Production Planning (Aggregate Planning)

SOM 464: Manufacturing Resource Planning Study of the efficient allocation of resources (material, equipment, people, money) in manufacturing and some service operations How many items should be ordered or made at a given time? Who is assigned which job? How do jobs flow through the firm? How is inventory maintained?

Manufacturing Resource Planning: Flow of Materials Raw Materials Flow into Manufacturing/Service Company. Finished Goods/Services Distributed to End Customers. Supply Chain Management (SCM) is the Study of this Linked Chain of Activities. Manufacturing Resource Planning (or Materials Management) is the Study of the Planning and Materials Flow.

Manufacturing Resource Planning: Flow of Materials Supply Chain Diagram: Supplier  Manufacturer  Distribution  Customer System

Manufacturing Resource Planning Criteria High Customer Service (Probability of Meeting Demand) Minimize Production Costs Minimize Inventory Holding Costs and Other Inventory Investment Costs – Avoid Shortages Minimize Distribution Costs These Objectives Often Conflict with Objectives of Marketing and Finance.

Production Planning There are Five Major Levels in Planning and Control Strategic Business Plan Production Plan (Example is Tuffy Case) Master Production Schedule (MPS) Material Requirements Plan (MRP) – Can Also Include Manufacturing Resource Planning (MRP II) and Enterprise Resource Planning (ERP) Purchasing and Production Activity Scheduling and Control (Also Known as Shop Floor Control)

Production Planning Also Known as Aggregate Planning Problem in Tuffy Case: Set Production Every Period, Allocate Resources, Meet Demand Set P t = Production for t W t = Workforce for t

Production Planning Inputs: Resources (Rough-Cut Capacity Planning), Forecast, Inventory, Policies, Costs Demand Options: Pricing, Promotion, Markets for New Demand, Allowing Back Orders (Shortages) Supply (Capacity) Options: Hiring/Layoff, Overtime, Temporary Workers, Inventories, Subcontracting, Expediting

Relevant Costs 1.Change in Production (E.g. Hire/Layoff) Costs 2.Inventory Holding Costs 3.Shortage Costs 4.Payroll Costs 5.Subcontracting Costs 6.Expediting Costs

Scheduling Strategies Chase (Demand Matching) Production Leveling Level Workforce Subcontracting (Outsourcing) Hybrid or Mixed (Probably Used in Game) Given: Beginning Inv. – Demand + P t = End Inv.

Scheduling Techniques: (1) Heuristics Informal Rules that Appear to Work. Rules are Developed (Often by Trial and Error) and Tested in Real World or Computer Simulation. Advantage: Rules Can Be Realistic. Disadvantage: Not Optimum.

Scheduling Techniques: (2) Linear Decision Rule Economic Order Quantity (Remember EOQ from SOM 306?) Type of Approach TRC = Payroll + Holding + Shortage + Change in P t = f(P t, W t ) Calculus Used to Find Best P t and W t E.g. P t =.2F t +.1F t F t+2 -.1I t +.1W t-1 Advantage: Optimum Given that Equations “Fit”. Disadvantage: Cost

Scheduling Techniques: (3) Search Rules Used with Simulation Educated, Computer-Driven, Trial & Error Advantage: Realistic Costs, Not Optimum but Close. Disadvantage: Uses Lots of Computer Time.

Master Production Schedule (MPS) Similar to Production Plan Time Periods or “Buckets” are Smaller Multiple Products are Shown: Disaggregating Done by Heuristics or Linear Programming

Tuffy Teddy Bear Case Case Introduced You to Course Material. Case Involved Production Planning, Inventory Control, and Forecasting. Most Successful Strategies are Hybrid or Mixed: Reduce Production ASAP to Lower Inventories and Increase Production Just After Vacation.

2008 Best Answer: $41,960

2009 Best Answer: $45,731

2010 Best Answer: $42,615

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