Production Management IEOR 4000

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Production ManagementIEOR 4000

• Prof. Guillermo Gallego

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Self Introduction

• Professor and Chairman of Industrial Engineering
  Operations Research Dept.
• Research interest in Supply Chain Management and
  Revenue Management
• Published over fifty papers
• Visiting professor at Stanford GSB 1997-1997
• Visiting scientist at IBM 1999-2003
• Senior editor for MSOM and POM.
• Consultant for Lucent Technologies

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Topics to Be Covered

• Today History of Operations Management,
  Production systems, Recent trends.
• Deterministic models
• EOQ, EPQ, JRP, ELSP, APP, MRP, JIT
• Forecasting
• MA, ES, MMFE.
• Stochastic models
• Newsvendor model.
• Serial Systems Supply chain models.
• Distribution and Assembly Systems

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Benefits to Be Obtained

• Understand production and inventory systems.
• Understand basic tradeoffs between
• Holding costs versus fixed costs.
• Holding costs versus service levels.
• Efficiency versus variety
• Learn about
• Production/inventory management techniques
• Forecasting
• Risk and sensitivity analysis
• Supply chain design issues

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Intended Audience

• A required course for MS degree in IE and MS in
  OR.
• Students entering the fields of industrial
  engineering or supply chain management.
• Students interested in learning how to develop
  models.
• Production and general managers wishing to
  understand models behind decision support
  systems.

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Prerequisites

• Working knowledge of calculus.
• A good course in probability and statistics. This
  can be taken concurrently.
• A deterministic models course (linear
  programming). This can be taken concurrently.
• Knowledge of Excel or equivalent spreadsheet
  program.
• Willing to work hard.

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Evaluation

• Assignments 15
• Midterm 40
• Final 45

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Todays Lecture

• Motivation
• History of Operations Management
• Recent Trends in Inventory Management Types of
  Manufacturing Systems
• Strategic and Hierarchical Planning
• Inventory Classification
• Relevant Costs
• Performance Measures

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Motivation

• Operations is concerned with the transformation
  of inputs into goods and services
• Primary business function together with marketing
  and finance
• It involves the greatest portion of the company's
  employees and capital assets.
• Activities include
• plant management, product development, process
  engineering, facility layout, production and
  capacity planning, quality control, inventory
  control, product distribution

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History of Operations Management

• Life before organized production
• The industrial revolution
• Invention of the steam engine.
• Specialization of labor
• Interchangeable parts
• Assembly line (Ford)
• Product variety (GM)

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Scientific Method

• The Principles of Scientific Management by
  Frederic Taylor
• Experiment with methods to find best way to
  perform a job
• Improve efficiency results in
• Lower costs to companies
• Higher wages for laborers
• Better and less expensive products for consumers

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Management Science

• Also known as Operations Research
• Use of models, mathematics and statistics to
  solve business problems
• Objectives, Decision Variables, Constraints
• Initially lack of data and computing power and
  management skepticism
• ERP systems and better trained management opens
  possibilities

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Recent Trends

• Plant Automation
• Just-in-Time
• Reengineering
• Supply Chain Initiatives
• EDI, ECR, VMI
• Sharing Demand Information
• Demand Lead Times
• Changing the Givens

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Operations Systems

• Job Shops
• Low volume high variety
• Custom made goods
• Repetitive Manufacturing
• High volume low variety
• Televisions, roller skates
• Batch Manufacturing
• Medium volume and variety
• Hand tools, drills
• Processes and Projects
• Refineries, ship manufacturing
• Non Manufacturing

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Strategic and Hierarchical Planning

• Strategic Planning
• Product line, location, size and number of plants
  and warehouses
• Tactical Planning
• Size of workforce, rate of production,
  distribution of goods
• Operational Control
• Assignment of work to stations, short term
  inventory control issues.

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Impact of Inventories

• Firm level
• One third of the current assets
• 2.5 years of after-tax profits
• Potential to increase profits and reduce costs
• Macro level
• Accumulation at peak of cycle
• Downscale production, slash prices, some firms do
  not survive
• Low inventories at bottom of cycle
• Increase production, hire people, additional
  increase in demands, higher prices, etc.

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Inventory Classification

• Functional
• Cycle stock
• Congestion stock
• Safety stock
• Anticipation inventories
• Pipeline inventories (WIP)
• Time
• Input, WIP, In-transit, Output.

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Classification by Value

• Sort by annual dollar volume
• Most firms
• 20 SKUs account for 80 usage
• 30 SKUS account for 15 usage
• 50 SKUS account for 5 usage
• ABC analysis treats high dollar volume parts
  differently.

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Characteristics of Inventory Systems

• Demand
• Constant versus variable
• Known or unknown
• Lead Times Constant versus random
• Review Times Periodic versus continuous review
• Excess Demand Lost versus backlogged
• Changing Inventory Perishable, obsolescence
• Structure of System Assembly, distribution, etc.

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Relevant Costs

• Procurement costs fixed and variable
• Holding costs Warehousing, insurance,
  opportunity cost
• Stockout or penalty costs
• Cost of changing the production rate hiring,
  firing, overtime
• System control costs

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Performance Measures

• Probability of not stocking out during lead time
• Fill rate Proportion of demands that are met
  directly from stock
• Average number of backorders
• Turnover ratio Ratio of throughput to average
  inventory