Production Planning
Content
National Institute of Technology Calicut
Department of Mechanical Engineering
PRODUCTION PLANNING (AGGREGATE PLANNING)
§ § § § Concerned with the overall operations of an organisation over a specified time horizon Determines the efficient way of responding (allocating resources) to market conditions Effectively allocate system capacity (plant, equipment, and manpower) over designated period A good production plan should Ø be consistent with organisational policy Ø meet demand requirements Ø be within capacity constraints Ø minimizes costs A medium range tactical problem of establishing aggregate production rates, work force sizes, inventory levels and possibly shipping rates States the mission manufacturing must accomplish if the firm’s overall objectives are to be met Managerial objective is to develop an integrated game plan whose manufacturing portion is the production plan The production plan, therefore, links strategic goals to production and is coordinated with sales objectives, resource availabilities, and financial budgets Game plan considers an integrated view of marketing, finance and production
§ § § § §
Planning Level Long Range
Policy, Product, Process, & Plant Decisions
Orientation Strategic
Aggregate Intermediate Range Planning Linking Activity
Short Range
• LONG RANGE - products - processes
Operations Decisions
Operational
Fig. 1 Relationship between aggregate planning and other planning stages
Production Planning
18
National Institute of Technology Calicut
Department of Mechanical Engineering
•
•
- plant location - plant layout INTERMEDIATE RANGE (Aggregates) - output rates - employment levels - inventory - subcontracting SHORT RANGE - job assignments - machine loading - job sequencing - lot sizes
Marketing Planning
“The Game Plan”
Financial Planning
MPC boundary
Resource planning
Production Planning
Demand Management
Master Production Scheduling
Fig. 2. Key Linkages of Production Planning § § § Provides the basis for making the more detailed set of MPC decisions Conceptually, production planning should precede and direct MPC decision-making In some firms, however, it is only after the other MPC systems are in place that the resultant production planning decisions are clearly defined Ø Top-down approach Vs Bottom-up approach
Production Planning
19
National Institute of Technology Calicut
Department of Mechanical Engineering
Long Range
Strategic Planning Aggregate Planning Master Production Scheduling Material Requirements Planning (MRP) Detailed Scheduling (Shop Floor Control)
Short Range Fig. 3 Top-Down Planning § § § The planning performed in other MPC system modules is necessarily detailed, and the language is quite different from that required for production planning The production plan might be stated in rupees or aggregate units of output per month while the MPS could be in end product units per week MPS might be stated in units that use special bills of materials to manage complicated options
Aggregate Plan
G1
G2
G3
Gn
product groups
Master Production P1 Schedule Material Requirements Planning
P2 C1
P3
P4 C2
P5
products
components
C3
C4
C5
C6
Fig. 4 Planning Stages § The production plan needs to be expressed in meaningful units, but it also needs to be expressed in manageable number of units
Production Planning
20
National Institute of Technology Calicut
Department of Mechanical Engineering
§ § § § §
Experience indicates that 5 to 15 family groups seems to be about right for a top management group to handle Production plan is not a forecast of demand It is the planned production, stated on an aggregate basis, for which manufacturing management is to be held responsible Organisations attempt to satisfy variations in demand by manipulating the variables (size and combination) in its control Pure and mixed strategies can be used to indicate the variables in its control
Pure strategy Output is changed by varying only one of the variables under management’s control Mixed Strategy Output is changed by varying two or more of the variables at a time Potential responses to demand fluctuations • • • • • • • • • Vary workforce size Carry product inventory Use overtime Extra shifts Vary load via product mix Subcontract Vary customer service (backlogs) Add contracyclical products Vary marketing (price, advertising)
Aggregate Planning Strategies
• SUPPLY o Workforce § hire / fire § overtime / slack § temporaries § extra shifts o Inventory o Subcontracting o Product Mix DEMAND o Pricing o Promotion o Customer Service o Backorders
•
Production Planning
21
National Institute of Technology Calicut
Department of Mechanical Engineering
Composite Sales Quantity Furnace Sales
Air Conditioner Sales
Jan Feb Mar Apr May JuneJuly Aug Sep Oct Nov Dec
Fig. 5 Demand Effect: Contracyclical Products
Current Status
production rates work force size inventory levels
Demand Forecasts Customer Orders
Aggregate Planning Model Capacity Constraints
equipment personnel materials overtime extra Shifts subcontracting
Fig. 6 Aggregate Planning Function
Aggregate Plan
production rates work force size inventory levels
Production Planning
22
National Institute of Technology Calicut
Department of Mechanical Engineering
The Aggregate Planning Problem
§ The general form can be stated as follows: Given a set of (usually monthly) forecasts of demand for a single product, or some measure of output that is common across several products, what should be specified for each period in terms of i) Size of work force Wt ii) Rate of production Pt iii) Quantity shipped St Minimise the expected total cost over a given planning interval § The cost components included: Ø Cost of regular payroll and overtime Regular time cost is the cost of producing a unit of output during regular working hours, including direct and indirect labours, materials and manufacturing expenses Overtime cost is the cost associated with using manpower beyond normal working hours Ø Production rate change costs The expenses incurred in altering the production rate substantially from one period to the next including such items as cost of layoffs, hiring, training, learning and so on Ø Inventory associated costs The cost associated with carrying or not carrying inventory § § The definition of aggregate planning problem considered three variables: Wt, Pt and St. They are measured in per period (month) t basis. The resulting inventory at the end of the period t, It is It = It-1 + Pt - St (The variable Wt does not appear because any set level of Wt, in turn determine the possible range of values that Pt can assume) § The backlog of order at the end of the period t, Bt is Bt = Bt-1 + Dt - Pt Dt = actual (or forecasted) demand in period t Production planning under constant average demand in periods of planning horizon § § The solution to the problem is greatly simplified if average demand over the planning interval is expected to be constant Under such circumstances, there would be no need to consider changing the level of production rate, nor size of the workforce, nor the planned quantity to be shipped from period to period The appropriate size of regular payroll is
§
Wt =
§
Average demand rate per period Productivity per worker
Use overtime to replenish safety stock on occasions
Production Planning
23
National Institute of Technology Calicut
Department of Mechanical Engineering
Production planning under varying average demand in periods of planning horizon § § The complexity in the aggregate planning problem, arises from the fact that in most situations demand per period is not constant but varies from period to period Under such situations the following questions are raised: Ø Should inventory investment be used to absorb the fluctuation in demand over the planning period by accumulating inventories during slack periods to meet demand in peak periods? Ø Why not the fluctuations in demand be absorbed by varying the size of the work force by hiring or laying off workers? Ø Why not keep the size of the work force constant and absorb fluctuations in demand by changing the rate of production per period by working shorter or longer hours as necessary, including the payment of overtime? Ø In process industries and where capacity exceeds average demand over a long period, should periodic shutdowns be used or should the plant be throttled? Ø Why not keep the size of the work force constant and meet the fluctuations in demand through planned backlogs or by subcontracting excess demand? Ø Is it always profitable to meet all fluctuations in demand or should some orders not be accepted
Structured Approach to Aggregate Planning
1) Set policies on controllable variables 2) Establish forecast interval and horizon 3) Develop demand forecasting system 4) Select unit of aggregate capacity 5) Determine relevant cost structures 6) Apply aggregate planning techniques
Production Planning
24
Department of Mechanical Engineering
PRODUCTION PLANNING (AGGREGATE PLANNING)
§ § § § Concerned with the overall operations of an organisation over a specified time horizon Determines the efficient way of responding (allocating resources) to market conditions Effectively allocate system capacity (plant, equipment, and manpower) over designated period A good production plan should Ø be consistent with organisational policy Ø meet demand requirements Ø be within capacity constraints Ø minimizes costs A medium range tactical problem of establishing aggregate production rates, work force sizes, inventory levels and possibly shipping rates States the mission manufacturing must accomplish if the firm’s overall objectives are to be met Managerial objective is to develop an integrated game plan whose manufacturing portion is the production plan The production plan, therefore, links strategic goals to production and is coordinated with sales objectives, resource availabilities, and financial budgets Game plan considers an integrated view of marketing, finance and production
§ § § § §
Planning Level Long Range
Policy, Product, Process, & Plant Decisions
Orientation Strategic
Aggregate Intermediate Range Planning Linking Activity
Short Range
• LONG RANGE - products - processes
Operations Decisions
Operational
Fig. 1 Relationship between aggregate planning and other planning stages
Production Planning
18
National Institute of Technology Calicut
Department of Mechanical Engineering
•
•
- plant location - plant layout INTERMEDIATE RANGE (Aggregates) - output rates - employment levels - inventory - subcontracting SHORT RANGE - job assignments - machine loading - job sequencing - lot sizes
Marketing Planning
“The Game Plan”
Financial Planning
MPC boundary
Resource planning
Production Planning
Demand Management
Master Production Scheduling
Fig. 2. Key Linkages of Production Planning § § § Provides the basis for making the more detailed set of MPC decisions Conceptually, production planning should precede and direct MPC decision-making In some firms, however, it is only after the other MPC systems are in place that the resultant production planning decisions are clearly defined Ø Top-down approach Vs Bottom-up approach
Production Planning
19
National Institute of Technology Calicut
Department of Mechanical Engineering
Long Range
Strategic Planning Aggregate Planning Master Production Scheduling Material Requirements Planning (MRP) Detailed Scheduling (Shop Floor Control)
Short Range Fig. 3 Top-Down Planning § § § The planning performed in other MPC system modules is necessarily detailed, and the language is quite different from that required for production planning The production plan might be stated in rupees or aggregate units of output per month while the MPS could be in end product units per week MPS might be stated in units that use special bills of materials to manage complicated options
Aggregate Plan
G1
G2
G3
Gn
product groups
Master Production P1 Schedule Material Requirements Planning
P2 C1
P3
P4 C2
P5
products
components
C3
C4
C5
C6
Fig. 4 Planning Stages § The production plan needs to be expressed in meaningful units, but it also needs to be expressed in manageable number of units
Production Planning
20
National Institute of Technology Calicut
Department of Mechanical Engineering
§ § § § §
Experience indicates that 5 to 15 family groups seems to be about right for a top management group to handle Production plan is not a forecast of demand It is the planned production, stated on an aggregate basis, for which manufacturing management is to be held responsible Organisations attempt to satisfy variations in demand by manipulating the variables (size and combination) in its control Pure and mixed strategies can be used to indicate the variables in its control
Pure strategy Output is changed by varying only one of the variables under management’s control Mixed Strategy Output is changed by varying two or more of the variables at a time Potential responses to demand fluctuations • • • • • • • • • Vary workforce size Carry product inventory Use overtime Extra shifts Vary load via product mix Subcontract Vary customer service (backlogs) Add contracyclical products Vary marketing (price, advertising)
Aggregate Planning Strategies
• SUPPLY o Workforce § hire / fire § overtime / slack § temporaries § extra shifts o Inventory o Subcontracting o Product Mix DEMAND o Pricing o Promotion o Customer Service o Backorders
•
Production Planning
21
National Institute of Technology Calicut
Department of Mechanical Engineering
Composite Sales Quantity Furnace Sales
Air Conditioner Sales
Jan Feb Mar Apr May JuneJuly Aug Sep Oct Nov Dec
Fig. 5 Demand Effect: Contracyclical Products
Current Status
production rates work force size inventory levels
Demand Forecasts Customer Orders
Aggregate Planning Model Capacity Constraints
equipment personnel materials overtime extra Shifts subcontracting
Fig. 6 Aggregate Planning Function
Aggregate Plan
production rates work force size inventory levels
Production Planning
22
National Institute of Technology Calicut
Department of Mechanical Engineering
The Aggregate Planning Problem
§ The general form can be stated as follows: Given a set of (usually monthly) forecasts of demand for a single product, or some measure of output that is common across several products, what should be specified for each period in terms of i) Size of work force Wt ii) Rate of production Pt iii) Quantity shipped St Minimise the expected total cost over a given planning interval § The cost components included: Ø Cost of regular payroll and overtime Regular time cost is the cost of producing a unit of output during regular working hours, including direct and indirect labours, materials and manufacturing expenses Overtime cost is the cost associated with using manpower beyond normal working hours Ø Production rate change costs The expenses incurred in altering the production rate substantially from one period to the next including such items as cost of layoffs, hiring, training, learning and so on Ø Inventory associated costs The cost associated with carrying or not carrying inventory § § The definition of aggregate planning problem considered three variables: Wt, Pt and St. They are measured in per period (month) t basis. The resulting inventory at the end of the period t, It is It = It-1 + Pt - St (The variable Wt does not appear because any set level of Wt, in turn determine the possible range of values that Pt can assume) § The backlog of order at the end of the period t, Bt is Bt = Bt-1 + Dt - Pt Dt = actual (or forecasted) demand in period t Production planning under constant average demand in periods of planning horizon § § The solution to the problem is greatly simplified if average demand over the planning interval is expected to be constant Under such circumstances, there would be no need to consider changing the level of production rate, nor size of the workforce, nor the planned quantity to be shipped from period to period The appropriate size of regular payroll is
§
Wt =
§
Average demand rate per period Productivity per worker
Use overtime to replenish safety stock on occasions
Production Planning
23
National Institute of Technology Calicut
Department of Mechanical Engineering
Production planning under varying average demand in periods of planning horizon § § The complexity in the aggregate planning problem, arises from the fact that in most situations demand per period is not constant but varies from period to period Under such situations the following questions are raised: Ø Should inventory investment be used to absorb the fluctuation in demand over the planning period by accumulating inventories during slack periods to meet demand in peak periods? Ø Why not the fluctuations in demand be absorbed by varying the size of the work force by hiring or laying off workers? Ø Why not keep the size of the work force constant and absorb fluctuations in demand by changing the rate of production per period by working shorter or longer hours as necessary, including the payment of overtime? Ø In process industries and where capacity exceeds average demand over a long period, should periodic shutdowns be used or should the plant be throttled? Ø Why not keep the size of the work force constant and meet the fluctuations in demand through planned backlogs or by subcontracting excess demand? Ø Is it always profitable to meet all fluctuations in demand or should some orders not be accepted
Structured Approach to Aggregate Planning
1) Set policies on controllable variables 2) Establish forecast interval and horizon 3) Develop demand forecasting system 4) Select unit of aggregate capacity 5) Determine relevant cost structures 6) Apply aggregate planning techniques
Production Planning
24
