1. Production Planning and Control

2.  Allocate the company’s ressources  Taking into account :  Strategic and operational objectives (quantity, quality, lead time, costs)  Existing constraints  Forecasted demand

3. Long term Business Plan Determine the long-term strategies for production and capacity Source : Stevenson W., Benedetti, (2001), p 426 Intermetiate term Short term External environment Forecast of demand Strategies and policies Material Requirements Planning (MRP) Determine the needs for components and raw materials Aggregate Plan Determine production capacity Master Production Schedule (MPS) Determine the production schedule for specific products Scheduling Detailed planning of orders Aggregate planning Master scheduling

4. Slide 11.4

5. Slide 11.5 Linkages Facilities Planning Aggregate Planning Scheduling Time Frame Facilities Planning Aggregate Planning Scheduling Time

6. Slide 11.6 Aggregation is done according to:  Products  Labor  Time Aggregation ????????

7. Slide 11.7  Long Range Planning  Strategic planning (1-5 years)  Medium Range Planning  Employment, output, and inventory levels (2-18 months)  Short Range Planning  Job scheduling, machine loading, and job sequencing (0-2 months)

11. Managerial Inputs Supplier capabilities Storage capacity Materials availability Materials Current machine capacities Plans for future capacities Workforce capacities Current staffing level Operations New products Product design changes Machine standards Engineering Labor-market conditions Training capacity Human resources Cost data Financial condition of firm Accounting and finance Aggregate plan Customer needs Demand forecasts Competition behavior Distribution and marketing

12.  Minimize Costs/Maximize Profits  Maximize Customer Service  Minimize Inventory Investment  Minimize Changes in Production Rates  Minimize Changes in Workforce Levels  Maximize Utilization of Plant and Equipment

13. Slide 11.13  Work force levels  Work force levels - the number of workers required for production.  Production rates  Production rates - the number of units produced per time period.  Inventory levels  Inventory levels - the balance of unused units carried forward from the previous period.

14. MINIMIZE: MINIMIZE: cost, inventory levels, changes in work force levels, use of overtime, use of subcontracting, changes in production rates, changes in production rates, plant/personnel idle time MAXIMIZE: MAXIMIZE: profits, customer service

15.  Price Incentives  Reservations  Backlogs  Complementary Products or Services  Advertising/promotion

16.  Hiring/firing workers  Overtime/slack time  Part time/temporary labor  Subcontracting  Cooperative arrangements  Inventories

17. Slide 11.17  Hiring/firing costs  Overtime/slack time costs  Part time/temporary labor costs  Subcontracting costs  Cooperative arrangements costs  Inventory carrying costs  Backorder or stock out costs

18. Aggregate unit labor time = (.32)(4.2)+(.21)(4.9)+(.17)(5.1)+(.14)(5.2)+ (.10)(5.4)+(.06)(5.8) = 4.856 hrs

19. 1. Demand Chasing: Vary the Workforce Level D(t)P(t) = D(t) W(t) PCWCHCFC D(t): Aggregate demand series P(t): Aggregate production levels W(t): Required Workforce levels Costs Involved: PC: Production Costs fixed (setup, overhead) variable (materials, consumables, etc.) WC: Regular labor costs HC: Hiring costs: e.g., advertising, interviewing, training FC: Firing costs: e.g., compensation, social cost

20. 2. Varying Production Capacity with Constant Workforce: D(t)P(t) O(t) PCWCOCUC U(t) S(t) SC W = constant S(t): Subcontracted quantities O(t): Overtime levels U(t): Undertime levels Costs involved: PC, WC: as before SC: subcontracting costs: e.g., purchasing, transport, quality, etc. OC: overtime costs: incremental cost of producing one unit in overtime (UC: undertime costs: this is hidden in WC)

21. 3. Accumulating (Seasonal) Inventories: D(t)P(t) I(t)PCWCIC W(t), O(t), U(t), S(t) = constant I(t): Accumulated Inventory levels Costs involved: PC, WC: as before IC: inventory holding costs: e.g., interest lost, storage space, pilferage, obsolescence, etc.

22. 4. Backlogging: D(t)P(t) B(t) PCWCBC W(t), O(t), U(t), S(t) = constant B(t): Accumulated Backlog levels Costs involved: PC, WC: as before BC: backlog (handling) costs: e.g., expediting costs, penalties, lost sales (eventually), customer dissatisfaction

23. A “mixture” of the previously discussed pure options: D PCWCHCFCFC OCUCSCICBC P W H F O U S I B + Additional constraints arising from the company strategy; e.g., maximal allowed subcontracting maximal allowed workforce variation in two consecutive periods maximal allowed overtime safety stocks etc. Io Wo

24. Slide 11.24  Trial-and-error method  Mathematical techniques

25. Materials$5/unit Holding costs$1/unit per mo. Marginal cost of stock-out$1.25/unit per mo. Hiring and training cost$200/worker Layoff costs$250/worker Labor hours required.15 hrs/unit Straight time labor cost$8/hour Beginning inventory250 units Productive hours/worker/day7.25 Paid straight hrs/day8 Suppose we have the following unit demand and cost information: Demand/moJanFebMarAprMayJun 4500550070001000080006000

26. Productive hours/worker/day7.25 Paid straight hrs/day8 Demand/moJanFebMarAprMayJun 4500550070001000080006000 Given the demand and cost information below, what are the aggregate hours/worker/month, units/worker, and dollars/worker?

27. Productive hours/worker/day7.25 Paid straight hrs/day8 Demand/moJanFebMarAprMayJun 4500550070001000080006000 Given the demand and cost information below, what are the aggregate hours/worker/month, units/worker, and dollars/worker? 7.25x22 7.25/0.15=48.33 & 48.33x22=1063.33 22x8hrsx$8=$140 8

28. Lets assume our current workforce is 7 workers. First, calculate net requirements for production, or Demand-Begin Inv. Then, calculate number of workers needed to produce the net requirements, or Net req/Units per worker or # workers Finally, determine the number of workers to hire/fire. Current Workers-Required = (-) hire or (+) fire

29. Lets assume our current workforce is 7 workers. First, calculate net requirements for production, or 4500-250=4250 units Then, calculate number of workers needed to produce the net requirements, or 4250/1063.33=3.997 or 4 workers **Round-up Finally, determine the number of workers to hire/fire. In this case we only need 4 workers, we have 7, so 3 can be fired.

30. Below are the complete calculations for the remaining months in the six month planning horizon.

31. Below are the complete calculations for the remaining months in the six month planning horizon with the other costs included.

32. Lets take the same problem as before but this time use the Level Workforce strategy. This time we will seek to use a workforce level of 6 workers.

33. Note, if we recalculate this sheet with 7 workers we would have a surplus. Below are the complete calculations for the remaining months in the six month planning horizon.

34. Below are the complete calculations for the remaining months in the six month planning horizon with the other costs included. Labor Material Storage Stock- out Note, the total costs under this strategy are less than under Chase.

35.  Chase strategy  Match output rates to demand forecast for each period  Vary workforce levels or vary production rate  Favored by many service organizations

36.  Level strategy  Daily production is uniform  Use inventory or idle time as buffer  Stable production leads to better quality and productivity  Some combination of capacity options, a mixed strategy, might be the best solution

37.  Popular techniques  Easy to understand and use  Trial-and-error approaches that do not guarantee an optimal solution  Require only limited computations

38. 1.Determine the demand for each period 2.Determine the capacity for regular time, overtime, and subcontracting each period 3.Find labor costs, hiring and layoff costs, and inventory holding costs 4.Consider company policy on workers and stock levels 5.Develop alternative plans and examine their total costs

39. Month Expected Demand Production Days Demand Per Day (computed) Jan9002241 Feb7001839 Mar8002138 Apr1,2002157 May1,5002268 June1,100 20 2055 6,200124 = = 50 units per day 6,200124 Average requireme nt = Total expected demand Number of production days

40. Figure 13.3 70 70 – 60 60 – 50 50 – 40 40 – 30 30 – 0 0 – JanFebMarAprMayJune=Month  221821212220=Number of working days Production rate per working day Level production using average monthly forecast demand Forecast demand

41. Cost Information Inventory carrying cost $ 5 per unit per month Subcontracting cost per unit $10 per unit Average pay rate $ 5 per hour ($40 per day) Overtime pay rate $ 7 per hour (above 8 hours per day) Labor-hours to produce a unit 1.6 hours per unit Cost of increasing daily production rate (hiring and training) $300 per unit Cost of decreasing daily production rate (layoffs) $600 per unit Plan 1 – constant workforce

42. Table 13.3 Cost Information Inventory carry cost $ 5 per unit per month Subcontracting cost per unit $10 per unit Average pay rate $ 5 per hour ($40 per day) Overtime pay rate $ 7 per hour (above 8 hours per day) Labor-hours to produce a unit 1.6 hours per unit Cost of increasing daily production rate (hiring and training) $300 per unit Cost of decreasing daily production rate (layoffs) $600 per unit Plan 1 – constant workforce Month Production at 50 Units per Day Demand Forecast Monthly Inventory Change Ending Inventory Jan1,100900+200200 Feb900700+200400 Mar1,050800+250650 Apr1,0501,200-150500 May1,1001,500-400100 June1,0001,100-1000 1,850 Total units of inventory carried over from one month to the next= 1,850 units Workforce required to produce 50 units per day= 10 workers

43. Table 13.3 Cost Information Inventory carry cost $ 5 per unit per month Subcontracting cost per unit $10 per unit Average pay rate $ 5 per hour ($40 per day) Overtime pay rate $ 7 per hour (above 8 hours per day) Labor-hours to produce a unit 1.6 hours per unit Cost of increasing daily production rate (hiring and training) $300 per unit Cost of decreasing daily production rate (layoffs) $600 per unit Month Production at 50 Units per Day Demand Forecast Monthly Inventory Change Ending Inventory Jan1,100900+200200 Feb900700+200400 Mar1,050800+250650 Apr1,0501,200-150500 May1,1001,500-400100 June1,0001,100-1000 1,850 Total units of inventory carried over from one month to the next= 1,850 units Workforce required to produce 50 units per day= 10 workers CostsCalculations Inventory carrying$9,250(= 1,850 units carried x $5 per unit) Regular-time labor49,600(= 10 workers x $40 per day x 124 days) Other costs (overtime, hiring, layoffs, subcontracting)0 Total cost$58,850

44. Cumulative demand units 7,000 7,000 – 6,000 6,000 – 5,000 5,000 – 4,000 4,000 – 3,000 3,000 – 2,000 – 1,000 – – JanFebMarAprMayJune Cumulative forecast requirements Cumulative level production using average monthly forecast requirements Reduction of inventory Excess inventory 6,200 units

45. Month Expected Demand Production Days Demand Per Day (computed) Jan9002241 Feb7001839 Mar8002138 Apr1,2002157 May1,5002268 June1,100 20 2055 6,200124 Minimum requirement = 38 units per day Plan 2 – subcontracting

46. 70 70 – 60 60 – 50 50 – 40 40 – 30 30 – 0 0 – JanFebMarAprMayJune=Month  221821212220=Number of working days Production rate per working day Level production using lowest monthly forecast demand Forecast demand

47. Table 13.3 Cost Information Inventory carrying cost $ 5 per unit per month Subcontracting cost per unit $10 per unit Average pay rate $ 5 per hour ($40 per day) Overtime pay rate $ 7 per hour (above 8 hours per day) Labor-hours to produce a unit 1.6 hours per unit Cost of increasing daily production rate (hiring and training) $300 per unit Cost of decreasing daily production rate (layoffs) $600 per unit

48. Table 13.3 Cost Information Inventory carry cost $ 5 per unit per month Subcontracting cost per unit $10 per unit Average pay rate $ 5 per hour ($40 per day) Overtime pay rate $ 7 per hour (above 8 hours per day) Labor-hours to produce a unit 1.6 hours per unit Cost of increasing daily production rate (hiring and training) $300 per unit Cost of decreasing daily production rate (layoffs) $600 per unit In-house production=38 units per day x 124 days =4,712 units Subcontract units=6,200 - 4,712 =1,488 units

49. Table 13.3 Cost Information Inventory carry cost $ 5 per unit per month Subcontracting cost per unit $10 per unit Average pay rate $ 5 per hour ($40 per day) Overtime pay rate $ 7 per hour (above 8 hours per day) Labor-hours to produce a unit 1.6 hours per unit Cost of increasing daily production rate (hiring and training) $300 per unit Cost of decreasing daily production rate (layoffs) $600 per unit In-house production=38 units per day x 124 days =4,712 units Subcontract units=6,200 - 4,712 =1,488 units CostsCalculations Regular-time labor$37,696(= 7.6 workers x $40 per day x 124 days) Subcontracting14,880(= 1,488 units x $10 per unit) Total cost$52,576

50. Month Expected Demand Production Days Demand Per Day (computed) Jan9002241 Feb7001839 Mar8002138 Apr1,2002157 May1,5002268 June1,100 20 2055 6,200124 Production = Expected Demand Plan 3 – hiring and firing

51. 70 70 – 60 60 – 50 50 – 40 40 – 30 30 – 0 0 – JanFebMarAprMayJune=Month  221821212220=Number of working days Production rate per working day Forecast demand and monthly production

52. Cost Information Inventory carrying cost $ 5 per unit per month Subcontracting cost per unit $10 per unit Average pay rate $ 5 per hour ($40 per day) Overtime pay rate $ 7 per hour (above 8 hours per day) Labor-hours to produce a unit 1.6 hours per unit Cost of increasing daily production rate (hiring and training) $300 per unit Cost of decreasing daily production rate (layoffs) $600 per unit

53. Table 13.3 Cost Information Inventory carrying cost $ 5 per unit per month Subcontracting cost per unit $10 per unit Average pay rate $ 5 per hour ($40 per day) Overtime pay rate $ 7 per hour (above 8 hours per day) Labor-hours to produce a unit 1.6 hours per unit Cost of increasing daily production rate (hiring and training) $300 per unit Cost of decreasing daily production rate (layoffs) $600 per unit Month Forecast (units) Daily Prod Rate Basic Production Cost (demand x 1.6 hrs/unit x $5/hr) Extra Cost of Increasing Production (hiring cost) Extra Cost of Decreasing Production (layoff cost)Total Cost Jan90041$ 7,200—— Feb700395,600— $1,200 (= 2 x $600) 6,800 Mar800386,400— $600 (= 1 x $600) 7,000 Apr1,200579,600 $5,700 (= 19 x $300) —15,300 May1,5006812,000 $3,300 (= 11 x $300) —15,300 June1,100558,800— $7,800 (= 13 x $600) 16,600 $49,600$9,000$9,600$68,200 Table 13.4

54. Table 13.5 Cost Plan 1 Plan 2 Plan 3 Inventory carrying $ 9,250 $ 0 Regular labor 49,60037,69649,600 Overtime labor 000 Hiring009,000 Layoffs009,600 Subcontracting014,8800 Total cost $58,850$52,576$68,200 Plan 2 is the lowest cost option

55.  Useful for generating strategies  Transportation Method of Linear Programming  Produces an optimal plan  Management Coefficients Model  Model built around manager’s experience and performance  Other Models  Linear Decision Rule  Simulation