Part 3: Production Planning and Control

 This part includes:

– Aggregate Production Planning
– Master Schedule
– Material Requirement Planning
– Scheduling
– Lean Management
– JIT
Stages in PPC

Aggregate Production Planning

Master Scheduling

Scheduling
1. Aggregate Production Planning

 APP is a big picture approach of planning its

purpose is to determine the quantity and timing
of production of family of products for
intermediate future.
 The term aggregate implies combining
appropriate resources such as demand,
inventory, workforce and other inputs in to
general term
 Planning horizon is 6-18 months.
 It is revised every quarter
Inputs in APP

 Information about resource availability like

production rate, workforce, facilities …
 Demand Forecast
 Cost of various capacities such as sub-
contracting cost, regular cost, OT, PT, inventory
cost and hiring
 Organizational policy statement as per the
usage of resources
Strategies of APP

 Level Production
– Equal amount produced each period
– Steady employment
– It works well when demand is reasonably stable
 Chase Demand
– Production matched to demand for the period through
various capacity options
– Minimal inventory
– High overtime or hire/fire costs,
– is best for service organization
Backlog, stock out, backorder,

 Backlog is accumulation of customer

order that have been promised for
delivery at some future time.
– Backorder: delayed demand not lost
– Stock out: same with backorder, but lost
demand.
 Both should be avoided.
 APP Computation

1. Ending inventory is beg. Inv plus or minus

[production- demand forecast]
2. Average inv. Is beg inv. Plus ending inv.
Divided by two
3. Cost of APP for a period is sum of all the six
costs if available.
1. Regular cost
2. Sub-contracting cost
3. Overtime cost
4. Hiring/laid off cost
5. Inventory cost
6. Backorder cost
Illustration on APP

 Assuming that there is no beginning inventory and level

of output rate at regular time with 15 employees is
100,000 units
 Regular cost of production is birr 2 per unit; overtime
cost is birr 5 per unit; subcontracting cost is birr 8 per
unit; inventory cost on ending inventory is birr 0.5;
backorder cost is birr 4 per unit and hiring cost per
employee is 250 birr. Prepare the APP
Period Spring Summer Fall Winter Total

DD Forecast 80,000 50,000 120,000 150,000 400,000

Period Spring Summer Fall Winter Total
DD 80,000 50,000 120,000 150,0000 400,000
Output 100,000 100,000 100,000 100,000 400,000
OP-DD 20,000 50,000 [20,000] [50,000] 0
Inventory
Beg inv 0 20,000 70,000 50,000
Ending inv 20,000 70,000 50,000 0 140,000
Average inv. 10,000 45,000 60,000 25,000
backorder - - -
Costs
Regular Birr 200,000 200,000 200,000 200,000 800,000
Sub-cont. - - - - -
hiring - - - - -
OT - - - - -
Ending inv Birr 10,000 35,000 25,000 0 70,000
backorder - - - - -
Total cost Birr 210,000 235,0000 225,000 200,000 870,000
Example 2: Using Over Time

 The same information as example 1.Assuming

that one person is about to retire from the
company and rather than replacing the person,
they would like to continue producing with
smaller workers and use over time to make up
the lost output. The reduced regular out put is
20,000 units per period. The maximum amount
of OT per period is 40,000.
 Required: Prepare the APP
Period Spring Summer Fall Winter Total
DD 80,000 50,000 120,000 150,0000 400,000
Output
Regular 80,000 80,000 80,000 80,000 320,000
OT 40,000 40,000 80,000
OP-DD 0 30,000 0 [30,000] 0
Inventory
Beg inv 0 0 30,000 30,000
Ending inv 0 30,000 30,000 0 60,000
Average inv. 0 15,000 15,000 15,000
backorder - - - - -
Costs
Regular Birr 160,000 160,000 160,000 160,000 640,000
Sub-cont. - - - - -

hiring - - - - -

OT Birr 0 0 200,000 200,000 400,000

Ending inv Birr 0 15,000 15,000 0 30,000
backorder - - - - -

Total cost Birr 160,000 175,0000 375,000 360,000 1,070,000

Example 3: Using Sub-contracting

 Assuming the same information with

example 2, but instead of using OT, the
Company wants to subcontract with the
maximum amount of 80,000 units.
Required
– Prepare the APP
– Calculate the total cost of the plan
 NB. Sub- contract can be used in a period
where output can’t cover forecasted dd.
Period Spring Summer Fall Winter Total
DD 80,000 50,000 120,000 150,0000 400,000
Output
Regular 80,000 80,000 80,000 80,000 320,000
Sub-cont. 80,000 80,000
OP-DD 0 30,000 [40,000] 10,0000 0
Inventory
Beg inv 0 0 30,000 0
Ending inv 0 30,000 0 10,000 40,000
Average inv. 0 15,000 15,000 5,000
backorder - - 10,000 - -
Costs
Regular Birr 160,000 160,000 160,000 320,000 800,000
Sub-cont. - - - 640,000 640,000
hiring - - - - -
OT

Ending inv Birr 0 15,000 0 5000 20,000

backorder - - Birr 40,000 - 40,000
Total cost Birr 160,000 175,0000 375,000 360,000 1,500,000
Example 4: Using Workforce

 The same information as example 2.But, instead

of using Over time, the company use temporary
workers to fill in during the month of high
demand. Suppose that a temporary worker can
produce at a rate of 15,000 units per period.
 Required:
– How many temporary employees are required
– Prepare the APP
– Calculate the total cost of the plan
No. of temporary employees

 Number of units needed= 400,000- 320,000

=80,000 units
 One temporary employee produces 15,000
units per period.
 No. of workers= 80,000 units/15,000 units=5.33
equivalent to 6 workers.
 Heaviest Demand period are Fall and Winter
 So, 3 employee for both periods each.
Period Spring Summer Fall Winter Total
DD 80,000 50,000 120,000 150,0000 400,000
Output 80,000+45,000 80,000+45,000
Regular 80,000 80,000 125,000 125,000
400,000
OP-DD 0 30,000 5000 [25,000] 0
Inventory
Beg inv 0 0 30,000 35,000
Ending inv 0 30,000 35,000 5000 60,000
Average inv. 0 15,000 32,500 20,000
backorder - - - - -
Costs
Regular Birr 160,000 160,000 250,000 250,000 740,000
Sub-cont. - - - - -

hiring - - Birr 750 Birr 750 1500

OT

Ending inv Birr 0 15,000 17,500 0 32,500

backorder - - - - -

Total cost Birr 160,000 175,0000 268,250 250,750 774,000

Example
 For the chase demand strategy, production each
quarter matches demand.
 To accomplish this, workers are hired at a cost of $100
each and fired at a cost of $500 each. Since each
worker can produce 1000 pounds per quarter, we divide
the quarterly sales forecast by 1000 to determine the
required workforce size each quarter. We begin with
100 workers and hire and fire as needed. The
production plan and resulting hiring and firing costs are
given here.
 Chase Demand Strategy = (400,000 *
$2.00) + (100 * $100) + (50 * $500) =
$835,000

 Provided that unit production cost 2 & 100

& 50 hiring and firing cost respectively

 Which one is the best approach ? The one

with least cost but your strategy matters.
 2. Master Scheduling
 Is concerned with determining the quantity and timing of
production of individual products for the period of 1- 6
months. It is derived from the APP.
 There are two major techniques used to prepare Master
Schedule
– Material Production Planning: it is a time table that
specifies what is to be made, when to be made and in
what quantity. It avoids overload/under load of
production facilities
– Material Requirement Planning: is the method of
Master Schedule used to determine the Material
requirement of dependent demand items
Independent VS Dependent Demand Item

 Dependent Demand:
– Is the demand derived from finished products
– Is the demand for component parts based on the
number of end items being produced and is managed
by the MRP system. Example tires, wheels and engine
 Independent Demand
– Is the demand for finished products
– Does not depend on the demand of other products
– Needs to be forecasted
– Example automobiles, televisions, cartons of ice cream
 MRP System

 MRP Begins with a schedule for finished goods

that is converted in to a schedule of requirements
for components, parts and raw materials needed
to produce the finished item
 Inputs of MRP
– Master Production Schedule
– Bill of Materials File
– Inventory Master File
– Lead-time
Elements/Inputs/ of MRP

 Master Production Schedule: Based on

actual customer orders and predicted
demand. Indicates when each ordered
item will be produced and in what quantity.
 Bill of Materials /product structure/:
Indicates all the raw materials,
components, subassemblies, and
assemblies required to produce an item
Cont’d…

 Inventory and Purchase Records: Detailed information

regarding the quantity of each item, on hand, on order
committed to use in various time periods. MRP system
using inventory master file to determine the quantity
available for use in a given period
 Lead-time: In purchasing, LT is the time between placing
orders, but, in production it is the wait, move, set up, and
run times for each components produced. A lead time is
the latency between the initiation and execution of a
process. For example, the lead time between the
placement of an order and delivery of a new car from a
manufacturer may be anywhere from 2 weeks to 6
MRP Computation [Processing]

 Net requirements for planning period = gross

requirements for planning period - planned on
hand at planning period
 Planned on hand at planning period = current
on hand + scheduled receipts prior to planning
period - scheduled requirements prior to
planning period
Out puts of MRP

 Primary Outputs
– Planned Order Receive,
– Planned order release,
– Changes in orders
 Secondary Out puts
– Performance and evaluation report
– Errors, delays,
– Exceptional reports ..
Illustration on MRP

 ABC Company that produces a particular

Product [A] has received an order from its
customers which will be delivered in the next six
months. Product A is made up of one unit of B
item, three units of C item and one of D item.
One unit of D item is made up of two units of G
item and one unit of H item. In addition, the
inventory records of each item and Master
Production Schedule of Product A is given
below
Cont’d…

 Purchase and Inventory Records

Item A B C D G H
Lead time in weeks 1 2 3 1 1 1
Quantity on Hand 20 40 10 200 20 100
 Master Production Schedule of A
Period 6 7 8 9 10 11 12

Gross 100 100 200

Requirement
Required

 Develop the product structure/Bill of Materials

 Determine the level coding for each

components

 Determine the quantity of each component

necessary to produce 20,000 units of Product A

 Prepare a net Material Requirement Planning

[MRP] table for each item
W eek BI 1 2 3 4 5 6 7 8 9 10 11 12

F orec as t 50 50 50 50 75 75 75 75 50 50 50 50

C us tom er orders 35 25 25 20 0 15 0 0 10 0 0 10

P rojec ted available 110 60 10 85 35 85 10 60 110 60 10 85 35

A vailable-to-prom is e 50 80 110 125 115 115

MPS 125 125 125 125 125

 ATP can be calculated only for the 1st week
and for weeks there is MPS.
3. Scheduling

 It is concerned with optimal allocation of

resources over time to a set of tasks. Its
purpose is to disaggregate the master
schedule in to time phased weekly, daily,
or hourly activities.
 Detailed information about each products.
 Its plan is revised every week. Planning
horizon is every day.
Scheduling Terminologies

 Routing sheets: are a set of detailed

information that explains how a product is to
be produced in manufacturing or prepared in
service operations. Routing information can
include a list of operations that must be
performed by workstation or employee, the
sequence of operations necessary to
complete a product, information on tooling,
operator skill requirements, standard set up
times for machines and runs.
 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
 Scheduling: deals with the timing of operations
 Sequencing: refers to the order in which jobs
should be done at each work center
Cont’d…

 Loading: Deciding which jobs to assign to which

work centers. Often some equipment or workers
better for certain jobs
 Dispatching is the physical release of a work
order from production planning
 Expediting: Task of getting job done on time
once it is released to the shop floor. Special tags
used to identify hot jobs
How to Sequence Jobs/Methods

 First come, first served (FCFS): the first job to

arrive at work center is to process first
 Earliest due date (EDD):the job with the earliest
due date shall be operated first
 Shortest processing time (SPT): shortest jobs
are handled first and completed
 Longest processing time (LPT): the larger,
bigger jobs are very important and should be first
 Critical ratio (CR): (Time until due
date)/(processing time)
 Example

 ABC Company recruited an engineer whose job

is checking automobile engine performance. Five
prominent customers arrived with their car to
check up on their car’s engines. Their processing
time and due date are given below
Jobs Processing Time in days Number of Days till Due Date
A 8 10
B 6 12
C 15 20
D 3 18
E 12 22
Measuring Scheduling Performance

 Job flow time: is the amount of time for the job.

 Average flow time measures responsiveness.
JFT=waiting time + processing time
 Average # jobs in system: Measures amount of
work-in-progress; avg. # measures
responsiveness and work-in-process inventory.
Is calculated as
=[no. jobs][processing time]/Make Span time
 Cont’d….

 Make span Time: The time it takes to finish a

batch of jobs; measure of efficiency
MST= sum of processing time of each jobs
 Job lateness: Whether the job is completed
ahead of, on, or behind schedule;
Average job lateness= JFT-Due Date/no. of Jobs
 Utilization: the % of work time productivity
spent by a machine or a worker.
Utilization= MST/JFT
A. Scheduling using FCFS and its evaluation

 Based on FCFS, the company receives jobs in order of

A,B,C,D and E. So it is A B C D E
Jobs Beg. Processing Job Flow Due Date Days Late
Work Time [days] Time [JFT] [DD] =JFT-DD
A 0 8 8 10 0

B 8 6 14 12 2

C 14 15 29 20 9

D 29 3 32 18 14

E 32 12 44 22 22

Total 44 127 - 47
Cont’d…

 MST=Sum of Processing time of each jobs=

8+6+15+3+22= 44 days

 Average Job Flow Time=Total flow time/ no. of

jobs processed =127/5= 25.4 days

 Average job lateness= sum of job lateness/ no.

of jobs processed =47/5= 9.4 days. Jobs are
performed lately for about 10 days
Cont’d…

 Average no. of jobs in the system= [No. of

jobs][processing time]/MST= 8*5 + 6*4 +
15*3 + 3*2 + 12*1/44=127/44= 2.88 days
 Utilization=MST/JFT=44/127=34.65%.
 The utilization rate of productive time to
process jobs is very much low
N.B Do the same procedure for all
sequencing rules and their evaluations
 5. Lean Management and JIT

 Lean production or simply lean) is the

name given to the Toyota Production
System.
 The Toyota system is known for its minimal
use of resources and elimination of all
forms of waste, including time.
 Just-in-time (JIT) is a substantial portion of
the Toyota system
Japan

 Japan is a small country with minimal

resources and a large population.
 Their work systems tend to be based on
three primary tenets:
– Minimizing waste in all forms.
– Continually improving processes and
systems.
– Maintaining respect for all workers.
Traditional System compared to Lean

 Priorities: With lean, the target market is

usually limited and the options are also
limited.
 Product/Service Design: Engineering in
the lean firm designs standard outputs
and incrementally improves each design.
 Capacity: Excess capacities are kept to
a minimum to avoid inherent waste,
particularly the WIP inventories.
Cont’d…

 Layout: With lean, equipment is moved

as close together as possible so that
parts can be actually handed from one
worker or machine to the next.
 Workforce: Lean strives for a broadly
skilled, flexible worker who will look for
and solve production problems wherever
they appear.
Cont’d….

 Inventories: In Japan, inventory is seen as an

evil in itself. It is a resource sitting idle, wasting
money. Reduce the inventories until inventory
investment is practically gone. The result is a
greatly improved and smoother production
system.
 Suppliers: With lean, the desire is for frequent,
smooth deliveries of small lots with the supplier
considered part of the team.
 Cont’d…

 There is no incoming inspection of the materials

to check their quality—all parts must be of
specified quality and guaranteed by the supplier.
 Planning and Control: In the lean approach,
the focus is on control. Thus, procedures are
kept simple, visual, and made as routine as
possible. Rather than planning and forecasting
for an uncertain future, the firm attempts to
respond to what actually happens in real time
with flexible, quick operations
Cont’d…

 Quality: The traditional approach to quality is to inspect

the goods at critical points in the production system to
weed out bad items and correct the system. With lean,
the goal is zero defects and perfect quality.
 Maintenance: In the traditional approach to production,
maintenance has been what is termed corrective
maintenance, although preventive maintenance is
also common. In lean organizations, the maintenance
function assumes greater responsibility and has greater
visibility.
Cont’d…

 The lean enterprise relies much more

heavily on the operator for many of the
maintenance tasks, especially simple
preventive maintenance.
Specify Value

 At the heart of lean is the concept of value.

Another common definition of value is that it is
the opposite of waste.
 Waste is often classified into one of the
following seven categories:
– Overproduction
– Inventory
– Waiting
– Unnecessary transport
– Unnecessary processing
– Unnecessary human motions
– Defects
Identify the Value Stream

 The value stream includes all activities (value

added and non-value added) from the creation
of the raw materials to the final delivery of the
output to the end consumer.
 Activities within a value stream map are often
broadly categorized as:
– Value-added (e.g., patient diagnosis)
– Non-value-added but necessary (e.g., requiring
patients to sign a HIPAA form)
– Non-value-added and not necessary (e.g., waiting
for the doctor)
Make Value Flow

 Having identified the value stream, the next

step is to transform it from the traditional batch
and wait approach to one where the flow is
continuous.
 A key aspect to achieving such a smooth flow
is to master-schedule small lots of final
products.
Continuous Flow Manufacturing [CFM]

 According to this tenet, work should flow

through the process without interruption one
unit at a time based on the customer’s
demand rate.
 Delays associated with setting up equipment,
moving work between departments, storing
work because a needed resource is
unavailable, equipment breakdowns, and so
on must be eliminated.
The Theory of Constraints

 A systematic way to view and analyze

process flows.
 Key aspects of the theory of constraints
(TOC) include identifying the bottlenecks
in the process and balancing the work
flows in the system.
Implementing the theory of Constraints

 Identify the system's constraints).

 Exploit the constraint.
 Subordinate all else to the constraint.
 Elevate the constraint.
 If the constraint is no longer a bottleneck, find
the next constraint and repeat the steps.
Total Productive Maintenance/TPM/

 Equipment impacts waste in a number of

ways including:
– Breakdowns
– Setups
– Stoppages
– Reduce speed
– Yields
Cont’d…

 Key components of a TPM program

include:
– Identifying ways to maximize equipment
effectiveness.
– Coordinating the work of engineering,
operations, and maintenance employees.
– Giving employees the responsibility to
maintain the equipment they operate.
Benefits of Lean

 Five primary types of benefits:

– Cost savings
– Revenue increases
– Investment savings
– Workforce improvements
– Uncovering problems
 Just-In-Time [JIT]

 JIT is a philosophy that was developed by the

Toyota Motor Company in the mid-1970s. It has
since become the standard of operation for many
industries. It focuses on simplicity, eliminating
waste, taking a broad view of operations,
visibility, and flexibility.
 JIT philosophy means getting the right quantity of
goods at the right place and the right time
 JIT views waste as anything that does not add
value.
Just-In-Time [JIT]

 Seven Wastes and Their Solutions

– Overproduction: reduce by producing only what is
needed as it is needed.
– Waiting: synchronize the workflow.
– Transportation: minimize transport with better layouts.
– Processing: “Why do we need this process at all?”
– Stock: reduce inventories.
– Motion: reduce wasted employee motions.
– Defective products: improve quality to reduce rework.
Three Elements of JIT
JIT Manufacturing

 JIT Manufacturing is a philosophy of value-

added manufacturing
 Achieved by
– Inventory reduction - exposes problems
– Small lots & quick setups
– Uniform plant loading
– Flexible resources
– Efficient facility layouts
TQM

 TQM creates an organizational culture

that defines quality as seen by the
customer.
 The concepts of continuous improvement
and quality at the source are integral to
allowing for continual growth and the goal
of identifying the causes of quality
problems.
Respect for People

 Genuine and meaningful respect for associates

 Willingness to develop cross-functional skills
 JIT uses bottom-round management –
consensus management by committees or
teams
 Actively engage in problem-solving
 Everyone is empowered
 JIT considers people to be the organization’s
most important resource.
Thank you