1. Production Planning & Scheduling in Large Corporations: Dealing 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, SUV’s 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 Raw Material & Comp. Inventory Finished Item Inventory S1,2 S1,1S1,n S2,1S2,2S2,m Assembly Line 1: Product Family 1 Assembly Line 2: Product Family 2 Backend Operations Dept. 1Dept. 2Dept. k S1,i S2,i Dept. j

5. Dealing with the Problem Complexity through Decomposition Aggregate Planning Master Production Scheduling Materials Requirement Planning Aggregate Unit Demand End Item (SKU) Demand Corporate Strategy Capacity and Aggregate Production Plans SKU-level Production Plans Manufacturing and Procurement lead times Component Production lots and due dates Part process plans (Plan. Hor.: 1 year, Time Unit: 1 month) (Plan. Hor.: a few months, Time Unit: 1 week) Shop floor-level Production Control (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., I 2 Technologies, BAAN, Manugistics

7. Aggregate Planning

8. Product Aggregation Schemes Items (or Stock Keeping Units - SKU’s): 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 Aggregate Planning Aggregate Unit Demand Aggregate Unit Availability (Current Inventory Position) Aggregate Production Plan Required Production Capacity Aggr. Unit Production Reqs Corporate Strategy 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)P(t) = D(t) W(t) PCWCHCFC 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: D(t)P(t) O(t) PCWCOCUC U(t) S(t) SC 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: D(t)P(t) I(t)PCWCIC W(t), O(t), U(t), S(t) = ct 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: D(t)P(t) B(t) PCWCBC 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: D PCWCHCFCOCUCSCICBC P W 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 today’s 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 MPS Placed Orders Forecasted Demand Current Inventory Positions Already Initiated Production Master Production Schedule: When & How Much to produce for each product Capacity Consts. Company Policies Economic Considerations Product Charact. Planning Horizon Time unit Capacity Planning

21. The Driving Logic for the Empirical Approach DemandAvailability: Initial Inventory Position Scheduled Receipts Future inventories Net Requirements Lot Sizing Scheduled Releases Resource (Fermentor) Occupancy Product i Feasibility Testing Master Production Schedule Schedule Infeasibilities Revise Prod. Reqs Compute Future Inventory Positions

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 BOM MRP MPS Current Availabilities Planned Order Releases Priority Planning Lead Times Lot Sizing Policies

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. 022 115 (3) 119 (2) 252 (4) 291 (2) 251 (1) 251 (1) 100 units Subassembly 115: 3x(number of 022) 3x100 300 Subassembly 119: 2x(number of 022) 2x100200 Component 251: 1x(number of 115)1x300 1x(number of 119)1x200500 Component 252:4x(number of 115)4x3001200 Component 291:2x(number of 119)2x200400

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 252(4) 2 weeks 291(2) 1 week 251(1) 1 week 251(1) 1 week

27. “Time-Phased” Product Structure Time in weeks 022 [1] [2] [3] [1] [2] [1] 215 (1) 252 (4) 291 (2) 251 (1) 115 (3) 119 (2) 12345

28. Example: Time-Phased Production Requirements Part No. Week 123456 7 Lead Time 022 115 119 251 252 291 Ord. Rec. Ord. Rel. 1 week 2 weeks 3 weeks 1 week 2 weeks 1 week 100 300 200 300 200 300200 300 200 1200 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. A C(2)D(1) B C(1)E(1) Service orderInterplant Shipment

30. Taking into Account the Current Item Availability Synthesizing item demand series Projecting Inv. Positions and Net Reqs. Lot Sizing Time- Phasing Parent Sched. Rel. Item External Demand Gross Reqs Scheduled Receipts Initial Inventory Safety Stock Requirements Net Reqs Lot Sizing Policy Planned Order Receipts Lead Time Planned Order Releases

31. BOM Levels Level 0: End Items (SKU’s) 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 C B EF GEC FHDD CGFE FE E A Level 0: A, BLevel 1: D, HLevel 2: C, GLevel 3:E, F

32. The “MRP Explosion” Calculus Level 0 Level 1 Level 2 Level N Initial Inventories Scheduled Receipts External Demand Capacity Planning Planned Order Releases Gross Requirements

33. Capacity Planning (Example) Available labor hours Periods123 4567 8 50 100 150

34. Example: The (complete) MRP Explosion Calculus (J. Heizer and B. Render “Operations Management”, 6th Ed. Prentice Hall) Item BOM: Alpha C(2)D(2) B(1)C(1) E(1) F(1) Item Levels: Level 0: Alpha Level 1: B Level 2: C, D Level 3: E, F