1 IE Production Planning and Inventory Control Saif Benjaafar Industrial & Systems Engineering University of Minnesota

2  Introduction to methods for managing production, inventory, and distribution systems  Topics covered include demand forecasting, capacity planning, production planning and scheduling, production and inventory control, and supply chain coordination  Use of quantitative models and analytical tools for supporting decisions in each of the above areas Course Objectives

3  Special emphasis will be given to the link between operational issues and strategic objectives  Implications of various emerging technologies, business practices, and government regulations Course Objectives (Continued…)

4  An introductory course in probability and statistics  An introductory course in linear programming  Knowledge of Microsoft Excel & Microsoft Solver Prerequisites

5  Factory Physics by Wallace Hopp and Mark Spearman  The Goal by Eliyahu Goldratt  Lean Thinking by James Womack and Daniel Jones Texts

6  Week 1 Introduction to Production Planning and Inventory Control  Week 2 Inventory Control – Deterministic Demand  Week 3 Inventory Control – Stochastic Demand  Week 4 Inventory Control – Stochastic Demand  Week 5 Inventory Control – Stochastic Demand  Week 6 Inventory Control – Time Varying Demand Lecture Topics

7  Week 7 Inventory Control – Multiple Echelons  Week 8 Demand Forecasting  Week 9 Demand Forecasting  Week 10 Production Planning and Scheduling  Week 11 Production Planning and Scheduling  Week 12 Managing Manufacturing Operations  Week 13 Managing Manufacturing Operations  Week 14 Managing Manufacturing Operations  Week 15 Project Presentations Lecture Topics (Continued…)

8  Teams of 2 or 3  Type of project  Problem solving  Case study  Reviews  Outcome  A proposal  Oral presentation  Written report Group Projects

9  A mathematical model  A computer model  Data collection and statistical analysis Problem Solving

10 Focus on one company and document:  managerial practice  use of a technology  decision making processes Case Studies

11  An industry  An emerging technology  A managerial practice  Academic research Reviews

12  Electronics  Automotive  Food  Clothing  Medical devices  Energy Example Industries

13  RFID  Wireless communication and mobile computing  Online procurement portals  Social media Example Technologies

14  Outsourcing  Vendor managed inventory (VMI)  Delayed product differentiation  Collaborative forecasting, planning, & replenishment (CFPR)  Third & fourth party logistics (3/4PL)  Green/sustainable supply chains Example Practices

15  Energy efficient and sustainable supply chains  Energy consumption  Carbon footprint  Closed loop supply chains  Alternative sourcing, materials, processing This Year’s Theme

16 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.

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

18 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.

19 The Inventory System Supply sourceDemand source Inventory

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

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

22 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.

23 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.

24 Examples of Decisions

25 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)?

26 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

27 Example Performance Measures

28  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

29  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…)

30 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.

31 Classification of the Production Process  Production quantity

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

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

34 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

35 Mass Production Systems

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

37 Batch Production Systems

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

39 Job Shops

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

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

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

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

44 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

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

46 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)

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

48  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.

49  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.

50 Matching Process Choice with Product Strategy Choice Product variety Low High Area of strategic fit Low High Process flexibility

51 Matching Process Choice with Product Strategy Choice (Continued…) Demand uncertainty Low High Area of strategic fit High Low Lead time

52 The Evolution of Process Capabilities  Volume (1920/30/40’s)  Cost (1950/60’s)  Quality (1970/80’s)  Time (1980/1990’s)  Flexibility (1990/2000’s)  Mass customization (2000’s & beyond)

53 Other Emerging Trends  Resiliency  Sustainability (and stewardship)

54  Read Chapters 0, 1 & 2 of text book (Factory Physics)  Read paper 1 from the reading list Assignment