Production planning & control (PPC)

PPC

1. PRODUCTION PLANNING &
CONTROL
Simple Sustainable Solutions 1
Production Planning & Control
Trainers:
Hakeem–Ur–Rehman
&
SajidMahmood
SimpleSustainableSolutions

2. Production Planning & Control
Outline:
Simple Sustainable Solutions 2
DAY–1:
oWhatisProductionPlanning&Control(PPC)?
oForecastingMethods&ItsApplications
oUnderstandingDataPatterns&It’sMethods
DAY–2:
oAggregateProductionPlanning(APP)
oInventoryManagement
DAY–3:
oMasterProductionScheduling(MPS)
oMaterialRequirementPlanning(MRP)
Hakeem-Ur-Rehman & SajidMahmood

3. Production Planning & Control
What is Production Planning & Control (PPC)?
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 3
Thehighestefficiencyinproductionisobtainedby
manufacturingtherequiredquantityoftheproduct,ofthe
requiredquality,attherequiredtime,withthebestand
cheapestmethod.
PPCregulatesandcontrols“how”,“where”,and“When”workistobe
done.
PRODUCTION
SYSTEM
Four Factors involve:
oQuantity
oQuality
oTime
oPrice
Production Planning
& Control (PPC)
BRAIN

4. Production Planning & Control
Why Forecasting?
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 4
The Effect of Inaccurate Forecasting on the Supply Chain

5. Production Planning & Control
Forecasting:
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 5
“Apredictionoffutureeventsused
forplanningpurpose”
Principles of Forecasting:
1.ForecastsAreAlmostAlways
Wrong(ButTheyAreStillUseful)
2.Forecastsaremoreaccuratefor
shorterthanlongertimehorizons
3.Forecastsaremoreaccuratefor
groupsorfamiliesofitemsrather
thanforindividualitems.
Objective:“Better future Forecast
by Minimizing the error (Actual
Vs Forecasted Demand)”

6. Production Planning & Control
Types of Forecasting Methods:
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 6
FORECASTING METHODS
Littleornoquantitative
dataavailable
Quantitativehistoricaldataavailable
Evidenceofarelationshipbetweenthevariableof
interestandsomeothervariable(s)
Quantitative Techniques
Qualitative Techniques
oMarket surveys
oDelphi method
oetc.
Time Series Models: “Future
is a function of time”
oMoving Average
oWeighted Moving Average
oExponential Smoothing
oLinear Regression
oetc.
Causal Models: “Future is a
function of ‘any other factors’
other than time”
oLinear Regression
oMultiple Regression

7. Production Planning & Control
Forecasting Methods –Demand Patterns Over Time:
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 7
Anytimeseries(i.e.dataovertime)iscomposedofthefollowing:
DATA = Level + Trend + Seasonality + Cycles+ Random Variation
DATA = PATTERN + Random Variation
Time
Quantity
(a)LevelorHorizontalPattern:Data
followahorizontalpatternaroundthemean
Time
Quantity
(b)TrendPattern:Dataareprogressively
increasing(shown)ordecreasing
(c) Seasonal Pattern: Data exhibit a regularly
repeating pattern
Time (Quarters)
Quantity
Time (Quarters)
Quantity
(d) Cycle: Data increase or decrease over time
(Data patterns created by economic fluctuations)

8. Production Planning & Control
Time–Series Forecasting Methods: Level or Horizontal Pattern
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 8
AveragingTechniques:workbestwhena
seriestendstovaryaboutanaverage(i.e.
smoothvariationsaroundmean)
Theycanhandlestepchangesorgradual
changesinthelevelofaseriesTechniques:
oSimple Moving average
oWeighted moving average
oExponential smoothing
Time
Quantity
(a)LevelorHorizontalPattern:Datafollow
ahorizontalpatternaroundthemean
Case Study–1:
(Open Excel
Sheet for the case
study data)
Case Study-1.xls WeekDemand WeekDemand WeekDemand WeekDemand
1 415 14 365 27 351 40 282
2 236 15 471 28 388 41 399
3 348 16 402 29 336 42 309
4 272 17 429 30 414 43 435
5 280 18 376 31 346 44 299
6 395 19 363 32 252 45 522
7 438 20 513 33 256 46 376
8 431 21 197 34 378 47 483
9 446 22 438 35 391 48 416
10 354 23 557 36 217 49 245
11 529 24 625 37 427 50 393
12 241 25 266 38 293 51 482
13 262 26 551 39 288 52 484
WeekDemand WeekDemand WeekDemand WeekDemand
1 415 14 365 27 351 40 282
2 236 15 471 28 388 41 399
3 348 16 402 29 336 42 309
4 272 17 429 30 414 43 435
5 280 18 376 31 346 44 299
6 395 19 363 32 252 45 522
7 438 20 513 33 256 46 376
8 431 21 197 34 378 47 483
9 446 22 438 35 391 48 416
10 354 23 557 36 217 49 245
11 529 24 625 37 427 50 393
12 241 25 266 38 293 51 482
13 262 26 551 39 288 52 484

9. Production Planning & Control
Time–Series Forecasting Methods: Level or Horizontal Pattern…
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 9
0
200
400
600
800
147101316192225283134374043464952
Demand
Time (Weeks)
Demand Pattern Over Time
Demand
Case Study–1:
Neitherseasonality
norcyclicaleffects
canbeobserved
Is Seasonality or Cyclical effects Present?
Is Trend Present?Coeff.Stand. Errt-StatP-valueLower 95%Upper 95%
Intercept369.2727.7943613.28575E-18313.44425.094
Weeks 0.33390.9126410.365860.71601-1.499192.16699
0.71601
Run Linear Regression to test ??????
??????in the model �
??????=�
0+�
1t+??????
??????
P–Value > 0.05; No Linear trend in
the data
Conclusion:Astationarymodelis
appropriate(i.e.Averagingtechniques).

10. Production Planning & Control
Time–Series Forecasting Methods: Level or Horizontal Pattern…
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 10
AVERAGING TECHNIQUES:
SimpleMovingAverage:Techniquethataveragesanumber
ofthemostrecentactualvaluesingeneratingaforecast.1
t
MA
n
ti
i
t
A
F
n




WeightedMovingAverage:Themost
recentvaluesinatimeseriesaregiven
moreweightincomputingaforecast.1(1) 11
...
t ntn ntn t
FwAwAwA
  

Simple Exponential Smoothing: The smoothed value L
tis the weighted average of
Ft+1=�
??????=��t+(1−�)�
??????
oThe current period’s actual value (with weight of α).
oThe forecast value for the current period (with weight of 1–α).
The smoothed value L
t becomesthe forecast for period t+1.
Aninitial“forecast”isneededtostartthe
process

11. Production Planning & Control
Performance of Forecasting Methods: ErrorPerformance Measures:
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 11
Whichoneoftheseforecastingmethodsgivesthe“best”forecast?
????????????��??????���??????��??????�??????�??????��??????��????????????�=
�
??????−�
??????
�
????????????�������??????�����??????��=
(�
??????−�
??????)
2
�
SmallertheErrorPerformanceMeasure(i.eMAD,MSE,MAPE)betterthemethod.
????????????��??????���??????��??????????????????��??????�������??????????????????�=

�
??????−�
??????
�
??????
�
∗100
MAPE > 30% Forecast is more or less inaccurate
MAPE < 30% Forecast is reasonably good
MAPE < 20% Forecast is good
MAPE < 10% Forecast is Very good

12. Production Planning & Control
Performance of Forecasting Methods: Selecting Model Parameters
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 12
Usetheperformancemeasurestoselectagoodsetofvaluesforeachmodel
parameter.
FortheSimpleMovingAverage:
othenumberofperiods(n).
FortheWeightedMovingAverage:
oThenumberofperiods(n),
oTheweights(W
i).
FortheSimpleExponentialSmoothing:
oTheexponentialsmoothingfactor(α).
ExcelSolvercanbeusedtodeterminethevaluesofthemodelparameters.
Relationshipbetweenexponentialsmoothingandsimplemovingaverage:


2
k
Anexponentialsmoothingforecast“basedonlargenumber
ofperiods”shouldhaveasmall“α”

13. Production Planning & Control
Time–Series Forecasting Methods: LinearTrend Pattern
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 13
Time
Quantity
(b)TrendPattern:Dataareprogressively
increasing(shown)ordecreasing
TechniquesforTrend:
Linear Regression equation
Holt’s Linear Exponential Smoothing
(Trend-Adjusted Exponential Smoothing)
Non-linear trends
oS–Curve trend
oExponential trend equation
oetc.
Case Study–2:
(Open Excel
Sheet for the
case study data)
Case Study-2.xls

14. Production Planning & Control
Time–Series Forecasting Methods: Linear Trend Pattern…
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 14
TECHNIQUESFORLINEARTREND:
LinearRegression:Constructtheregressionequation
basedonthehistoricaldataavailable.
Theindependentvariableis“time”.
Thedependentvariableisthe“time-seriesvalue”.
&#3627408486;
??????=&#3627409149;
0+&#3627409149;
1&#3627408481;+??????
??????
Holt’sLinearExponentialSmoothing:Thetrendadjustedforecastconsistsoftwo
components.
Smoothedfactor(i.e.Level)
Trendfactor+1
F
t tt
LT
Adjust the LevelL
t, and
the TrendT
tin each period
Level:
Trend:
Initial Values:

15. Production Planning & Control
Time–Series Forecasting Methods: Seasonality Pattern
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 15
Seasonality:“Seasonalityisexpressedintermsof
theamountthatactualvaluesdeviatefromthe
averagevalueofaseries.”
(c) Seasonal Pattern: Data exhibit a regularly repeating pattern
Time (Quarters)
Quantity
oMultiplicative:Seasonalityisexpressed
asapercentageoftheaverage(ortrend)
amountwhichisthenusedtomultiplythe
valueofaseriesinordertoincorporate
seasonality.
??????
&#3627408533;=(&#3627408507;
&#3627408533;)(&#3627408506;
&#3627408533;)(&#3627408490;
&#3627408533;)(??????
&#3627408533;)
“Manytimeseriesexhibitseasonalandcyclical
variationalongwithtrend”
MODELSOFSEASONALITY
oAdditive:Quantity(i.e.addedorsubtracted)
fromthetime-seriesaverageinorderto
incorporateseasonality
??????
&#3627408533;=&#3627408507;
&#3627408533;+&#3627408506;
&#3627408533;+&#3627408490;
&#3627408533;+??????
&#3627408533;
THECLASSICALDECOMPOSITION TECHNIQUE:Todevelopanadditiveormultiplicativemodel;
Thetimeseriesisfirstdecomposedtoitscomponents(trend,seasonality,cyclicalvariation).

16. Production Planning & Control
Time–Series Forecasting Methods: Seasonality Pattern…
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 17
Case Study–3:
(Open Excel Sheet for the case study data) –Case Study-3.xls
The graph exhibits long term trend
The graph exhibits seasonality pattern

17. Production Planning & Control
Day–1: Review
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 17
Why Forecasting?
What is Forecasting?
Time Series Data Patterns
Forecasting Methods
oSmoothing Techniques (i.e. Averaging Techniques)
oLinear Trend Techniques
oDecomposition Technique
Forecasting Methods –Performance Measures
Forecasting Methods –Selection of Model Parameters
oUsing Excel Solver

18. Production Planning & Control
Outline:
Simple Sustainable Solutions 18
DAY–1:
oWhatisProductionPlanning&Control(PPC)?
oForecastingMethods&ItsApplications
oUnderstandingDataPatterns&It’sMethods
DAY–2:
oAggregateProductionPlanning(APP)
oInventoryManagement
DAY–3:
oMasterProductionScheduling(MPS)
oMaterialRequirementPlanning(MRP)
Hakeem-Ur-Rehman & SajidMahmood

19. Production Planning & Control
Overview of Production / Operations Planning Activities:
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 19

20. Production Planning & Control
What is Aggregate Operations Planning?
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 20
Supposethefiguretotherightrepresents
forecastdemandinunits.
Nowsupposethislowerfigurerepresents
theaggregatecapacityofthecompanyto
meetdemand.
Whatweneedtodoistobalanceoutthe
demandandthecapacitysupply?
BalancingAggregateDemandandAggregateProductionCapacity–tospecify
theoptimalcombinationof:
oproductionrate;workforcelevel;inventoryonhand…
Apooraggregateplancanresultinlostsales,lostprofits,excessinventory,or
excesscapacity

21. Production Planning & Control
Aggregate Operations Planning: Understanding Process
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 21
Aggregate
Planning

22. Production Planning & Control
Aggregate Operations Planning: Inputs, Outputs & Goal
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 22
Resources
oWorkforce
Policy statements
oSubcontracting
oOvertime
oInventory levels
oBack orders
Demand forecast
Costs
oInventory carrying
oBack orders
oHiring/firing
oOvertime
oInventory changes
osubcontracting
Aggregate
Planning
Total cost of a plan
Production/operation plan
oProjected levels of:
•Inventory
•Output
•Employment
•Subcontracting
•Backordering
Goal:Specifytheoptimalcombination(tradeoff)of“Productionrate,workforcelevel,
overtimeproduction,subcontracting(i.e.outsourcedcapacity),inventory/backlog”to
maximizesthefirm’sprofitovertheplanninghorizon
Productgroup((or)family)orbroadcategory(aggregation)
Intermediate-rangeplanningperiod:6-18months

23. Production Planning & Control
Aggregate Operations Planning: Procedure (Process Steps)
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 23
1.Developtheaggregatesalesforecastandaggregateplanningvalue.
2.Translatethesalesforecastintoresourcerequirements.
3.Generatealternativeproductionplans.
AggregatePlanningvalue:Thetermaggregatereferstoalineofproducts(i.e.
Productfamily),notjustoneindividualproduct.Anaggregateunitissomekindofan
“average”unit.
Example:Afirmproduces6differentmodelsofwashingmachines
Model
Number
Working Hours
Required
Total
Sales (%)
A5532 4.2 32%
K4242 4.9 21%
L9898 5.1 17%
L3800 5.2 14%
M2624 5.4 10%
M3880 5.8 6%
AggregatePlanningvalue=(0.32)(4.2)+
(0.21)(4.9)+(0.17)(5.1)+(0.14)(5.2)+
(0.10)(5.4)+(0.06)(5.8)
=4.856hoursperaggregateunit
Themanagerdecidestodefineanaggregate
unitofproductionasamachinerequiring
someweightedtotalworkinghourswherethe
weightsaretakenfromthetotalsales(%).

24. Production Planning & Control
Aggregate Operations Planning: Procedure (Process Steps)…
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 24
1.Developtheaggregatesalesforecastandaggregateplanningvalue.
2.Translatethesalesforecastintoresourcerequirements.
3.Generatealternativeproductionplans.
Example:ABCElectricalperforms
threeservices:cableTVinstallations,
satelliteTVinstallations,anddigital
subscriberline(DSL)installations.
Estimated labor hours per installation:
0.4* 2 + 0.4 * 3 + 0.2 * 4 = 2.8 hours
Estimated supply costs per installation:
0.4 * $15 + 0.4 * $90 + 0.2 * $155 = $73
Estimated Resource Requirements at ABC’s Electrical
ABCexpects(i.e.forecasted)totalinstallationsforthenextthreemonthstobe150,
175,and200,respectively.

25. Production Planning & Control
Aggregate Operations Planning: Procedure (Process Steps)…
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 25
1.Developtheaggregatesalesforecastandaggregateplanningvalue.
2.Translatethesalesforecastintoresourcerequirements.
3.Generatealternativeproductionplans.
CASESTUDY:XYZCabinetsManufacturingCompany
XYZisamanufacturerofseveraldifferentlinesofkitchenandbathroomcabinetsthat
aresoldthroughmajorhomeimprovementretailers.XYZ’smarketingvicepresident
hascomeupwiththefollowingcombinedsalesforecastforthenext12months:
XYZ Cabinets Manufacturing
Company; Sales Forecast
CaseStudy:(OpenExcel
Sheetforthecasestudy
data)APP-CaseStudy.xls

26. Production Planning & Control
Aggregate Operations Planning: Procedure (Process Steps)…
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 26
1.Developtheaggregatesalesforecastandaggregateplanningvalue.
2.Translatethesalesforecastintoresourcerequirements.
3.Generatealternativeproductionplans.
Generatealternativeproductionplans:ProductionPlanStrategies
PureProductionPlanStrategies:
oLevelproductionplan–inwhichproductionisheldconstantandinventory
isusedtoabsorbthedifferencesbetweenproductionandthesalesforecast.
oChaseproductionplan–inwhichproductionischangedineachtimeperiod
tomatchthesalesforecast.

27. Production Planning & Control
Aggregate Operations Planning: Alternative Production Plan
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 27
Level vs. Chase Production Plan
Advantages:
oInvestmentininventoryislow
oLaborutilizationinhigh
Disadvantages:
oThecostofadjustingoutputrates
and/orworkforcelevels
Advantages:
oStable output rates and workforce
Disadvantages:
oGreater inventory costs
oIncreased overtime and idle time
oResource utilizations vary over
time

28. Production Planning & Control
Aggregate Operations Planning: Basic Formulas & Relationships
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 28
Labourhrs.Req.permonth=(Labourhr.perunit)*(Month’sforecasted
demand)
#ofworkersReq.permonth=(Labourhrs.Req.permonth)/(Workinghrs.per
monthperemployee)
#ofworkersinaperiod=(#ofworkersattheendofpreviousperiod)+(#of
workersatstartoftheperiod)–(#oflaidoffworkersatstartoftheperiod)
RegularProductionpermonth=(Actual#ofworkers*Workinghoursper
monthperemployee)/(Labourhr.perunit)
Inventoryattheendofaperiod=(Inventoryatendofthepreviousperiod)+
(Productionincurrentperiod)–(Demandincurrentperiod)
Costforaperiod=OutputCost(Reg.+OT+Sub.)+Hire/Layoffcost+Inventory
cost+Backordercost

29. Production Planning & Control
Aggregate Operations Planning: Alternative Production Plan…
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 29
Generatealternativeproductionplans:ProductionPlanStrategies…
MixedProductionPlanStrategy:
oCombinationofLevelProductionandChaseDemandstrategies
oExamplesofmanagementpolicies
•nomorethanx%oftheworkforcecanbelaidoffinonequarter
•inventorylevelscannotexceedxdollars
OptimizationModelingtoAggregateProductionPlan:
oLinearProgrammingModel–UsingExcelSolver

30. Production Planning & Control
Aggregate Operations Planning: Selecting the Production Plan…
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 30
LEVEL CHASE LP Model
Regular Prod. Cost
$20,160,000.00 $19,712,000.00 $20,160,000.00
Overtime Prod. Cost 0
$474,260.00 0
Hiring/Layoff costs
$16,250.00 $39,000.00 $26,625.00
Inventory Cost
$114,800.00 $50,240.00 $20,400.00
TotalCosts
$20,291,050.00 $20,275,500.00 $20,207,025.00
Key Factors Flat Production
level
Inventory level
grow high
Minimal Inventory
Significant
overtime
production
required in peak
months
Optimum levels
but fractional
values
Assumption
(Start & End
Inventory is ‘0’)
SummaryofAlternativeProductionPlansforXYZCabinetsManufacturing
Company:

31. Production Planning & Control
Inventory Management: What is Inventory?
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 31
INVENTORYisthestockofanyitemorresourceusedinanorganization.These
itemsorresourcescaninclude:rawmaterials,finishedproducts,componentparts,
supplies,andwork-in-process
Independent Demand
A
B(4) C(2)
D(2) E(1)D(3) F(2)
Dependent Demand
Independent demand is uncertain.
Dependent demand is certain.
startingpointofinventorymanagementiscustomer
demand;Inventoryexiststomeetcustomerdemand

32. Production Planning & Control
Inventory Management: InventoryCosts
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 32
1.CARRYINGCOSTS:Costofholdinganitemininventory;Varywiththelevel
ofinventoryandthelengthoftimeanitemisheld
Carryingcostsinclude:Rent,Heating,cooling,lightingSecurity,Record
keeping
2.ORDERINGCOSTS:Costofreplenishinginventory;Expressedasadollar
amountperorder
Varywiththenumberofordersmade;Astheordersizeincreases,ordering
costsdecreaseandcarryingcostsincrease
Orderingcostsinclude:Purchaseorders,Transportationandshipping,
Receiving,Inspection,Handlingandstorage
3.SHORTAGECOSTS
Temporaryorpermanentlossofsaleswhendemandcannotbemetbecauseof
insufficientinventory
Customerdissatisfactionandlossofgoodwill
Forinternaldemand,shortagecancauseworkstoppageorcreatedelays

33. Production Planning & Control
Inventory Management: Definition & ABC Inventory Classification
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 33
AnINVENTORYMANAGEMENT SYSTEMisthesetofpoliciesandcontrols
thatmonitorlevelsofinventoryanddetermines:
owhatlevelsshouldbemaintained,
owhenstockshouldbereplenished,and
ohowlargeordersshouldbe.
THEABCCLASSIFICATIONSYSTEM:Aninventoryclassificationsystemin
whichasmallpercentageof(A)itemsaccountformostoftheinventoryvalue.
oInABCanalysiseachclassofinventoryrequiresdifferentlevelsofinventory
control
oThehigherthevalueofinventory,thetighterthecontrol
Class A
o5 –15 % of units
o70 –80 % of value
Class B
o30 % of units
o15 % of value
Class C
o50 –60 % of units
o5 –10 % of value

34. Production Planning & Control
Inventory Management: ABC Inventory Classification…
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 34
Example:Themaintenancedepartmentforasmallmanufacturingfirmhas
responsibilityformaintaininganinventoryofsparepartsforthemachineryit
services.Thedepartmentmanagerwantstoclassifytheinventorypartsaccordingto
theABCsystemtodeterminewhichstocksofpartsshouldmostcloselyme
monitored.Thepartsinventory,unitcost,andannualusageareasfollows:

35. Production Planning & Control
Inventory Management: Inventory Control Systems
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 35
ContinuousInventorySystems(fixed-order-quantity)
oConstantamountorderedwheninventorydeclinestopredeterminedlevel
referredtoasreorderpoint
PeriodicInventorySystem(fixed-time-periodsystem)
oOrderplacedforvariableamountafterfixedpassageoftime
ECONOMIC ORDERQUANTITY(EOQ)MODELS:Todeterminehow
muchtoorderinacontinuoussystemtheeconomicorderquantity(EOQ)modelis
used
oBASICEOQMODEL:EOQmodelistodeterminetheoptimalorderquantity
thatwillminimizetotalinventorycosts
•ASSUMPTIONS:
Demandisknownwithcertaintyandisconstantovertime
Noshortagesareallowed
Leadtimeforthereceiptofordersisconstant
Orderquantityisreceivedallatonce

36. Production Planning & Control
Inventory Management: EOQ Model …
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 36

37. Production Planning & Control
Inventory Management: Safety Stock
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 37
SAFETYORBUFFERSTOCK
oInventorylevelmightbedepletedataslowerorfasterrateduringleadtime
oBufferaddedtoonhandinventoryduringleadtime
Reorder Point = (Average daily demand)*(Lead Time) + safety stock
&#3627408453;= ??????&#3627408447;+&#3627408487;??????
??????&#3627408447;
&#3627408453;=??????&#3627408447;+&#3627408487; &#3627408447;??????
??????
2
+ ????????????
??????
2

38. Production Planning & Control
Day–2: Review
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 38
WhatisAggregateProductionPlanning?
oUnderstandingtheProcessofAPP
oAggregateProductionPlanning–Procedure
oAggregateProductionPlanning–Strategies
oLevelStrategy
oChaseStrategy
oLPModel
InventoryManagement
oWhatisInventory?
oInventoryCosts
oWhatisInventoryManagement?
oABCClassification
oInventoryControlSystems
oEOQModel
oSafetyStock

39. Production Planning & Control
Outline:
Simple Sustainable Solutions 39
DAY–1:
oWhatisProductionPlanning&Control(PPC)?
oForecastingMethods&ItsApplications
oUnderstandingDataPatterns&It’sMethods
DAY–2:
oAggregateProductionPlanning(APP)
oInventoryManagement
DAY–3:
oMasterProductionScheduling(MPS)
oMaterialRequirementPlanning(MRP)
Hakeem-Ur-Rehman & SajidMahmood

40. Production Planning & Control
Resource Planning for Manufacturing:
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 40

41. Production Planning & Control
Master Scheduling: Def. & Linking with APP
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 41
MasterProductionSchedule(MPS):Time–phasedplan
specifyinghowmanyandwhenthefirmplanstobuildeach
enditem
tracksproductionoutputandmatchesthisoutputtoactual
customer
Aggregate Plan
(Product Groups)
MPS
(Specific End Items)
Product–A
Product–B
Product–C
Breaking by Week & by Product
In Reality
oDemandandProductionnumbersinthe
masterscheduleareunlikelytomatchthe
salesandoperationsplanexactly.
oActualcapacityrequirementsmightnot
matchtheplanningvalues.
safetystock,
scheduleovertime,or
takeothermeasurestomakeup
differencebetweentheplanand
reality.

42. Production Planning & Control
Master Scheduling Process & Its Linkages:
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 42
MASTER
SCHEDULING
Beginning Inventory
Forecasted
Demand
Customer Order
(Booked Order)
Projected Inventory
Master Production
Schedule
INPUTS
OUTPUTS
Master production schedule
linkages:

43. Production Planning & Control
Developing Master Schedule Record:
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 43
Masterschedulerecordstrackseveralkeypiecesofinformation:
oForecastedDemand(Estimateddemand)&#3627408441;
??????
oBookedorders(Confirmeddemand)&#3627408450;&#3627408437;
??????
oProjectedinventorylevels&#3627408440;??????
??????
oProductionquantities(Masterproductionschedule)&#3627408448;&#3627408451;&#3627408454;
??????
•Theamountofproductthatwillbefinishedandavailableforsaleatthebeginningof
eachweek.
oUnitsstillavailabletomeetcustomerneeds(AvailableToPromise)&#3627408436;&#3627408455;&#3627408451;
??????
????????????&#3627408424;&#3627408419;&#3627408414;&#3627408412;????????????&#3627408423;&#3627408413;&#3627408418;&#3627408423;????????????&#3627408423;??????&#3627408414;&#3627408423;??????&#3627408424;????????????&#3627408440;??????
??????=&#3627408440;??????
(??????−1)+&#3627408448;&#3627408451;&#3627408454;
??????−&#3627408474;??????&#3627408485;??????&#3627408474;&#3627408482;&#3627408474;(&#3627408441;
??????,&#3627408450;&#3627408437;
??????)
AvailableToPromise(ATP):
oATPforfirstweekoftheMasterScheduleRecord:
•&#3627408436;&#3627408455;&#3627408451;
??????=&#3627408440;??????
(??????−1)+&#3627408448;&#3627408451;&#3627408454;
??????−
??????=??????
??????−1
&#3627408450;&#3627408437;
??????
oATPforanysubsequentweekinwhich“MPS>0”:
•&#3627408436;&#3627408455;&#3627408451;
??????=&#3627408448;&#3627408451;&#3627408454;
??????−
??????=??????
??????−1
&#3627408450;&#3627408437;
??????
CaseStudy:(OpenExcel
Sheetforthecasestudy
data)MSR.xls

44. Production Planning & Control
Material Requirement Planning (MRP):
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 44
Materialsrequirementsplanning(MRP)Computerizedinventorycontroland
productionplanningsystem
howdofirmsactuallyorganizethingstoturnmaterialsintofinishedproducts?
Independent Demand
A
B(4) C(2)
D(2) E(1)D(3) F(2)
Dependent Demand
Independent demand is uncertain.
Dependent demand is certain.
“Oncetheindependentdemandisknown,
thedependentdemandcanbedetermined”
DependentdemanddrivesMRP
WhentoUseMRP?
Dependentanddiscreteitems
Complexproducts
Jobshopproduction
Assemble-to-orderenvironments

45. Production Planning & Control
Material Requirement Planning System: Def., Inputs & Outputs
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 45
Basedonamasterproductionschedule,amaterialrequirementsplanning
system:
oCreatesschedulesidentifyingthespecificpartsandmaterialsrequiredto
produceenditems
oDeterminesexactunitnumbersneeded
oDeterminesthedateswhenordersforthosematerialsshouldbereleased,
basedonleadtimes
Material
Requirement
Planning (MRP)
Master Schedule
Bill of Materials
Inventory Records
Plannedorderreleases
oWorkOrders
oPurchaseOrders
oReschedulingnotices
INPUTS OUTPUTS
MRPprocessconsistsoffourbasicsteps:
oExploding the bill of material
oNetting out the inventory
oLot sizing
oTime-phasing requirements

46. Production Planning & Control
Material Requirement Planning System: Inputs …
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 46
MRPInputs:
1.MasterProductionSchedule
2.BillofMaterial(BOM)
3.InventoryRecordfile
2.Billofmaterials(BOM):Alistofalloftheitems
neededtoproduceoneunitofaproduct.
oProductstructuretree:Visualrepresentationof
BOM,whereallcomponentsarelistedbylevels.
EXAMPLE # 1 (Product Chair): BOM –Product Structure Tree
3.InventoryRecordFile:Adatabaseofinformation
oneveryitemproduced,ordered,orinventoried.
Grossrequirements,Amountonhand,Leadtimes,&
more....
HowmanyLegsweneed
inordertoproduce50
Chairs?

47. Production Planning & Control
Material Requirement Planning System: Inputs…
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 47
EXAMPLE # 2 (Product Clip Board): BOM –Product Structure Tree
Time-phasedBOM:Anassemblychartshowstheleadtimerequiredtomanufactureanitem.
AssumeLeadtimeforeachitem=1week
Howlongitwilltaketoassemblea
clipboardfromscratch?
Forwardscheduling:startattoday‘sdate
andscheduleforwardtodeterminethe
earliestdatethejobcanbefinished.
Backwardscheduling:startattheduedate
andschedulebackwardstodeterminewhen
tobeginwork.

48. Production Planning & Control
Material Requirement Planning System: MRP Process & Matrix
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 48
Exploding the bill of material
Netting out the inventory
oNetting= (on-hand quantities + scheduled receipts) –Gross requirement
Lotsizing:determiningthequantitiesofitemsproducedorpurchased
Time-phasing requirements
LotSizinginMRPSystems:MRPgeneratesmaterialorders;Ordersizes/lots
canbechosenaccordingtovariousobjectives
oLot-for-lot (L4L): Produce to cover next period
oEOQ: Apply the EOQ approximation for yearly demand
MRP
Matrix:

49. Production Planning & Control
Material Requirement Planning System: MRP Process & Matrix…
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 50
EXAMPLE: School Mate Products

50. Production Planning & Control
Material Requirement Planning System: MRP Process & Matrix…
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 50
FollowingthesamelogicGross
RequirementsinPeriods4and5develop
NetRequirements,PlannedOrderReceipts,
andPlannedOrderReleases

51. Production Planning & Control
Material Requirement Planning System: MRP Process & Matrix…
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 51
Followingthesamelogic,theLapdesk
MRPmatrixiscompletedasshown

52. Production Planning & Control
Material Requirement Planning System: MRP Process & Matrix…
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 53

53. Production Planning & Control
Material Requirement Planning System: MRP Process & Matrix…
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 54

54. Production Planning & Control
MRP & JIT / Lean Production:
Simple Sustainable Solutions Hakeem-Ur-Rehman & SajidMahmood 54
How does
MRP work?
UnitsarePUSHEDforward
accordingtotheplan!
What about
JIT / Lean
Production?
UnitsarePULLEDforward
onlywhenneeded!
Push / Pull
Decoupling
Point
UnitsarePUSHEDforwardto
acertainpoint.
Finalconfiguration(PULL)
occursonlywhenthecustomer
demandoccurs.

55. Hakeem-Ur-Rehman & SajidMahmood
Production Planning & Control
Simple Sustainable Solutions 55
ANY QUESTION?
THANKS FOR LISTENING ()
Questions & Answers: