Planning Production Activity

Preview

Planning Manufacturing Facilities

Quantitative Tools in Production Planning

Production Planning and Control

Flexible Manufacturing Systems

Assoc.Prof.Dr.B.G.Çetiner

Planning Production Activity

Planning Manufacturing Facilities

Assoc.Prof.Dr.B.G.Çetiner

Plant Location: 7 Basic Steps in locating and building every new plant

1. Establish the need for a new plant

2. Determine best geographical area based on needs

3. Establish the requirements

4. Screen many communities

5. Pinpoint few communities for detailed study

6. Select the best location

7. Build the plant

Planning Production Activity

Planning Manufacturing Facilities

Assoc.Prof.Dr.B.G.Çetiner

Plant LocationSome of the factors affecting choice of region

* Transportation (highway, rail, air, water)

* Labor (supply, skill level, local wages, and attitudes)

* Geographical location (raw materials, customers etc)

* Utilities (supply and cost of water, electricity etc)

* Business Climate (taxes, pollution controls, community)

* Comfortableness (Climate, educational facilities etc)

* Plant Sites (land cost etc)

Planning Production Activity

Planning Manufacturing Facilities

Assoc.Prof.Dr.B.G.Çetiner

Plant LocationMost important factors for plant location will vary with industry

* For producing the bricks, plant has to be close to raw material

* Aluminum production needs cheap electricity

* High-technology electronic firms have tended to cluster together with technical professionals and educational institutions

* Clothing manufacturers look for lower labor-cost areas

Planning Production Activity

Planning Manufacturing Facilities

Assoc.Prof.Dr.B.G.Çetiner

Plant DesignNature of plant and its arrangement on the site

Multistory plants: Conserve land area, permit use of gravity flow, and cheaper to heat

Singlestory plants: More flexible, permit lighter foundations.

Planning Production Activity

Planning Manufacturing Facilities

Assoc.Prof.Dr.B.G.Çetiner

Plant LayoutTry to achieve most effective arrangement of physicalfacilities and personnel for making a product.

Product Layout: Machines and personnel are arranged along the production line so minimum travel is obtained between processing steps

Process Layout: All machines or activity of a particular type are located together. Useful for job-shop environment

Planning Production Activity

Planning Manufacturing Facilities

Assoc.Prof.Dr.B.G.Çetiner

Plant LayoutTry to achieve most effective arrangement of physicalfacilities and personnel for making a product.

Fixed-position Layout: Product remains stationary. (for example; shipbuilding or mass construction)

Group Technology: A set of products requiring similar processing equipment is identified, and a small group of the machines needed to make this set of similar products is placed together.

Planning Production Activity

Plant Layout

Assoc.Prof.Dr.B.G.Çetiner

Rec

eivi

ng

Shi

ppin

g

Planning Milling Grinding Drill Inspection Press

1 2 3 4 5

Product A

I II III IV V

Product B

Drill Turning Milling Painting Inspection Press

Planning Production Activity

Plant Layout

Assoc.Prof.Dr.B.G.Çetiner

Rec

eivi

ng

Shi

ppin

g

2

13

4

5I

II

IIIIV

V

Turning PlanningGrinding

MillingDrill

Press

Painting

Inspection

Product BProduct A

Planning Production Activity

Quantitative Tools in Production Planning

Assoc.Prof.Dr.B.G.Çetiner

Economic Order Quantity (EOQ) to Inventory

Break-Even Charts

Learning Curves

Planning Production Activity

Quantitative Tools in Production Planning

Assoc.Prof.Dr.B.G.Çetiner

Inventory

Production

Production Problem

Inventory Level

Planning Production Activity

Quantitative Tools in Production Planning

Assoc.Prof.Dr.B.G.Çetiner

Economic Order Quantity (EOQ) to Inventory

Consider an inventory item for which annual requirement is R units. Storing each unit of the item in inventory will cost I dollars per year.

Each batch involves a setup cost of S dollars.

EOQ=

I

RS2

Planning Production Activity

Quantitative Tools in Production Planning

Assoc.Prof.Dr.B.G.Çetiner

Economic Order Quantity (EOQ) to Inventorya) If it costs $2 per unit to store an item for one year, $40 setup cost every time you produce a lot, and you use 1000 units per year, how many lots of what size should be produced each yearb) What is the answer if setup cost is reduced to $10?

EOQ=I

RS2lots5200/1000200

2

40.1000.2a)

EOQ=I

RS2100

2

10.1000.2b) EOQ is decreased

(more flexible)

Planning Production Activity

Quantitative Tools in Production Planning

Assoc.Prof.Dr.B.G.Çetiner

Economic Order Quantity (EOQ) to Inventory

Cos

t (D

olla

rs)

Order Quantity (Q)

Annual Total Cost

Annual Ordering Cost

Annual Inventory

Holding Cost

)(2 Q

RS

QICT

Q is batch quantity

Planning Production Activity

Quantitative Tools in Production Planning

Assoc.Prof.Dr.B.G.Çetiner

Problem with Economic Order Quantity

Why does the setup cost have to be so high?

It doesn’t need to be. Solution is a) designing dies and tools to switch to new batch b) including simple cards (kanban) in each small lot

Planning Production Activity

Quantitative Tools in Production Planning

Assoc.Prof.Dr.B.G.Çetiner

Break-Even Charts

Break-even analysis divides costs into fixed and variable components to estimate the production levels for profitable operation.

Planning Production ActivityQuantitative Tools in Production Planning

Assoc.Prof.Dr.B.G.Çetiner

Break-Even ChartsA plant may produce and sell U units of product up to a capacity of 2000 units. Fixed costs F1 of $100,000 must be paid in any case. The selling price is assumed a constant S=$250, regardless of volume, so that total revenue R=UxS. The unit variable cost V1 is assumed to be constant $150. Each unit sold makes a contribution C1 of

C1=S-V1=$250-$150=$100

The break-even point BE1 is the production level U where total costs TC equals to total revenue R:

R=UxS=TC1=F1+UxV1 BE1=U= = =1000 unitsF1

S-V1

$100,000

$250-$150

Planning Production ActivityQuantitative Tools in Production Planning

Break-Even Charts

R=UxS=TC1=F1+UxV1 BE1=U= = =1000 unitsF1

S-V1

$100,000

$250-$150

400 800 1200 1600 2000 Units Sold (U)

500

400

300

200

100

BE Point

Tho

usan

ds o

f do

llars

Pro

duct

ion

Cap

acity

Total Revenue

Total Cost

TC1

Loss

Profit

Planning Production ActivityQuantitative Tools in Production Planning

Break-Even Charts (Automation)More efficient production F1=$180,000 and V2=$100 BE2=1200

400 800 1200 1600 2000 Units Sold (U)

500

400

300

200

100

BE Point

Tho

usan

ds o

f do

llars

Pro

duct

ion

Cap

acity

Total Revenue

Total Cost

TC1

Profit

BE After Automation

Planning Production ActivityQuantitative Tools in Production Planning

Break-Even Charts (Automation)

Total Cost in Automation=F2+UxV2=$180,000+2000x100=$380,000Total Cost Before=F1+UxV1=$100,000+2000x150=$400,000

Maximum Profit Before=Total Revenue-Total Cost=$500,000-$400,000

$100,000

Total Revenue=UxS=2000x250=$500,000

Maximum Profit in Automation=Total Revenue-Total Cost =$500,000-$380,000

$120,000

In case of using maximum capacity, it is better to automate in this example

Assoc.Prof.Dr.B.G.Çetiner

Planning Production ActivityQuantitative Tools in Production Planning

Learning Curves

Labo

r ho

urs

per

unit

Y

1000

500

300

1001 10 100 1000

Number of units produced n

With Learning Curve Rate %90If the first unit takes 1000 labor hoursSecond will take 900,Fourth will take 810,Eight will take 729

Assoc.Prof.Dr.B.G.Çetiner