Production Planning & Scheduling in Large Corporations: Dealing with the Complexities of Product Variety and Structure.

Production Planning & Scheduling in Large Corporations:

Dealing with the Complexities of Product Variety and Structure

The Major Sources of Complexity

• A large variety of products:

– Example 1: IBM (desktops, laptops, mainframes, special-purpose computers, etc; furthermore, many models for each of the above categories)

– Example 2: Ford (sedans, SUV’s minivans, trucks, etc; again, many models and variations in each category)

The Major Sources of Complexity(cont.)• Product structure: An assembly of a number of components and

subassemblies– Example:

• (Desktop) Computer– Motherboard

» CPU-card» I/O card

» Modem card» Power supply unit» Ventilator» etc.

– Monitor– Keyboard– Mouse– (other peripherals)

• Some components and subassemblies are produced in-house, and some are procured from outside.

Bill of Materials (BOM)

A typical (logical) Organization of the Production Activity

RawMaterial& Comp.Inventory

FinishedItem

Inventory

S1,2S1,1 S1,n

S2,1 S2,2 S2,m

Assembly Line 1: Product Family 1

Assembly Line 2: Product Family 2

Backend Operations

Dept. 1 Dept. 2 Dept. k

S1,i

S2,i

Dept. j

Dealing with the Problem Complexity through Decomposition

Aggregate Planning

Master Production Scheduling

Materials Requirement Planning

Aggregate UnitDemand

End Item (SKU)Demand

Corporate Strategy

Capacity and Aggregate Production Plans

SKU-level Production Plans

Manufacturingand Procurementlead times

Component Production lots and due dates

Part processplans

(Plan. Hor.: 1 year, Time Unit: 1 month)

(Plan. Hor.: a few months, Time Unit: 1 week)

(Plan. Hor.: a few months, Time Unit: 1 week)

Shop floor-level Production Control(Plan. Hor.: a day or a shift, Time Unit: real-time)

Technology Requirements

• Effective Data Collection and Maintenance/Data Integrity: There is a need for a monitoring tool that will provide a centralized, correct and efficient representation of the system status at any point in time.

– Industry Solution: Manufacturing Execution Systems (MES)

• e.g., SAP, Oracle, PeopleSoft

• Efficient and Coherent Computerized Planning Tools: There is a need for a suite of computationally efficient planning tools that will effectively address the problems arising at the various levels of the decomposition framework, while maintaining plan consistency across the different levels.

– Industry Solution: Product and Supply Chain Planning Software

• e.g., I2 Technologies, BAAN, Manugistics

Aggregate Planning

Product Aggregation Schemes

•Items (or Stock Keeping Units - SKU’s): The final products delivered to the (downstream) customers•Families: Group of items that share a common manufacturing setup cost; i.e., they have similar production requirements.•Types: Groups of families with production quantities that are determined in a single aggregate production plan.

•Aggregate Unit: A fictitious item representing an entire product type.•Aggregate Unit Production Requirements: The amount of (labor) time required for the production of one aggregate unit. This is computed by appropriately averaging the labor time requirements over the entire set of items represented by the aggregate unit.•Aggregate Unit Demand: The cumulative demand for the entire set of items represented by the aggregate unit.

Remark: Being the cumulate of a number of independent demand series, the demand for the aggregate unit is a more robust estimate than its constituent components.

Computing the Aggregate Unit Production Requirements

Washing machineModel Number

Required labor time(hrs)

Item demand as % ofaggregate demand

A5532 4.2 32

K4242 4.9 21

L9898 5.1 17

3800 5.2 14

M2624 5.4 10

M3880 5.8 06

Aggregate unit labor time = (.32)(4.2)+(.21)(4.9)+(.17)(5.1)+(.14)(5.2)+(.10)(5.4)+(.06)(5.8) = 4.856 hrs

Aggregate Planning Problem

Aggregate Planning

AggregateUnit Demand

AggregateUnit Availability(Current InventoryPosition)

Aggregate Production Plan

Required Production Capacity

Aggr. UnitProduction Reqs Corporate Strategy

Aggregate Production Plan:•Aggregate Production levels•Aggregate Inventory levels•Aggregate Backorder levels

Production Capacity Plan:•Workforce level(s)•Overtime level(s)•Subcontracted Quantities

Pure Aggregate Planning Strategies1. Demand Chasing: Vary the Workforce Level

D(t) P(t) = D(t)

W(t)

PC WC HC FC

•D(t): Aggregate demand series•P(t): Aggregate production levels•W(t): Required Workforce levels•Costs Involved:

•PC: Production Costs•fixed (setup, overhead)•variable(materials, consumables, etc.)

•WC: Regular labor costs•HC: Hiring costs: e.g., advertising, interviewing, training•FC: Firing costs: e.g., compensation, social cost

Pure Aggregate Planning Strategies2. Varying Production Capacity with Constant Workforce:

D(t) P(t)

O(t)

PC WC OC UC

U(t)

S(t)

SC

W = ct•S(t): Subcontracted quantities•O(t): Overtime levels•U(t): Undertime levels•Costs involved:

•PC, WC: as before•SC: subcontracting costs: e.g., purchasing, transport, quality, etc.•OC: overtime costs: incremental cost of producing one unit in overtime•(UC: undertime costs: this is hidden in WC)

Pure Aggregate Planning Strategies

3. Accumulating (Seasonal) Inventories:

D(t) P(t)

I(t)

PC WC IC

W(t), O(t), U(t), S(t) = ct

•I(t): Accumulated Inventory levels•Costs involved:

•PC, WC: as before•IC: inventory holding costs: e.g., interest lost, storage space, pilferage, obsolescence, etc.

Pure Aggregate Planning Strategies4. Backlogging:

D(t) P(t)

B(t)

PC WC BC

W(t), O(t), U(t), S(t) = ct

•B(t): Accumulated Backlog levels•Costs involved:

•PC, WC: as before•BC: backlog (handling) costs: e.g., expediting costs, penalties, lost sales (eventually), customer dissatisfaction

Typical Aggregate Planning StrategyA “mixture” of the previously discussed pure options:

D

PC WC HC FC OC UC SC IC BC

PWHFOUSIB

+Additional constraints arising from the company strategy; e.g.,

•maximal allowed subcontracting•maximal allowed workforce variation in two consecutive periods•maximal allowed overtime•safety stocks•etc.

Solution Approaches

• Graphical Approaches: Spreadsheet-based simulation

• Analytical Approaches: Mathematical (mainly linear programming) Programming formulations

Proactive approaches to demand management

• Influencing demand variation so that it aligns to available production capacity:– advertising

– promotional plans

– pricing

(e.g., airline and hotel weekend discounts, telecommunication companies’ weekend rates)

• “Counter-seasonal” product (and service) mixing: Develop a product mix with antithetic (seasonal) trends that level the cumulative required production capacity.– (e.g., lawn mowers and snow blowers)

Modern Trends in Aggregate Planning

• To effectively achieve the competitive advantages and economies of scale required in today’s markets, large corporations must plan and manage their production activity across the entire supply chain.

• This introduces another spatial/geographical dimension to the aggregate/capacity planning problem, and extends the initial cost structure with additional items like transportation and storage/handling costs.

• The problem get especially complicated for companies with multinational operations, since these companies must factor into their planning additional issues like:

– duties and tariffs and quotas

– exchange rates

– local corporate tax rates

– cultural, language and political issues

Master Production Scheduling(MPS)

The (Master) Production Scheduling Problem

MPS

Placed Orders

Forecasted DemandCurrent Inventory Positions

Already Initiated Production

Master ProductionSchedule:When & How Muchto produce for eachproduct

CapacityConsts.

CompanyPolicies

EconomicConsiderations

ProductCharact.

PlanningHorizon

Timeunit

CapacityPlanning

The Driving Logic for the Empirical Approach

Demand Availability:•Initial Inventory Position•Scheduled Receipts

Future inventories

NetRequirements

Lot Sizing

ScheduledReleases

Resource (Fermentor)Occupancy Product i

FeasibilityTesting

Master Production Schedule

ScheduleInfeasibilities

ReviseProd. Reqs

Compute FutureInventory Positions

(Typical) Analytical Approaches to MPS

• Recognizing that switching production from item to item (or family to family) requires long set-up times, during which the effective productivity of the line is equal to zero, these (formal) approaches try to minimize the (long-run) number of set-ups while meeting the production needs, as expressed by the aggregate production plan and the current SKU availability.

• Examples:– Textbook, pg. 145– Elsayed & Boucher, “Analysis and Control of Production

Systems” (2nd ed.), Prentice Hall, 1994, pgs 145-159: “Blocked Maximal Cycle” Heuristic.

Materials Requirements Planning(MRP)

The “MRP Explosion” Calculus

BOM

MRP

MPS

Current Availabilities

PlannedOrder Releases

PriorityPlanning

LeadTimes

Lot SizingPolicies

Bill Of Materials (BOM)A formal/systematic representation of the product structure and the assembly steps required for its synthesis from its components andsubassemblies.

022

115(3)

119(2)

252(4)

291(2)

251(1)

251(1)

100 units

•Subassembly 115: 3x(number of 022) 3x100 300•Subassembly 119: 2x(number of 022) 2x100 200•Component 251: 1x(number of 115) 1x300

1x(number of 119) 1x200 500•Component 252: 4x(number of 115) 4x300 1200•Component 291: 2x(number of 119) 2x200 400

(Production) Lead TimesThe expected time interval between the time that the order fora new production lot is released, and the time that the lot is available(to be used in the fabrication of its parent component). Lead times incorporate:

•set-up times•processing times•transfer time•waiting times

0221 week

115(3)2 weeks

119(2)3 weeks

252(4)2 weeks

291(2)1 week

251(1)1 week

251(1)1 week

“Time-Phased” Product Structure

Time in weeks

022[1]

[2]

[3]

[1]

[2]

[1]

[1]

215(1)

252(4)

291(2)

251(1)

115(3)

119(2)

12345

Example: Time-Phased Production Requirements

PartNo.

Week

1 2 3 4 5 6 7 Lead Time

022

115

119

251

252

291

Ord. Rec.

Ord. Rec.

Ord. Rec.

Ord. Rec.

Ord. Rec.

Ord. Rec.

Ord. Rel.

Ord. Rel.

Ord. Rel.

Ord. Rel.

Ord. Rel.

Ord. Rel.

1 week

2 weeks

3 weeks

1 week

2 weeks

1 week

100

100

300

200

300

200

300200

300200

1200

1200

400

400

Gross RequirementsThe cumulative time-phased demand for a certain part, integrating the part demand generated from the production plans of its parent items, and also, additional external demand, arising, for instance, from the need for spare parts, inter-plant shipments, etc.

A

C(2) D(1)

B

C(1) E(1)

Item APeriod 1 2 3 4 5 6 7 8 9 10 11 12……….Planned Ord. Rel. 30

Item BPeriod 1 2 3 4 5 6 7 8 9 10 11 12…………Planned Ord. Rel. 30 75

Item CPeriod 1 2 3 4 5 6 7 8 9 10 11 12Gross Requirements 12 10 90 75

Service orderInterplant Shipment

Taking into Account the Current Item Availability

Item CPeriod 1 2 3 4 5 6 7 8 9 10 11 12Gross Requirements 12 10 90 75Scheduled Receipts 20Inventory Position: 20 20 40 40 40 40 28 18 18 -72 0 -75 0Net Requirements 72 75Planned Sched. Receipts 72 75Planned Sched. Releases 72 75

Synthesizingitem demand

series

ProjectingInv. Positions

andNet Reqs.

Lot SizingTime-

Phasing

ParentSched. Rel.

Item ExternalDemand

Gross Reqs

ScheduledReceipts

InitialInventory

Safety StockRequirements

NetReqs

Lot SizingPolicy

Planned OrderReceipts

Lead Time

Planned OrderReleases

BOM Levels•Level 0: End Items (SKU’s)•Level 1: Items that constitute components (are children) of level-0 item(s) only•Level 2: Items that are children of level 1, and, potentially, some level 0 items only•Level i: Items that are children of level i-1, and, potentially, some level 0 to i-2 item(s) only

C

B

E F

GE C

F HDD

C GFE

FE

E

A

Level 0: A, B Level 1: D, H Level 2: C, G Level 3: E, F

The “MRP Explosion” Calculus

Level 0

Level 1

Level 2

Level N

InitialInventories

ScheduledReceipts

External Demand

CapacityPlanning

Planned Order ReleasesGross Requirements

Capacity Planning (Example)

Availablelaborhours

Periods1 2 3 4 5 6 7 8

50

100

150

Example: The (complete) MRP Explosion Calculus

(J. Heizer and B. Render “Operations Management”, 6th Ed. Prentice Hall)

Item BOM:

Alpha

C(2)D(2)

B(1) C(1)

E(1)

E(1)

F(1)

F(1)

Item Lead Time Current Inv. Pos.Alpha 1 10

B 2 20C 3 0D 1 100E 1 10F 1 50

Gross Reqs for AlphaPeriod 6 7 8 9 10 11 12 13Gross Reqs. 50 50 100

Item Levels:

Level 0: Alpha Level 1: B Level 2: C, D Level 3: E, F