IE652 Production Planning and Control
IE652 Production Planning and Control
IE652 Production Planning and Control
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<strong>IE652</strong> <strong>Production</strong><strong>Planning</strong> <strong>and</strong> <strong>Control</strong>Instructor: Dr. Rıfat Gürcan Özdemir, Assist. Prof.Teaching Assistant: İlkay Gültaşhttp://web.iku.edu.tr/~rgozdemir/index(ie_652).htmCourse MaterialsText Books1. “<strong>Production</strong> <strong>Planning</strong>, <strong>Control</strong> <strong>and</strong> Integration”,D. Sipper <strong>and</strong> R. Bulfin, McGraw-Hill, 1997.2. “Operations Research in <strong>Production</strong> <strong>Planning</strong>, Scheduling,<strong>and</strong> Inventory <strong>Control</strong>”, D.C. Montgomery, L. A. Johnson,John Wiley & Sons, 1974Lecture notes1. “pdf files of Power Point Slides” (will be given via internet)Software“GAMS LP Solver”21
Course TopicsPART I – Aggregare production planningChapter 1:Aggregate <strong>Production</strong> <strong>Planning</strong> through SpreadSheet Models <strong>and</strong> Transportation ModelsChapter 2:<strong>Production</strong> <strong>Planning</strong> through Static LinearProgramming ModelsChapter 3:Aggregate <strong>Production</strong> <strong>Planning</strong> throughDynamic Linear Programming Models3Course TopicsPART II – Inventory managementChapter 4:Inventory Management <strong>and</strong> EOQ ModelsChapter 5:Quantity Discount <strong>and</strong> Multi Item InventoryModelsChapter 6:Dynamic Lot Sizing TechniquesChapter 7:Sthocastic Inventory ModelsChapter 8:Material Requirements <strong>Planning</strong> (MRP)42
Course TopicsPART III – Job schedulingChapter 9:Scheduling <strong>and</strong> SequencingChapter 10:Single Machine SchedulingChapter 11:Parallel Machine, Flow Shop <strong>and</strong> Job ShopScheduling5Grading Exams (85% of total grade)Quizzes (10%)Midterm I (20%)Midterm II (20%)Final (35%) Assignments (10% of total grade) Participation (5% of total grade)63
<strong>IE652</strong> - Chapter 1Aggregate <strong>Production</strong> <strong>Planning</strong>through Spread Sheet <strong>and</strong>Transportation ModelsAggregate <strong>Production</strong> <strong>Planning</strong> Aggregate production planning is usedto satisfy the intermediate-range dem<strong>and</strong>forecasts.84
Aggregate <strong>Production</strong> <strong>Planning</strong> Step 1. Aggregation: Different products areaggregated into a common unit. Step 2. <strong>Planning</strong>: Dem<strong>and</strong> fluctuations areabsorbed by: Changing the size of the workforce (hiring & layingoff), Varying the production rate (introduction of overtime<strong>and</strong>/or idle time, relying on outside subcontracting), Accumulating seasonal inventories, Resorting to planned backlogs whenever customersmay accept delays in filling their orders, Shifting the dem<strong>and</strong> to another period.or a combination of these decisions9Basic Aggregate <strong>Production</strong><strong>Planning</strong> Strategies Since the dem<strong>and</strong>, cost components orcapacities may change over time, theconditions that affect the productionprocesses will be unstable Therefore, it is important to prevent under<strong>and</strong> overloading of fixed resourses <strong>and</strong> tosmooth aggregate production levels105
Holding inventoriesdem<strong>and</strong>+inventory–inventory+inventoryProducion capacitytime11Allowing for backlogging(backordering)dem<strong>and</strong>–backordering+backorderingProducion capacitytime126
Allowing overtime or subcontractingdem<strong>and</strong>+Overtime <strong>and</strong>/orsubcontractingProducion capacitytime13Costs relevant to aggregateproduction planning1. Basic production costs• Material• Direct labor• Overhead= fixed cost (setup cost) + variable cost2. <strong>Production</strong> rate change costs• Hiring personnel• Training personnel• Laying off personnel• Overtime compensations• Subcontracting147
Costs relevant to aggregateproduction planning3. Inventory related costs• Inventory holding cost(= cost of capital tied up in inventory + storing +insurance + taxes + spoilage + obsolescense)• Shortage cost(very difficult to measure; loss of customergoodwill <strong>and</strong> loss of sales revenues resultingfrom the shortage situation)15<strong>Planning</strong> Strategies1 st Strategy: Changing workforce levelsMethodHiring personnel in case of anincrease in dem<strong>and</strong>Laying off personnel in caseof a decrease in dem<strong>and</strong>Relevant CostsPromotion, travelling, interview,training, etc. expenses.Compensation of laying off.168
<strong>Planning</strong> Strategies2 nd Strategy: Changing production levelsMethodIntroducing overtime withoutchanging workforce levelsUse subcontractingRelevant CostsOvertime compensationsAdditional costs ofsubcontracting17<strong>Planning</strong> Strategies3 rd Strategy: Keeping inventory, <strong>and</strong>allowing for backloggingMethodHolding the product in slackperiodsBacklogging the product tofollowing periodsShifting dem<strong>and</strong> to slackperiodsRelevant CostsInventory holding costsDelay in cash flow, loss ofcustomersCosts of advertisement,promotion or discountprograms189
Example 3.1A company is to plan workforce <strong>and</strong> production levels forthe six-month period January to June.Forecast dem<strong>and</strong>s over the next six months for aparticular line of products are as follows:MonthDem<strong>and</strong>Working daysJan.128020Feb.64024March90018April120026May200022June140015Total7420125Ending inventory in December (current month) isexpected to be 500 units, <strong>and</strong> the firm would like to have600 units on h<strong>and</strong> at the end of June19Example 3.1 Continued There are currently (end of December) 300workers in the plant There are only three costs to be considered: Cost of hiring workers = C H = $500 /worker Cost of firing workers = C F = $1000 /worker Cost of holding inventory = C I = $80/unit/month shortages are not permitted, i.e., cumulativeproduction at least as great as cumulativedem<strong>and</strong> each period K = 0.14653 (number of aggregate unitsproduced by one worker in one day2010
Fixed Workforce Plan (Workforce Level)ABCD=C*KE=B/DMonthCumulativeDem<strong>and</strong>CumulativeWorking DaysCumulativeUnits/WorkerNumber ofWorkersJanuary780202.931267February1420446.447221March2320629.085256April35208812.895273May552011016.118343June752012518.316411K= 0.14653 (number of aggregate units produced by one worker in one dayDem<strong>and</strong> of January = 1280 – 500 = 780Dem<strong>and</strong> of June = 1400 + 600 = 200021Fixed Workforce PlanABC=B*411DE = C – DMonthCumulativeUnits/WorkerCumulative<strong>Production</strong>CumulativeNet Dem<strong>and</strong>EndingInventoryJanuary2.9311205780425February6.447265014201230March9.085373423201414April12.895530035201780May16.118662555201105June18.316752875208Total59622211
Fixed Workforce PlanCumulative number of units (thous<strong>and</strong>)87654321Cumulative<strong>Production</strong>CumulativeDem<strong>and</strong>1 2 3 4 5 6Month23Cost of PlanHiring Cost = (411 – 300)500 = $55,500InventoryHolding Cost = (5962 + 600)80 = $524,960Total Cost = 55,500 + 524,960 = $580,4602412
Zero Inventory Plan (Workforce Level)ABCD=C*KE=B/DMonthDem<strong>and</strong>Working DaysUnits/WorkerNumber ofWorkersJanuary780202.931267February640243.517182March900182.638342April1200263.810315May2000223.224621June2000152.198910K= 0.14653 (number of aggregate units produced by one worker in one dayDem<strong>and</strong> of January = 1280 – 500 = 780Dem<strong>and</strong> of June = 1400 + 600 = 200025Zero Inventory PlanAMonthBUnits/WorkerCNumber ofWorkersD=B*CUnitsProducedE=C t -C t-1WorkersHiredF=C t-1 -C tWorkersFiredJan.2.93126778333Feb.3.517182142385March2.6383422325160April3.810315352527May3.2246215527306June2.1989107527289Total7551452613
Zero Inventory PlanABCDE=C-DMonthUnitsProducedCumulative<strong>Production</strong>CumulativeNet Dem<strong>and</strong>EndingInventoryJan.7837837803Feb.1423142314203March2325232523205April3525352535205May5527552755207June7527752775207Total3027Zero Inventory PlanCumulative number of units (thous<strong>and</strong>)87654321Cumulative<strong>Production</strong>CumulativeDem<strong>and</strong>1 2 3 4 5 6Month2814
Cost of PlanHiring Cost = 755 (500) = $377,500Firing Cost = 145 (1000) = $145,000InventoryHolding Cost = (30 + 600) 80 = $50,400Total Cost = $572,90029Mixed StrategyABCD = B / CMonthCumulativeNet Dem<strong>and</strong>CumulativeNumber of UnitsProduced per WorkerRatio(rounded up)January7802.931267February14206.448221March23209.086256April352012.896273May552016.120343June752018.318411Workforce level for the first four months3015
Mixed StrategyABCD = B / CMonthCumulativeNet Dem<strong>and</strong>CumulativeNumber of UnitsProduced per WorkerRatio(rounded up)May20003.224621June40005.422738Workforce level for the last two months31Mixed StrategyABCD = B x CMonthNumber ofWorkersNumber of UnitsProduced per WorkerMonthly<strong>Production</strong>January2732.931800February2733.517960March2732.638720April2733.8101040May7383.2242379June7382.19816223216
Mixed StrategyAMonthJanuaryFebruaryMarchAprilMayJuneBMonthly<strong>Production</strong>800960720104023791622CCumulative<strong>Production</strong>80017602480352058997521DCumulativeNet Dem<strong>and</strong>78014202320352055207520E = D – CEndingInventory2034016003791Σ = 90033Cumulative number of units (thous<strong>and</strong>)Mixed Strategy87654321Cumulative<strong>Production</strong>CumulativeDem<strong>and</strong>1 2 3 4 5 6Month3417
Mixed StrategyABCDMonthNumber ofWorkersNumber ofHiredNumber ofFiredJanuary27327February273March273April273May738465June738Total = 465 Total = 2735Mixed StrategyHiring Cost = 465 (500) = $232,500Firing Cost = 27 (1000) = $27,000InventoryHolding Cost = (900 + 600) 80 = $120,000Total Cost = $379,5003618
Transportation Model Optimal mixed strategy solutions can be foundby transportation models Costs such as:• cr = regular time production cost• co = overtime production cost• cs = subcontract production cost• c = inventory holding cost• b = backordering costare combined into transportation costs37Transportation Costs When Backordering is not AllowedDem<strong>and</strong> Period1234<strong>Production</strong> PeriodBeginning Inventory0c2c3cRegular Timecrcr+ccr+2ccr+3c1Overtimecoco+cco+2cco+3cSubcontractcscs+ccs+2ccs+3cRegular Timecrcr+ccr+2c2Overtimecoco+cco+2cSubcontractcscs+ccs+2cRegular Timecrcr+c3Overtimecoco+cSubcontractcscs+cRegular Timecr4OvertimecoSubcontractcs3819
Transportation Costs When Backordering is AllowedDem<strong>and</strong> Period1234<strong>Production</strong> PeriodBeginning Inventory0c2c3cRegular Timecrcr+ccr+2ccr+3c1Overtimecoco+cco+2cco+3cSubcontractcscs+ccs+2ccs+3cRegular Timecr+bcrcr+ccr+2c2Overtimeco+bcoco+cco+2cSubcontractcs+bcscs+ccs+2cRegular Timecr+2bcr+bcrcr+c3Overtimeco+2bco+bcoco+cSubcontractcs+2bcs+bcscs+cRegular Timecr+3bcr+2bcr+bcr4Overtimeco+3bco+2bco+bcoSubcontractcs+3bcs+2bcs+bcs39Example 3.2Suppose that backordering is not allowed in aggregateplanningCostsInventory holding:c=$5/unit/periodRegular time:cr=$10/unitOver time:co=$15/unitSubcontract:cs=$25/unit4020
Example 3.2 ContinuedCapacities of production resources (in units)Beginning inventory =Regular time =Over time =Subcontract =100010005005000Forecast dem<strong>and</strong>s for 4 succeeding periods:Period 1 2 3 4Dem<strong>and</strong> 1500 2500 3000 250041Transportation CostsDem<strong>and</strong> Period<strong>Production</strong> Period Beginning InventoryRegular Time1 OvertimeSubcontractRegular Time2 OvertimeSubcontractRegular Time3 OvertimeSubcontractRegular Time4 OvertimeSubcontract10101525251520301015253102025351520301015254152530402025351520301015254221
Dem<strong>and</strong> Period1234IdleCapacity<strong>Production</strong>PeriodBeginningInventory0 5 10 151000Regular Time1015 20 2510001Overtime1520 25 30500Subcontract2530 35 405000Regular Time10 15 2010002Overtime1520 25500Subcontract2530 355000Regular Time10 1510003Overtime1520500Subcontract25305000Regular Time1010004Overtime15500Subcontract255000Dem<strong>and</strong>1500250030002500175002700043Dem<strong>and</strong> Period1234IdleCapacity<strong>Production</strong>PeriodBeginningInventory10000 5 10 150Regular Time1015 20 2510001Overtime1520 25 30500Subcontract2530 35 405000Regular Time10 15 2010002Overtime1520 25500Subcontract2530 355000Regular Time10 1510003Overtime1520500Subcontract25305000Regular Time1010004Overtime15500Subcontract255000Dem<strong>and</strong>50025003000250017500260004422
Dem<strong>and</strong> Period1234IdleCapacity<strong>Production</strong>PeriodBeginningInventory10000 5 10 150Regular Time5001015 20 255001Overtime1520 25 30500Subcontract2530 35 405000Regular Time10 15 2010002Overtime1520 25500Subcontract2530 355000Regular Time10 1510003Overtime1520500Subcontract25305000Regular Time1010004Overtime15500Subcontract255000Dem<strong>and</strong>0250030002500175002550045Dem<strong>and</strong> Period1234IdleCapacity<strong>Production</strong>PeriodBeginningInventory10000 5 10 150Regular Time5001015 20 255001Overtime1520 25 30500Subcontract2530 35 405000Regular Time100010 15 2002Overtime1520 25500Subcontract2530 355000Regular Time10 1510003Overtime1520500Subcontract25305000Regular Time1010004Overtime15500Subcontract255000Dem<strong>and</strong>015003000250017500245004623
Dem<strong>and</strong> Period1234IdleCapacity<strong>Production</strong>PeriodBeginningInventory10000 5 10 150Regular Time5001015 20 255001Overtime1520 25 30500Subcontract2530 35 405000Regular Time100010 15 2002Overtime5001520 250Subcontract2530 355000Regular Time10 1510003Overtime1520500Subcontract25305000Regular Time1010004Overtime15500Subcontract255000Dem<strong>and</strong>0100030002500175002400047Dem<strong>and</strong> Period1234IdleCapacity<strong>Production</strong>PeriodBeginningInventory10000 5 10 150Regular Time5001050015 20 2501Overtime1520 25 30500Subcontract2530 35 405000Regular Time100010 15 2002Overtime5001520 250Subcontract2530 355000Regular Time10 1510003Overtime1520500Subcontract25305000Regular Time1010004Overtime15500Subcontract255000Dem<strong>and</strong>05003000250017500235004824
Dem<strong>and</strong> Period1234IdleCapacity<strong>Production</strong>PeriodBeginningInventory10000 5 10 150Regular Time5001050015 20 2501Overtime1550020 25 300Subcontract2530 35 405000Regular Time100010 15 2002Overtime5001520 250Subcontract2530 355000Regular Time10 1510003Overtime1520500Subcontract25305000Regular Time1010004Overtime15500Subcontract255000Dem<strong>and</strong>0030002500175002300049Dem<strong>and</strong> Period1234IdleCapacity<strong>Production</strong>PeriodBeginningInventory10000 5 10 150Regular Time5001050015 20 2501Overtime1550020 25 300Subcontract2530 35 405000Regular Time100010 15 2002Overtime5001520 250Subcontract2530 355000Regular Time10 15100003Overtime1520500Subcontract25305000Regular Time1010004Overtime15500Subcontract255000Dem<strong>and</strong>002000250017500220005025
Dem<strong>and</strong> Period1234IdleCapacity<strong>Production</strong>PeriodBeginningInventory10000 5 10 150Regular Time5001050015 20 2501Overtime1550020 25 300Subcontract2530 35 405000Regular Time100010 15 2002Overtime5001520 250Subcontract2530 355000Regular Time10 15100003Overtime50015200Subcontract25305000Regular Time1010004Overtime15500Subcontract255000Dem<strong>and</strong>0015002500175002150051Dem<strong>and</strong> Period1234IdleCapacity<strong>Production</strong>PeriodBeginningInventory10000 5 10 150Regular Time5001050015 20 2501Overtime1550020 25 300Subcontract2530 35 405000Regular Time100010 15 2002Overtime5001520 250Subcontract2530 355000Regular Time10 15100003Overtime50015200Subcontract1500 25303500Regular Time1010004Overtime15500Subcontract255000Dem<strong>and</strong>000250017500200005226
Dem<strong>and</strong> Period1234IdleCapacity<strong>Production</strong>PeriodBeginningInventory10000 5 10 150Regular Time5001050015 20 2501Overtime1550020 25 300Subcontract2530 35 405000Regular Time100010 15 2002Overtime5001520 250Subcontract2530 355000Regular Time10 15100003Overtime50015200Subcontract1500 25303500Regular Time10001004Overtime15500Subcontract255000Dem<strong>and</strong>0001500175001900053Dem<strong>and</strong> Period1234IdleCapacity<strong>Production</strong>PeriodBeginningInventory10000 5 10 150Regular Time5001050015 20 2501Overtime1550020 25 300Subcontract2530 35 405000Regular Time100010 15 2002Overtime5001520 250Subcontract2530 355000Regular Time10 15100003Overtime50015200Subcontract1500 25303500Regular Time10001004Overtime500150Subcontract255000Dem<strong>and</strong>000100017500185005427
Dem<strong>and</strong> Period1234IdleCapacity<strong>Production</strong>PeriodBeginningInventory10000 5 10 150Regular Time5001050015 20 2501Overtime1550020 25 300Subcontract2530 35 405000Regular Time100010 15 2002Overtime5001520 250Subcontract2530 355000Regular Time10 15100003Overtime50015200Subcontract1500 25303500Regular Time10001004Overtime500150Subcontract1000254000Dem<strong>and</strong>0000175001750055Dem<strong>and</strong> Period1234IdleCapacity<strong>Production</strong>PeriodBeginningInventory10000 5 10 150Regular Time5001050015 20 2501Overtime1550020 25 300Subcontract2530 35 4050000Regular Time100010 15 2002Overtime5001520 250Subcontract2530 3550000Regular Time10 15100003Overtime50015200Subcontract1500 253035000Regular Time10001004Overtime500150Subcontract1000 2540000Dem<strong>and</strong>0000005628