Basics of Supply Chain Management Session 5 Capacity Management and Production Activity Control

Course Outline Session 1: Introduction to Supply Chain Management Session 2: Forecasting Session 3: Master Planning Session 4: Material Requirements Planning Session 5: Capacity Management and Production Activity Control Session 6: Inventory Fundamentals Session 7: Inventory Management Session 8: Physical Distribution Session 9: Quality Management and Purchasing Session 10:Just-in-Time Manufacturing Basics of Supply Chain Management, Version 2.1 — August 2001 5-1a

Session 5 Objectives Capacity management and its relation to priority planning Rated or calculated capacity Capacity required for a shop order Purpose and activities of production activity control (PAC) Basics of Supply Chain Management, Version 2.1 — August 2001 5-1b

Session 5 Objectives (cont.) Process of order preparation and data requirements for a PAC system Techniques of scheduling Purpose of a shop order and necessary information Implementation and control of work orders Input/output reports Basics of Supply Chain Management, Version 2.1 — August 2001 5-2

Capacity Management Planning and controlling resources needed to meet production objectives Planning: Determining resources needed to meet the priority plan Selecting methods to make that capacity available Controlling: Monitoring output, comparing with the plan, and taking corrective action Capacity management occurs at each planning level Basics of Supply Chain Management, Version 2.1 — August 2001 5-3

Planning Levels Capacity Management Techniques Figure adapted from CPIM Exam Content Manual, APICS, 1997 Capacity Management Techniques Capacity Requirements Planning (CRP) Priority Management Techniques Resource Requirements Planning (RRP) Production Plan Rough-Cut Capacity Planning (RCCP) Master Production Schedule Material Requirements Planning (MRP) Production Activity Control (PAC) Operation Sequencing Input/Output Control Basics of Supply Chain Management, Version 2.1 — August 2001 5-4

Defining Capacity The capability of a system to perform its expected function The capability of a worker, machine, work center, plant, or organization to produce output per time period Basics of Supply Chain Management, Version 2.1 — August 2001 5-5

Capacity Planning Process Determine the capacity available Translate the released and planned orders into capacity required Sum up capacities required for each work center Resolve differences between available capacity and required capacity Basics of Supply Chain Management, Version 2.1 — August 2001 5-6

Determining Capacity Available Capacity available is “The capability of a system or resource to produce a quantity of output in a particular time period” —APICS Dictionary Available capacity can be calculated or measured To calculate available capacity, identify Available time Utilization Efficiency Basics of Supply Chain Management, Version 2.1 — August 2001 5-7

Number of machines (or number of workers) × hours of operation Available Time Available time: depends on the number of machines, number of workers, and hours of operation Number of machines (or number of workers) × hours of operation What is the weekly available time for a work center that has four machines and works eight hours a day for five days a week? Basics of Supply Chain Management, Version 2.1 — August 2001 5-8

Utilization Utilization: Percentage of the time that the work center is active Example: Work center is available 120 hours a week, but actually produces goods for 90 hours 90 × 100% = 75% utilization 120 Basics of Supply Chain Management, Version 2.1 — August 2001 5-9

Efficiency Efficiency: Actual output rated against standard output Example: A work center is utilized 100 hours per week and produces 110 standard hours of work Basics of Supply Chain Management, Version 2.1 — August 2001 5-10

Problem 5.1 A work center produces 90 standard hours of work in one week. The hours scheduled are 80, and 70 are actually worked. Calculate the utilization and efficiency of the work center. Utilization = Efficiency = Basics of Supply Chain Management, Version 2.1 — August 2001 5-11

Rated Capacity Rated capacity = available time x utilization x efficiency Example: A work center consists of three machines and is operated eight hours a day for five days a week. Past utilization has been 75%, and efficiency has been 110%. Available time = Rated capacity = Basics of Supply Chain Management, Version 2.1 — August 2001 5-12

Problem 5.2 A work center consists of six machines that are available 16 hours per day for five days a week. Utilization is 80%, and efficiency is 110%. What is the rated weekly capacity? Rated weekly capacity = Basics of Supply Chain Management, Version 2.1 — August 2001 5-13

Demonstrated Capacity Proven capacity calculated from actual performance data Example: Over the previous four weeks, a work center produced 110, 140, 120, and 130 standard hours of work. What is the demonstrated capacity? Demonstrated weekly capacity = standard hours/week Basics of Supply Chain Management, Version 2.1 — August 2001 5-14

Load Generated by the priority planning system (MRP) Translates the priorities, given in units, into time required at each work center in each time period Takes place at each planning level Basics of Supply Chain Management, Version 2.1 — August 2001 5-15

Capacity Requirements Planning Need to Know Take Information From Open shop orders Open order file Planned order releases MRP Where work is done Routing file Time needed (standard hours) Routing file Lead times Routing file Work center file Work center capacity Work center file Basics of Supply Chain Management, Version 2.1 — August 2001 5-16

Shop Calendar Month Week Mon. Tues. Wed. Thurs. Fri. Sat. Sun. 2 3 4 5 6 7 8 27 123 124 125 126 9 10 11 12 13 14 15 28 127 128 129 130 131 July 16 17 18 19 20 21 22 29 132 133 134 135 136 23 24 25 26 27 28 29 30 137 138 139 140 141 30 31 1 2 3 4 5 31 142 143 144 145 146 2 July 2 Work Day—123 Defines non-work days 123 Reprinted with permission, J.R. Tony Arnold, Introduction to Materials Management, Prentice-Hall. Basics of Supply Chain Management, Version 2.1 — August 2001 5-17

Lead-Time Elements Lead Time Queue Setup Run Wait Move Queue Time waiting before operation begins Setup Time getting ready for operation Run Time performing operation Wait Time waiting after operation ends Move Time physically moving between operations Adapted from Material and Capacity Requirements Planning Certification Review Course, 1993, APICS Basics of Supply Chain Management, Version 2.1 — August 2001 5-18

Scheduling Orders To determine when orders should be started and completed on each work center Calculate operation time required at each work center Operation time = setup time + run time Allow for queue, wait, and move times Basics of Supply Chain Management, Version 2.1 — August 2001 5-19

Scheduling Example Order quantity = 100 units From route sheet From work center files Schedule Basics of Supply Chain Management, Version 2.1 — August 2001 5-20

Problem 5.3 Basics of Supply Chain Management, Version 2.1 — August 2001 5-21

Typical Load Profile Shows the capacity required at a work center based on planned and released orders for each time period Example Work center: 10 Rated capacity: 110 standard hours/week Basics of Supply Chain Management, Version 2.1 — August 2001 5-22

Resolving Differences Change the available Use overtime or capacity: undertime Hire or lay off Shift work force Use alternate routings Subcontract Alter the load: Alter lot sizes (May complicate schedule Reschedule for other work centers) Basics of Supply Chain Management, Version 2.1 — August 2001 5-23

Production Activity Control Production Plan Planning Implement control Purchasing Production Activity Control Master Schedule Materials Requirements Capacity Input/Output Basics of Supply Chain Management, Version 2.1 — August 2001 5-24

Objectives of PAC Execute the MPS and MRP Optimize use of resources Minimize work in process Maintain customer service Basics of Supply Chain Management, Version 2.1 — August 2001 5-25

PAC Functions Plan Execute Control Ensure resources are available Schedule start and completion dates Execute Gather relevant shop order information Release shop orders Control Establish and maintain order priority Track actual performance Monitor and control WIP, lead times, and queues Report work center performance Basics of Supply Chain Management, Version 2.1 — August 2001 5-26

Planning, Executing, and Controlling Production Activity Control Plan Schedule Replan Execute Work Authorization Control Compare Decide Manufacturing Operations Reprinted with permission, J.R. Tony Arnold, Introduction to Materials Management, Prentice-Hall. Basics of Supply Chain Management, Version 2.1 — August 2001 5-27

Data Requirements Must Know Obtained From What and how many to produce When parts are needed What operations are needed How much time operations will take How much capacity is available at each work center Basics of Supply Chain Management, Version 2.1 — August 2001 5-28

Scheduling Objectives Involves Meet delivery dates Effectively use manufacturing resources Involves Establishing start and finish dates for each operation needed to complete an order Basics of Supply Chain Management, Version 2.1 — August 2001 5-29

Scheduling and Loading Techniques Forward scheduling: Activities are schedule from a start date with the completion date of an order computed Backward scheduling: Activities are scheduled back from the due date Infinite loading: Assumes capacity is infinite at any work center Finite loading: Assumes there is a definite limit to capacity at any work center Basics of Supply Chain Management, Version 2.1 — August 2001 5-30

Backward and Forward Scheduling Reprinted with permission, BMS Associates, Inc. Basics of Supply Chain Management, Version 2.1 — August 2001 5-31

Infinite versus Finite Loading Source: Bihun and Musolf, Capacity Management Review Course, 1985 Basics of Supply Chain Management, Version 2.1 — August 2001 5-32

Bottlenecks Bottlenecks control the throughput of all products processed by them Work centers feeding bottlenecks should be scheduled at the rate the bottleneck can process A time buffer inventory should be established before the bottleneck Work centers fed by the bottleneck have their throughput controlled by the bottleneck Basics of Supply Chain Management, Version 2.1 — August 2001 5-33

Execute the Plan—Shop Order Packet Order number, part number, name and description, and quantity Engineering drawings Bills of material Route sheets Material issue tickets Tool requisitions Job tickets and move tickets Basics of Supply Chain Management, Version 2.1 — August 2001 5-34

Input/Output Control Work center: 201 Capacity per period: 40 standard hours Period 1 2 3 4 5 Total Planned input 38 32 36 40 44 190 Actual input 34 32 32 42 40 180 Cumulative variance Planned output 40 40 40 40 40 200 Actual output 32 36 44 44 36 192 Cumulative variance Planned backlog 32 Actual backlog 32 Basics of Supply Chain Management, Version 2.1 — August 2001 5-35

Problem 5.4 Work center: 20 Capacity per period: 40 standard hours 1 2 3 Total Planned input 38 36 42 Actual input 34 36 40 Cumulative variance Planned output 40 40 40 Actual output 42 36 42 Cumulative variance Planned backlog 30 Actual backlog 30 Basics of Supply Chain Management, Version 2.1 — August 2001 5-36

Dispatch List Work center: 10 Rated capacity: 100 standard hours per week Shop date: 250 Order Part Order Setup Run Operation Date Number Number Quantity Hours Hours Start Finish 123 6554 100 1.5 15 249 250 121 7345 50 0.5 30 249 251 142 2687 500 0.2 75 250 259 Total standard hours 2.2 120 Jobs coming: 145 7745 200 0.7 20 251 253 135 2832 20 1.2 1.5 253 254 Reprinted with permission, J.R. Tony Arnold, Introduction to Materials Management,3rd ed. Prentice-Hall, 1998 Basics of Supply Chain Management, Version 2.1 — August 2001 5-37

Dispatching Rules First come, first served (FCFS) Jobs performed in order received Earliest job due date (EDD) Jobs performed according to due dates Earliest operation due date (ODD) Jobs performed according to operation due dates Shortest process time (SPT) Jobs sequenced according to process time Critical ratio (CR) Basics of Supply Chain Management, Version 2.1 — August 2001 5-38

Critical Ratio Example: Today’s date is 180 Critical Time Work Order Due Date Remaining Remaining Ratio A 185 5 days 10 days .5 B 190 10 days 10 days 1.0 C 195 15 days 10 days 1.5 If CR less than (<) 1: Order is late If CR equal to (=) 1: Order is on time If CR greater than (>)1: Order is ahead of schedule Basics of Supply Chain Management, Version 2.1 — August 2001 5-39

Production Reporting Feedback on what is actually happening plantwide and by work center Order status Exception reports Inventory status Labor reports Machine performance Basics of Supply Chain Management, Version 2.1 — August 2001 5-40

Session 5: Objectives Discuss objectives of capacity management and its relation to priority planning Understand how to determine rated or calculated capacity (available capacity) Understand how to calculate the capacity required for a shop order (required capacity) Define the purpose of production activity control (PAC) and the activities performed Understand the process of order preparation and the data requirements for a PAC system Describe the basic techniques of scheduling Describe the purpose of a shop order and the information it should contain Summarize the process of implementing and controlling work orders Develop a simple input/output report Basics of Supply Chain Management, Version 2.1 — August 2001 5-41

Problem 5.5 Available hours = Hours actually worked = Standard hours produced = Utilization = Efficiency = Weekly available time = Rated capacity = Basics of Supply Chain Management, Version 2.1 — August 2001 5-42

Problem 5.5 (Solution) Available hours = 12,000 Hours actually worked = 10,440 Standard hours produced = 11,480 Utilization = x 100% = 87% Efficiency = x 100% = 110% Weekly available time = 3 x 16 x 5 = 240 hours Rated capacity = 240 x .87 x 1.10 = 229.7 10,440 12,000 11,480 10,440 Basics of Supply Chain Management, Version 2.1 — August 2001 5-42a

Problem 5.6 Work center: 20 Capacity per period: 40 standard hours 1 2 3 4 Total Planned input 36 38 35 40 Actual input 34 32 32 42 Cumulative variance Planned output 40 40 40 40 Actual output 38 36 40 38 Cumulative variance Planned backlog 32 Actual backlog 32 Basics of Supply Chain Management, Version 2.1 — August 2001 5-43

Problem 5.6 (Solution) Work center: 20 Capacity per period: 40 standard hours Period 1 2 3 4 Total Planned input 36 38 35 40 149 Actual input 34 32 32 42 140 Cumulative variance -2 -8 -11 -9 -9 Planned output 40 40 40 40 160 Actual output 38 36 40 38 152 Cumulative variance -2 -6 -6 -8 -8 Planned backlog 32 28 26 21 21 Actual backlog 32 28 24 16 20 Basics of Supply Chain Management, Version 2.1 — August 2001 5-43a