IE6404 Production

Planning and Control

Instructor: Dr. Rifat Gürcan Özdemir, Associate Professor

Teaching Assistant: İlayda Ülkü
http://web.iku.edu.tr/~rgozdemir/index(ie_652).htm

Course Materials
Text Books
1. “Production Planning, Control and Integration”,
D. Sipper and R. Bulfin, McGraw-Hill, 1997.

Lecture notes
1. “pdf files of Power Point Slides” (will be given via internet)

Software
“GAMS LP Solver”

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Course Topics
PART I – Aggregare Production Planning(APP)
Chapter 1:
Spread Sheet and Transportation Methods for
APP
Chapter 2:
Linear Programming Models for APP

Course Topics
PART II – Inventory management
Chapter 3:
Inventory Management and EOQ Models
Chapter 4:
Quantity Discount and Multi Item Inventory
Models
Chapter 5:
Dynamic Lot Sizing Techniques
Chapter 6:
Sthocastic Inventory Models
Chapter 7:
Material Requirements Planning (MRP) 4

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Course Topics
PART III – Job scheduling
Chapter 9:
Scheduling and Sequencing
Chapter 10:
Single Machine Scheduling
Chapter 11:
Parallel Machine, Flow Shop and Job Shop
Scheduling

Grading
 Exams (85% of total grade)
Quizzes (15%)
Midterm (30%)
Final (35%)
 Assignments (15% of total grade)
 Participation (5% of total grade)

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 IE652 - Chapter 1

Spread Sheet and

Transportation Methods for APP

Production Planning Horizons

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Production Planning Decisions

Aggregate Production Planning

 Step 1. Aggregation: Different products are
aggregated into a common unit.
 Step 2. Planning: Demand fluctuations are
absorbed by:
 Changing the size of the workforce (hiring & laying
off),
 Varying the production rate (introduction of overtime
and/or idle time, relying on outside subcontracting),
 Accumulating seasonal inventories,
 Resorting to planned backlogs whenever customers
may accept delays in filling their orders,
 Shifting the demand to another period.
or a combination of these decisions
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Costs relevant to aggregate
production planning
1. Basic production costs
• Material
• Direct labor
• Overhead
= fixed cost (setup cost) + variable cost
2. Production rate change costs
• Hiring personnel
• Training personnel
• Laying off personnel
• Overtime compensations
• Subcontracting
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Costs relevant to aggregate

production planning
3. Inventory related costs
• Inventory holding cost
(= cost of capital tied up in inventory + storing +
insurance + taxes + spoilage + obsolescense)
• Shortage cost
(very difficult to measure; loss of customer
goodwill and loss of sales revenues resulting
from the shortage situation)

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Approaches for APP
 Spread Sheet Method
 Trialand Error approach
 Easily implemented with a spread sheet
 Zero inventory / Level production / Mixed plan

 Transportation Method
 Linear Programming Models

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Example
 Last year, Precision made 41,383 gears of various kinds.
There were 260 working days and average of 40 workers.
 Forecast demands over the next six months for aggregate
unit are as follows:
Month Jan. Feb. March April May June Total
Demand 2760 3320 3970 3540 3180 2900 19,670
Working days 21 20 23 21 22 22 129

 Inventory holding cost is $5 per gear per month. New

workers can be hired at a cost of $450 per worker.
Workers can be laid off at a cost of $600 per worker.
There is a $15/unit/month backorder cost.
 Wages and benefits for a worker are $15 per hour, all
workers are paid for eight hours per day, and there are
currently 35 workers at Precision. 14

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 Zero Inventory Plan

41,383 gears/year
Units/worker-day =  4 gears/worker-day
10,400 worker-days/year

demand/month
Workers needed =
days/month x units/worker-day

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Zero Inventory Plan

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 Zero Inventory Plan

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Level (Fixed) Workforce Plan

Total demand
Fixed # of Workers =
Total # of days x units/worker-day

19,670
Fixed # of Workers = = 38.12  39 workers
129 x 4

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Level (Fixed) Workforce Plan

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Level (Fixed) Workforce Plan

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 Comparing
Level Workforce and Zero Inventory Plans

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Mixed Plan

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Mixed Plan

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Mixed Plan

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Transportation Model
 A production planning problem with constant
work force can be solved as a transportation
problem.

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Solution

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Extensions
 Suppose 90 cases could be made on overtime
in periods 1 and 2, 75 cases in period 3 at costs
of $16, $18, $20 per case, respectively.
 Suppose units are backordered at a cost of $5
per unit-month.
 Demand of period 1 increased to 400 units.

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Solution

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