Chapter 2 – Operations Planning

and Control

Instructor: Getnet W. (Assi.Professor)

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 Learning Objectives
• Explain operations planning
• Identify different aggregate planning strategies & options
for changing demand and/or capacity in aggregate plans
• Develop aggregate plans, calculate associated costs, and
evaluate the plan in terms of operations, marketing,
finance & HRs
• Provide an overview of Material Requirements Planning
(MRP)
• Explain the different kinds of scheduling operations …

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 Operations Planning & Control (PPC)
 The ultimate aim of production planning & control (PPC) is
to produce the products of right quality in right quantity at
the right time by using the best & least expensive methods.
 PPC can thus be defined as:
- The process of planning the production in advance.
- Setting the exact route of each item.
- Fixing the starting & finishing date for each item.
- To give production orders to different shops.
- To see the progress of products according to order…

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Hierarchy of Production Decisions

Long-range Capacity Planning

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 Aggregate production Planning
 Aggregate plans act as an interface between strategic
decision (which fixes the operating environment) & short
term scheduling & control decision which guides firm’s
day-to-day operations.
 Determine the quantity and timing of production for the
immediate future
 Combines appropriate resources into general terms
 Details the aggregate production rate & size of work force
required

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 Aggregate production Planning…
 Aggregate Planning Requirements
 A logical overall unit for measuring sales and output
 A forecast of demand for intermediate planning period
in these aggregate units
 A method for determining costs
 A model that combines forecasts & costs so that
scheduling decisions can be made for the planning
period

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 The Planning Process
Long-range plans (over one year)
Research & Development
New product plans
Capital investment
Top Facility location/expansion
Executives
Intermediate-range plans (3 to 18 months)
Sales planning
Production planning & budgeting
Setting employment, inventory, subcontracting levels
Operations Analyzing cooperating plans
Managers
Short-range plans (up to 3 months)
Job assignments
Ordering
Operations Job scheduling
Managers, Dispatching
supervisors, foremen Overtime
Part-time help
Responsibility Planning tasks and horizon
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 Aggregate Planning Strategies
(capacity vs. demand options)
1. Use inventories to absorb changes in demand
2. Accommodate changes by varying workforce size
3. Use part-timers, overtime, or idle time to absorb
changes
4. Use subcontractors & maintain a stable workforce
5. Change prices or other factors to influence demand
 Finding the optimal plan is not always possible
 A mixed (hybrid) strategy may be the best way to
achieve minimum costs

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 Aggregate Planning Strategies/options…
 Level Strategy
• Sets capacity to accommodate average demand
• Use inventory or idle time as buffer
• Stable production leads to better quality & productivity
 Chase Strategy
• Match output rates to demand forecast for each period
• Sets labor/equipment capacity to satisfy period
demands
• Favored by many service organizations

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 Level Plan Example
 Level production rate= 28,000 units/7 periods= 4000 units
 Level workforce= (4000 units x .64 std.)/160 = 16 people

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 Chase Plan Example
 Chase hires & fires staff to exactly meet each periods demand
 Period 1 = (500 units x .64 std.)/160 = 2 people, need to fire 16
people

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 Aggregate Planning Methods
Solution
Techniques Approaches Important Aspects
Graphical/charting Trial & error Simple to understand & easy to
methods use. Many solutions; one
chosen may not be optimal.

Transportation Optimization LP software available; permits

method of linear sensitivity analysis & new
programming constraints; linear functions
may not be realistic

Management Heuristic Simple, easy to implement;

coefficients model tries to mimic manager’s
decision process; uses
regression

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 Aggregate Planning in Services
 Controlling the cost of labor is critical:
critical:
1. Close scheduling of labor-
labor-hours to assure quick
response to customer demand
2. Some form of on
on--call labor resource
3. Flexibility of individual worker skills
4. Individual worker flexibility in rate of output or hours
 All demand must be satisfied or lose business to a
competing service provider

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 Material Requirements Planning (MRP)
 MRP: Computer-based information system that translates
master schedule requirements for end items into time-
phased requirements for subassemblies, components &
raw materials.
 MRP is a dependent demand production planning &
inventory control system.
 MRP uses the concept of backward scheduling to
determine how much & when to order & replenish
 MRP output includes schedules for all internal activities &
parts as well as orders for all supply chain items.

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 Material Requirements Planning (MRP) …
 MRP integrates data from production schedules (MPS)
with inventory records, scheduled receipts & the bill of
materials (BOM) to determine purchasing & production
schedules for the components required to build a product.
 Benefits of MRP
• Better response to customer orders
• Faster response to market changes
• Improved utilization of facilities & labor
• Reduced inventory levels …

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Input/output - MRP Process

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 MRP Inputs …
 Effective use of dependent demand inventory models requires:
requires:
 Master production schedule (MPS)
(MPS):: time-phased plan that
states which end items are to be produced, when these are
needed, & in what quantities.
- The MPS module contains the authorized schedule
- MPS is a statement of what is to be produced (not a forecast
of demand) & is established in terms of specific products
- The Capacity Requirements Planning (CRP) module checks to
make sure the scheduled work load profile is feasible
 Cumulative lead time:
time: The sum of the lead times that
sequential phases of a process require, from ordering of parts
or raw materials to completion of final assembly.

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 MRP Inputs …
 BOM (specifications): a listing of all of the raw materials, parts,
subassemblies, & assemblies needed to produce one unit of a
product.
 BOM module contains product structure for each unique product
 Product structure tree
tree:: Visual depiction of the requirements in a
BOMs, where all components are listed by levels.
- Items above given level are called parents

- Items below given level are called components/children

 Accurate inventory records are absolutely required for MRP (or

any dependent demand system) to operate correctly
- Generally MRP systems require 99% 99% accuracy
 Outstanding purchase orders must accurately reflect quantities
& schedule receipts
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 Dependent and Independent Demand
 Independent Demand
 Is the demand for finished products

 Does not depend on the demand of other products

 Needs to be forecasted/uncertain

 Dependent Demand
 Is the demand derived from finished products/certain

 Is the demand for component parts based on the

number of end items being produced & is commonly
managed by the MRP system

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 Objectives of MRP
 Determines the quantity & timing of material requirements
 what to order (checks BOM)

 how much to order (lot size rules)

 when to place the order (need date - lead time), and

 when to schedule delivery (on date needed)

 Maintain priorities
 In a changing environment, MRP reorganizes priorities to

keep plans current & viable

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 Reflection #1
 Describe the use of demand forecasting in
operations planning?
 What is the use of MRP Action Notices?

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 MRP Processing
 Gross requirements:
requirements: Total expected demand
 Scheduled receipts: Open orders scheduled to arrive
 Planned on hand: Expected inventory on hand at the beginning
of each time period
 Net requirements:
requirements Actual amount needed in each time period
 Planned--order receipts: Quantity expected to be received at
Planned
the beginning of the period/offset by lead time
 Planned--order releases
Planned releases: Planned amount to order in each time
period

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 The logic of net requirements

Gross Allocations
requirements +

Total requirements

On Scheduled
– hand + receipts = Net
requirements
Available inventory

 Allocated items refer to the number of units in inventory that

have been assigned to specific future production but not yet
used or issued from the stock room.
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 Lot Sizing Techniques
 Lot-for-Lot (L4L) ordering technique/discrete order quantity
• Lot-for-
Lot- for-lot techniques order just what is required for production
based on net requirements/no extra on- on-hand inventory
• The order/run size is set equal to the demand for that period
• Minimizes investment in inventory
• It results in variable order quantities
 Economic Order Quantity (EOQ)
- A type of fixed order quantity that determines the amount of an
item to be purchased or made at one time.
- Can lead to minimum costs if usage of item is fairly uniform
2DS
Q 
H
 Periodic Order Quantity (POQ): Provides coverage for some
predetermined number of periods
Interval (period) = EOQ / average demand per period
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 MRP Evolution
1. MRP (Schedule Materials)
2. Closed-Loop MRP System (schedule materials & incorporate
feedback)
3. MRP II or Material Resource Planning
- Schedule & purchase materials
- Expanded MRP with emphasis placed on integration
4. Distribution Resource Planning (DRP)
5. ERP (Enterprise Resource Planning)
- a computer system that integrates application programs in
accounting, sales, manufacturing, & other functions in the firm
- This integration is accomplished through a common database
shared by all the application programs

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Typical ERP System

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 Scheduling Operations
• Companies differentiate based on product volume &
product variety
• Differentiation affects how the company organizes its
operations
• Each kind of company operation needs different
scheduling techniques
• Scheduling has specific definitions for routing, bottleneck,
due date, slack and queue

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 Scheduling Operations …
 Routing
- The operations to be performed, their sequence, the work
centers, & the time standards
 Bottleneck
- A resource whose capacity is less than the demand placed
on it
 Due date
- When the job is supposed to be finished
 Slack
- The time that a job can be delayed & still finish by its due date
 Queue:- A waiting line

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 Scheduling Operations …
 Characteristics of High
High--Volume/aka flow operations
 High-volume operations, like automobiles, bread, gasoline
can be repetitive or continuous
• High-volume standard items; discrete or continuous

with smaller profit margins

• Designed for high efficiency & high utilization

• High volume flow operations with fixed routings

• Bottlenecks are easily identified

• Commonly use line-balancing to design the process

around the required tasks

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 Scheduling Operations …
• Characteristics of Low
Low--Volume Operations
• Low-volume, job shop operations, are designed for
flexibility.
• Use more general purpose equipment

• Customized products with higher margins

• Each product or service may have its own routing

(scheduling is much more difficult)

• Bottlenecks move around depending upon the products

being produced at any given time

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 Scheduling Operations …
 Scheduling Techniques:
Techniques:
 Gantt Charts - Low-Volume Tool
• Load charts - illustrate the workload relative to the capacity of a
resource/ shows today’s job schedule by employee
• Progress charts - Illustrate the planned schedule compared to
actual performance
 Work loading
• Infinite loading - Ignores capacity constraints, but helps identify
bottlenecks in a proposed schedule to enable proactive
management
• Finite loading - Allows only as much work to be assigned as can
be done with available capacity–but doesn’t prepare for
inevitable slippage
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 Scheduling Operations …

 Forward Scheduling – starts processing when a job is

received
 Backward Scheduling – begin scheduling the job’s last
activity so that the job is finished on due date

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 How to Sequence Jobs?
 Which of several jobs should be scheduled first?
 Techniques are available to do short-term planning of
jobs based on available capacity & priorities
 Priority rules
rules::- Decision rules to allocate the relative
priority of jobs at a work center
 Local priority rules:
rules: determines priority based only on
jobs at that workstation
 Global priority rules
rules:: also considers the remaining
workstations a job must pass through

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 How to Sequence Jobs? …
 Commonly Used Priority Rules:
Rules:
• First come, first served (FCFS)
• Last come, first served (LCFS)
• Earliest due date (EDD)
• Shortest processing time (SPT)
• Longest processing time (LPT)
• Critical ratio (CR):
• (Time until due date)/(processing time)

• Slack per remaining Operations (S/RO)

• Slack /(number of remaining operations)

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 How to Sequence Jobs? …
Example Using SPT and EDD at Jill's Machine Shop-Work Center 101

Job Time Days to SPT Rule EDD Rule

Job Number (includes Setup & Run Time) Due Date Sequence Sequence
AZK111 3 days 3 EZE101 AZK111
BRU872 2 days 6 BRU872 EZE101
CUF373 5 days 8 AZK111 DBR664
DBR664 4 days 5 DBR664 BRU872
EZE101 1day 4 FID448 CUF373
FID448 4 days 9 CUF373 FID448

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 Measuring Scheduling Performance
• Job flow time - Time a job is completed minus the time the
job was first available for processing; avg. flow time measures
responsiveness
• Average # jobs in system - Measures amount of work-in-
progress; average # measures responsiveness and work-in-
process inventory
• Make span - The time it takes to finish a batch of jobs;
measure of efficiency
• Job lateness - Whether the job is completed ahead of, on, or
behind schedule;
• Job tardiness - How long after the due date a job was
completed, measures due date performance

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 Measuring Scheduling Performance: Calculations
Performance Measures using SPT

Job Time at
Work Center SPT
301 Due date Completion Lateness Tardiness Scheduling
Job (days) (days from now) Date (days) (days) Sequence
A 3 15 5 -10 0 2
B 7 20 27 7 7 6
C 6 30 20 -10 0 5
D 4 20 9 -11 0 3
E 2 22 2 -20 0 1
F 5 20 14 -6 0 4
Total 27 Avg. Job Flow 12.83 -8.3 1.2
Total Job Flow Time 77
Makespan 27
Avg. # Jobs 2.85

E done at A end of D at end F at end of C at end of B done at end

end of day 2 day 5 of day 9 day 14 day 20 of day 27

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 Scheduling for Service Organizations
 Demand management:
management:
• Appointments & reservations
• Posted schedules
• Delayed services or backlogs (queues)
 Scheduling Employees
Employees::
• Staff for peak demand (if cost isn’t prohibitive)
• Floating employees or employees on call
• Temporary, seasonal, or part-time employees

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 Planning within OM: How it all fits together
• Aggregate planning determines the resources available to
operations to support the overall business plan. It is critical
that accurate demand forecasts be available so that a
reasonable production plan can be developed.
• A company needs to determine the aggregate production rate
output required to determine the appropriate size of the
workforce.
• After these determinations have been made, the company
can calculate its inventory levels, back-order levels, capacity
requirements, and customer service levels.
• If the plan requires seven-day-a-week operations,
appropriate staff schedules need to be developed.
• The aggregate plan specifies the number of employees
needed.
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 Planning within OM: How it all fits together …
• This allows company to determine how much equipment &
workspace is needed, as well as to provide the input needed for
developing a workplace layout within the operations area.
• Enterprise resource planning provides a common database for
use by an organization, its suppliers, and its customers.
• MRP reports are used by the production & inventory planners to:
1) generate purchasing requisitions and
2) develop schedules of different activities to be done on the
manufacturing floor.
• Scheduling is the final planning that occurs before the actual
execution of the plan.
• Production planners track the performance of operations in
meeting the planned schedule.
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 Planning Across the Organization
 Aggregate planning, MPS & rough-cut capacity affects
functional areas throughout the organization
 Accounting is affected because aggregate plan details
the resources needed by operations
 Marketing as the aggregate plan supports the
marketing plan
 Information systems maintains the databases that
support demand forecasts and other such information
 Since MRP determine the quantity & timing of materials
needed, it affects several functional areas
 Scheduling executes a company’s strategic business plan
and affects functional areas throughout the company
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