The Major Sources of Complexity

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

2. 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)

3. 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)

4. A typical (logical) Organization of the Production Activity Assembly Line 1: Product Family 1 Raw Material & Comp. Inventory S1,1 S1,i S1,n Finished Item Inventory S1,2 Backend Operations Dept. 1 Dept. 2 Dept. j Dept. k S2,1 S2,2 S2,i S2,m Assembly Line 2: Product Family 2

5. Dealing with the Problem Complexity through Decomposition Corporate Strategy Aggregate Unit Demand Aggregate Planning (Plan. Hor.: 1 year, Time Unit: 1 month) Capacity and Aggregate Production Plans End Item (SKU) Demand Master Production Scheduling (Plan. Hor.: a few months, Time Unit: 1 week) SKU-level Production Plans Manufacturing and Procurement lead times Materials Requirement Planning (Plan. Hor.: a few months, Time Unit: 1 week) Component Production lots and due dates Shop floor-level Production Control Part process plans (Plan. Hor.: a day or a shift, Time Unit: real-time)

6. 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

7. Aggregate Planning

8. 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.

9. Computing the Aggregate Unit Production Requirements 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

10. Aggregate Planning Problem Aggr. Unit Production Reqs Corporate Strategy Aggregate Unit Demand Aggregate Production Plan Aggregate Planning Aggregate Unit Availability (Current Inventory Position) Required Production Capacity • Aggregate Production Plan: • Aggregate Production levels • Aggregate Inventory levels • Aggregate Backorder levels • Production Capacity Plan: • Workforce level(s) • Overtime level(s) • Subcontracted Quantities

11. PC WC HC FC D(t) P(t) = D(t) W(t) Pure Aggregate Planning Strategies 1.Demand Chasing: Vary the Workforce Level • 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

12. Pure Aggregate Planning Strategies 2.Varying Production Capacity with Constant Workforce: PC SC WC OC UC D(t) P(t) S(t) O(t) U(t) 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)

13. PC WC IC D(t) P(t) I(t) W(t), O(t), U(t), S(t) = ct Pure Aggregate Planning Strategies 3.Accumulating (Seasonal) Inventories: • I(t):Accumulated Inventory levels • Costs involved: • PC, WC:as before • IC:inventory holding costs: e.g., interest lost, storage space, pilferage, obsolescence, etc.

14. Pure Aggregate Planning Strategies 4.Backlogging: PC WC BC D(t) P(t) B(t) 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

15. Typical Aggregate Planning Strategy A “mixture” of the previously discussed pure options: PC WC HC FC OC UC SC IC BC P W D H F O U S I B + • 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.

16. Solution Approaches • Graphical Approaches: Spreadsheet-based simulation • Analytical Approaches: Mathematical (mainly linear programming) Programming formulations

17. 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)

18. 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

19. Master Production Scheduling(MPS)

20. The (Master) Production Scheduling Problem Capacity Consts. Company Policies Product Charact. Economic Considerations Placed Orders MPS Master Production Schedule: When & How Much to produce for each product Forecasted Demand Current Inventory Positions Already Initiated Production Planning Horizon Time unit Capacity Planning

21. Initial Inventory Position • Scheduled Receipts Demand Availability: Net Requirements Future inventories Lot Sizing The Driving Logic for the Empirical Approach Compute Future Inventory Positions Scheduled Releases Resource (Fermentor) Occupancy Product i Revise Prod. Reqs Feasibility Testing Schedule Infeasibilities Master Production Schedule

22. (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.

23. Materials Requirements Planning(MRP)

24. MRP Planned Order Releases MPS Current Availabilities Priority Planning The “MRP Explosion” Calculus Lot Sizing Policies Lead Times BOM

25. 022 115 (3) 119 (2) 251 (1) 251 (1) 252 (4) 291 (2) Bill Of Materials (BOM) A formal/systematic representation of the product structure and the assembly steps required for its synthesis from its components and subassemblies. 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

26. (Production) Lead Times • The expected time interval between the time that the order for • a 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 022 1 week 115(3) 2 weeks 119(2) 3 weeks 251(1) 1 week 251(1) 1 week 252(4) 2 weeks 291(2) 1 week

27. “Time-Phased” Product Structure 215 (1) [1] [2] 115 (3) [2] 252 (4) [1] [1] 022 291 (2) [3] 119 (2) [1] 251 (1) 5 4 3 2 1 Time in weeks

28. Example: Time-Phased Production Requirements Week Part No. 1 2 3 4 5 6 Lead Time 7 100 1 week Ord. Rec. 022 100 Ord. Rel. 2 weeks 300 Ord. Rec. 115 Ord. Rel. 300 200 3 weeks Ord. Rec. 119 200 Ord. Rel. 1 week 200 300 Ord. Rec. 251 200 300 Ord. Rel. 2 weeks Ord. Rec. 1200 252 Ord. Rel. 1200 1 week 400 Ord. Rec. 291 Ord. Rel. 400

29. A B C(2) D(1) C(1) E(1) Gross Requirements The 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. Interplant Shipment Service order

30. Taking into Account the Current Item Availability Safety Stock Requirements Lot Sizing Policy Lead Time Gross Reqs Planned Order Releases Parent Sched. Rel. Planned Order Receipts Net Reqs Synthesizing item demand series Projecting Inv. Positions and Net Reqs. Lot Sizing Time- Phasing Item External Demand Scheduled Receipts Initial Inventory

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

32. The “MRP Explosion” Calculus External Demand Level 0 Capacity Planning Initial Inventories Level 1 Level 2 Scheduled Receipts Level N Planned Order Releases Gross Requirements

33. Capacity Planning (Example) Available labor hours 150 100 50 8 1 2 3 Periods 4 5 6 7

34. Example: The (complete) MRP Explosion Calculus(J. Heizer and B. Render “Operations Management”, 6th Ed. Prentice Hall) Item BOM: Alpha B(1) C(1) D(2) C(2) E(1) F(1) E(1) F(1) Item Levels: Level 0: Alpha Level 1: B Level 2: C, D Level 3: E, F