1 ME Production Planning and Inventory Control

2 Production/Manufacturing Production/manufacturing is the process of converting raw materials or semi-finished products into finished products that have value in the market place. This process involves the contribution of labor, equipment, energy, and information.

3 The Production System Production System Raw materials Energy Labor Equipment Information Finished products Scrap Waste

4 Inventory Inventory is both an input and output of the production process. Inventory can be in the form of raw materials, semi-finished, and finished products.

5 The Inventory System Supply sourceDemand source Inventory

6 The Production-Inventory System Raw materials Suppliers Fabrication Component parts inventory Assembly Finished goods inventory Distribution and sales

7 The Supply Chain 2nd tier suppliers 1st tier suppliers Assembly/ Manufacturing Distribution centers Retailers

8 Supply Chain Management Supply Chain Management (SCM) is the set of functions concerned with the effective utilization of limited resources that may reside with one or more independent firms and the management of material, information, and financial flows within and between these firms, so as to satisfy customer demands and create profits for all firms.

9 Production Planning and Inventory Control Production planning and inventory control is the subset of SCM functions that focus on managing production operations and inventory throughout the supply chain.

10 Examples of Decisions

11 Examples of Decisions  What should we produce, how much, and when (forecasting)?  How much can we produce (capacity planning)?  How much do we have and how much do we need (inventory management)?  When should we produce (production planning and scheduling)?

12 A Hierarchy of Decisions Long term forecasting Capacity Planning Network design & facility location Production Planning Production Scheduling Inventory Management Warehousing & order fulfillment Transportation & Distribution Sales & Marketing

13 Example Performance Measures

14  Cost (are products being created at minimum or acceptable cost?)  Quality (what are the specifications of the products? What percentages of shipped products meet specification?)  Variety (how many types of products are - or can be – simultaneously produced?)  Service (how long does it take to fulfill a customer order? how often are quoted lead times met?) Examples of Performance Measures

15  Flexibility (how quickly can existing resources be reconfigured to produce new products?)  Worker satisfaction (are workers and managers throughout the supply chain happy and motivated?)  Safety (are work environments safe for workers and the surrounding community?)  Environmental impact (how environmentally friendly are the supply chain processes and the products?) Examples of Performance Measures (continued…)

16 The Bottom Line In the long run, the supply chain must be profitable by delivering value to the end customer and to do so over the long run.

17 Classification of the Production Process  Production quantity

18 Classification of the Production Process  Production quantity –Mass production –Batch production –Job shop production

19 Classification of the Production Process  Production quantity –Mass production –Batch production –Job shop production  Product variety

20 Classification of the Production Process  Production quantity –Mass production –Batch production –Job shop production  Product variety –Single product or product line –Family of similar products –One-of-a-kind products

21 Mass Production Systems

22 Mass Production Systems  Low product variety  High production volumes  Specialized labor  Dedicated equipment  High reconfiguration costs  Make-to-stock production

23 Batch Production Systems

24 Batch Production Systems  Medium product variety  Products are made in larger lots  products are made to stock  Programmable/reconfigurable equipment  Significant setup costs

25 Job Shops

26 Job Shops  High product variety  Products are made in small lots  Products are made to order  Flexible equipment and labor  Small setups

27 Classification of Production Systems (continued…)  Order fulfillment

28 Classification of Production Systems (continued…)  Order fulfillment – Make-to-stock systems (MTS) – Make-to-order systems (MTO) – Hybrid MTO/MTS

29 Classification of Production Systems (continued…)  Order fulfillment – Make-to-stock systems (MTS) – Make-to-order systems (MTO) – Hybrid MTO/MTS  Resource configuration

30 Classification of Production Systems (continued…)  Order fulfillment – Make-to-stock systems (MTS) – Make-to-order systems (MTO) – Hybrid MTO/MTS  Resource configuration – Product layout – Process layout – Cellular layout – Fixed position layout

31 Classification of Production Systems (continued…)  Inputs/outputs

32 Classification of Production Systems (continued…)  Inputs/outputs – Discrete production systems (discrete inputs and outputs - cars, computers, machine tools, etc) – Continuous production systems (continuous inputs and outputs - chemicals, textiles, food processing, pharmaceuticals) – Hybrid systems (Discrete inputs/continuous outputs or continuous inputs/discrete outputs - steel, plastics, recycling)

33 Process capabilities & business strategy  Example product attributes: price, quality, variety, service, demand uncertainty  Example process attributes: cost, quality, flexibility, lead time

34  A firm must choose a business strategy - attribute values for its portfolio of products - that differentiates it from the competition.  A firm must choose process capabilities, attribute values for its process, that support its business strategy.

35  A business strategy can be driven by market opportunities or by a competitive advantage in process capabilities.  In both cases, there must be a fit between process capability and business strategy.