Materials Management Systems

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Materials Management Systems

• Chapter 2 Production Planning System

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Ch. 2 Production Planning SystemManufacturings
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

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Ch. 2 Production Planning SystemFour Basic
Questions
What do we already have?
What are we going to make?
What does it take to make it?
What must we get?
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Ch. 2 Production Planning SystemPriority

• 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.

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Ch. 2 Production Planning SystemCapacity

• The APICS Dictionary defines capacity as the
  capability of a worker, machine, work center,
  plant or organization to produce output per time
  period.

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Priority Management Techniques
Capacity Management Techniques
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Ch. 2 Production Planning SystemManufacturing
Planning and Control System

• Strategic Business Plan
• A statement of the major goals and objectives the
  company expects to achieve over the next 2-10
  years or more.
• broad/general direction
• low level of detail
• long-range forecasts
• responsibility of senior management
• includes participation from Marketing, Finance,
  and Production
• usually reviewed every six months to a year

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Ch. 2 Production Planning SystemManufacturing
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

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Ch. 2 Production Planning SystemManufacturing
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

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Ch. 2 Production Planning SystemManufacturing
Planning and Control System

• Master Production Schedule
• A plan for the production of individual end items
  (finished goods).
• breaks down production plan
• list the quantity of each end item to be made
• level of detail is higher than the production
  plan - developed for individual end items
• planning horizon extends three to 18 months
• reviewed and changed weekly or monthly

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Ch. 2 Production Planning SystemManufacturing
Planning and Control System

• Material Requirements Plan
• A plan for the production and purchase of the
  components used in making the items in the MPS
• Production control and purchasing use MRP to
  decide the purchase or manufacture of specific
  items
• Level of detail is high
• Determines when the components and parts are
  needed
• Planning horizon is at least as long as the
  combined purchase and manufacture lead times (3
  to 18 months)
• Usually reviewed daily or weekly

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Ch. 2 Production Planning SystemManufacturing
Planning and Control System

• Production Activity Control and Purchasing
• 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
• PAC is responsible for planning and controlling
  the flow of work through the factory
• Planning horizon is very short, a day to a month
• Level of detail is high
• Reviewed and revised daily

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Ch. 2 Production Planning SystemManufacturing
Planning and Control System

• At each level in the MPCS, three questions
  must be answered

• What are the priorities - how much of what is to
  be produced and when?
• What is the available capacity - what resources
  do we have?
• Can we outsource?
• How can differences between priorities and
  capacity be resolved?

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Ch. 2 Production Planning SystemManufacturing
Resource Planning (MRP II)

• Manufacturing resource planning (MRP II) is a
  method for the effective planning of all
  resources of a manufacturing company. Ideally, it
  addresses operational planning in units,
  financial planning in dollars, and has a
  simulation capability to answer what if
  questions. It is made up of a variety of
  functions, each linked together business
  planning, sales and operations planning,
  production planning, master production
  scheduling, material requirements planning,
  capacity requirements planning, and the execution
  support systems for capacity and material. Output
  from these systems is integrated with financial
  reports such as the business plan, purchase
  commitment report, shipping budget, and inventory
  projections in dollars.
• APICS Dictionary, 8th edition, 1995

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Ch. 2 Production Planning SystemSales and
operations planning (SOP)

• Medium time range
• Benefits
• Provides a means of updating the strategic
  business plan
• Provides a means of managing change
• Permits better management of production,
  inventory and backlog

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Ch. 2 Production Planning SystemMaking the
Production Plan

• Purpose
• Production planning is
• . . . setting the overall level of manufacturing
  output . . . and other activities to best satisfy
  the current planned levels of sales . . . while
  meeting general business objectives of
  profitability, productivity . . . etc., as
  expressed in the overall business plan.
• APICS Dictionary, 8th edition, 1995

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Ch. 2 Production Planning SystemMaking the
Production Plan

• Production planning is concerned with
• The quantities of each product group in each
  period.
• The desired inventory levels.
• The resources of equipment, labor, and material
  needed in each period.
• The availability of needed resources.
• Why are plans made for product groups?
• What should the product groups be based on?

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Ch. 2 Production Planning SystemMaking the
Production Plan

• Production planning characteristics
• The time horizon may be more or less than 12
  months, depending on the manufacturing cycle.
• Demand is seasonal for many products, but not for
  all. Seasonal demand is the worst-case scenario.
• A plan is made for families or groups.
• Management will have a variety of objectives.
• What might be some management objectives?

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Ch. 2 Production Planning SystemDeveloping the
Production Plan

• Three Basic Strategies
• Chase (Demand Matching) Strategy Produce the
  amounts that are demanded at any one time
• Production Leveling Strategy Continuously
  produce an amount equal to the average demand
• Subcontracting Meeting additional demand through
  subcontracting.
• Hybrid Strategy Combination of any of the above
  strategies

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Ch. 2 Production Planning SystemDeveloping the
Production Plan
Units
1 2 3 4 5 6 7 8 9 10
11 12
Periods

• Chase (demand matching) Strategy
• The goal is to produce the amounts demanded at
  any given time. Inventory levels remain stable
  while production varies to meet demand

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Ch. 2 Production Planning SystemDeveloping the
Production Plan

• Chase Strategy Disadvantages
• As production increases, workers must be hired
  and trained. Extra shifts may be needed, and
  overtime may be necessary. These requirements all
  increase cost.
• As production decreases, people are laid off and
  morale suffers,
• When production starts to increase again, the
  best workers may have other jobs and their skills
  will not be available.

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Ch. 2 Production Planning SystemDeveloping the
Production Plan

• Chase Strategy Disadvantages (continued)
• Manufacturing must have enough plant capacity to
  produce at the highest capacity needed.
• What industries use a chase strategy?

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Ch. 2 Production Planning SystemDeveloping the
Production Plan

• Production Leveling Strategy
• The goal of this strategy is to continuously
  produce an amount equal to the average demand.

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Ch. 2 Production Planning SystemDeveloping the
Production Plan

• Production Leveling Strategy
• This strategy avoids the disadvantages of demand
  matching. However, inventory builds up.
• What are some examples of industries that could
  use this strategy?

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Ch. 2 Production Planning SystemDeveloping the
Production Plan

• Subcontracting Strategy
• Subcontracting means always producing at the
  level of minimum demand and meeting any
  additional demand through subcontracting
• Major Advantage
• Costs associated with excess capacity are avoided
• Since production is leveled, there are no costs
  associated with changing production levels

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Ch. 2 Production Planning SystemDeveloping the
Production Plan

• Subcontracting Strategy - Disadvantage
• The cost of purchasing may be greater than if the
  item were made in the plant
• Certain core skills or technologies may be lost

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Ch. 2 Production Planning SystemDeveloping the
Production Plan

• Hybrid Strategy
• Combination of any of the three previous
  strategies
• Production management is responsible for finding
  the combination of strategies that minimizes the
  sum of all costs involved, providing the level of
  service required, and meeting the objectives of
  the financial and marketing plans

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Ch. 2 Production Planning SystemDeveloping a
Make-to-Stock Production Plan

• Under a make-to-stock 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

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Ch. 2 Production Planning SystemDeveloping a
Make-to-Stock Production Plan

• Information needed for a make-to-stock 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).

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Ch. 2 Production Planning SystemMaking 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

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Ch. 2 Production Planning SystemMaking a Level
Production Plan
Example Problem (Pg. 29/33)
Opening inventory (OI) 100 units Desired ending
inventory (EI) 80 units Total production
needed total forecast demand EI - OI
_____ _____ - _____ _______ units
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Ch. 2 Production Planning SystemMaking a Level
Production Plan
Ending Inventory for Period 1 OI production -
forecast demand ______ ______ - ______
______ units
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Ch. 2 Production Planning SystemMaking 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?

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Ch. 2 Production Planning SystemMaking a Level
Production Plan

• Answer
• a. Total production required 600 80 - 100
  580 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

• More

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Ch. 2 Production Planning SystemMaking 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

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Ch. 2 Production Planning SystemDeveloping a
Make-to-Order (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

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Ch. 2 Production Planning SystemDeveloping a
Make-to-Order (Chase Strategy) Production Plan

• 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

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Ch. 2 Production Planning SystemAssemble to
Order

• Assemble-to-order is a subset of make-to-order
• 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

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Ch. 2 Production Planning SystemDeveloping a
Make-to-OrderProduction Plan

• Information needed for make-to-order 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.

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Ch. 2 Production Planning SystemResource
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

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Ch. 2 Production Planning SystemResource
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

Bill of Resources
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Ch. 2 Production Planning SystemReview
Questions Problems

• Questions 1, 7, 8, 9, 13, and 15
• Problems 2.12, 2.14, and 2.18