Chapter 13
Production Planning
Supplemental Slides
1
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
2
Chapter 13 Homework – Not for Submission
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Problem 13.7
Use average inventory to calculate inventory
holding cost.
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3
Production Planning Horizons
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Long-range planning
Greater than one year
Usually with yearly increments
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Intermediate-range planning
Six to eighteen months
Usually with monthly or quarterly increments
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Short-range planning
Less than six months
Usually with weekly increments
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Matching Demand Strategy
Demand
Units
Production
Time
5
Level Capacity Strategy
Demand
Production
Units
Time
6
Aggregate Planning Using “Pure” Strategies
—An Example
Quarter
Spring
Summer
Fall
Winter
Sales Forecast (lb)
80,000
50,000
120,000
150,000
Hiring cost = $100 per worker
Firing cost = $500 per worker
Inventory carrying cost = $0.50 per pound per quarter
Production per employee = 1,000 pounds per quarter
Beginning work force = 100 workers
7
Inventory Carrying Cost
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Inventory carrying cost: $0.50/unit/period
$0
t
$0.50
t+1
$1.00
t+2
Time
Level Capacity Strategy
Quarter
Spring
Summer
Fall
Winter
Sales
Forecast
80,000
50,000
120,000
150,000
400,000
Production
Plan
100,000
100,000
100,000
100,000
Inventory
On-Hand, Ending
20,000
70,000
50,000
0
140,000
Relevant Cost = 140,000 pounds x $0.50 per pound = $70,000
9
Matching Demand Strategy
Quarter
Spring
Summer
Fall
Winter
Sales
Forecast
80,000
50,000
120,000
150,000
Production # Workers
Plan
Needed
80,000
80
50,000
50
120,000
120
150,000
150
# Workers
Hired
70
30
100
# Workers
Fired
20
30
50
Relevant Cost = (100 workers hired x $100) + (50 workers fired x $500)
= $10,000 + $25,000 = $35,000
10
Aggregate Planning Using the Transportation
Method of Linear Programming
Aggregate Planning by the Transportation Method
of Linear Programming: Example
Quarter
1
2
3
4
Expected
Demand
900
1500
1600
3000
Regular
Capacity
1000
1200
1300
1300
Overtime
Capacity
100
150
200
200
Subcontract
Capacity
500
500
500
500
Regular production cost per unit = $20
Overtime production cost per unit = $25
Subcontracting cost per unit = $28
Inventory carrying cost per unit per period = $3
Beginning inventory = 300 units
Desired ending inventory = 100 units
12
Aggregate Planning Using the Transportation
Method of Linear Programming
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Sources (‘supply points’): Beginning inventory &
production periods.
Destinations (‘demand points’): Sales periods &
ending inventory.
Objective: To determine production rates (on regular
time and overtime, and by subcontract) that would
minimize relevant production and inventory carrying
costs, subject to capacity and demand constraints.
Inventory Balance Equations
Ending Inventory = Beginning Inventory
+ Production Level - Deliveries
EIt = EIt-1 + (Rt + Ot+St) - Dt
EIt = Ending Inventory for Period t
Rt = Regular Time Production in Period t
Ot = Overtime Production in Period t
St = Subcontracted Production in Period t
Dt = Deliveries/Sales in Period t