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Production Planning Activities
Capacity Planning1. Facility Size2. Equipment Procurement
Aggregate Planning
1. Facility Utilization2. Personnel needs3. Subcontracting
Master Production Scheduling
1. MRP2. Disaggregation of master plan
Short-term Scheduling1. Work center loading2. Job sequencing
Long-term(years)
Intermediate-term(6 to 18 months)
Short-term(weeks)
Very Short-term(hours days)
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Master Production Scheduling
Production Planning and Control Systems
Aggregate Planning
Long-Range Capacity Planning EntireProduct Line
Product
FamilySpecific
Product ModelLabor, Materials,
Machines
Production Planning: Units ofMeasurement
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Aggregate Planning Strategies PureStrategies
Capacity Options --change capacity: changing inventory levels
varying work force size by hiring or layoffs varying production capacity through overtime or
idle time
subcontracting
using part-time workers Demand Options --change demand:
Influencing demand
backordering during high demand periods
counterseasonal product mixing
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Why Aggregate Planning Is
Necessary Fully load facilities and minimize
overloading and underloading
Make sure enough capacity available tosatisfy expected demand
Plan for the orderly and systematic change
of production capacity to meet the peaksand valleys of expected customer demand
Get the most output for the amount of
resources available
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InputsA forecast of aggregate demand covering
the selected planning horizon (6-18 months)
The alternative means available to adjustshort- to medium-term capacity, to whatextent 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
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OutputsA production plan: aggregate decisions
for each period in the planning horizon
about workforce level
inventory level
production rate
Projected costs if the production planwas implemented
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Aggregate Planning Example
Keepdry, a small manufacturing company (200 employees),produces umbrellas. The company, founded in 1991 produces the
following three product lines: 1) the Executive Line, 2) the Durable
Line and 3) the Compact line shown in the following figure.
ExecutiveLine DurableLine
Compact
Line
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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 andcontrols that monitors levels of inventory anddetermines what levels should be maintained,when stock should be replenished, and howlarge orders should be
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Types of Inventories Raw Materials
Works-in-Process
Finished Goods
Distribution Inventory
Supplies: Maintenance, Repair and Operating (MRO)
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Managing Facilitating Goods
Factory Wholesaler Distributor Retailer Customer
Replenishment
order
Replenishment
order
Replenishment
order
Customer
order
Production
Delay
Wholesaler
Inventory
Shipping
Delay
Shipping
Delay
Distributor
InventoryRetailer
Inventory
Item Withdrawn
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Inventory Positions in the
Supply Chain
Raw
MaterialsWorks
in
Process
Finished
Goods
Finished
Goods
in Field
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Understocking (too few) results in missed deliveries, lostsales, dissatisfied customers, and production bottlenecks(idle workers or machines).
Resulting underage cost.
Overstocking (too many) ties up funds that might bemore productive elsewhere.
Resulting overage cost.
Goal: matching supply with demand!
Inadequate control of inventories can result
in both under- and overstocking of items.
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Reasons for Inventories Improve customer service
Economies of purchasing
Economies of production
Transportation savings
Hedge against future
Unplanned shocks (labor strikes, naturaldisasters, surges in demand, etc.)
To maintain independence of supply chain
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Reasons Against Inventory Non-value added costs
Opportunity cost
Complacency
Inventory deteriorates, becomesobsolete, lost, stolen, etc.
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Inventory Related CostsProcurement Costs:
Order processing Shipping Handling
Carrying (Holding) Costs Capital (opportunity) costs Inventory risk costs Space costs Inventory service costs
Out-of-Stock Costs Lost sales cost Back-order cost
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Independent and DepenedentDemand
Independent demand items arefinished 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 producea finished product.
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Objectives of InventoryControl
1) Maximize the level of customerservice by avoiding understocking.
2) Promote efficiency in production andpurchasing by minimizing the cost ofproviding an adequate level of customer
service.
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Balance in Inventory Levels
When should the company replenish itsinventory, or when should the company
place an order or manufacture a newlot?
How much should the company order or
produce? Next: Economic Order Quantity (EOQ)
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Balancing Carrying againstOrdering Costs
AnnualCost ($)
Order Quantity
Minimum
Total Annual
Stocking Costs
AnnualCarrying Costs
AnnualOrdering Costs
Total AnnualStocking Costs
Smaller Larger
Lower
H
igher
EOQ
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Classifying Inventory Items
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, minimalrecords, large inventories, periodic reviewand reorder
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ABC Classification System
Classifying inventory according tosome measure of importance and
allocating control efforts accordingly.
A -very important
B- mod. importantC- least important
Annual
$ valueof items
A
B
C
High
Low
Low High
Percentage of Items
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