1 Time Costing Method in PSD Decisions Material Management Class Note #5-B Prof. Yuan-Shyi Peter Chiu Feb. 2011

2 §. P 1: Introduction to PSD decision ■ Product Structure Diagram :◇ Trumpet ( End Item ) Bell assembly (1) Lead time = 2 weeks Valve casing assembly (1) Lead time = 4 weeks Valves (3) Lead time=3 weeks Slide assemblies(3) Lead time = 2 weeks

3 §. P 1: Introduction to PSD decision ■ Key considerations: ◆ supplier’s Lead time ◆ supplier’s Yield rate ◆ supplier’s Unit cost (price) ■ Key methodologies: ◆ Critical path method (CPM) - to find the critical path activities, and total product completion time ◆ Time costing method - to analyze the trade-off between supplier’s lead time and the adjusted unit cost, and to search for the optimal suppliers selection alternatives

4 §. P 2: Demonstration ◇ ■ Naming Activities

5 §. P 2: Demonstration ■ Obtaining the Critical Path for Trumpet Example (by CPM )

6◇ §. P 2: Demonstration

7◇ ■ Notation: PSDproduct structure diagram, refers to the relationship between the components at adjacent levels of the system, containing quantity and lead time information. iith level of the PSD j jth activity of the PSD Aijjth activity (or refers to manufacture or purchase the jth component or part), in level i of the PSD Nijquantities required for component (or part) produced in Aij, to form one unit of the end product (as described by PSD) Cijnunit cost required by the nth supplier to complete activity Aij Lijnlead time required by the nth supplier to complete activity Aij Yijnyields of the nth supplier when selected to provide activity Aij

8 ■ Notation: PCproduction cost per end item TPCTtotal product completion time Sijnthe nth supplier selected to complete activity Aij Bestimated benefit (saving) per unit TPCT reduction (CI)ijn cost increase per unit TPCT reduction, by selecting nth supplier to replace current solution for activity Aij (CBR)ijn cost/benefit ratio per unit TPCT reduction, by selecting nth supplier to replace current solution for activity Aij Assumption: 1. Nijconstant and known from the PSD 2. Both Yijn and Lijn are known, constant; Yijn decreases as Lijn decreases §. P 2: Demonstration

9 STEP 1: Find the initial set (solution) of suppliers, selecting the minimum adjusted unit cost among a number of suppliers for every activities on the PSD. Obtaining lead time information for all initial suppliers selected. STEP 2: Find the critical path activities (CPA), using critical path method (CPM), the PSD information, the initial solution of suppliers and their lead times. Obtaining the total product completion time (TPCT, ie. the minimum time required to manufacture an end item.) STEP 3: Check the existence of alternative suppliers, who have less lead time than current suppliers solution that belong to CPA. If none exist, go to STEP 6. §. P 2 : Demonstration ■ Algorithm for Suppliers Selection:◇

10 §. P 2 : Demonstration ■ Algorithm for Suppliers Selection:◇ STEP 4: Find suppliers with cost/benefit ratio (CBR) ≦ 1 (where both cost and benefit are regarding to reduction of one unit of TPCT.) If none exist, go to STEP 6. STEP 5: Select the alternative supplier(s) with the minimum CBR, and replace it in the current suppliers solution. Repeat STEP 2. STEP 6:STOP, The current supplier solution is the optimal one.

11 §. P 2 : Demonstration ■ Algorithm for Suppliers Selection:◇ Result: For activity A12 obtains { S123, S124, S125 } For activity A22 obtains { S223, S224, S225 } STEP 4:Find suppliers with cost/benefit ratio (CBR) ≦ 1 Result:For activity A12 obtains { S123, S124, S125 } For activity A22 obtains { S223, S225 }

12 §. P 2 : Demonstration ■ Algorithm for Suppliers Selection: STEP 5: Select the supplier(s) with the minimum CBR, and replace it from the current suppliers solution. Repeat STEP 2. Result: Find minimum at S123. Replace S122 by S123. Current solution is { S011, S112, S123, S211, S221 } Production Cost (PC) ＝ Σ( Nijn )(Cijn/Yijn) ＝ $60.75 Cumulative B = $2.12. \ Total Production Cost (TPC)=PC － B=$58.63

13 §. P 2 : Demonstration ■ Algorithm for Suppliers Selection: Result: Current solution is { S011, S112, S123, S211, S221 } Total Production Cost (TPC)=PC － B=$58.63 ● ● ●

14 §. P 2 : Demonstration ■ Algorithm for Suppliers Selection: ● ● ●

15 §. P 2 : Demonstration ■ Algorithm for Suppliers Selection: ● ● ●

16 §. P 2 : Demonstration ■ Algorithm for Suppliers Selection:

17 §. P 2 : Demonstration ■ Algorithm for Suppliers Selection: Final solution is { S011,S112,S124,S211,S223 } Total Production Cost (TPC)=$ Total product completion time (TPCT) = 4.

18 The End