1. Production Management IEOR 4000
Prof. Guillermo Gallego
9/19/2018

2. Self Introduction
Professor and Chairman of Industrial Engineering & Operations Research Dept.
Research interest in Supply Chain Management and Revenue Management
Published over fifty papers
Visiting professor at Stanford GSB
Visiting scientist at IBM
Senior editor for MSOM and POM.
Consultant for Lucent Technologies
9/19/2018

3. Topics to Be Covered
Today: History of Operations Management, Production systems, Recent trends.
Deterministic models:
EOQ, EPQ, JRP, ELSP, APP, MRP, JIT
Forecasting:
MA, ES, MMFE.
Stochastic models:
Newsvendor model.
Serial Systems: Supply chain models.
Distribution and Assembly Systems
9/19/2018

4. Benefits to Be Obtained
Understand production and inventory systems.
Understand basic tradeoffs between
Holding costs versus fixed costs.
Holding costs versus service levels.
Efficiency versus variety
Learn about
Production/inventory management techniques
Forecasting
Risk and sensitivity analysis
Supply chain design issues
9/19/2018

5. Intended Audience A required course for MS degree in IE and MS in OR.
Students entering the fields of industrial engineering or supply chain management.
Students interested in learning how to develop models.
Production and general managers wishing to understand models behind decision support systems.
9/19/2018

6. Prerequisites Working knowledge of calculus.
A good course in probability and statistics. This can be taken concurrently.
A deterministic models course (linear programming). This can be taken concurrently.
Knowledge of Excel or equivalent spreadsheet program.
Willing to work hard.
9/19/2018

7. Evaluation
Assignments: 15%
Midterm: 40%
Final: %
9/19/2018

8. Today’s Lecture Motivation History of Operations Management
Recent Trends in Inventory Management Types of Manufacturing Systems
Strategic and Hierarchical Planning
Inventory Classification
Relevant Costs
Performance Measures
9/19/2018

9. Motivation
Operations is concerned with the transformation of inputs into goods and services
Primary business function together with marketing and finance
It involves the greatest portion of the company's employees and capital assets.
Activities include
plant management, product development, process engineering, facility layout, production and capacity planning, quality control, inventory control, product distribution
9/19/2018

10. History of Operations Management
Life before organized production
The industrial revolution
Invention of the steam engine.
Specialization of labor
Interchangeable parts
Assembly line (Ford)
Product variety (GM)
9/19/2018

11. The Principles of Scientific Management by Frederic Taylor
Scientific Method
The Principles of Scientific Management by Frederic Taylor
Experiment with methods to find best way to perform a job
Improve efficiency results in:
Lower costs to companies
Higher wages for laborers
Better and less expensive products for consumers
9/19/2018

12. Also known as Operations Research
Management Science
Also known as Operations Research
Use of models, mathematics and statistics to solve business problems
Objectives, Decision Variables, Constraints
Initially lack of data and computing power and management skepticism
ERP systems and better trained management opens possibilities
9/19/2018

13. Recent Trends Plant Automation Just-in-Time Reengineering
Supply Chain Initiatives
EDI, ECR, VMI
Sharing Demand Information
Demand Lead Times
Changing the Givens
9/19/2018

14. Operations Systems Job Shops Repetitive Manufacturing
Low volume high variety
Custom made goods
Repetitive Manufacturing
High volume low variety
Televisions, roller skates
Batch Manufacturing
Medium volume and variety
Hand tools, drills
Processes and Projects
Refineries, ship manufacturing
Non Manufacturing
9/19/2018

15. Strategic and Hierarchical Planning
Strategic Planning
Product line, location, size and number of plants and warehouses
Tactical Planning
Size of workforce, rate of production, distribution of goods
Operational Control
Assignment of work to stations, short term inventory control issues.
9/19/2018

16. Impact of Inventories Firm level: Macro level:
One third of the current assets
2.5 years of after-tax profits
Potential to increase profits and reduce costs
Macro level:
Accumulation at peak of cycle
Downscale production, slash prices, some firms do not survive
Low inventories at bottom of cycle
Increase production, hire people, additional increase in demands, higher prices, etc.
9/19/2018

17. Inventory Classification
Functional:
Cycle stock
Congestion stock
Safety stock
Anticipation inventories
Pipeline inventories (WIP)
Time
Input, WIP, In-transit, Output.
9/19/2018

18. Classification by Value
Sort by annual dollar volume
Most firms:
20% SKUs account for 80% usage
30% SKUS account for 15% usage
50% SKUS account for 5% usage
ABC analysis treats high dollar volume parts differently.
9/19/2018

19. Characteristics of Inventory Systems
Demand:
Constant versus variable
Known or unknown
Lead Times: Constant versus random
Review Times: Periodic versus continuous review
Excess Demand: Lost versus backlogged
Changing Inventory: Perishable, obsolescence
Structure of System: Assembly, distribution, etc.
9/19/2018

20. Relevant Costs Procurement costs: fixed and variable
Holding costs: Warehousing, insurance, opportunity cost
Stockout or penalty costs
Cost of changing the production rate: hiring, firing, overtime
System control costs
9/19/2018

21. Performance Measures Probability of not stocking out during lead time
Fill rate: Proportion of demands that are met directly from stock
Average number of backorders
Turnover ratio: Ratio of throughput to average inventory
9/19/2018