IE652 Production Planning and Control

IE652 ProductionPlanning and ControlInstructor: Dr. Rıfat Gürcan Özdemir, Assist. Prof.http://web.iku.edu.tr/~rgozdemir/index(ie_652).htmCourse MaterialsText Books1. “Production Planning, Control and Integration”,D. Sipper and R. Bulfin, McGraw-Hill, 1997.Lecture notes1. “pdf files of Power Point Slides” (will be given via internet)Software“GAMS LP Solver”2

Course TopicsPART I – Aggregare Production Planning(APP)Chapter 1:Spread Sheet and Transportation Methods forAPPChapter 2:Linear Programming Models for APP3Course TopicsPART II – Inventory managementChapter 3:Inventory Management and EOQ ModelsChapter 4:Quantity Discount and Multi Item InventoryModelsChapter 5:Dynamic Lot Sizing TechniquesChapter 6:Sthocastic Inventory ModelsChapter 7:Material Requirements Planning (MRP)4

Course TopicsPART III – Job schedulingChapter 8:Scheduling and SequencingChapter 9:Single Machine SchedulingChapter 10:Parallel Machine, Flow Shop and Job ShopScheduling5Grading• Exams (85% of total grade)Quizzes (15%)Midterm (30%)Final (35%)• Assignments (15% of total grade)• Participation (5% of total grade)6

IE652 - Chapter 1Spread Sheet andTransportation Methods for APPProduction Planning Horizons8

Production Planning Decisions9Aggregate Production Planning• Step 1. Aggregation: Different products areaggregated into a common unit.• Step 2. Planning: Demand fluctuations areabsorbed by: Changing the size of the workforce (hiring & layingoff), Varying the production rate (introduction of overtimeand/or idle time, relying on outside subcontracting), Accumulating seasonal inventories, Resorting to planned backlogs whenever customersmay accept delays in filling their orders, Shifting the demand to another period.or a combination of these decisions10

Costs relevant to aggregateproduction planning1. Basic production costs• Material• Direct labor• Overhead= fixed cost (setup cost) + variable cost2. Production rate change costs• Hiring personnel• Training personnel• Laying off personnel• Overtime compensations• Subcontracting11Costs 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 and loss of sales revenues resultingfrom the shortage situation)12

Approaches for APP• Spread Sheet Method Trial and Error approach Easily implemented with a spread sheet Zero inventory / Level production / Mixed plan• Transportation Method• Linear Programming Models13Example• Last year, Precision made 41,383 gears of various kinds.There were 260 working days and average of 40 workers.• Forecast demands over the next six months for aggregateunit are as follows:Month Jan. Feb. March April May June TotalDemand 2760 3320 3970 3540 3180 2900 19,670Working days 21 20 23 21 22 22 129• Inventory holding cost is $5 per gear per month. Newworkers can be hired at a cost of $450 per worker.Workers can be laid off at a cost of $600 per worker.There is a $15/unit/month backorder cost.• Wages and benefits for a worker are $15 per hour, allworkers are paid for eight hours per day, and there arecurrently 35 workers at Precision.14

Zero Inventory Plan41,383 gears/yearUnits/worker-day = 4 gears/worker-day10,400 worker-days/yearWorkers needed =demand/monthdays/month x units/worker-day15Zero Inventory Plan16

Zero Inventory Plan17Level (Fixed) Workforce PlanFixed # of Workers =Total demandTotal # of days x units/worker-dayFixed # of Workers =19,670129 x 4= 38.12 39 workers18

Level (Fixed) Workforce Plan19Level (Fixed) Workforce Plan20

Mixed Plan21Mixed Plan22

Mixed Plan23Transportation Model• A production planning problem with constantwork force can be solved as a transportationproblem.24

25Solution26

Extensions• Suppose 90 cases could be made on overtimein periods 1 and 2, 75 cases in period 3 at costsof $16, $18, $20 per case, respectively.• Suppose units are backordered at a cost of $5per unit-month.• Demand of period 1 increased to 400 units.27Solution28