Production Planning

1
Production Planning Scheduling in Large
CorporationsDealing with the Complexities of
Product Variety and Structure
2
The Major Sources of Complexity

• A large variety of products
• Example 1 IBM (desktops, laptops, mainframes,
  special-purpose computers, etc furthermore, many
  models for each of the above categories)
• Example 2 Ford (sedans, SUVs minivans, trucks,
  etc again, many models and variations in each
  category)

3
The Major Sources of Complexity(cont.)

• Product structure An assembly of a number of
  components and subassemblies
• Example
• (Desktop) Computer
• Motherboard
• CPU-card
• I/O card
• Modem card
• Power supply unit
• Ventilator
• etc.
• Monitor
• Keyboard
• Mouse
• (other peripherals)
• Some components and subassemblies are produced
  in-house, and some are procured from outside.

Bill of Materials (BOM)
4
A typical (logical) Organization of the
Production Activity
Assembly Line 1 Product Family 1
Raw Material Comp. Inventory
Finished Item Inventory
S1,1
S1,n
S1,i
S1,2
Backend Operations
Dept. 1
Dept. 2
Dept. k
Dept. j
S2,1
S2,2
S2,m
S2,i
Assembly Line 2 Product Family 2
5
Dealing with the Problem Complexity through
Decomposition
Corporate Strategy
Aggregate Planning
Aggregate Unit Demand
(Plan. Hor. 1 year, Time Unit 1 month)
Capacity and Aggregate Production Plans
Master Production Scheduling
End Item (SKU) Demand
(Plan. Hor. a few months, Time Unit 1 week)
SKU-level Production Plans
Materials Requirement Planning
Manufacturing and Procurement lead times
(Plan. Hor. a few months, Time Unit 1 week)
Component Production lots and due dates
Shop floor-level Production Control
Part process plans
(Plan. Hor. a day or a shift, Time Unit
real-time)
6
Technology Requirements

• Effective Data Collection and Maintenance/Data
  Integrity There is a need for a monitoring tool
  that will provide a centralized, correct and
  efficient representation of the system status at
  any point in time.
• Industry Solution Manufacturing Execution
  Systems (MES)
• e.g., SAP, Oracle, PeopleSoft
• Efficient and Coherent Computerized Planning
  Tools There is a need for a suite of
  computationally efficient planning tools that
  will effectively address the problems arising at
  the various levels of the decomposition
  framework, while maintaining plan consistency
  across the different levels.
• Industry Solution Product and Supply Chain
  Planning Software
• e.g., I2 Technologies, BAAN, Manugistics

7
Aggregate Planning
8
Product Aggregation Schemes

• Items (or Stock Keeping Units - SKUs) The final
  products delivered to the (downstream) customers
• Families Group of items that share a common
  manufacturing setup cost i.e., they have similar
  production requirements.
• Types Groups of families with production
  quantities that are determined in a single
  aggregate production plan.

• Aggregate Unit A fictitious item representing an
  entire product type.
• Aggregate Unit Production Requirements The
  amount of (labor) time required for the
  production of one aggregate unit. This is
  computed by appropriately averaging the labor
  time requirements over the entire set of items
  represented by the aggregate unit.
• Aggregate Unit Demand The cumulative demand for
  the entire set of items represented by the
  aggregate unit.

Remark Being the cumulate of a number of
independent demand series, the demand for the
aggregate unit is a more robust estimate than its
constituent components.
9
Computing the Aggregate Unit Production
Requirements
Aggregate unit labor time (.32)(4.2)(.21)(4.9)
(.17)(5.1)(.14)(5.2) (.10)(5.4)(.06)(5.8)
4.856 hrs
10
Aggregate Planning Problem
Aggr. Unit Production Reqs
Corporate Strategy
Aggregate Unit Demand
Aggregate Production Plan
Aggregate Planning
Aggregate Unit Availability (Current
Inventory Position)
Required Production Capacity

• Aggregate Production Plan
• Aggregate Production levels
• Aggregate Inventory levels
• Aggregate Backorder levels

• Production Capacity Plan
• Workforce level(s)
• Overtime level(s)
• Subcontracted Quantities

11
Pure Aggregate Planning Strategies
1. Demand Chasing Vary the Workforce Level

• D(t) Aggregate demand series
• P(t) Aggregate production levels
• W(t) Required Workforce levels
• Costs Involved
• PC Production Costs
• fixed (setup, overhead)
• variable(materials, consumables, etc.)
• WC Regular labor costs
• HC Hiring costs e.g., advertising,
  interviewing, training
• FC Firing costs e.g., compensation, social cost

12
Pure Aggregate Planning Strategies
2. Varying Production Capacity with Constant
Workforce
PC
WC
OC
UC
SC
D(t)
P(t)
S(t)
O(t)
U(t)
W ct

• S(t) Subcontracted quantities
• O(t) Overtime levels
• U(t) Undertime levels
• Costs involved
• PC, WC as before
• SC subcontracting costs e.g., purchasing,
  transport, quality, etc.
• OC overtime costs incremental cost of producing
  one unit in overtime
• (UC undertime costs this is hidden in WC)

13
Pure Aggregate Planning Strategies
3. Accumulating (Seasonal) Inventories

• I(t) Accumulated Inventory levels
• Costs involved
• PC, WC as before
• IC inventory holding costs e.g., interest lost,
  storage space, pilferage, obsolescence, etc.

14
Pure Aggregate Planning Strategies
4. Backlogging
PC
WC
BC
D(t)
P(t)
B(t)
W(t), O(t), U(t), S(t) ct

• B(t) Accumulated Backlog levels
• Costs involved
• PC, WC as before
• BC backlog (handling) costs e.g., expediting
  costs, penalties, lost sales (eventually),
  customer dissatisfaction

15
Typical Aggregate Planning Strategy
A mixture of the previously discussed pure
options
PC
WC
HC
FC
OC
UC
SC
IC
BC
P
W
D
H
F
O
U
S
I
B

• Additional constraints arising from the company
  strategy e.g.,
• maximal allowed subcontracting
• maximal allowed workforce variation in two
  consecutive periods
• maximal allowed overtime
• safety stocks
• etc.

16
Solution Approaches

• Graphical Approaches Spreadsheet-based
  simulation
• Analytical Approaches Mathematical (mainly
  linear programming) Programming formulations

17
Proactive approaches to demand management

• Influencing demand variation so that it aligns to
  available production capacity
• advertising
• promotional plans
• pricing
• (e.g., airline and hotel weekend discounts,
  telecommunication companies weekend rates)
• Counter-seasonal product (and service) mixing
  Develop a product mix with antithetic (seasonal)
  trends that level the cumulative required
  production capacity.
• (e.g., lawn mowers and snow blowers)

18
Modern Trends in Aggregate Planning

• To effectively achieve the competitive advantages
  and economies of scale required in todays
  markets, large corporations must plan and manage
  their production activity across the entire
  supply chain.
• This introduces another spatial/geographical
  dimension to the aggregate/capacity planning
  problem, and extends the initial cost structure
  with additional items like transportation and
  storage/handling costs.
• The problem get especially complicated for
  companies with multinational operations, since
  these companies must factor into their planning
  additional issues like
• duties and tariffs and quotas
• exchange rates
• local corporate tax rates
• cultural, language and political issues

19
Master Production Scheduling(MPS)
20
The (Master) Production Scheduling Problem
Capacity Consts.
Company Policies
Economic Considerations
Product Charact.
Placed Orders
MPS
Master Production Schedule When How Much to
produce for each product
Forecasted Demand
Current Inventory Positions
Already Initiated Production
Planning Horizon
Time unit
Capacity Planning
21
The Driving Logic for the Empirical Approach
Compute Future Inventory Positions
Scheduled Releases
Resource (Fermentor) Occupancy
Product i
Revise Prod. Reqs
Feasibility Testing
Schedule Infeasibilities
Master Production Schedule
22
(Typical) Analytical Approaches to MPS

• Recognizing that switching production from item
  to item (or family to family) requires long
  set-up times, during which the effective
  productivity of the line is equal to zero, these
  (formal) approaches try to minimize the
  (long-run) number of set-ups while meeting the
  production needs, as expressed by the aggregate
  production plan and the current SKU availability.
• Examples
• Textbook, pg. 145
• Elsayed Boucher, Analysis and Control of
  Production Systems (2nd ed.), Prentice Hall,
  1994, pgs 145-159 Blocked Maximal Cycle
  Heuristic.

23
Materials Requirements Planning(MRP)
24
The MRP Explosion Calculus
Lot Sizing Policies
Lead Times
BOM
25
Bill Of Materials (BOM)
A formal/systematic representation of the product
structure and the assembly steps required for
its synthesis from its components
and subassemblies.
100 units

• Subassembly 115 3x(number of 022) 3x100 300
• Subassembly 119 2x(number of 022) 2x100 200
• Component 251 1x(number of 115) 1x300
• 1x(number of 119) 1x200 500
• Component 252 4x(number of 115) 4x300 1200
• Component 291 2x(number of 119) 2x200 400

26
(Production) Lead Times

• The expected time interval between the time that
  the order for
• a new production lot is released, and the time
  that the lot is available
• (to be used in the fabrication of its parent
  component).
• Lead times incorporate
• set-up times
• processing times
• transfer time
• waiting times

022 1 week
115(3) 2 weeks
119(2) 3 weeks
251(1) 1 week
252(4) 2 weeks
291(2) 1 week
251(1) 1 week
27
Time-Phased Product Structure
215 (1)
1
2
115 (3)
2
252 (4)
1
022
1
291 (2)
3
119 (2)
1
251 (1)
1
2
3
4
5
Time in weeks
28
Example Time-Phased Production Requirements
Week
Part No.
1
2
3
4
5
6
Lead Time
7
1 week
100
Ord. Rec.
022
100
Ord. Rel.
2 weeks
300
Ord. Rec.
115
Ord. Rel.
300
3 weeks
200
Ord. Rec.
119
200
Ord. Rel.
1 week
300
200
Ord. Rec.
251
200
300
Ord. Rel.
2 weeks
Ord. Rec.
1200
252
Ord. Rel.
1200
1 week
400
Ord. Rec.
291
Ord. Rel.
400
29
Gross Requirements
The cumulative time-phased demand for a certain
part, integrating the part demand generated from
the production plans of its parent items, and
also, additional external demand, arising, for
instance, from the need for spare parts,
inter-plant shipments, etc.
Service order
Interplant Shipment
30
Taking into Account the Current Item Availability
Safety Stock Requirements
Lot Sizing Policy
Lead Time
Gross Reqs
Planned Order Releases
Parent Sched. Rel.
Planned Order Receipts
Net Reqs
Synthesizing item demand series
Projecting Inv. Positions and Net Reqs.
Lot Sizing
Time- Phasing
Item External Demand
Scheduled Receipts
Initial Inventory
31
BOM Levels

• Level 0 End Items (SKUs)
• Level 1 Items that constitute components (are
  children) of level-0 item(s) only
• Level 2 Items that are children of level 1, and,
  potentially, some level 0 items only
• Level i Items that are children of level i-1,
  and, potentially, some level 0 to i-2 item(s) only

B
A
C
F
H
D
D
G
E
C
C
G
F
E
E
E
F
F
E
Level 0 A, B Level 1 D, H Level 2 C, G Level
3 E, F
32
The MRP Explosion Calculus
External Demand
Level 0
Capacity Planning
Initial Inventories
Level 1
Level 2
Scheduled Receipts
Level N
Planned Order Releases
Gross Requirements
33
Capacity Planning (Example)
Available labor hours
150
100
50
8
Periods
1
2
3
4
5
6
7
34
Example The (complete) MRP Explosion
Calculus(J. Heizer and B. Render Operations
Management, 6th Ed. Prentice Hall)
Item BOM
Alpha
B(1)
C(1)
C(2)
D(2)
E(1)
F(1)
E(1)
F(1)
Item Levels
Level 0 Alpha Level 1 B Level 2 C, D Level
3 E, F
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