
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Master Production Scheduling
Order Promising
Available to promise (ATP)
Week
1
2
3
4
End inventory (estimated)
3
40
20
19
23
23
0
20
11
3
3
40
20
7
23
23
40
20
2
43
"Available to promise"
13
33
38
Beg. inventory (estimated)
Production
Sales forecast
confirmed deliveries/sales
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Master Production Scheduling
Level Strategy
Chase Strategy
(fixed production)
(flexible production)
Demand
-I
Production
Quantity
Quantity
Basic Production Strategies
Demand
+I
Production
Time
35E00100 Service Operations and Strategy #0
Time
10
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Detailed Material Planning
Production Plan
Bill of Material
Inventory Status
Quantities and Timing
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Detailed Material Planning
Basic MRP Record
Gross requirements
 Total expected demand in a time period
Schedule receipts
 Open orders scheduled to arrive
On-hand inventory
 Expected amount on hand at beginning of period
Net requirements
 Actual amount needed in each time period
Time-phased net requirements
 Net requirements offset by lead times
Planned-order releases
 Planned amount to order in each time period
Period
Gross requirements
Scheduled receipts
On-hand inventory
Net requirements
Time-phased net requirements
Planned order releases
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1
2
12
3
4
5
6
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Capacity Planning
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Production Scheduling
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Shop Floor Control
 
mi

  d i - t - pij W ig + pig
 
vi
g = j +1
exp  - 
Iij (t) = max
pij
 
kp


 

(
35E00100 Service Operations and Strategy #0
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







)
+









Aalto/BIZ Logistics
Main Order Penetration Points
Retailer’s demand chain
Manufacturer’s supply chain
Manufacturing
Packaging
Inventory
management
Purchasing
Make-to-stock
(MTS)
Distribution
Retailer’s demand chain
Manufacturer’s
supply chain
Manufacturing
Inventory
management
Purchasing
Packaging
Distribution
Assemble or
Pack-to-order
(ATO)
Retailer’s demand chain
Manufacturer’s supply chain
Manufacturing
35E00100 Service Operations and Strategy #0
Packaging
Purchasing
Inventory
management
Make-to-order
(MTO)
Distribution
16
Hoover et al. 2000
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Master Production Scheduling
Time Fences
Demand
fence
C
a
p
a
c
i
t
y
Planning
fence
Forecast orders
Make-toorder
Assembleto-order
Make-tostock
Customer orders
Present
35E00100 Service Operations and Strategy #0
Time
17
Future
Vollmann et al. 1997
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Replacing Forecast with Knowledge
C
a
p
a
c
i
t
y
Forecast
Orders
Present
35E00100 Service Operations and Strategy #0
Indicated Orders /
Volume
(Knowledge)
Time
18
Future
Vollmann et al. 1997
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Level of integration
From Material Management to…
Time
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Aggregate Planning
Role in manufacturing planning and control
 Strategic preparation for tactical actions
 Long-term planning function that determines
- The number of workers that should be employed each period
- The number of aggregate units that should be produced each period
Objective is normally to minimize total costs
- Production, payroll, and holding costs as well as costs due to changes in the
size of the workforce
Main issues
 Planning horizon
 Treatment of demand
 Bottleneck problem - ability to respond to sudden changes
 Smoothing is not only about costs
- Reputation, impact on usable labor force, and laws must be considered
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Costs Considered
Cost of changing the size
of workforce
Regular time costs
C
o
s
t
 If no overtime or worker idle time do
not have to be included in the
evaluation of different strategies
Slope = CH
Overtime and subcontracting costs
Slope = CF
 Often costs assumed linear
Idle time costs
Smoothing costs
Ft = number of fires
Ht = Number of hires
Holding and
backorder costs
 Cost of changing the size of workforce
 Some costs difficult to measure e.g.
C
o
s
t
decline in worker morale
Shortage costs
 Backlogging normally assumed
Slope = CP
 Linear function common
Holding costs
Back-orders
 Almost always assumed to be linear
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Slope = Ci
Inventory
Positive inventory
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A Classification of Selected Aggregate
Production Planning Methods and Models
Classification
Feasible solution
methods
Mathematically
optimal methods
Type of Model / Method
Type of Cost Structure
Barter
General / Not explicit
Graphical / Tabular (spreadsheet)
Linear / Discrete
Linear programming models
Linear / Continuous
Transportation models
Linear / Continuous
Linear decision rules
Linear / Quadratic / Continuous
Heuristic decision Simulation search procedures
procedures
Management coefficients
General / Explicit
Not explicit
Projected capacity utilization ratios Not explicit
Silver et al. 1998, 556
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An Illustration of the Graphical Method
Nahmias 2001, 122
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Example 1
Workforce Planning Strategies
A firm can obtain accurate forecasts for 12 months based
on firm orders. During 46-day period, when there were
120 workers, the firm produced 1 700 000 units.
Assume that there are 100 workers employed at the
beginning of month 1 and zero starting inventory.
Find the minimum constant workforce needed
to meet monthly demand. Assume that holding
cost is $0.10 per product per month, cost of
hiring is $100 and cost of firing is $200. What is
the total cost of the constant workforce
plan?
Construct a plan that changes the level of the
workforce to meet monthly demand as closely
as possible. What is the total cost of this
plan?
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Month
1
2
3
4
5
6
7
8
9
10
11
12
Net forecast
850
1260
510
980
770
850
1050
1550
1350
1000
970
680
Workdays
26
24
20
18
22
23
14
21
23
24
21
13
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Example 1
Level Strategy - Constant Workforce Plan
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Example 1
Chase Strategy – Zero Inventory Plan
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Example 1
Comparison of the Production Strategies
Monthly Production vs. Monthly Demand
1800
1800
1600
1600
1400
1400
1200
1200
1000
1000
800
800
600
600
400
400
200
200
0
0
1
2
3
4
5
6
7
8
9
10
11
12
1
2
3
4
5
6
7
8
9
10
Net Demand
Net Demand
Production - Level Strategy
Production - Chase Strategy
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11
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Example 1
Comparison of the Strategies
Cumulative Production vs. Net Cumulative Demand
14000
12000
10000
8000
6000
4000
2000
0
1
2
3
4
5
6
7
8
9
10
11
12
Net Cum Demand
Production- Level Strategy
Production - Chase strategy
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Linear Decision Rule (LDR)
Approach by Holt, Modigliani, Muth & Simon (1960)
Computes workforce levels & production rates
 Inputs: forecasts of aggregate sales for each
Cost of changing the size
of workforce
period of the planning horizon, ending size of
workforce, ending inventory in last period
C
o
s
t
Quadratic cost functions
 Regular payroll
 Hiring and layoff
 Overtime
 Inventory holding, backordering and set-ups
Ft = Number fired
Ht = Number hired
Holding and
backorder costs
An evaluation of the approach
 Allows more realistic cost structure (+)
C
o
s
t
 Optimization (based on assumptions!) and fairly
insensitive to large errors in estimated costs (+)
 Dynamic and simple to apply (+)
 Cost functions simplify (-)
 No constraints on resources (-)
- Can generate decisions that are infeasible
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Back-orders
Positive inventory
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Management Coefficient Approach (MCA)
Bowman (1963)
Basic idea
 When managers decide production rates, inventories and
workforce, they consider costs but tend to overreact to
(unexpected) changes
 Bowman concluded that decision rules based on past behavior
should produce better results than other methods
Heuristic method
 Coefficients of the rule are fit as closely as possible to prior
decisions
- Obtained through techniques such as regression analyses
 Enables to encounter problems of traditional methods where
- The accuracy of assumptions is difficult to determine
- Values of input variables are difficult to measure
 Cost savings compared to other methods reported
- Key advantage: prohibits too radical decisions
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Comparison of LDR and MCA
The principles are similar
 Both obtain new production and workforce levels by considering
linear combinations of demand forecasts and current inventory
and workforce levels
Determination of coefficients
 LDR: Optimal solution procedure derived from first principles;
coefficients measured from a direct observation of the system
 MCA: Coefficients determined by a retrospective examination of
past management behavior
Compared to linear programs
 Easier to compute
 Reflect the actual past behavior of management
 Assume quadratic costs, which could be inaccurate
 Do not provide optimal solutions to the problem
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The Role of LP Models?
Classification
Feasible solution
methods
Mathematically
optimal methods
Type of Model / Method
Type of Cost Structure
Barter
General / Not explicit
Graphical / Tabular (spreadsheet)
Linear / Discrete
Linear programming models
Linear / Continuous
Transportation models
Linear / Continuous
Linear decision rules
Linear / Quadratic / Continuous
Heuristic decision Simulation search procedures
procedures
Management coefficients
General / Explicit
Not explicit
Projected capacity utilization ratios Not explicit
Silver et al. 1998, 556
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Practical Considerations
Dis-aggregation of aggregate plans
 Difficult problem that must be solved so that aggregate plans have value
to the firm
 Aggregate plan and MPS for items should be consistent
- Definition of an aggregate unit
- Organizational structure of the firm
Global production planning
 New smoothing factors arise, e.g. exchange rates, labor cost, tax
structure, and pricing policy.
Difficulties in practice
 The definition of an aggregate unit
 Obtaining of cost and demand estimates for “artificial” units
 Consideration of political and operational realities / constraints
 Inventory is not an option for all types of products and processes
 Sensitivity and importance of the issues addressed
 Reluctance of managers to rely on mathematical models
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Other Aspects
Implementation responsibility
 Achieving organizational acceptance can be harder than finding
OR solutions to problems.
 Be sure to sell the approach to every level of management.
Criticality of decision models
 Finding good enough model formulation can make some
decisions non-critical.
- i.e., approximations that are sufficiently close the exact fit can be acceptable.
Role of computers
 Build computer programs of the decision analyses whenever
possible.
The scale of profit payoffs depends on the level
 E.g. aggregate production versus product level
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Case: Planning and Scheduling at
Air New Zealand
Resources
 8000 employees
 33 aircraft (Boeing 737, 747, 767)
Daily operations
 85 domestic flights
 50 international flights to 26 countries
Other
 Base in New Zealand
 Award winning airline; customer satisfaction important
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Air New Zealand
Planning Stages
Marketing (plan)
 Market analysis and market
sensitivity
- Estimated volume of passengers
- Timing of flights
- Pricing time
 5-yr plan on markets to be served
 3-yr plan
 Annual budget
Annual budget
 Drafting of timetable
- Ops: resource constraints and
possibilities
- Mkt: timetable based on analyses
 Draft run through LP optimizer
which takes into account
availability and resources
 Timetable for publication
35E00100 Service Operations and Strategy #0
Weekly schedule
 Balancing supply and demand of
manpower
 Evaluation of long-term impact on
training
Rostering
 Assignment of specific people to
specific flights
 Required data (training, planning,
manpower leave)
 Safety rules and other restrictions
considered
Daily adjustment to unexpected
changes
 Environmental (no control)
 ”Internal”
36
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Air New Zealand
Planning Operations in the MPC System
Production
Schedule
Draft
planning
Resource
planning
Master production
scheduling
Timetable
Detailed capacity
planning
Demand
management
Front end
Detailed
Weekly
materialSchedule
planning
Engine
Material and
capacity plans
Rostering
Shop floor
systems
35E00100 Service Operations and Strategy #0
Vendor
systems
Daily Adjustments
37
Back end
Aalto/BIZ Logistics
Air New Zealand
Planning Operations in the MPC System
Balancing Demand and Resources
Operations
Resources
Marketing
Demand
Fleet
• Aircraft types
• # of aircraft
Crew
Production
Schedule
Draft
planning
Resource
planning
Demand
management
• Captains & co-pilots
• Flight attendants
• Regular / Charter
• Season / yr around
Frequency
Master production
scheduling
Constraints
Aircraft capacity
Flight range
Air space limitations
Workforce training
Allowed working time
Destinations
Timetable
Timetable
Detailed capacity
planning
Front end
Constraints
Airport capacity
(slots)
(Max flight time)
Detailed
Weekly
materialSchedule
planning
Engine
Material and
capacity plans
Rostering
Shop floor
systems
35E00100 Service Operations and Strategy #0
Vendor
systems
Daily Adjustments
38
Back end
Aalto/BIZ Logistics
Air New Zealand
Planning Operations in the MPC System
Flights are assigned to specific aircraft
Production
Schedule
Draft
planning
Resource
planning
”Constraints”
Master production
scheduling
Timetable
The pool of trained
people
Detailed capacity
planning
Demand
management
Front end
Detailed
Weekly
materialSchedule
planning
Engine
”Constraints”
Crew changes
Maintenance
Catering
Fueling
Cargo and baggage
handling
Cleaning
Material and
capacity plans
Rostering
Shop floor
systems
35E00100 Service Operations and Strategy #0
Vendor
systems
Daily Adjustments
39
Back end
Aalto/BIZ Logistics
Air New Zealand
Planning Operations in the MPC System
Specific crews are assigned to flights
Production
Schedule
Draft
planning
Resource
planning
Master production
scheduling
Timetable
Demand
management
Front end
Constraints
Training
Max working hrs
Workforce availability
Detailed capacity
planning
Detailed
Weekly
materialSchedule
planning
Engine
• Sick leaves
• Days off
• Holidays
Material and
capacity plans
Rostering
Shop floor
systems
35E00100 Service Operations and Strategy #0
Vendor
systems
Daily Adjustments
40
Back end
Aalto/BIZ Logistics
Air New Zealand
Planning Operations in the MPC System
Adjustments in response to unexpected
changes
Production
Schedule
Draft
planning
Resource
planning
Master production
scheduling
Timetable
Detailed capacity
planning
Demand
management
Front end
Detailed
Weekly
materialSchedule
planning
Engine
Material and
capacity plans
Rostering
Internal
Aircraft breakdowns
Workforce absence
due to illness etc.
External
Shop floor
systems
35E00100 Service Operations and Strategy #0
Vendor
systems
Daily Adjustments
41
Back end
Weather
Catastrophes
Fuel or other
resource availability
Aalto/BIZ Logistics
Key Points on Planning
Planning and control systems
 Clear general structure of MPC exists.
 IT enables use of more advanced methods.
Different types of methods are available for aggregate
planning:
 Feasible methods (e.g. graphical method)
 Mathematically optimal methods (e.g. LDR, linear programs)
 Heuristic decision models (e.g. MCA)
Aggregate planning matches demand and resources
 Tailor the model to fit the situation you are dealing with.
 Simplicity promotes understanding!
 Aggregate plans are rarely followed precisely  robustness of
the plans is important.
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Case: Sales Planning at Vaisala Instruments
What is the Right Demand/Supply Chain?
Optimum on
this diagonal?
low
high
Margin
Functional
product
high
Innovative
product
High inventory
carrying cost
+
lost market share
Efficient
Supply
Chain
Utilization
rate [%]
low
Flexibility
Responsive
Demand
Chain
Too high
operational costs
high
low
low
Uncertainty of Demand
high
©Vaisala | 2004-09-28 | Page 43
Source: Hannu Vierimaa / Processman
Example of Service Classes
Order Fulfilment
Lead time (order
received by 14.00)
Delivery lot size
Price
Other Information
Fast Track
Standard
Project
1 work day
5 work days
20 work days
Min 1 piece
Max 2 pieces
Min 1 pieces
Max 25 pieces
Min 10 pieces
Max within supply frame
Basic + 50 USD
According to Price List
Price includes
transportation
Price includes
transportation
Delivery to site,
one or more lots
Basic
Delivery
Performance
Target
100 %
98 %
100 %
Target Volume
10 %
80 %
10 %
©Vaisala | 2004-09-28 | Page 44
Source: Hannu Vierimaa / Processman
Sample record - Factory personnel utilization rate
Person result %
Team
DMLA
GMLA
HMDW
HMP1
HMP2
HMP3
HVAC
PMLA
WMLA
OPT
Product Utilization rate %:
Oct-04
74
102
85
77
86
61
87
66
53
70
Nov-04
66
92
77
92
77
60
63
112
106
59
Dec-04
66
80
88
69
81
67
81
69
92
78
Jan-05
43
75
91
125
87
76
71
83
54
65
Feb-05
53
76
92
104
79
79
75
85
59
71
Mar-05
47
70
77
105
78
57
71
77
52
65
Apr-05
47
74
87
106
73
68
71
76
51
57
May-05
47
68
78
98
55
59
66
74
51
62
Jun-05
43
80
99
132
54
62
103
87
52
52
Jul-05
43
78
96
131
50
62
103
87
53
49
Aug-05
42
71
89
122
44
57
95
79
48
47
Sep-05
41
76
94
126
49
60
102
86
53
51
78
83
74
77
79
70
72
72
66
71
66
70
Utilization rate of machines?
©Vaisala | 2004-09-28 | Page 45
Demand Chain Management
Key elements of Integrated Demand Chain
Case company
ONE SET OF NUMBERS
based on BEST POSSIBLE
MARKET DEMAND DATA
updated on rolling basis
Plan for capacity -process
PLAN FOR CAPACITY,
EXECUTE TO ORDER
Channel
logistics
management
End User
Execute to order -process
EXECUTE TO ORDER
with FAST THROUGHPUT TIME
achieved by
INTEGRATED PROCESS
Supplier’s Supplier
supplier
Manufacturing Distribution
Sales
Information flow
Material flow
Customer’s
customer
SERVICE CLASSES
Customer
aligned to
SEGMENTED CUSTOMER REQUIREMENTS
forming the basis for customer promises
and fulfilment enabling
EFFECTIVE AND EFFICIENT LOGISTICS
©Vaisala | 2004-09-28 | Page 46
Source: Hannu Vierimaa / Processman
What is the question?
No good tools at the moment
- capital tied up
- investment increment
Precise world - every product
has its own factory personnel
Extra capacity
Stock
Factory =
Machine
Factory =
System
How much money we needed for a
product PRODUCED
How much money we needed for a
product SOLD
Precisely wrong answers
Approximately right answers
Need changes in thinking
Bonus system: Process measurements -> Sales Planning Accuracy
Product price: Logistic cost -> Capital tied up
©Vaisala | 2004-09-28 | Page 47
Basic Production Control Systems
 MRP = Push system
-
Provides a planning hierarchy
Initiates production in anticipation of future demand
Lot sizes based on forecasts of future demands and cost considerations
Underlying model often inappropriate
Stock
Point
Stock
Point
...
 JIT / Kanban = Pull system
-
Improves production environment
Initiates production as a reaction to present demand
Reduce lot sizes to minimum to eliminate waste and unnecessary inventories
Reduces congestion
Suitable only for repetitive manufacturing
Stock
Point
Stock
Point
...
…
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MRP & MPC System
Resource
planning
Routing
file
Capacity
planning
Aggregate production
planning
Demand
management
Master production
scheduling
Aggregate
Planning
Bills of
material
Material requirements
planning
Time-phased
requirements
Production
scheduling
Vendor
systems
Shop floor
control
Inventory
status data
Detailed
Planning
Execution
Vollmann et al. 1997
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Uncertainty in MRP Systems
Timing
Requirements shift
from one period to
another
Orders not received
when scheduled
Requirements for
more or less than
planned
Orders received for
more or less than
planned
Demand
Supply
Type
Quantity
Source
Vollmann et al. 1997
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Shortcomings of MRP
Assumes that required information known with certainty
 Uncertainty exists on markets
 Capacity not unlimited
 Lead times can vary
- May depend on lot sizes
- No incentive to minimize slack
- Priorities can exist
 Items can be defective
Time horizon issues
Data integrity
Practice versus theory
 Only 10-50 % of MRP systems are implemented successfully
 High requirements on management, training, environment, and
planning
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JIT & MPC System
Resource
planning
Aggregate production
planning
Demand
management
Master production
scheduling
Aggregate
Planning
Material requirements
planning
Capacity
planning
Production
scheduling
Vendor
systems
Shop floor
control
Detailed
Planning
Execution
Vollmann et al. 1997
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JIT Manufacturing Systems
Top management support
Management leadership in mfg
Support for inter-functional co-op.
Human resource mgmnt
Quality management
Quality feedback to shop floor
Physical working conditions etc.
Just-in-Time
Core components:
Recruiting and selection
Supervisory leadership etc.
Set-up time reduction
Small lot size
Supplier quality level
Equipment layout
etc.
Manufacturing strategy
Technology management
Long-range orientation
Plant-wide mfg philosophy etc.
Design for manufacturability
New process development etc.
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Sakakibara et al. 1993
Aalto/BIZ Logistics
Shortcomings of JIT
Sources of inflexibility
 Stable volume
 Standard product mix
 Precise production sequence
 Rapid (inventory) replenishment
Process
design
Measures to promote flexibility
 Capacity buffers
Manufacturing
planning and
control
 Setup reduction
 Cross training
JIT
Human/
organizational
elements
 Plant layout
Product
design
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Integration of MRP and JIT
There is a need for integration
 Many firms have already installed a MRP system
 JIT programs seem to conflict with MRP system
There are physical changes that support integration
 Reduction of inventory transactions (unnecessary transfers)
 Cellular manufacturing
Implementation aspects
 JIT is difficult to implement without a formal MPC system
 Handoffs (phantom bills) from MRP to JIT at the start of the JIT
process and a transfer back to MRP at the end
Not every company can or prefer to implement JIT…
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(Re)Configuration of the MPC System
Resource
planning
Aggregate production
planning
Demand
management
Master production
scheduling
Aggregate
Planning
Material requirements
planning
Capacity
planning
Production
scheduling
Vendor
systems
Shop floor
control
Detailed
Planning
Execution
Vollmann et al. 1997
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MPC System Design Choices
Market
requirements
Business
specifications
Manufacturing
task
Manufacturing
process design
MPC
system design
Existing
MPC system
Desired
MPC system
Vollmann et al. 1997, 362
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Features of MPS Approaches
Master Scheduling Approach
Basis for planning and control
Control point
MPS unit
Product level
MTO
Order backlog
Customer orders
End product
ATO
FAS
Options
End to inter-mediate
product
MPS features
Customer order promising
High requirement
Need to monitor forecast
Low requirement
accuracy
Use of planning bills
Yes
Yes
Need to cope with design and
High
process uncertainty
Basis of delivery to customer Make to customer order Make to customer order
on time
on time
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MTS
Forecast
End items
End product
Low requirement
High requirement
No
Low
MTS replenishment
order or to customer
call-off schedule
Vollmann et al. 1997, 356
Aalto/BIZ Logistics
Features of Material Planning
Approaches
Material planning approach
Basis for planning and control
Control point
Control unit
Product level
MPS features
Fixed schedules
Use of WIP to aid planning
Updating
Inventory netting
Lead time offsetting
Lot sizing
Safety stock/safety lead time
Container size
Bill of material
35E00100 Service Operations and Strategy #0
Rate-phased
Time-phased
Forecast
Shop/purchase order
Kanbans
Batches
Material explosion of time- Material explosion of ratephased net requirements for phased net requirements for
product components
product components
No
High
Daily/weekly
Performed
Performed
Performed
Considered
Not considered
Many levels
60
Yes
Low
Weekly/mothly
None
None
None
Not considered
Considered
Single level
Vollmann et al. 1997, 356
Aalto/BIZ Logistics
Features of Shop Floor System
Approaches
Shop floor system approaches
Basis for planning and control
Control point
Control unit
Product level
Shop floor system features
Control of material flow
Sequencing procedure
Order tracking
Monitoring and feedback
Order completion
Achieving delivery reliability
Lot size
Work-in-process and safety
stock
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MRP
JIT
Work center capacity utilization
Overall product flow times
Shop orders
Kanban cards
Individual operations scheduled at each
Production on an as-required basis to
work center
replenish downstream stock that support
end item requirements
Work center dispatching rules
Due-date oriented dispatching rules
Shop floor transactions by operation
and stocking point
Input/output and shop load reports
Shop order close-out in stockroom
Batch order status reports
Large
Large
61
Initiated by downstream kanban cards
Not an issue
None (paperless system)
Focus on overall result
None
Through flow of material
Small
Negligible
Vollmann et al. 1997, 357
Aalto/BIZ Logistics
Business Characteristics and the
Design of MPC systems
MPS
approach
MTO
Detailed material
planning approach
Shop-floor
system approach
ATO
Time phased
Rate phased
MRP based
JIT based
Kawasaki
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MTS
Moog
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Applicon
Vollmann et al. 1997
Aalto/BIZ Logistics
Linking Market Requirements and Mfg Strategy to the
Design of MPS Approach
Master scheduling approach
Market requirements
Product design
Product variety
Individual product volume
per period
Delivery speed
Delivery reliability
Manufacturing
Process choice
Managing flunctuations in
sales volume
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MTO
Custom
Wide
ATO
MTS
Standard
Predetermined & narrow
Low
Through overlapping
schedules
Difficult
High
Through eliminating
process LT
Straightforward
Low-volume batch
High-volume batch/line
Through order backlog
Through WIP or FGI
63
Through FGI
Vollmann et al. 1997, 365
Aalto/BIZ Logistics
Linking Market Requirements and Mfg Strategy to the
Detailed Material Planning
Detailed material planning approach
Market requirements
Product design
Product variety
Individual product volume per period
Ability to cope with changes in product mix
Delivery speed
Delivery schedule changes
Manufacturing
Process choice
Source of cost reduction
Overhead
Inventory
Capacity utilization
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Time-phased
Custom
Wide
Low
High potential
Through scheduling
/excess capacity
Difficult
Rate-phased
Standard
Narrow
High
Limited
Through inventory
Batch
Line
No
No
Yes
Yes
Yes
No
64
Straightforward
Vollmann et al. 1997, 367
Aalto/BIZ Logistics
Linking Market Requirements and Mfg Strategy to the
Design of the Shop Floor System Approach
Shop-Floor System Approach
Market requirements
Product design
Product variety
Individual product volume per period
Accomodating demand changes
Total volume
Product mix
Delivery speed
Delivery schedule changes
Manufacturing
Process choice
Changeover cost
Organizational control
Work-in-process (WIP)
Source of cost reduction
Overheads
Inventory
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MRP based
Custom
Wide
Low
JIT based
Standard
Narrow
High
Easy/ incremental
High
More difficult
Difficult/stepped
Low
Achieved through FGI
Less difficult
Low-volume batch
High
Centralized
High
High-volume batch/line
Low
Decentralized
Low
Low
Low
High
High
Achieved by schedule changes
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Vollmann et al. 1997, 368
Aalto/BIZ Logistics
Development Possibilities of Manufacturing
Coordinating Order and Value Offering Points
Process improvement
 Increase production volume
 Minimize lead time
 Eliminate inventory
Outsourcing
Lean manufacturing
Quick response
Customization according to customer needs
 Offer wider product variety using standardization, modularity, etc.
 Offer (additional) services, for example, based on the principles of
mass customization
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Main Order Penetration Points (OPP)
Retailer’s demand chain
Manufacturer’s supply chain
Manufacturing
Packaging
Inventory
management
Purchasing
Ship-to-order
Distribution
Retailer’s demand chain
Manufacturer’s
supply chain
Manufacturing
Inventory
management
Purchasing
Packaging
Pack-to-order
Distribution
Retailer’s demand chain
Manufacturer’s supply chain
Manufacturing
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Packaging
Purchasing
Inventory
management
Make-to-order
Distribution
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Hoover et al. 2000
Aalto/BIZ Logistics
Understanding of the factors that affect
OPP choices is important but…
Market and
demand
characteristics
Delivery time
Product
characteristics
OPP
Manufacturing
lead time
Mfg process,
infrastructure
and control
characteristics
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Olhager 1994
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…one should analyze value offering points
(VOP) as well
Retailer’s demand chain
Purchasing
Manufacturer’s supply chain
Manufacturing
Packaging
Inventory
mngmnt
Assortment
planning
Distribution
Retailer’s demand chain
Purchasing
Manufacturer’s supply chain
Manufacturing
Packaging
Offer to
purchasing
Inventory
mngmnt
Assortment
planning
Offer to inventory
management
WareDistribution
housing
Retailer’s demand chain
Purchasing
Inventory
mngmnt
Manufacturer’s supply chain
Manufacturing
Packaging
35E00100 Service Operations and Strategy #0
Distribution
Warehousing
Assortment
planning
Offer to
planning
Retailing
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Hoover et al. 2000
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Conventional Demand-Supply Chain
College Textbooks
Bookstore’s demand chain
Course
reading lists
(instructor)
Assortment
planning
Purchasing
(campus
bookstore)
(campus
bookstore)
VOP: Offer to
purchasing
OPP: Ship
to order
Warehousing
and
distribution
Printing
of books
Publisher’s supply chain
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New Demand-Supply Chain
College Textbooks
OPP:
Settle copyright
with publisher
Demand chain
Review
standard
textbook
(instructor)
VOP:
Students buy
only material
they need
Tailor book
to course
(instructor)
Plan order
for course
(instructor)
Use
textbook
for course
On-demand
printing
(campus
bookstore)
(student)
Electronic
textbook
repository
(publisher)
Supply chain
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Key Points
MRP and JIT as planning and control systems
 Both have benefits and shortcomings
 Applicability depends on the production environment
MPC integration
 ”Standard” pull and push systems rarely meet customer
requirements and/or manufacturing system needs
There are numerous ways to develop manufacturing
operations
 Break the conventional thinking processes
- E.g. focus on value offering instead of order penetration
 Use modularity, mass customization, e-manufacturing, etc.
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Abbreviations Used
APS
= Advanced planning system (supply chain planning)
ATO
= Assemble-to-Order
ERP
= Enterprise resource planning
FGI
= finished goods inventory
JIT
= just in time
LDR
= Linear decision rule
MCA
= Management coefficient approach
MES
= Manufacturing execution system
MIP
= Mixed integer programming
MPC
= Manufacturing Planning and Control system
MPS
= Master production schedule
MRP
= Material Requirements Planning
MRPII
= Manufacturing Requirements Planning
MSG
= Master scheduling game
MTO
= Make-to-Order
MTS
= Make-to-Stock
OPP
= order penetration point
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