1. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 1 Outline Questions? Sales and Operations Planning Examples Qualifiers and Winners Describe assignment 2

2. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 2 Process Types Continuous Repetitive Batch Job Shop Project

3. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 3 Hayes-Wheelwright

4. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 4 Order qualifiers – Order winners On what basis do you buy a particular product? Milk Laptop Car Toothpaste

5. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 5 Forecasting Why did we skip it?

6. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 6 Operations Planning Long term determined by lead time of capacity Make to Stock Make to Order Assemble to order Engineer to order make to order Project

7. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 7 Aggregate Planning Demand enters as units of products We convert these to common units such as machine hours, labor hours, earned hours, pounds of material, etc. to create an aggregate schedule The master schedule details how many of each product are to be built in each period The major variables are the costs of changing the level of resources such as: labor machinery inventory impact of lot sizes

8. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 8 Example 1 See spreadsheet from Chapman Chapter 3

9. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 9 Example 2 Note that definitions of variables are different in each book. Our objective is to minimize the total cost by: Varying labor levels Varying Inventory Varying lot sizes t periods (length of the horizon) n products m resources Inventory carrying cost Hiring and layoff costs Off loading (subcontracting) costs Overtime costs

10. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 10 Example (continued) We are usually subject to a number of constraints: Hours or shifts per day (a shift is usually 8 hours) Workdays per month (range from 19 to 31, usually use 20) Machine capacities (units made per hour) Overtime limits (how long can a person work per day?) Hours required per product (x.xxxx hrs/unit) Non-negativity constraints (all variables >=0)

11. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 11 Methods for solving Aggregate Planning Problems Spreadsheet trial end error Linear Programming (Simplex method, Dantzig 1947 – see the link on the links page) –Excel Solver –Other LP programs Non linear optimization methods (ISE520)

12. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 12 LP example

13. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 13 LP Example (see spreadsheet)

14. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 14 Using the Solver in Excel The solver is located under the “Tools” menu. The dialog box looks like this:

15. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 15 Using the Solver in Excel (continued) The dialog box for the constraints look like this:

16. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 16 Master Production Scheduling Generated from the aggregate plan or directly from the demand - how many products will be produced and when they will be produced There are three main types: Make to stock Make to order Assemble to order - MPS and a FAS (Final Assembly Schedule)

17. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 17 Master Production Scheduling (continued) The planning horizon must cover the period required to accomplish it –Usually 3 to 6 months –Redo every month or more frequently –Time fences to control decision making (inside lead time protection) Length of lead time determines level of authority required to accept orders

18. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 18 Master Production Scheduling (continued) Creating a Master Production Schedule –Select items to be included (levels) –Select planning horizon –Select method for available to promise (ATP) ATP = the uncommitted portion of a company’s inventory or planned production (one method is called “cumulative with lookahead” ) –Combine inventory, orders, forecasts etc.

19. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 19 Available to Promise with look ahead

20. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 20 Master Production Scheduling (continued) Creating a Master Production Schedule (continued) –Draft, check rough cut capacity, “final’’ version –Track daily –Check ATP against incoming orders –Check projected on hand against future orders –Revise capacity as needed

21. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 21 Capacity Planning Evaluated at MPS level - Rough cut capacity planning (RCCP) MRP level - Capacity requirements planning (CRP) “..capacity planning is somewhat misleading. Both RCCP and CRP are information tools rather than decision making tools. They indicate which capacity constraints are violated, but they do not provide guidance for resolving the conflict… They ignore actual lead times” from Sipper and Bulfin

22. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 22 Bill of materials List of All Items Required to Build a Product –Description –Part Number –Quantity (With Unit of Measure) –Revision –Many Optional Items

23. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 23 Bill of materials (continued) Structured or indented (levels) to signify subassemblies –Can be represented as a tree –Starts with level zero (final product), lowest level = purchased

24. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 24 Lot sizing and Lead time There are many methods to determine how much of a material item to buy in each period Lot for Lot Economic Order Quantity Part Period Balancing Least Unit Cost Least Total Cost Period Order Quantity Lead time - time from knowing need to receiving it

25. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 25 Lot Sizing Methods Lot for Lot (LOL) – order the amount you need in each period Economic Order Quantity (EOQ) – Balances Inventory holding cost against set-up cost Q – Quantity to buy at one time, or to produce OP – Order point = level of inventory at which we decide to order A – cost of ordering or setting up a production lot K – interest rate C – value of each unit L – lead time – time from ordering to receiving the lot D – Annual demand

26. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 26 Order Quantity and time

27. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 27 Lot Sizing Methods (continued)

28. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 28 Lot Sizing Methods (continued) Least Unit Cost - keep adding quantities from successive periods until the least unit cost is reached

29. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 29 Lot Sizing Methods (continued) Part Period Balancing – keep adding quantities from successive periods until inventory holding cost exceeds set-up cost Least Total Cost - keep adding quantities from successive periods until the least total cost is reached Period Order Quantity – determine the number of periods’ worth of material to order a priori

30. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 30 Shop Floor Control Many MRP packages include Shop Floor Control modules These are designed to track the progress of products through a factory The best of them, especially when tied to real time data gathering are very good at letting managers now where things are. They are very dependent on timely input of data The newer ones will often include scheduling software as well. It is, however, more common to have the scheduling software in a separate module

31. Session 3 University of Southern California ISE514 September 1, 2015 Geza P. Bottlik Page 31 Benefits and shortcomings Benefits: Ability to evaluate the feasibility and requirements Material plan Identifying shortages Shortcomings Infinite capacity assumption Uncertainty - deterministic system Lead time discrepancies Yield estimates System nervousness due to rolling horizon Integrity of data