Professional Documents
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Introduction To The Production Planning and Inventory Control
Introduction To The Production Planning and Inventory Control
2
The Production System
• Definition:
– The set of resources and procedures involved in
converting raw material into products and delivering
them to customers
3
Value-Added-Process
Control
Feedback Feedback
ABM
Activity Analysis
Non-value-added activity
Value-added activity • Increases time spent on
product or service but does
• Increases worth of
not increase worth
product or service to a
customer • Unnecessary from customer
perspective
• Customer is willing to
pay for it • Can be reduced, redesigned
or eliminated without
affecting market value or
quality
ABM
Activity Analysis
• Create a Process Map (detailed flowchart)
for each process
– Identify each step
• Create Value Chart
– Identify stages and time spent in stages from
beginning to end of process
Value-Added Non-Value-Added
Processing Time Inspection Time
Service Time Transfer Time
Idle Time
Cycle Time
Low High
Costs Sales
16
Production Activity
Raw Material
and Information Flows
Forecasting
Administrative Functions
Fabrication (Purchasing, Payroll,
Plant Finance, Accounting)
Strategic Planning
Assembly Marketing
Plant
Aggregate Production
Finished Planning
Products
Product Design
Distribution
Disaggregation
Center Process Planning
overtime levels,
inventory levels
19
Types of Production Systems
1. Process
2. Product
3. Cellular
4. Fixed positions
20
Layout Goals
• Use space efficiently
• Efficient personnel movement
• Maximum equipment utilization
• Convenient / safe work environment
• Simplify repair / maintenance
• Smooth flow of work
21
Products, Processes, and Layouts
PRODUCTS PROCESSES LAYOUTS
low volume,
Engineer-to-order Special Project Fixed Position
one-of-kind low variety 22
Fixed Position Layout
•The product or project remains
stationary, and workers, materials, and
equipment are moved as needed.
23
Process Layout
Similar processes (or processes with similar needs)
are located together
By grouping similar processes utilization of resources
is improved
Customers, products, patients move through the
processes according to their needs
Different products = different needs = different routes
Complex flow pattern in the operation
Examples:
• Supermarkets, job-shops, hospitals
24
Process Layouts
Milling
Assembly
& Test Grinding
Drilling Plating
26
Product Layout
Raw Finished
Station Station
Station Station
Station Station
Station
materials 1 22 33 44 item
or customer
Material Material Material Material
6-27
Cellular Layouts
6-28
Part families
Part families with similarity Part families with similarity
in manufacturing process in shape
Original Process Layout
Assembly
4 6 7 9
5 8
2 10 12
1 3 11
A B C Raw materials
Cellular Layout
Assembly
8 10 9 12
11
4 Cell 1 Cell 2 6 Cell 3
7
2 1 3 5
A B C
Raw materials
Comparison of Product
and Process Layouts
Product Process
•• Workers
Workers Limited skills High skills
•• Inventory
Inventory Low in-process, high High in-process, low
finished goods finished goods
•• Storage
Storage space
space Small Large
•• Material
Material handling
handling Fixed path (conveyor) Variable path (forklift)
•• Aisles
Aisles Narrow Wide
•• Scheduling
Scheduling Line balancing (Easier) Dynamic (More difficult)
•• Layout
Layout decision
decision In-line, U-type Functional
•• Goal
Goal Equalize work at each Minimize material
station handling cost
•• Advantage
Advantage Efficiency Flexibility
Product Volume and Variety
Cellular
Quantity Product
Layouts
Fixed
Position
Layouts Mixed Layouts Process Layouts
33
Product Flow Control
Batch Processing (Process Layout)
• From a couple to several thousands identical parts
• A batch for each different part type
• Move together through the production system
• May split for material handling or to reduce processing
time
Examples are clothing, furniture production
Repetitive or Flow processing (Product Layout)
• Continuous– chemicals, foods, pharmaceuticals
• Discrete – car, refrigerator production
34
Setup Costs Affect The Batch Size
35
Production Choices
Make-to-stock
• Number of units of each product are kept on hand at all times
• Quick delivery to customers upon receipt of an order
• When delivery response time is a key competitive factor
• Limited number of products manufactured repeatedly
• An idea what customers will want
• Allows to schedule production in advance
Make-to-order
• Only produce items after they have been ordered
• Production system must respond quickly
• Products have high degree of customization
• Shelf life of products is short
Assemble-to-order
• Customers have influence on the design
• They can select various options from predesigned subassemblies
36
Time Horizon in Production Planning
Static Vs. Dynamic Environments
• Models used for production planning are either static
or dynamic
• Static
– Constant through time
– Assume same plan acceptable in each period for the
foreseeable future
• Dynamic
– Explicitly consider changes in demand and resource
availability to determine what should be done through
time over a planning horizon
– Require stochastic data
– Require great effort to build and solve
37
The Role of Inventory
• Inventory consists of physical items moving
through the production system
• Originates with shipment of raw material and parts
from the supplier
• Ends with delivery of the finished products to the
customer
• Costs of storing inventory accounts for a
substantial proportion of manufacturing cost
– Often 20% or more
• Optimal level of inventory
– Allows production operations to continue smoothly
• A common control measure is Inventory Turnover 38
Inventory Turnover
• The ratio of annual cost of goods sold to
average inventory investment.
• It indicates how many times a year the
inventory is sold.
• Higher the ratio, the better, because it implies
more efficient use of resources.
• Higher the profit margin and longer the
manufacturing lead time, the lower the
inventory turns.
• Example: Supermarkets (low profit margins)
have a fairly high turnover rate
39
Inventory Definitions and Decisions
• Batch or order size, Q
– Batch size is the number of units released to the shop floor
to be produced
• Reorder point, r
– Specifies the timing for placing a new order
• Inventory Position
Inventory Position = Inventory On Hand + On Order – Backorders
• Units on order
– Have been ordered but not yet arrived
• Backorders
– Items promised to customers but not yet shipped
– New units are shipped out to cancel backorders 40
Types of Inventory
• Raw Materials
– Essential to the production process
– Often kept in large quantities on site
• Finished Goods
– Completed products awaiting shipment to customers
• Work-in-Process (WIP)
– Batches of semi finished products currently in production
– Batches of parts from time of release until finished goods
status
• Pipeline
– Goods in transit between facilities
– Raw materials being delivered to the plant
– Finished goods being shipped to warehouse or customer
41
Types of Inventory
42
Justification of Inventory
Inventory will always exist
Competitive pressure to supply common products
quicker than they can be produced imply finished
goods inventory must be kept near the customer
Price breaks are common when large quantities of
material and parts are purchased
We may store inventory in periods of low demand and
consume them in periods of large demand to smooth
production rate (seasonal demand)
Speculation
43
Inventory Costs and Tradeoffs
44
Ordering Costs
A fixed ordering cost can be associated with each
replenishment when parts are ordered from suppliers
• Identifying the need to order
• Execute the order
• Prepare the paperwork
• Place the order
• Delivery cost fixed component
• Receiving inspection
• Transportation to place of use
• Storage
45
Setup Costs
For parts produced in-house, we must:
• Check status of raw material
• Possibly place an order
• Create route sheets with instructions for each stage of
the production process
• Store routing data in a database
• Check routing data for compatibility with shop status
and engineering changes
• Make routing instructions with raw material
• Deliver to production workers
• Machine set up
46
Inventory Carrying Costs
Carrying inventory incurs a variety of costs
• Space heated and cooled
• Move inventory occasionally because it blocks access
to other goods
• Construct and maintain information system to track
location
• Pay taxes based on value
• Insurance costs
• Some will be lost, damaged, or perished
• Cost of capital invested in inventory
47
Shortage Costs
When customer demands an out of stock item
• May decide to wait for delivery - backorders
• May cancel the order – lost sales
• May look elsewhere next time – lost customer
• May pay expedite charges
Within the plant, if material is unavailable to start
production
• Work center may lack work
• Schedule may have to be modified
• Completion of products may be delayed
• Result in late deliveries or lost sales
48
Information Flow for Various
Production Systems
Order Entry
Raw
Material
I I I
Raw
Material
b. Just-In-Time (KANBAN)
Material Flow
Infinite Capacity Finite Capacity
Processor I Inventory Buffer Inventory Buffer 49
Information Flow
KANBAN control
50
KANBAN control
• Kanban control ensures that parts are
not made except in response to a
demand.
• The analogy is to a supermarket: Only
the goods that have been sold are
restocked on the shelves.
51
Information Flow for Various
Production Systems Limit on
Total
Inventory
Raw
Material
I I
Raw
Material
d. Hybrid CONWIP-KANBAN
Material Flow
Infinite Capacity Finite Capacity
Processor I Inventory Buffer Inventory Buffer 52
Information Flow
CONWIP Control
• CONWIP stands for Constant Work-In-Process.
• a control strategy that limits the total number of
parts allowed into the system at the same time.
• Once the parts are released, they are processed as
quickly as possible until they fill up the last buffer as
finished goods.
• Once the consumer removes a part from the finished
goods inventory, the first machine in the chain is
authorized to load another part.
53
CONWIP Control
• Like KANBAN, the CONWIP system only responds to
actual demands, so it is still a ``pull'' type system.
• But unlike kanban, the buffers for all downstream
machines are empty, except finished goods, which is
full.
• This occurs because any part released to the system
will move to finished goods. New parts will not be
released if the finished goods buffer is full.
54
Inventory is Needed
to Support Production
• Recent years claim a goal of zero inventory
– But some is necessary to meet needs
– Economically practical to maintain some WIP to facilitate
production scheduling
– Variability in processing time and job arrival rates
• Inventory should not be used to cover problems
– Wasteful practice all too common
– Prevents the system from improving
– Defects not detected until later
• Lean companies
– Operate with reliable processes, quick changeovers, low
inventories, small space, low scrap and rework, closer
communication
55
Large Inventories Imply Long
Throughput Times
• Throughout time (manufacturing Lead Time)
– The span of time from when the part enters a system
until it leaves
• Little’s Law I = X · T
– Relates average throughput time (T) to the level of
average inventory (I) and the production rate (X) for
any stationary process
• Stationary process
– Probability of being in a particular state is
independent of time
56
To reduce throughput time
Eliminate unnecessary, non-value added operations:
– Reduce waiting time
– Reduce transfer time
– Reduce quality inspection time
– Increase process rates
– Reduce batch size
57
Capacity Balancing
64
Definition of a Model
• A model is a simplified, artificial
representation of reality
• Constructed to facilitate off-line study of real
object or system
– Flow diagrams
– Philosophical (conceptual)
– Small-scale prototype
– Mathematical
65
Systems and Models
• Ways to study a system
A Systems Perspective
• Production system represents a key aspect of the firm
• Must maintain global view of the entire supply chain
from materials through product delivery
• Must integrate and cooperate with marketing,
purchasing, quality assurance, accounting, design
engineering, and manufacturing
• Instability of the production system may occur:
– Misuse of marketing (demand) information
– Misunderstanding of the relationship among safety stock,
inventory, and production
– Bad production decisions
67
BA 411 Course Topics
• Demand Forecasting
• Long-Range Capacity Planning
• Aggregate Production Planning
• Inventory Management
• Material Requirements Planning
• Scheduling and Sequencing
68
Forecasting
• Methods:
– Sequencing:
• Gives order of releases but not times.
– Scheduling:
• Gives detailed release times.
75
Review Questions
• Efficient production layout will result in:
76
Review Questions
• As order quantity increase:
77
Review Questions
• Total production is limited by:
78
Review Questions
• Production system models allow us to:
79
Questions? Comments?
80