Session 4

Lesson 4Lesson 4Lesson 4Lesson 4

Production-Planning Systems:Production-Planning Systems:

Aggregate Planning and Aggregate Planning and

Master Production SchedulingMaster Production Scheduling

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Production and Operations Management - 4.2

OverviewOverviewOverviewOverview

Production-Planning HierarchyProduction-Planning Hierarchy Aggregate PlanningAggregate Planning Master Production SchedulingMaster Production Scheduling Types of Production-Planning and Control Types of Production-Planning and Control

SystemsSystems

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Lesson 4Lesson 4Lesson 4Lesson 4

Readings: Readings:

Textbook: chapter 9Textbook: chapter 9 HomeworkHomework: :

Review and discussion questions:Review and discussion questions:

4, 5, 7, 8, 9, 15, 18, 194, 5, 7, 8, 9, 15, 18, 19

Problems:Problems:

1, 3, 4, 8, 9, 10, 14, 151, 3, 4, 8, 9, 10, 14, 15

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Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives

After completing this lesson you should be able toAfter completing this lesson you should be able to explain what aggregate planning is and how it is usefulexplain what aggregate planning is and how it is useful identify the variables decision makers have to work with identify the variables decision makers have to work with

in aggregate planning and some of the possible in aggregate planning and some of the possible strategies they can usestrategies they can use

prepare aggregate plans and compute their costs prepare aggregate plans and compute their costs describe the basic concepts of master production describe the basic concepts of master production

scheduling scheduling prepare an MPS prepare an MPS explain the differences between the Push and Pull explain the differences between the Push and Pull

systems in Production Planning and Control systems in Production Planning and Control

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Production Planning HierarchyProduction Planning HierarchyProduction Planning HierarchyProduction Planning Hierarchy

Master Production SchedulingMaster Production Scheduling

Production Planning and Control SystemsProduction Planning and Control Systems

Pond DrainingPond DrainingSystemsSystems

Aggregate PlanningAggregate Planning

PushPushSystemsSystems

PullPullSystemsSystems

Focusing onFocusing onBottlenecksBottlenecks

Long-Range Capacity PlanningLong-Range Capacity Planning

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Production Planning HorizonsProduction Planning Horizons

Master Production Scheduling Master Production Scheduling

Production Planning and Control SystemsProduction Planning and Control Systems

Pond DrainingPond DrainingSystemsSystems


PushPushSystems Systems

PullPullSystemsSystems

Focusing onFocusing onBottlenecksBottlenecks

Long-Range Capacity PlanningLong-Range Capacity PlanningLong-RangeLong-Range

(years)(years)

Medium-RangeMedium-Range(6-18 months)(6-18 months)

Short-RangeShort-Range(weeks)(weeks)

Very-Short-RangeVery-Short-Range(hours - days)(hours - days)

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Long-range Capacity PlanningLong-range Capacity PlanningLong-range Capacity PlanningLong-range Capacity Planning

Long-range capacity planning is necessary to Long-range capacity planning is necessary to develop facilities & equipment, major suppliers, develop facilities & equipment, major suppliers, and production processes and become and production processes and become constraints on the medium- and short-range constraints on the medium- and short-range planningplanning

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Forecasting long-range Capacity Demand Forecasting long-range Capacity Demand Forecasting long-range Capacity Demand Forecasting long-range Capacity Demand

Consider the life of the input (e.g. facility is 10-30 Consider the life of the input (e.g. facility is 10-30 yr)yr)

Understand product life cycle as it impacts Understand product life cycle as it impacts capacitycapacity

Anticipate technological developmentsAnticipate technological developments Anticipate competitors’ actionsAnticipate competitors’ actions Forecast the firm’s demandForecast the firm’s demand

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Why Aggregate Planning Is NecessaryWhy Aggregate Planning Is NecessaryWhy Aggregate Planning Is NecessaryWhy Aggregate Planning Is Necessary

Fully load facilities and minimize overloading Fully load facilities and minimize overloading and underloadingand underloading

Make sure enough capacity available to satisfy Make sure enough capacity available to satisfy expected demandexpected demand

Plan for the orderly and systematic change of Plan for the orderly and systematic change of production capacity to meet the peaks and production capacity to meet the peaks and valleys of expected customer demandvalleys of expected customer demand

Get the most output for the amount of resources Get the most output for the amount of resources availableavailable

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Aggregate DemandAggregate DemandAggregate DemandAggregate Demand

Total demand for all products. Must use the same Total demand for all products. Must use the same unit of measure to facilitate planning at the highest unit of measure to facilitate planning at the highest level of a firmlevel of a firm

When the types of items produced are similar, an When the types of items produced are similar, an aggregate production unit can correspond to an aggregate production unit can correspond to an “average” item“average” item

When many different types of items are produced it When many different types of items are produced it would be more appropriate to consider aggregate would be more appropriate to consider aggregate units in terms of: weight (tons of steel), volume units in terms of: weight (tons of steel), volume (gallons of gasoline), amount of work required (gallons of gasoline), amount of work required (labor-hours, machine-hours), or dollar value (labor-hours, machine-hours), or dollar value

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Inputs to Aggregate PlanningInputs to Aggregate PlanningInputs to Aggregate PlanningInputs to Aggregate Planning

A forecast of aggregate demand covering the A forecast of aggregate demand covering the selected planning horizon (3-18 months)selected planning horizon (3-18 months)

The alternative means available to adjust short- The alternative means available to adjust short- to medium-term capacity, to what extent each to medium-term capacity, to what extent each alternative could impact capacity and the related alternative could impact capacity and the related costscosts Examples: cost of inventory, back orders, Examples: cost of inventory, back orders,

Hiring / firing, Overtime, Subcontracting Hiring / firing, Overtime, Subcontracting

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Inputs to Aggregate PlanningInputs to Aggregate PlanningInputs to Aggregate PlanningInputs to Aggregate Planning

The current status of the system in terms of The current status of the system in terms of workforce level, inventory level and production workforce level, inventory level and production raterate

Company policy regardingCompany policy regarding workforce changes (layoffs, overtime)workforce changes (layoffs, overtime) subcontractingsubcontracting inventory levelsinventory levels back ordersback orders

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OutputsOutputsOutputsOutputs

A production plan: aggregate decisions for each A production plan: aggregate decisions for each period in the planning horizon aboutperiod in the planning horizon about workforce levelworkforce level inventory levelinventory level production rateproduction rate

Projected costs if the production plan was Projected costs if the production plan was implementedimplemented

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Medium-Term Capacity Adjustment OptionsMedium-Term Capacity Adjustment OptionsMedium-Term Capacity Adjustment OptionsMedium-Term Capacity Adjustment Options

SubcontractSubcontract

Workforce level

Utilization of the work force

Inventory

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Workforce levelWorkforce level Hire or layoff full-time workersHire or layoff full-time workers Hire or layoff part-time workersHire or layoff part-time workers Hire or layoff contract workers Hire or layoff contract workers

Utilization of the work forceUtilization of the work force OvertimeOvertime Idle time (undertime) Idle time (undertime) Reduce hours workedReduce hours worked

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Inventory levelInventory level Finished goods inventoryFinished goods inventory Backorders/lost salesBackorders/lost sales

SubcontractSubcontract

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Aggregate Planning ApproachesAggregate Planning ApproachesAggregate Planning ApproachesAggregate Planning Approaches

Informal or Trial-and-Error ApproachInformal or Trial-and-Error Approach Mathematically Optimal ApproachesMathematically Optimal Approaches

Linear ProgrammingLinear Programming Linear Decision RulesLinear Decision Rules

Computer SearchComputer Search HeuristicsHeuristics

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Strategies for the Informal ApproachStrategies for the Informal ApproachStrategies for the Informal ApproachStrategies for the Informal Approach

Matching DemandMatching Demand Level CapacityLevel Capacity

Buffering with inventoryBuffering with inventory Buffering with backlogBuffering with backlog Buffering with overtime or subcontractingBuffering with overtime or subcontracting

Mixed strategies: Combing elements from the Mixed strategies: Combing elements from the above pure strategiesabove pure strategies

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Matching Demand StrategyMatching Demand StrategyMatching Demand StrategyMatching Demand Strategy

Capacity (Production) in each time period is Capacity (Production) in each time period is varied to exactly match the forecasted aggregate varied to exactly match the forecasted aggregate demand in that time perioddemand in that time period

Capacity is varied by changing the workforce Capacity is varied by changing the workforce levellevel

Finished-goods inventories are minimalFinished-goods inventories are minimal Labor and materials costs tend to be high due to Labor and materials costs tend to be high due to

the frequent changesthe frequent changes Employee moral can sufferEmployee moral can suffer

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Developing and EvaluatingDeveloping and Evaluatingthe Matching Production Planthe Matching Production PlanDeveloping and EvaluatingDeveloping and Evaluating

the Matching Production Planthe Matching Production Plan

Production rate is dictated by the forecasted Production rate is dictated by the forecasted aggregate demandaggregate demand

Convert the forecasted aggregate demand into Convert the forecasted aggregate demand into the required workforce level using production the required workforce level using production time informationtime information

The primary costs of this strategy are the costs The primary costs of this strategy are the costs of changing workforce levels from period to of changing workforce levels from period to period, i.e., hirings and layoffsperiod, i.e., hirings and layoffs

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Level Capacity StrategyLevel Capacity StrategyLevel Capacity StrategyLevel Capacity Strategy

Capacity (production rate) is held level Capacity (production rate) is held level (constant) over the planning horizon(constant) over the planning horizon

The difference between the constant production The difference between the constant production rate and the demand rate is made up (buffered) rate and the demand rate is made up (buffered) by inventory, backlog, overtime, part-time labor by inventory, backlog, overtime, part-time labor and/or subcontractingand/or subcontracting

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Pure StrategiesPure StrategiesPure StrategiesPure Strategies

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Choosing a StrategyChoosing a StrategyChoosing a StrategyChoosing a Strategy

Two important factors to be considered when Two important factors to be considered when selecting an aggregate planselecting an aggregate plan

CostCost

Company policyCompany policy Aggregate planners seek to match supply and Aggregate planners seek to match supply and

demand within constraints imposed by policies demand within constraints imposed by policies and at minimum cost.and at minimum cost.

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Aggregate planning process Aggregate planning process Aggregate planning process Aggregate planning process

1.1. Sales forecast for each product: the quantities to Sales forecast for each product: the quantities to be sold in each time period (weeks, months, or be sold in each time period (weeks, months, or quarters) over the planning horizon (6 -18 quarters) over the planning horizon (6 -18 months)months)

2.2. Total all the individual product or service Total all the individual product or service forecasts into one aggregate demandforecasts into one aggregate demand

3.3. Transform the aggregate demand for each time Transform the aggregate demand for each time period into production resource requirements period into production resource requirements (workers, materials, machines, etc.)(workers, materials, machines, etc.)

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Aggregate planning process Aggregate planning process Aggregate planning process Aggregate planning process

4.4. Develop alternative resource plans to support Develop alternative resource plans to support the cumulative aggregate demand and compute the cumulative aggregate demand and compute the cost for each.the cost for each.

5.5. Select the best alternative which satisfies Select the best alternative which satisfies aggregate demand and best meets the aggregate demand and best meets the organization’s objectives.organization’s objectives.

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Example Example Example Example

Aggregate DemandAggregate Demand

J F M A MJ F M A M J J

200 200 300200 200 300 400 400 500 500 200 200 Capacity: Regular work-force can meet the average Capacity: Regular work-force can meet the average

demand (1800 / 6 = 300 units / month)demand (1800 / 6 = 300 units / month) Initial Inventory = 0 = Ending inventoryInitial Inventory = 0 = Ending inventory Costs:Costs: Regular time: Regular time: $ 2 / unit$ 2 / unit

OvertimeOvertime $ 3 / unit$ 3 / unit

SubcontractingSubcontracting $ 6 / unit$ 6 / unit

Inventory (average)$1 / unit / month Inventory (average)$1 / unit / month BackorderBackorder $ 5/ unit / month$ 5/ unit / month

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Policy: Steady rate of regular time-outputPolicy: Steady rate of regular time-output

Use inventory, backordering, or subcontracting Use inventory, backordering, or subcontracting to meet uneven demandto meet uneven demand Plan 1Plan 1

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Example: plan 1 Example: plan 1 Example: plan 1 Example: plan 1

J F M A M J TotalDemandForecast

200 200 300 400 500 200 1800

Output 300 300 300 300 300 300 1800Inventory Beginning 0 100 200 200 100 0

End 100 200 200 100 0 0Average 50 150 200 150 50 0

Backorder 0 0 0 0 100 0

CostProduction 600 600 600 600 600 600 3600Inventory 50 150 200 150 50 0 600Backorder 500 500Total cost 4700

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Policy: Chasing demand Policy: Chasing demand Use inventory, backordering, overtime, or Use inventory, backordering, overtime, or

subcontracting to meet uneven demand subcontracting to meet uneven demand Maximum over time = 50 units / monthMaximum over time = 50 units / month

plan 2plan 2

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Example: plan 2 Example: plan 2 Example: plan 2 Example: plan 2

J F M A M J Total

DemandForecast

200 200 300 400 500 200 1800

Output 300 300 300 350 350 200 1800Inventory Beginning 0 100 200 200 150 0

End 100 200 200 150 0 0Average 50 150 200 175 75 0

Backorder 0 0 0 0 0 0

CostProduction 600 600 600 750 750 400 3700Inventory 50 150 200 175 75 0 650BackorderTotal cost 4350

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Master Production Scheduling (MPS)

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IntroductionIntroductionIntroductionIntroduction

The MPS is the plan that states what is to be The MPS is the plan that states what is to be produced, how many are to be completed and produced, how many are to be completed and when they are to be completed. when they are to be completed.

As contrasted with aggregate plans, MPS is As contrasted with aggregate plans, MPS is more detailed: it deals with individual products more detailed: it deals with individual products and when they will be produced usually week by and when they will be produced usually week by weekweek

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Objectives of MPSObjectives of MPSObjectives of MPSObjectives of MPS

Determine the quantity and timing of completion Determine the quantity and timing of completion of end items over a short-range planning of end items over a short-range planning horizon.horizon.

Schedule end items (finished goods and parts Schedule end items (finished goods and parts shipped as end items) to be completed promptly shipped as end items) to be completed promptly and when promised to the customer.and when promised to the customer.

Avoid overloading or underloading the Avoid overloading or underloading the production facility so that production capacity is production facility so that production capacity is efficiently utilized and low production costs efficiently utilized and low production costs result. result.

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The rules for schedulingThe rules for scheduling

No ChangeNo Change+/- 5%+/- 5%

ChangeChange

+/- 10%+/- 10%

ChangeChange

+/- 20%+/- 20%

ChangeChange

+/- 20%+/- 20%

ChangeChangeFrozenFrozen

FirmFirm

FullFullOpenOpen

1-21-2 weeksweeks

2-42-4weeksweeks

4-64-6weeksweeks

6+ 6+ weeksweeks

Time FencesTime FencesTime FencesTime Fences

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Time FencesTime FencesTime FencesTime Fences

The rules for scheduling:The rules for scheduling: Do not change orders in the frozen zoneDo not change orders in the frozen zone Do not exceed the agreed upon percentage Do not exceed the agreed upon percentage

changes when modifying orders in the other changes when modifying orders in the other zoneszones

Try to level load as much as possibleTry to level load as much as possible Do not exceed the capacity of the system Do not exceed the capacity of the system

when promising orders.when promising orders.

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Developing an MPSDeveloping an MPSDeveloping an MPSDeveloping an MPS

Using input informationUsing input information Customer orders (end items quantity, due Customer orders (end items quantity, due

dates)dates) Forecasts (end items quantity, due dates)Forecasts (end items quantity, due dates) Inventory status (balances, planned receipts)Inventory status (balances, planned receipts) Production capacity (output rates, planned Production capacity (output rates, planned

downtime)downtime) Schedulers place orders in the earliest available Schedulers place orders in the earliest available

open slot of the MPSopen slot of the MPS

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Developing an MPSDeveloping an MPSDeveloping an MPSDeveloping an MPS

Schedulers must:Schedulers must: estimate the total demand for products from estimate the total demand for products from

all sourcesall sources assign orders to production slotsassign orders to production slots make delivery promises to customers, andmake delivery promises to customers, and make the detailed calculations for the MPSmake the detailed calculations for the MPS

As orders are slotted in the MPS, the effects on As orders are slotted in the MPS, the effects on the production work centers are checkedthe production work centers are checked Rough cut planning - identify underloading or Rough cut planning - identify underloading or

overloading of capacityoverloading of capacity

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ExampleExampleExampleExample

A company produces three different products on a A company produces three different products on a produce-to-stock basis. The demands for these produce-to-stock basis. The demands for these products over the 8-week planning horizon are:products over the 8-week planning horizon are:

ProductDemand (unit)

Week

1 2 3 4 5 6 7 8Customers (forecast and Orders)A 1000 2000 2000 500 1000 2000 1500 500B 3000 2000 2000 5000 7000 6000 4000 4000C 1500 500 500 1500 1000 500 500 500Branch WarehousesA 1500 1500 2000B 1500 2000 3000C 1000 500Market ResearchA 50 50 50B 50 50 50C 50 50

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ExampleExampleExampleExample

The safety stock levels, minimum lot size, and The safety stock levels, minimum lot size, and beginning inventory levels for the products are:beginning inventory levels for the products are:

Prepare the next 8-week MPS. Assume ample Prepare the next 8-week MPS. Assume ample production capacity existsproduction capacity exists

Minimum lot size Safety Stock Beginning InventoryProduct (units) (units) (units)

A 5000 3000 4000B 8000 5000 4000C 2000 1000 2000

Week1 2 3 4 5 6 7 8

ATotalDemand

2550 2000 3500 550 1000 4000 1550 500

BeginningInventory

4000 6450 4450 5950 5400 4400 5400 3850

Production 5000 5000 5000EndInventory

6450 4450 5950 5400 4400 5400 3850 3350

BTotalDemand

4500 2050 4000 5000 7050 9000 4000 4050

BeginningInventory

4000 7500 5450 9450 12450 5400 5000 9000

Production 8000 8000 8000 8600 8000 8000EndInventory 7500 5450 9450 12450 5400 5000 9000 12950CTotalDemand

1500 1500 550 1500 1000 550 1000 500

BeginningInventory

2000 2500 1000 2450 2950 1950 1400 2400

Production 2000 2000 2000 2000EndInventory 2500 1000 2450 2950 1950 1400 2400 1900

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Example (continued)Example (continued)Example (continued)Example (continued)

Assume that the final assembly line has a Assume that the final assembly line has a weekly capacity of 12000 hours available. Each weekly capacity of 12000 hours available. Each product A requires 0.88 hours of final assembly product A requires 0.88 hours of final assembly capacity, and each product B and C require 0.66 capacity, and each product B and C require 0.66 and 1.08 hours respectively. and 1.08 hours respectively. Compute the actual final assembly hours Compute the actual final assembly hours

required to produce the MPS for three required to produce the MPS for three products ( referred to as the load) . products ( referred to as the load) .

Compare the load to the final assembly Compare the load to the final assembly capacity available in each week.capacity available in each week.

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Example (continued)Example (continued)Example (continued)Example (continued)

Sufficient final assembly capacity exists to Sufficient final assembly capacity exists to produce the MPSproduce the MPS

However, the MPS underloads final assembly in However, the MPS underloads final assembly in weeks 4, 6, 7 and 8weeks 4, 6, 7 and 8

What changes to the MPS would you recommend?What changes to the MPS would you recommend?

Assem.Hours

1 2 3 4 5 6 7 8

A 4400 4400 4400B 5280 5280 5280 5280 5280 5280C 2160 2160 2160 2160

Total(hours)

11840 11840 7440 9680 7440 5280

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Demand ManagementDemand ManagementDemand ManagementDemand Management

Review customer orders and promise shipment Review customer orders and promise shipment of orders as close to request date as possibleof orders as close to request date as possible

Update MPS at least weekly.... work with Update MPS at least weekly.... work with Marketing to understand shifts in demand Marketing to understand shifts in demand patternspatterns

Produce to order..... focus on incoming customer Produce to order..... focus on incoming customer ordersorders

Produce to stock ..... focus on maintaining Produce to stock ..... focus on maintaining finished goods levelsfinished goods levels

Planning horizon must be as long as the longest Planning horizon must be as long as the longest lead time itemlead time item

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Types ofTypes ofProduction-PlanningProduction-Planningand Control Systemsand Control Systems

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Types of Production-PlanningTypes of Production-Planningand Control Systemsand Control Systems

Types of Production-PlanningTypes of Production-Planningand Control Systemsand Control Systems

Pond-Draining SystemsPond-Draining Systems Push SystemsPush Systems Pull SystemsPull Systems Focusing on BottlenecksFocusing on Bottlenecks

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Pond-Draining SystemsPond-Draining SystemsPond-Draining SystemsPond-Draining Systems

Emphasis on holding inventories (reservoirs) of Emphasis on holding inventories (reservoirs) of materials to support productionmaterials to support production

Little information passes through the systemLittle information passes through the system As the level of inventory is drawn down, orders As the level of inventory is drawn down, orders

are placed with the supplying operation to are placed with the supplying operation to replenish inventoryreplenish inventory

May lead to excessive inventories and is rather May lead to excessive inventories and is rather inflexible in its ability to respond to customer inflexible in its ability to respond to customer needsneeds

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Push SystemsPush SystemsPush SystemsPush Systems

Use information about customers, suppliers, and Use information about customers, suppliers, and production to manage material flowsproduction to manage material flows

Flows of materials are planned and controlled by Flows of materials are planned and controlled by a series of production schedules that state when a series of production schedules that state when batches of each particular item should come out batches of each particular item should come out of each stage of productionof each stage of production

Can result in great reductions of raw-materials Can result in great reductions of raw-materials inventories and in greater worker and process inventories and in greater worker and process utilization than pond-draining systemsutilization than pond-draining systems

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Pull SystemsPull SystemsPull SystemsPull Systems

Look only at the next stage of production and Look only at the next stage of production and determine what is needed there, and produce determine what is needed there, and produce only thatonly that

Raw materials and parts are pulled from the Raw materials and parts are pulled from the back of the system toward the front where they back of the system toward the front where they become finished goodsbecome finished goods

Raw-material and in-process inventories Raw-material and in-process inventories approach zeroapproach zero

Successful implementation requires much Successful implementation requires much preparationpreparation

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Focusing on BottlenecksFocusing on BottlenecksFocusing on BottlenecksFocusing on Bottlenecks

Bottleneck OperationsBottleneck Operations Impede production because they have less Impede production because they have less

capacity than upstream or downstream stagescapacity than upstream or downstream stages Work arrives faster than it can be completedWork arrives faster than it can be completed Binding capacity constraints that control the Binding capacity constraints that control the

capacity of the systemcapacity of the system Optimized Production Technology (OPT)Optimized Production Technology (OPT)

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Wrap-UpWrap-UpWrap-UpWrap-Up

Push systems dominate and can be applied to Push systems dominate and can be applied to almost any type of productionalmost any type of production

Pull systems are growing in use. Most often Pull systems are growing in use. Most often applied in repetitive manufacturingapplied in repetitive manufacturing

Few companies focusing on bottlenecks to plan Few companies focusing on bottlenecks to plan and control production. and control production.

Date post:	20-Jan-2015
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Session 4

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