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Agenda •Planning Framework •Sales and operations planning •Framework of manufacturing of manufacturing resource planning
• ggregate ann ng •Production Planning •Resource Requirement Planning •Case: FoldRite Furniture Co: Planning to Meet a urge n eman
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Agenda •Planning Framework •Sales and operations planning •Framework of manufacturing of manufacturing resource planning
• ggregate ann ng •Production Planning •Resource Requirement Planning •Case: FoldRite Furniture Co: Planning to Meet a urge n eman
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Strategic Business Plan The business busi ness plan plan provides prov ides direction and coord ination among marketin marketing, g, produc pro duction tion,, fina fin ancia nci al & engi enginee neerin ring g pla pl ans. (satisfy (satisfy demand, demand, utili zation zation of pl ant r eso ur c es)
Marke rk eting ti ng pla pl an (decide (decide source & use of fu nds; cash flow profit s, ROI, ROI, budgets)
Business Plan
(market, product, service level, pro p ro mo ti on , pr ic in g)
Engineering Plan (R & D, New New pr odu ct develop ment)
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Sales & Operations Planning – – Output
is an operational plan agreed to by major funct ions – Led and appro ved by senior management
trategic Business P an
Frequency of updates
Annua
Sales and Operations Plan Monthly
Detailed Sales Plan
Master Production Schedule
Weekly
-Updated marketing plan is communicated to manufacturing, engineering and finance to adjust their plan
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S&OP Hi h Level Generic Process STEP 1: RUN SALES FORECAST REPORTS STEP 2: DEMAND
Statistical forecasts Field sales worksheets
PROCESS STEP 3: SUPPLY PLANNING
First pass spreadsheets
STEP 4: PRE-S&OP MEETING
Capacity constraints Second pass spreadsheets Recommendation & agenda For executive SOP meeting Beg. of month
Dec s ons Authorized game plans
STEP 5: EXEC S&OP MEETING
End of month 5
Manufacturin Resource Plannin ‐ MRP‐II Input from Higher L evel Business Plan
PLANNING
MATERIAL PLAN
CAPACITY PLAN
Sales Planning Master Plan
L ong Term Demand Management
e um erm
Short Term
Production Planning
Resource Re uirement Plan
Aggregate Planing
Master Production Scheduling (MPS)
Rough Cut Capacity Planning (RCCP)
Material Requirement Planning (mrp)
Capacity Requirement Planning (CRP)
Production Activity Control/Shop Floor Ctrl
Hierarchy of Planning in MRP-I I
Execution Plan
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Why Aggregate Planning Is Necessary? Whenever the conditions affecting the production are (e.g., due to changes in demand, capacity availability) production should aggregate to obtain effective resource .
1 2 3 4 5 6 7 8 9 10 11 12
Month Seasonal Demand
, – It is impossible to consider every fine detail of production system while maintaining a long planning horizon, it is mandatory to aggregate the information being processed. Moreover, forecast is more accurate . – Planner can devise a course of action, consistent with business goals and objectives without having to deal with a lot of detail
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Dimensions of Aggregation • Product: Group into product type based on the similar •
demand requirements and product family common requ remen o process ng, a or, ma er a or cus omer. Market regions: Group customers based on similar geographic locations (useful for planning distribution, or mu ti‐p ant pro uction‐ istri ution
• Resources: – Labor centers t es: different labor skills Work force flexibility, Focused Factory. – Machine centers: Group similar machines , .
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‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ Product/
Requirements in Each Quarter
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ Category
Q1
Q2
Q3
Q4
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ 20‐inch bike 5000 7500 3000 4000 26‐inch bike 3000 4000 2500 3000 ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ Assembly labor
100
120
70
80
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ 10
Aggregate Planning • A re ate Plans 6 to 18 months (1) Production Planning (2) Resource [e.g., Labor] Plan
• Purpose is to specify the optimal combination of production rate, the workforce level, and inventory on hand • Given the demand forecast Ft for each period t in the planning horizon over T periods, determine the production rate Pt, , , …, t, t T that minimizes the relevant costs over the planning horizon.
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Production planning‐
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ t
1
2
3
4
5
….
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ Dt Pt It Wt
100 ? ? ?
150 ? ? ?
40 ? ? ?
80 ? ? ?
100 ? ? ?
…
T 60 ? ? ?
‐‐‐ ‐‐‐‐ ‐‐‐‐ ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐
• If demand is uniform over time. The decisions on production rates, staffing, and inventory levels are simple. • However, demand over different time period (t) may not be uniform. To cope up with this fluctuation different strategies can be used.
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– Introduction of new products with – Sales or promotional activity – .
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ggrega e
ann ng
Manage Capacity (i) Chase strategy. Match the production rate to the demand rate b hirin and laying off employees as the demand rate varies.
ra eg es
ggrega e Manage Capacity (ii) Level strategy. Maintain a stable workforce working at a constant output rate.
ann ng
ra eg es
Combination (mixed) Strategy Manage Capacity iii) Mix strategy:Chase & level are “extreme” pure strategies . , chase strategy minimizes inventory cost but may incur higher costs due hiring/layoff. Thus need to use mix .
A b) Manage
re ate Plannin Strate ies Capacity
‐
.
Vary the output by varying number of hours worked through flexible work schedule, overtime or
(iv) Combination of chase and level strategies. c) Manage both Capacity and Demand In real life most likely combination of demand and capac ty management opt ons are use .
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‐
‐
This involves costing out various production with the lowest cost.
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A) Cut and Try Technique Starlight Example Month Sales , Nov 220,000 Dec 310,000 an , Feb 240,000 Mar 230,000 Labor hours/unit = 1.5 Wages = $2000/month Layoff cost = $2500/emp Sept work force = 1850 March work force = 1800‐1900
Work Days/month 21 19 20 23 Labor hours/day = 8 Inv holding cost = $10/unit Hiring cost = $3000/emp Sept inventory = 5000 March inventory = 2000‐2150
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Month Oct Nov Dec Jan Feb Mar
[A] Net Rqmt 195,000 220,000 310,000 300,000 240,000 232,000
[B] Max prodn per emp 122.67 112.00 101.33 112.00 106.67 122.67
[C]=[A]/[B] No workers needed for A 1590 1965 3060 2679 2250 1892
Max prodn/emp = [8 hr/day x No days/mo]/[1.5 person‐hr/unit]
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‐ # Month Workers , Oct 1,590 Nov 1,964 Dec 3 060 Jan 2,678 Feb 2,250 Mar 1,892 pr , Totals 13,434 (Oct‐Mar)
# Hired
# Layoff
Production
0 374 1 096 0 0 0
260 0 0 382 428 358
195,045 219,968 310 070 299,936 240,007 232,092
1,470
1,428
Ending inventory , 45 13 83 19 26 2,118 2,304
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= $ 26,868,000 = = $ 4,410,000 sm ssa =
wor ers x = $3,570,000
Inventory= 2304 tems x 10
=
23,040
Total cost= $
34,871,040 22
Level Strategy Month
Sales
Oct Nov Dec Jan Feb Mar
200,000 220,000 310,000 300,000 240,000 230,000
Work Days/month 23 21 19 21 20 23
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ Total
150,000
127
ep wor orce = March work force = 1800‐1900
ep nven ory = March inventory = 2000‐2150 = ,
,
‐
= ,
,
No of worker needed = [1,497,000 units x 1.5 hr/unit]/[127 days x 8 hr/day] = 2211
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#
#
#
#
Ending
Mont Worker Hire Layof day Productio Sep
1,850
0
5,000
Oct
2,211
361
0
23
271,216
200,000
76,216
Nov
2,211
0
0
21
247,632
220,000
103,848
Dec
2,211
0
0
19
224,048
310,000
17,896
,
,
235,840
240,000
-38,632
271,216
230,000
2,584
inventory
202,960
Shortage
-73,104
, Feb
2,211
0
Mar
2,211
0
April Total s
1,850 13,266
(Oct-Mar)
361
0
20
361 23
361
-
,
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os s o Wages Hiring smssa Inventory Total cost
eve
ra egy
=13266 pers-months x $2000 =361 workers x $3000 = wor ers x =202,960 items x $10 ,
=$ 26,532,000 =$ 1,083,000 = , =$ 2,029,600 , , =$32,009,160
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‐ Planning to Meet a Surge in Demand
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Linear Programming for Aggregate Planning
• Chase & level are “extreme” ure strate ies • Only minimize one cost component. Thus need to use mix strategies. • Many aggregate planning problems can use linear programming to find optimal solution • We will consider 2 examples of LP formulation
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= = Lt = # workers on staff in month t, t = 1, ..., 7 , , ..., t Dt = # workers dismissed in month t, t = 1, ..., 7 un s n nven ory a en mon , = , ..., t= 6 = s c o er, = s pr
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6 Min TC 2000
7 L 3000
t 1
7 H 2500
t 1
6 D 10
t 1
I
t 1
Inventory constraints production + beg inv = amount shipped + end inv P1 + 5000 ‐ I1 = 200,000 or P1‐I1 = 195,000 P2 + I1 ‐ I2 = 200,000 P3 + I2 ‐ I3 = 310,000 P4 + I3 ‐ I4 = 300,000 P5 + I4 ‐ I5 = 240,000 P6 + I5 ‐ I6 = 230,000 I6 2000 6
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P1 = 122.67 L1 4
4
; P2 = 112 L2 . 5
5
; P3 = 101.33 L3 . 6 6
Labor constraints L1 = 1 5 + H1 ‐ D1 or L1 ‐ H1 + D1 = 1 5 L2 ‐ L1 ‐ H2 + D2 = 0 ‐ ‐ + = L4 ‐ L3 ‐ H4 + D4 = 0 L5 ‐ L4 ‐ H5 + D5 = 0 L6 ‐ L5 ‐ H6 + D6 = 0 L7 – L6 – H7 + D7 = 0 7
L7 1900 var a es are non‐nega ve 30
Var P1 P2 P3 P4 5
P6
Value 226,939.50 274,744.97 248,570.63 274,744.97 , . 232,000.02
Var L1 L2 L3 L4 5
L6 L7
I 31 939.50 I2 86,684.43 I3 25,255.05 I4 = I5 = 0 I6 2000.00 Total cost = 31,373,440
Value 1850.00 2453.08 2453.08 2453.08 . 1891.25 1891.25
Var H1 H2 H3 H4 5
H6 H7
Value 0 603.08 0 0 0 0
Var D1 D2 D3 D4 5
D6 D7
Value 0 0 0 0 . 358.68 0
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‐ Month Sep Oct Nov Jan Feb Mar
# Workers 1,850 1,850 2,453 , 2,454 2,250 1 891
April 1,891 Totals 13,351 Oct‐Mar
# Hired
# Layoff
0 603
0 0
1 0 0
0 204 359
604
563
Production 226,939 274,736 , 274,848 240,000 231 969
Ending inventory 5,000 31,939 86,675 , 85 85 2 065 146,075
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os s o Wages Hiring smssa Inventory
o u on
=13351 pers-months x $2000 =604 workers x $3000 = wor ers x =146,075 items x $10
=$ 26,702,000 =$ 1,812,000 = , , =$ 1,460,750 , ,
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Example 2: Use of Transportation model ‐ Notation: = s = cost per unit to subcontract c = cost er unit to roduce on overtime r = cost per unit to produce on regular time Inventory:
I0= beginning inventory level It = desired inventory level at the end of period t
Capacity:
Rt = regular‐time capacity in period t OTt = over‐time capacity in period t St = subcontracting capacity in period t
Demand,
Dt = forcasted demand for period t 34
Example Capacity Type
Capacity (expressed as ‘000 gallons) in Quarter 1
2
3
4
Regular Time
450
450
750
450
Overtime
90
90
150
90
200
200
200
Subcontracting
200
Requirements (expressed as ‘000 gallons) in Quarter Demand300
1
2
3
850
1500
350
Current Inventory= 250,000 gal
4
Desired ending inventory = 300,000 gal
Max allowable overtime/qrter = 20% of reg‐time capacity in that quarter. Regular‐time cost per unit = $1.00 Over‐time cost per unit = $1.50 Subcontract cost per unit = $1.90 Inventory Holding cost $0.30 per gal per quarter
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uar ter
Re ular-time Production
Overtime Production
Subcontract
Antici ated Inventory
1
450
90
20
510
2
450
90
200
400
3
750
150
200
0
4
450
90
110
300
Total cost = (250*0.0+50*1.00+400*1.30+450*1.00+90*2.10+20*2.50+90*1.80+200*2.20+ 750*1.00+150*1.50+200*1.90 +450*1.00 +90*1.50 +110*1.90)*1000 =$4,010,000
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