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All manufacturing and service operations require planning and controlling, although the formality and detail may vary. Some operations are more difficult to plan than others. Those with high unpredictability can be difficult to plan. Some are more difficult to control than others. The day to day running of manufacturing and service system rests with Production Planning. The purpose of the production planning is to ensure that manufacturing run effectively and efficiently and produces products as required by customers.
Long-term
(years)
Aggregate Planning 1. Facility Utilization 2. Personnel needs 3. Subcontracting Master Production Scheduling 1. MRP 2. Disaggregation of master plan Short-term Scheduling 1. Work center loading 2. Job sequencing
Intermediate-term
(6 to 18 months)
Short-term
(weeks)
Very Short-term
(hours days)
changing inventory levels varying work force size by hiring or layoffs varying production capacity through overtime or idle time subcontracting using part-time workers Influencing demand backordering during high demand periods counterseasonal product mixing
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
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
Outputs
A production plan: aggregate decisions for each period in the planning horizon about
Cost Information
Materials Holding costs Marginal cost of stockout Hiring and training cost Layoff costs Labor hours required Straight time labor cost Beginning inventory Productive hours/worker/day Paid straight hrs/day $5/unit $1/unit per mo. $1.25/unit per mo. $200/worker $250/worker .15 hrs/unit $8/hour 250 units 7.25 8
11
12
Demand Beg. inv. Net req. Req. workers Hired Fired W o rkforce Ending inventory
Jun 20 14 5 96 7 1,280
Demand Beg. inv. Net req. Req. workers Hired Fired W o rkfo rce Ending inventory
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Demand Beg. inv. Net req. Req. wo rkers Hired Fired W o rkfo rce Ending inventory
Jan Feb M ar Apr M ay Jun $2 1,2 50 .0 0 $2 7,5 00 .0 0 $3 5,0 00 .0 0 $5 0,0 00 .0 0 $4 0,0 00 .0 0 $3 0,0 00 .0 0 5,6 27 .5 9 7,2 82 .7 6 9,2 68 .9 7 13 ,24 1.38 10 ,59 3.10 7,9 44 .8 3 40 0.0 0 20 0.0 0 60 0.0 0 75 0.0 0 50 0.0 0 25 0.0 0
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Inventory Management
Inventory-A physical resource that a firm holds in stock with the intent of selling it or transforming it into a more valuable state. Inventory System- A set of policies and controls that monitors levels of inventory and determines what levels should be maintained, when stock should be replenished, and how large orders should be
Types of Inventories
Raw Materials Works-in-Process Finished Goods Distribution Inventory Supplies: Maintenance, Repair and Operating (MRO)
Wholesaler
Distributor
Retailer
Customer
Shipping Delay
Item Withdrawn
Distributor Inventory
Retailer Inventory
Type of Inventory
Type of Organization
Supplies Raw Materials In-Process Goods Finished Goods
A. Retail systems 1. Sale of goods 2. Sale of services B. Wholesale / Distribution systems C. Manufacturing systems 1. Special project 2. Intermittent process . 3. Continuous process a. Process industries b. Repetitive mfging.
* * * * * * * * * * * *
* *
Raw Materials
Works in Process
Finished Goods
Inadequate control of inventories can result in both under- and overstocking of items. under
Understocking (too few) results in missed deliveries, lost sales, dissatisfied customers, and production bottlenecks (idle workers or machines). Resulting underage cost. Overstocking (too many) ties up funds that might be more productive elsewhere. Resulting overage cost.
Goal: matching supply with demand!
Improve customer service Economies of purchasing Economies of production Transportation savings Hedge against future Unplanned shocks (labor strikes, natural disasters, surges in demand, etc.) To maintain independence of supply chain
Non-value added costs Opportunity cost Complacency Inventory deteriorates, becomes obsolete, lost, stolen, etc.
Order processing Shipping Handling Capital (opportunity) costs Inventory risk costs Space costs Inventory service costs Lost sales cost Back-order cost
Out-of-Stock Costs
Independent demand items are finished products or parts that are shipped as end items to customers. Dependent demand items are raw materials, component parts, or subassemblies that are used to produce a finished product.
Dependent Demand
(components)
B(4)
C(2)
D(2)
E(1)
D(3)
F(2)
1) Maximize the level of customer service by avoiding understocking. 2) Promote efficiency in production and purchasing by minimizing the cost of providing an adequate level of customer service.
When should the company replenish its inventory, or when should the company place an order or manufacture a new lot? How much should the company order or produce? Next: Economic Order Quantity (EOQ)
Lower
ABC Classification (Pareto Principle) A Items: very tight control, complete and accurate records, frequent review B Items: less tightly controlled, good records, regular review C Items: simplest controls possible, minimal records, large inventories, periodic review and reorder
A B C
Low High
Percentage of Items