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Lecture 3 - Production Planning System. Manufacturing is complex. Some firms make a few different products, whereas others make many products. However, each uses a variety of processes, machinery, equipment, labor skills, and material. To be profitable, a firm must organize all these factors to make the right goods at the right time at top quality and do so as economically as possible. It is a complex problem, and it is essential to have a good planning and control system.
Lecture 3 Production Planning System Books • Introduction to Materials Management, Sixth Edition, J. R. Tony Arnold, P.E., CFPIM, CIRM, Fleming College, Emeritus, Stephen N. Chapman, Ph.D., CFPIM, North Carolina State University, Lloyd M. Clive, P.E., CFPIM, Fleming College • Operations Management for Competitive Advantage, 11th Edition, by Chase, Jacobs, and Aquilano, 2005, N.Y.: McGrawHill/Irwin Manufacturing’s Objectives • The goal of manufacturing is to produce – The right goods – Of the right quality – In the right quantities – At the right time – At minimum cost Objectives • • • • • • Manufacturing Planning and Control System Sales and operations planning (SOP) Making production plan Developing production plan Market to stock production plan Market to order production plan Four Basic Questions What are we going to make? What does it take to make it? What we already have? What must we get? Priority The APICS Dictionary defines priority as “the relative importance of jobs, i.e., the sequence in which jobs should be worked on.” Priority refers to what is needed, how much is needed, and when it is needed Capacity The APICS Dictionary defines capacity as “the capability of a worker, machine, work center, plant or organization to produce output per time period.” Priority Management Techniques Production Plan Resource Requirements Plan (RRP) Master Production Schedule (MPS) Rough-Cut Capacity Plan (RCCP) Material Requirements Plan (MRP) Capacity Requirements Plan (CRP) Production Activity Control (PAC) Input/Output Control Operation Sequencing Capacity Management Techniques Strategic Business Plan Manufacturing Planning and Control System • Strategic Business Plan A statement of the major goals and objectives the company expects to achieve over the next 210 years or more – – – – – – broad/general direction low level of detail longrange forecasts responsibility of senior management includes participation from Marketing, Finance, and Production usually reviewed every six months to a year Manufacturing Planning and Control System • Production Plan Concerns – – – – Quantities of each product group required to be produced The desired inventory levels The resources of equipment, labor, and material needed in each period The availability of resources needed Manufacturing Planning and Control System • Production Plan must – – – – – – Satisfy market demand within resources available Assist the implementation of the strategic business plan Be based upon families of products Be fairly low level of detail Address a planning horizon of six to 18 months Be reviewed each month or quarter Developing a MaketoStock Production Plan • Under a maketostock production plan, goods are put into inventory and sold from inventory. It is used when – – – – Demand is fairly constant and predictable Only a few product options exists Required delivery times are shorter than the time needed to make the product Product has a long shelf life Developing a MaketoStock Production Plan • Information needed for a maketostock production plan includes – – – • A forecast by time period for the planning horizon Opening inventory Desired ending inventory The objective in developing a production plan is to minimize the costs of carrying inventory, changing production levels, and stocking out (not supplying the customer what is wanted when it is wanted) Making a Level Production Plan • Procedure for Level Production – – – – – Total the forecast demand for the planning horizon Determine the opening inventory and the desired ending inventory Calculate the total production Calculate the production required each period by dividing the total production by the number of periods Calculate the ending inventory for each period Making a Level Production Plan Example Problem: (Pg 29/33) Period Forecast Demand Production Ending Inventory Total 110 120 130 120 120 Opening inventory (OI) = 100 units Desired ending inventory (EI) = 80 units Total production needed = total forecast demand + EI - OI = _ + _ - _ = _ units Production each period = units Making a Level Production Plan Ending Inventory for Period = OI + production - forecast demand = + - = units Making a Level Production Plan • How much should be produced each period? What is the ending inventory for each period? If the cost of carrying inventory is $5 per case per period based on ending inventory, what is the total cost of carrying inventory? • What will be the total cost of the plan? • • Making a Level Production Plan Answer: a. Total production required = 600 + 80 100 = 580 cases 580 Production each period = = 116 cases b. Ending inventory = OI + production demand Ending inventory after the first period = 100 + 116 110 = 106 cases Ending inv. for period 1 becomes the opening inv. for period 2 Ending inventory (period 2) = 106 + 116 120 = 102 cases Making a Level Production Plan Answer: (continued) c. The total cost of carrying inventory would be: (106 + 102 + 88 + 84 + 80)($5) = $2300 d. There were no stockouts and no changes in the level of production, $2300 is the total cost of the plan: Period Forecast (cases) Production Ending Inventory / 100 Total 110 120 130 120 120 600 116 116 116 116 116 580 106 102 88 84 80 Developing a MaketoOrder (Chase Strategy) Production Plan Using preceding example, suppose that changing the production level by one case costs $20 A change from 50 to 60 would cost (60 50)($20) = $200 Opening inventory is 100 cases, and the company wishes to bring this down to 80 cases in the first period 110 (100 80) = 90 cases Developing a MaketoOrder (Chase Strategy) Production Plan Period Demand (cases) Production Change in Production Ending Inventory Total 110 120 130 120 120 600 100 90 120 130 120 120 580 10 30 10 10 60 100 80 80 80 80 80 Cost of changing production level = (60)($20) = $1200 Cost of carrying inventory = (80 cases)(5 periods)($5) = $2000 Total cost of the plan = $1200 + $2000 = $3200 Assemble to Order • Assembletoorder is a subset of maketoorder – – – – several product options exists customer is not willing to wait until the product is made manufacturers assemble the component parts from inventory according to the order Examples: automobiles and computers Developing a MaketoOrder Production Plan • Information needed for maketoorder products – – – • Forecast by period for the planning horizon Opening backlog of customer orders Desired ending backlog Backlog Unfilled customer orders that will be delivered in the future. Resource Requirements Planning • The preliminary production plan must be compared with the existing resources of the company. Two questions must be answered: – – • Are the required resources available? If not, how will the differences be reconciled? Helpful tool is the resource bill or bill of resources Resource Requirements Planning • Resource bill or Bill of Resources – shows the quantity of critical resources (materials, labor, and “bottleneck” operations) needed to make one average unit of the product group Product Tables Chairs Stools Bill of Resources Wood Labor (board feet) (standard hours) 20 1.31 10 0.85 0.55 End of Lecture 3 ... Manufacturing Planning? ?and? ?Control System • Production Plan Concerns – – – – Quantities? ?of? ?each product group required to be produced The desired? ?inventory? ?levels The resources? ?of? ?equipment, labor,? ?and? ?material? ?needed ... Represents the implementation? ?and? ?control phase? ?of? ?the production planning? ?and? ?control system – Purchasing is responsible for establishing? ?and? ? controlling the flow? ?of? ?raw materials into the factory... Provides a means? ?of? ?managing change Permits better? ?management? ?of? ?production,? ?inventory? ? and? ?backlog Making the Production Plan • Purpose Production planning is . . setting the overall level? ?of? ?manufacturing output . . .