Introduction to the Production Planning

Introduction to the Production Planning
CSUN - Spring 2005 MSE407 - Manufacturing Systems BA 411 Introduction to the Production Planning And Inventory Control

Learning Objectives Provide basic description of production systems
CSUN - Spring 2005 Learning Objectives MSE407 - Manufacturing Systems Provide basic description of production systems What they are How they operate Because inventory plays a central role in the operation of a production system Overview of inventory basics How they relate to the production system

The Production System Definition:
The set of resources and procedures involved in converting raw material into products and delivering them to customers Production and delivery of products are central to the firm Functions have value only if they enhance the ability to do this profitably

Value-Added-Process The difference between the cost of inputs and the value or price of outputs. Inputs Land Labor Capital Transformation/ Conversion process Outputs Goods Services Control Feedback Value added

Activity Analysis ABM Non-value-added activity
Increases time spent on product or service but does not increase worth Unnecessary from customer perspective Can be reduced, redesigned or eliminated without affecting market value or quality Value-added activity Increases worth of product or service to a customer Customer is willing to pay for it

ABM Activity Analysis Create a Process Map (detailed flowchart) for each process Identify each step Create Value Chart Identify stages and time spent in stages from beginning to end of process Value-Added Processing Time Service Time Non-Value-Added Inspection Time Transfer Time Idle Time

Cycle Time Cycle Value- Non- Time = Added + Value-Added
Activities Activities Eliminate or minimize activities that add the most time and cost and the least value

Production Planning and Control Purpose
Minimize non-value added activities and effectively utilize limited resources in the production of goods so as to satisfy customer demands and create a profit for investors. Resources include the production facilities, labor and materials. Constraints include the availability of resources, delivery times for the products, and management policies. Production and Inventory Control- Introduction (10)

Efficiency Versus Effectiveness
The difference between efficient and effective is that efficiency refers to how well you do something, whereas effectiveness refers to how useful it is. For example, if a company is not doing well and they decide to train their workforce on a new technology. The training goes really well - they train all their employees in avery short time and tests show they have absorbed the training well. But overall productivity doesn't improve. In this case the company's strategy was efficient but not effective.

Operation of Production Systems and Production Planning Involve
CSUN - Spring 2005 MSE407 - Manufacturing Systems Operation of Production Systems and Production Planning Involve Planning and execution of the activities that use workers, energy, information, and equipment to convert raw materials into finished products Delivering products with the desired functions, aesthetics, and quality to the customers at right time and with minimum cost

Production Objectives
High Profitability Low Costs Low Unit Throughput Less Variability High Utilization Inventory Quality Product Sales Many products Fast Response More Utilization Short Cycle Times High Customer Service Production and Inventory Control- Introduction (13)

Hierarchical Structure of Production Planning Activities
Production Planning and control functions of industrial firms often follow a hierarchical structure Time frame and dollar value of decisions decrease as we move down the hierarchy In general, decisions made at each level are passed down one level Constraints and instructions Current status and performance data are passed upward to facilitate decision making and guidance

System Components and Hierarchy
Corporation Corporate level Parts Plant 1 Parts Plant 2 Parts Plant 2 Assembly Plant 1 Assembly Plant 1 Shop level Shaft Production Gear Production Gear Production Heat Treating Heat Treating Purchasing Purchasing Department level CNC Mill CNC Lathe CNC Lathe Gear Hobber Gear Hobber Automated Part Handling System Workstation level Robotic Load/ Unload Tool Exchanger Power Controller Force Sensor Equipment level

Production Activity and Information Flow
Production-planning decisions typically made in a hierarchical manner: Physical material flow from raw material through delivered product Support functions and design activities preceding production Operational decisions for production planning, scheduling, and control

Production Activity and Information Flows
Raw Material Forecasting Strategic Planning Aggregate Production Planning Disaggregation Production Scheduling Shop Floor Control Administrative Functions (Purchasing, Payroll, Finance, Accounting) Fabrication Plant Assembly Plant Marketing Product Design Process Planning Finished Products Distribution Center Manufacturing Support (Facilities Planning, Tool Management, Quality Control, Maintenance) Retailer Customer a) Product Flow b) Decision Hierarchy c) Support Functions

Production System Decision Hierarchy
Inputs Process Outputs Length of Planning Horizon Long Range Economic Forecasts Financial Choices Strategic Operating Facilities Product Line (Families) Technologies Years Processing Technologies/Efficiency Medium Range Product Family Forecasts Machine Schedules Aggregate Production Production Level Workforce Level Family Inventories Months Production Levels Workforce Levels Current Inventory Status Changeover Times and Costs Item Forecasts Disaggregation Master Production Schedule (MPS) - Final Assembly by item Item Inventories Weeks MPS Bill of Materials Process Plans Scheduling Job Priorities Order Releases Days-Shift Labor Status Machine Status Shop Floor Control Machine Priorities Job Status Labor Reporting Material Handling Tasks Load/Prices/Unload Authorization Real Time – Minutes

Aggregate Production Planning
A typical aggregated plan states the level of major product families to be produced monthly over the next year Workforce levels, overtime levels, inventory levels

Types of Production Systems
There are four basic types of production systems: Process Product Cellular Fixed positions

Layout Goals Use space efficiently Efficient personnel movement
Maximum equipment utilization Convenient / safe work environment Simplify repair / maintenance Smooth flow of work

Products, Processes, and Layouts
Make-to-stock standardized commodities Continuous process industries repetitive mfg high volume, Product Layout low variety Assemble-to-order modular Hybrid, FMS, CAM, CIM low volume, Cellular Layout medium variety Job-Shop(Intermittent) Process Layout Make-to-order custom low volume, high variety Special Project low volume, Fixed Position Engineer-to-order one-of-kind low variety

Fixed Position Layout The product or project remains stationary, and workers, materials, and equipment are moved as needed. Examples: Home building, ship and aircraft buiding, drilling for oil

Process Layout Similar processes (or processes with similar needs) are located together By grouping similar processes utilization of resources is improved Customers, products, patients move through the processes according to their needs Different products = different needs = different routes Complex flow pattern in the operation Examples: Supermarkets, job-shops, hospitals

Process Layout –products travel to dedicated process centers
Process Layouts Process Layout –products travel to dedicated process centers Milling Assembly & Test Grinding Drilling Plating

Product Layout Sometimes called line layout, flow line or assembly line Parts follow a specified route – the sequence of workstations matches with the sequence of required operations Work Flow is clear, predictable, easy to control Examples: Car assembly, paper manufacture, self-service canteen

Product Layout Raw materials or customer
Station 1 Station 2 Station 3 Station 4 Finished item Material and/or labor Material and/or labor Material and/or labor Material and/or labor Used for Repetitive or Continuous Processing

Cellular Layouts Could be considered as mini product layouts
machines are grouped into a cell that can process items that have similar processing requirements Based on Group technology which involves grouping items with similar design or manufacturing characteristics into part families Could be considered as mini product layouts Can improve and simplify a functional/process layout Flexible Duplicates some resources

Part families Part families with similarity in manufacturing process
Part families with similarity in shape

Original Process Layout
B Raw materials Assembly 1 2 3 4 5 6 7 8 9 10 11 12

Cellular Layout 3 6 9 Assembly 1 2 4 8 10 5 7 11 12 A B C
Raw materials Cell 1 Cell 2 Cell 3

Comparison of Product and Process Layouts
Workers Inventory Storage space Material handling Aisles Scheduling Layout decision Goal Advantage Limited skills Low in-process, high finished goods Small Fixed path (conveyor) Narrow Line balancing (Easier) In-line, U-type Equalize work at each station Efficiency High skills High in-process, low finished goods Large Variable path (forklift) Wide Dynamic (More difficult) Functional Minimize material handling cost Flexibility

Product Volume and Variety
Cellular Quantity Product Layouts Fixed Position Layouts Mixed Layouts Process Layouts Number of Different Products

Product Flow Control Batch Processing (Process Layout)
From a couple to several thousands identical parts A batch for each different part type Move together through the production system May split for material handling or to reduce processing time Examples are clothing, furniture production Repetitive or Flow processing (Product Layout) Continuous– chemicals, foods, pharmaceuticals Discrete – car, refrigerator production

Setup Costs Affect The Batch Size
Cost and time to set up production facilities to manufacture a specific product affect the batch size. When changeover time (setup time) and cost are large, the size of batch is kept large. Large batch sizes result in high inventory cost.

Production Choices Make-to-stock
Number of units of each product are kept on hand at all times Quick delivery to customers upon receipt of an order When delivery response time is a key competitive factor Limited number of products manufactured repeatedly An idea what customers will want Allows to schedule production in advance Make-to-order Only produce items after they have been ordered Production system must respond quickly Products have high degree of customization Shelf life of products is short Assemble-to-order Customers have influence on the design They can select various options from predesigned subassemblies

Time Horizon in Production Planning Static Vs. Dynamic Environments
Models used for production planning are either static or dynamic Static Constant through time Assume same plan acceptable in each period for the foreseeable future Dynamic Explicitly consider changes in demand and resource availability to determine what should be done through time over a planning horizon Require stochastic data Require great effort to build and solve

The Role of Inventory Inventory consists of physical items moving through the production system Originates with shipment of raw material and parts from the supplier Ends with delivery of the finished products to the customer Costs of storing inventory accounts for a substantial proportion of manufacturing cost Often 20% or more Optimal level of inventory Allows production operations to continue smoothly A common control measure is Inventory Turnover

Inventory Turnover The ratio of annual cost of goods sold to average inventory investment. It indicates how many times a year the inventory is sold. Higher the ratio, the better, because it implies more efficient use of resources. Higher the profit margin and longer the manufacturing lead time, the lower the inventory turns. Example: Supermarkets (low profit margins) have a fairly high turnover rate

Inventory Definitions and Decisions
Batch or order size, Q Batch size is the number of units released to the shop floor to be produced Reorder point, r Specifies the timing for placing a new order Inventory Position Inventory Position = Inventory On Hand + On Order – Backorders Units on order Have been ordered but not yet arrived Backorders Items promised to customers but not yet shipped New units are shipped out to cancel backorders

Types of Inventory Raw Materials Finished Goods Work-in-Process (WIP)
Essential to the production process Often kept in large quantities on site Finished Goods Completed products awaiting shipment to customers Work-in-Process (WIP) Batches of semi finished products currently in production Batches of parts from time of release until finished goods status Pipeline Goods in transit between facilities Raw materials being delivered to the plant Finished goods being shipped to warehouse or customer

Types of Inventory

Justification of Inventory
Inventory will always exist Competitive pressure to supply common products quicker than they can be produced imply finished goods inventory must be kept near the customer Price breaks are common when large quantities of material and parts are purchased We may store inventory in periods of low demand and consume them in periods of large demand to smooth production rate (seasonal demand) Speculation

Inventory Costs and Tradeoffs
Holding inventory is costly In constructing economic models for choosing the optimal levels of inventory, trade of the costs caused by: Ordering or set up of machines Investing and storing the goods Shortages (not having inventory available when needed)

Ordering Costs A fixed ordering cost can be associated with each replenishment when parts are ordered from suppliers Identifying the need to order Execute the order Prepare the paperwork Place the order Delivery cost fixed component Receiving inspection Transportation to place of use Storage

Setup Costs For parts produced in-house, we must:
Check status of raw material Possibly place an order Create route sheets with instructions for each stage of the production process Store routing data in a database Check routing data for compatibility with shop status and engineering changes Make routing instructions with raw material Deliver to production workers Machine set up

Inventory Carrying Costs
Carrying inventory incurs a variety of costs Space heated and cooled Move inventory occasionally because it blocks access to other goods Construct and maintain information system to track location Pay taxes based on value Insurance costs Some will be lost, damaged, or perished Cost of capital invested in inventory

Shortage Costs When customer demands an out of stock item
May decide to wait for delivery - backorders May cancel the order – lost sales May look elsewhere next time – lost customer May pay expedite charges Within the plant, if material is unavailable to start production Work center may lack work Schedule may have to be modified Completion of products may be delayed Result in late deliveries or lost sales

Information Flow for Various Production Systems
Order Entry Raw Material I I I a. Materials Requirements Planning (MRP) Raw Material b. Just-In-Time (KANBAN) I Processor Information Flow Material Flow Finite Capacity Inventory Buffer Infinite Capacity Inventory Buffer

KANBAN control Kanban control uses the levels of buffer inventories in the system to regulate production. When a buffer reaches its preset maximum level, the upstream machine is told to stop producing that part type. This is often implemented by circulating cards, the kanbans, between a machine and the downstream buffer. The machine must have a card before it can start an operation. It can then pick raw materials out of its upstream (or input) buffer, perform the operation, attach the card to the finished part, and put it in the downstream (or output) buffer.

KANBAN control Kanban control ensures that parts are not made except in response to a demand. The analogy is to a supermarket: Only the goods that have been sold are restocked on the shelves.

Information Flow for Various Production Systems
Limit on Total Inventory Raw Material I I c. Constant Work-In-Process (CONWIP) Raw Material d. Hybrid CONWIP-KANBAN I Processor Information Flow Material Flow Finite Capacity Inventory Buffer Infinite Capacity Inventory Buffer

CONWIP Control CONWIP stands for Constant Work-In-Process.
a control strategy that limits the total number of parts allowed into the system at the same time. Once the parts are released, they are processed as quickly as possible until they fill up the last buffer as finished goods. Once the consumer removes a part from the finished goods inventory, the first machine in the chain is authorized to load another part.

CONWIP Control Like KANBAN, the CONWIP system only responds to actual demands, so it is still a ``pull'' type system. But unlike kanban, the buffers for all downstream machines are empty, except finished goods, which is full. This occurs because any part released to the system will move to finished goods. New parts will not be released if the finished goods buffer is full.

Inventory is Needed to Support Production
CSUN - Spring 2005 MSE407 - Manufacturing Systems Inventory is Needed to Support Production Recent years claim a goal of zero inventory But some is necessary to meet needs Economically practical to maintain some WIP to facilitate production scheduling Variability in processing time and job arrival rates Inventory should not be used to cover problems Wasteful practice all too common Prevents the system from improving Defects not detected until later Lean companies Operate with reliable processes, quick changeovers, low inventories, small space, low scrap and rework, closer communication

Large Inventories Imply Long Throughput Times
Throughout time (manufacturing Lead Time) The span of time from when the part enters a system until it leaves Little’s Law I = X · T Relates average throughput time (T) to the level of average inventory (I) and the production rate (X) for any stationary process Stationary process Probability of being in a particular state is independent of time

To reduce throughput time
Eliminate unnecessary, non-value added operations: Reduce waiting time Reduce transfer time Reduce quality inspection time Increase process rates Reduce batch size

CSUN - Spring 2005 MSE407 - Manufacturing Systems Capacity Balancing 1 2 3 4 5 Flow In Flow Out Desire to have same number of units produced in each work center Capacity is measured by number of units that can be made per time period Total production is limited by the workstation with the smallest capacity (bottleneck station) Excess capacity reduces cycle time

Theory of Constraints (TOC)
A management philosophy developed by Dr. Eliyahu Goldratt. The goal of a firm is to make money.

Dr. Eliyahu Goldratt wrote many books including:
The Goal: A Process of Ongoing Improvement (sold more than 3 million copies) It's Not Luck (how to apply TOC in conflict resolution and marketing) Critical Chain (how to apply TOC in project management)

Goldratt’s Rules of Production Scheduling
20-62 Goldratt’s Rules of Production Scheduling Do not balance capacity balance the flow The level utilization of a nonbottleneck resource is not determined by its own potential but by some other constraint in the system An hour lost at a bottleneck is an hour lost for the entire system An hour saved at a nonbottleneck is a mirage 5

Customer-Defined Value
CSUN - Spring 2005 MSE407 - Manufacturing Systems Customer-Defined Value The technical performance or quality of a product is no longer the primary determinant of customer value Customers evaluate other "value factors“ such as: On-time Delivery After Sale Service Business expertise Low price for high quality Value is what the customer wants and how much would be paid for it Eliminate non-value-added operations the customer will not pay for non-value-added operations

Models to Study Production Systems
Testing new ideas on full-scale systems is expensive, time consuming, complex, and unnecessary Instead, we build models to visualize and examine aspects of a system Models allow us to learn about the system and test various system designs For instance, Production System Models allow us to test the impact of production planning and inventory control decisions so that Wrong decisions can be avoided Distruptions of the real process can be avoided

Definition of a Model A model is a simplified, artificial representation of reality Constructed to facilitate off-line study of real object or system Flow diagrams Philosophical (conceptual) Small-scale prototype Mathematical

Systems and Models Ways to study a system

A Systems Perspective Production system represents a key aspect of the firm Must maintain global view of the entire supply chain from materials through product delivery Must integrate and cooperate with marketing, purchasing, quality assurance, accounting, design engineering, and manufacturing Instability of the production system may occur: Misuse of marketing (demand) information Misunderstanding of the relationship among safety stock, inventory, and production Bad production decisions

BA 411 Course Topics Demand Forecasting Long-Range Capacity Planning
Aggregate Production Planning Inventory Management Material Requirements Planning Scheduling and Sequencing

Production and Inventory Control- Introduction (69)
Forecasting Objective: predict demand for production planning purposes. Laws of Forecasting: 1. Forecasts are always wrong! 2. Forecasts always change! 3. The further into the future, the less reliable the forecast will be! Forecasting Tools: Qualitative: Delphi, Analogies Quantitative: Causal and time series models Production and Inventory Control- Introduction (69)

Production and Inventory Control- Introduction (70)
Aggregate Planning Objective: generate a long-term production plan that establishes a rough product mix, anticipates bottlenecks, and is consistent with capacity and workforce plans. Issues: Aggregation: product families and time periods must be set appropriately for the environment. Coordination: AP is the link between the high level functions of forecasting/capacity planning and intermediate level functions of MRP, inventory control, and scheduling. Anticipating Execution: AP is virtually always done deterministically, while production is carried out in a stochastic environment. Production and Inventory Control- Introduction (70)

Capacity/Facility Planning
How much and what kind of physical equipment is needed to support production goals? Issues: Basic Capacity Calculations: stand-alone capacities and congestion effects (e.g., blocking) Capacity Strategy: lead or follow demand Make-or-Buy: vendoring, long-term identity Flexibility: with regard to product, volume, mix Speed: scalability, learning curves Production and Inventory Control- Introduction (71)

Inventory Management How much to order of each material when orders are placed with either outside suppliers or production departments within organizations When to place the orders The overall objective of inventory management is to achieve satisfactory levels of customer service while keeping inventory costs within reasonable bounds by answering these two questions .

Material Requirement Planning
Objective: Determine all purchase and production components needed to satisfy the aggregate/disaggregate plan. Issues: Bill of Materials: Determines components, quantities and lead times. Inventory Management: Must be coordinated with inventory. Production and Inventory Control- Introduction (73)

Sequencing and Scheduling
Objective: develop a plan to guide the release of work into the system and coordination with needed resources (e.g., machines, staffing, materials). Methods: Sequencing: Gives order of releases but not times. Scheduling: Gives detailed release times. Production and Inventory Control- Introduction (74)

Review Questions A “Production System” is:
CSUN - Spring 2005 MSE407 - Manufacturing Systems Review Questions A “Production System” is: The set of resources and procedures involved in converting raw materials into products and delivering them to customers The set of resources and procedures involved in converting products into raw materials and delivering them to customers The set of resources and procedures involved in producing a system None of the above

Review Questions Efficient production layout will result in:
CSUN - Spring 2005 MSE407 - Manufacturing Systems Review Questions Efficient production layout will result in: Efficient use of space Efficient personnel movement Maximum equipment utilization Smooth flow of work All of the above

Review Questions As order quantity increase:
CSUN - Spring 2005 MSE407 - Manufacturing Systems Review Questions As order quantity increase: Ordering cost increase and holding cost decrease Ordering cost decrease and holding cost increase Ordering and holding cost increase Ordering and holding cost decrease

Review Questions Total production is limited by:
CSUN - Spring 2005 MSE407 - Manufacturing Systems Review Questions Total production is limited by: The workstation with the largest capacity The workstation with the smallest capacity The amount of WIP inventory The number of workstations available

Review Questions Production system models allow us to:
CSUN - Spring 2005 MSE407 - Manufacturing Systems Review Questions Production system models allow us to: Learn about the system and test various system designs Test impact of production planning and control decisions Visualize and examine aspects of a system All of the above

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