2. Chapter 13
Production Planning

3. Overview Production-Planning Hierarchy Aggregate Planning
Master Production Scheduling
Types of Production-Planning and Control Systems
Wrap-Up: What World-Class Companies Do

4. Production Planning Hierarchy
Long-Range Capacity Planning
Aggregate Planning
Master Production Scheduling
Production Planning and Control Systems
Pond Draining
Systems
Push
Systems
Pull
Systems
Focusing on
Bottlenecks

5. Production Planning Horizons
Long-Range
(years)
Long-Range Capacity Planning
Aggregate Planning
Medium-Range
(6-18 months)
Short-Range
(weeks)
Master Production Scheduling
Production Planning and Control Systems
Very-Short-Range
(hours - days)
Pond Draining
Systems
Push
Systems
Pull
Systems
Focusing on
Bottlenecks

6. Production Planning: Units of Measure
Entire
Product Line
Long-Range Capacity Planning
Aggregate Planning
Product
Family
Specific
Product Model
Master Production Scheduling
Production Planning and Control Systems
Labor, Materials,
Machines
Pond Draining
Systems
Push
Systems
Pull
Systems
Focusing on
Bottlenecks

7. Aggregate Planning

8. Why Aggregate Planning Is Necessary
Fully load facilities and minimize overloading and underloading
Make sure enough capacity available to satisfy expected demand
Plan for the orderly and systematic change of production capacity to meet the peaks and valleys of expected customer demand
Get the most output for the amount of resources available

9. Inputs
A forecast of aggregate demand covering the selected planning horizon (6-18 months)
The alternative means available to adjust short- to medium-term capacity, to what extent each alternative could impact capacity and the related costs
The current status of the system in terms of workforce level, inventory level and production rate

10. Outputs
A production plan: aggregate decisions for each period in the planning horizon about
workforce level
inventory level
production rate
Projected costs if the production plan was implemented

11. Medium-Term Capacity Adjustments
Workforce level
Hire or layoff full-time workers
Hire or layoff part-time workers
Hire or layoff contract workers
Utilization of the work force
Overtime
Idle time (undertime)
Reduce hours worked
. . . more

12. Medium-Term Capacity Adjustments
Inventory level
Finished goods inventory
Backorders/lost sales
Subcontract

13. Approaches Informal or Trial-and-Error Approach
Mathematically Optimal Approaches
Linear Programming
Linear Decision Rules
Computer Search
Heuristics

14. Pure Strategies for the Informal Approach
Matching Demand
Level Capacity
Buffering with inventory
Buffering with backlog
Buffering with overtime or subcontracting

15. Matching Demand Strategy
Capacity (Production) in each time period is varied to exactly match the forecasted aggregate demand in that time period
Capacity is varied by changing the workforce level
Finished-goods inventories are minimal
Labor and materials costs tend to be high due to the frequent changes

16. Developing and Evaluating the Matching Production Plan
Production rate is dictated by the forecasted aggregate demand
Convert the forecasted aggregate demand into the required workforce level using production time information
The primary costs of this strategy are the costs of changing workforce levels from period to period, i.e., hirings and layoffs

17. Level Capacity Strategy
Capacity (production rate) is held level (constant) over the planning horizon
The difference between the constant production rate and the demand rate is made up (buffered) by inventory, backlog, overtime, part-time labor and/or subcontracting

18. Developing and Evaluating the Level Production Plan
Assume that the amount produced each period is constant, no hirings or layoffs
The gap between the amount planned to be produced and the forecasted demand is filled with either inventory or backorders, i.e., no overtime, no idle time, no subcontracting
. . . more

19. Developing and Evaluating the Level Production Plan
The primary costs of this strategy are inventory carrying and backlogging costs
Period-ending inventories or backlogs are determined using the inventory balance equation:
EIt = EIt-1 + (Pt - Dt )

20. Aggregate Plans for Services
For standardized services, aggregate planning may be simpler than in systems that produce products
For customized services,
there may be difficulty in specifying the nature and extent of services to be performed for each customer
customer may be an integral part of the production system
Absence of finished-goods inventories as a buffer between system capacity and customer demand

21. Preemptive Tactics There may be ways to manage the extremes of demand:
Discount prices during the valleys.... have a sale
Peak-load pricing during the highs .... electric utilities, Nucor

22. Master Production Scheduling (MPS)

23. Objectives of MPS
Determine the quantity and timing of completion of end items over a short-range planning horizon.
Schedule end items (finished goods and parts shipped as end items) to be completed promptly and when promised to the customer.
Avoid overloading or underloading the production facility so that production capacity is efficiently utilized and low production costs result.

24. Time Fences The rules for scheduling 6+ weeks 4-6 weeks 2-4 weeks 1-2
+/- 20%
Change
1-2
weeks
+/- 10%
Change
+/- 5%
Change
No Change
Frozen
Firm
Full
Open

25. Time Fences The rules for scheduling:
Do not change orders in the frozen zone
Do not exceed the agreed on percentage changes when modifying orders in the other zones
Try to level load as much as possible
Do not exceed the capacity of the system when promising orders.
If an order must be pulled into level load, pull it into the earliest possible week without missing the promise.

26. Developing an MPS Using input information
Customer orders (end items quantity, due dates)
Forecasts (end items quantity, due dates)
Inventory status (balances, planned receipts)
Production capacity (output rates, planned downtime)
Schedulers place orders in the earliest available open slot of the MPS
. . . more

27. Developing an MPS Schedulers must:
estimate the total demand for products from all sources
assign orders to production slots
make delivery promises to customers, and
make the detailed calculations for the MPS

28. Example: Master Production Scheduling
Arizona Instruments produces bar code scanners for consumers and other manufacturers on a produce-to-stock basis. The production planner is developing an MPS for scanners for the next 6 weeks.
The minimum lot size is 1,500 scanners, and the safety stock level is 400 scanners. There are currently 1,120 scanners in inventory. The estimates of demand for scanners in the next 6 weeks are shown on the next slide.

29. Example: Master Production Scheduling
Demand Estimates
CUSTOMERS
BRANCH WAREHOUSES
MARKET RESEARCH
PRODUCTION RESEARCH
500
200 10 1 50
300
1000
400 2 3 4
700 6 5
WEEK

30. Example: Master Production Scheduling
Computations
WEEK 1 2 3 4 5 6
CUSTOMERS
500
1000
500
200
700
1000
BRANCH WAREHOUSES
200
300
400
500
300
200
MARKET RESEARCH 50 10
PRODUCTION RESEARCH 10
TOTAL DEMAND
710
1350
900
700
1010
1200
BEGINNING INVENTORY
1120
410
560
1160
460
950
REQUIRED PRODUCTION
1500
1500
1500
1500
ENDING INVENTORY
410
560
1160
460
950
1250

31. Example: Master Production Scheduling
MPS for Bar Code Scanners 1 2 3 4 6 5
WEEK
SCANNER PRODUCTION
1500

32. Rough-Cut Capacity Planning
As orders are slotted in the MPS, the effects on the production work centers are checked
Rough cut capacity planning identifies underloading or overloading of capacity

33. Example: Rough-Cut Capacity Planning
Texprint Company makes a line of computer printers on a produce-to-stock basis for other computer manufacturers. Each printer requires an average of 24 labor-hours. The plant uses a backlog of orders to allow a level-capacity aggregate plan. This plan provides a weekly capacity of 5,000 labor-hours.
Texprint’s rough-draft of an MPS for its printers is shown on the next slide. Does enough capacity exist to execute the MPS? If not, what changes do you recommend?

34. Example: Rough-Cut Capacity Planning
Rough-Cut Capacity Analysis
WEEK 1 2 3 4 5
TOTAL
PRODUCTION
100
200
200
250
280
1030
LOAD
2400
4800
4800
6000
6720
24720
CAPACITY
5000
5000
5000
5000
5000
25000
UNDER or OVER LOAD
2600
200
200
1000
1720
280

35. Example: Rough-Cut Capacity Planning
Rough-Cut Capacity Analysis
The plant is underloaded in the first 3 weeks (primarily week 1) and it is overloaded in the last 2 weeks of the schedule.
Some of the production scheduled for week 4 and 5 should be moved to week 1.

36. Demand Management
Review customer orders and promise shipment of orders as close to request date as possible
Update MPS at least weekly.... work with Marketing to understand shifts in demand patterns
Produce to order..... focus on incoming customer orders
Produce to stock focus on maintaining finished goods levels
Planning horizon must be as long as the longest lead time item

37. Types of Production-Planning and Control Systems

38. Types of Production-Planning and Control Systems
Pond-Draining Systems
Push Systems
Pull Systems
Focusing on Bottlenecks

39. Pond-Draining Systems
Emphasis on holding inventories (reservoirs) of materials to support production
Little information passes through the system
As the level of inventory is drawn down, orders are placed with the supplying operation to replenish inventory
May lead to excessive inventories and is rather inflexible in its ability to respond to customer needs

40. Push Systems
Use information about customers, suppliers, and production to manage material flows
Flows of materials are planned and controlled by a series of production schedules that state when batches of each particular item should come out of each stage of production
Can result in great reductions of raw-materials inventories and in greater worker and process utilization than pond-draining systems

41. Pull Systems
Look only at the next stage of production and determine what is needed there, and produce only that
Raw materials and parts are pulled from the back of the system toward the front where they become finished goods
Raw-material and in-process inventories approach zero
Successful implementation requires much preparation

42. Focusing on Bottlenecks
Bottleneck Operations
Impede production because they have less capacity than upstream or downstream stages
Work arrives faster than it can be completed
Binding capacity constraints that control the capacity of the system
Optimized Production Technology (OPT)
Synchronous Manufacturing

43. Synchronous Manufacturing
Operations performance measured by
throughput (the rate cash is generated by sales)
inventory (money invested in inventory), and
operating expenses (money spent in converting inventory into throughput)
. . . more

44. Synchronous Manufacturing
System of control based on:
drum (bottleneck establishes beat or pace for other operations)
buffer (inventory kept before a bottleneck so it is never idle), and
rope (information sent upstream of the bottleneck to prevent inventory buildup and to synchronize activities)

45. Wrap-Up: World-Class Practice
Push systems dominate and can be applied to almost any type of production
Pull systems are growing in use. Most often applied in repetitive manufacturing
Few companies focusing on bottlenecks to plan and control production.

46. End of Chapter 13