Supply chain planning production planning

You may only use and print one copy of this document for private study Supply Chain Planning: Production Planning materials to the purchasing department.. The primary business issues ad

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Supply Chain Planning: Production Planning

materials to the purchasing department

The primary business issues addressed by production planning include:

• Ensuring machines and materials are available for production when needed

• Maximizing throughput and utilization of factory resources

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How is a Production Planning Integrated with Supply Chain Planning?

Production planning is one component of the supply chain planning process Supply chain

planning is an integrated process that allows companies to plan and integrate the supply chain functions of procurement, manufacturing, and fulfillment

Demand, supply, production, and fulfillment planning operate as interdependent supply chain planning functions The goal is to integrate these processes so that all the plans are synchronized with one another Plans generated during one process are used by one or more of the other processes In other words, planners need to know:

• What to do with the information generated

• How the different processes relate to one another

Specifically, a materials planner may wonder, "What if my suppliers can't deliver to our requested quantities and timing?" There are many ways to resolve this issue One viable option is to delay the production of some of the items until materials are available, and inform fulfillment planning about the delay in meeting customer requirements Another option may be to work with

Procurement to determine if the finished goods could be sourced from another vendor

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Objectives

After completing this module, you should be able to:

• Discuss the purpose, objectives, and benefits of production planning

• Describe the different components of production planning, the business problems it solves, and the key capabilities production planning offers

• Identify key inputs, constraints, and other considerations for the components of

production planning

• Describe the measurements and metrics for production planning

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Introduction to Production Planning

Overview

Once a company has developed demand and supply plans, it must plan how to manufacture the

product Production planning (sometimes referred to as factory planning) includes two

components:

• Production Schedule - Determine the resources required (labor and machines) and the

sequence (time frame) of the manufacturing operations In some cases, the production schedule specifies the start times for the different items; it is occasionally referred to as

the start plan

• Materials Plan - Identify the materials needed (raw materials or sub-components) to

meet manufacturing requirements, along with the time and factory floor location where the material will be needed This differs in the level of detail from the materials plan generated during supply planning

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Production Planning Constraints

Production planning is limited by capacity and materials constraints For example, a machine can produce a maximum number of items per hour, or is scheduled to run a set number of times per week This differs from supply planning in the level of detail An example of a supply planning

constraint is the daily production capacity of one line, while an example of a production planning constraint is the production capacity for one station on the entire manufacturing line The

production capacity may be stated as either the number of items processed per time unit, or the processing time required per item

Similarly, there could be materials constraints that affect production The materials plan

generated during supply planning considers only key components, while the materials plan generated during production planning considers all materials required for manufacturing the products

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Components of Production Planning

Production planning consists of the following two components:

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Production Planning in Different Industries

Planning emphasis on the different production planning components can vary by industry For example, capacity constraints are very important in the semiconductor industry, while materials planning is very important in the computer industry

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Production Planning in Different Industries - Semiconductor

The semiconductor industry is a capacity constrained industry In addition, very few

manufacturers produce product without orders from their customers A new factory can cost in excess of $2 billion In addition, while wafers are made of sand (a negligible material cost), it may take several weeks to manufacture a wafer Thus, manufacturers have limited capacity to satisfy customer orders, and demand often exceeds supply Some of the challenges of the

semiconductor industry are:

Maximizing product throughput

Since demand exceeds supply in this industry, maximizing product throughput becomes

extremely important Companies strive to develop "optimal" production schedules that maximize machine utilizations and product throughput Furthermore, because different products are

processed on the same resource (i.e., machine), the resource requires a certain amount of

"changeover" time (e.g., tool changes, cooling down) The amount of changeover time required depends on what product was just processed and which will be processed next As a result, the sequence in which products are processed on resources is also very important

Inaccurate due date promises

Manufacturers must ensure that they can provide accurate order promise dates to their

customers Unfortunately, most manufacturers provide promise dates for customer orders based

on predetermined lead-times that do not always reflect reality With accurate production planning information (when product will be manufactured), manufacturers can quote more accurate order due dates to customers

Industry Sector Production Planning High-Tech - Semiconductor • Maximize product throughput

o Minimize changeover and other "down" times

o Develop "optimal" production schedules

• Ability to quote due dates accurately

The semiconductor industry thus tends to focus on production scheduling

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Production Planning in Different Industries - Computer

In contrast to the semiconductor industry, the computer industry is not capacity constrained at all, i.e., there is sufficient capacity to meet all customer demand However, the profit margins for computer manufacturers are thin, and customers demand customized configurations Thus, ensuring that sufficient material is available (without incurring excessive inventory costs) is very important in this industry Challenges in the computer industry include:

High fluctuations in demand

Consumers want new and improved products As a result, demand often hits a peak very soon after a new product is introduced and declines rapidly after that If the company carries too much material, they could be left holding obsolete inventory

Increasing customer demand for customized products

Customers want to customize their computer products; this makes it difficult for

manufacturers to forecast demand for end products accurately At the same time, the manufacturer must be able to assemble a computer relatively quickly Hence, they must plan for material to be available when needed By creating production schedules quickly and for short time horizons, manufacturers can communicate with their materials suppliers

to provide material just in time for production

Industry

Sector

Production Planning

Computer • Ability to plan for customized configurations

• Ability to create production schedules quickly

• Ability to create materials plan for a short time horizon and communicate with

suppliers

The computer industry thus tends to focus on materials planning

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Production Planning in Different Industries - Automotive

The automotive industry is an example in which production scheduling and materials planning are both very important Each car requires several thousand parts; therefore, material coordination is extremely important At the same time, manufacturers must ensure that assembly lines are balanced and assembly stations are not over or under-utilized (idle) Some challenges of the automotive industry are:

Production Flexibility

Every car traveling down an assembly line is different from the preceding or succeeding car Despite this, the assembly line must remain in balance to ensure minimal disruptions to

production

High Number of Parts

Despite the fact that automotive makers use an extremely high number of parts—a typical car manufacturer uses approximately 1.5 million parts every day—they must ensure that the right parts with the right quality are available at the right place, at the right time

Maintaining Inventory

Due to the large number of parts, manufacturers cannot afford to keep a high inventory of each part They must therefore minimize their inventory for parts and ensure availability

Collaboration with Suppliers

To maintain a low inventory of parts, manufacturers must communicate effectively, i.e.,

collaborate, with their suppliers Manufacturers receive parts just in time for production To ensurethis, they must share their production schedules with their suppliers The best manufacturers provide their suppliers a daily (and sometimes hourly) delivery schedule four to 10 days ahead of delivery

Industry Sector Production Planning

• Coordinate material availability

o Provide a four - 10 day rolling delivery schedule to suppliers

• Maintain low inventory

o Provide a four - 10 day rolling delivery schedule to suppliers

Both production scheduling and materials planning are thus critical in the automotive industry

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Topic Summary

What is it?

• Determine how to manufacture the product (i.e.,

what resources will be used, what materials are

required, and in what sequence (and time) the

manufacturing operations will be performed)

Determine what materials will be required to meet

the manufacturing requirements

Key output

• Production schedule

• Detailed materials plan

Sample business problems addressed

• Ensure that machines/materials are available for

production when needed

• Maximize resource utilization

Key capabilities

• Scheduling and sequencing production activities

• Defining material requirements

• Communicating purchase order recommendations to purchasing

• Managing exceptions

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Introduction to Production Scheduling

The master production schedule (MPS) created during supply planning defines what must be

produced in the factory to meet customer demand The MPS now needs to be converted into a

production schedule that is used to drive manufacturing on the factory floor The production

schedule will determine the resources required and the sequence in which operations will be performed on each resource to manufacture the product The production scheduling process strives to respect the capacity constraints of each resource and reflect cycle times This is

inherently a very complex process because planners generate the schedule while considering dozens of business rules and constraints

In many cases, a company will have many different products to manufacture and could do so in a variety of ways For effective production scheduling, a company must implement key capabilities, including the ability to:

Schedule production activities

Convert the MPS into a production schedule that specifies the sequence in which the product is processed on multiple resources, as well as the processing times (or starting and stopping times

of each operation) for each operation This also includes matching work in process (WIP) and manufacturing orders (supply/demand match)

Consider different constraints

Two types of constraints are generally considered during production scheduling—capacity

constraints and materials constraints The production schedule generated must ensure that sufficient capacity is available on each resource, and that the materials are available when required

Evaluate multiple scenarios

Certain orders must be processed, or expedited, through the factory quickly This may affect the completion date of other orders The company must be capable of understanding the impact of expediting one or more orders on other orders, as well as evaluating multiple production

schedules and their impact on customer order completion dates

Production schedulers use the production schedule to drive production through the factory shop floor They will usually receive a report that specifies the sequence and start times for each item

to be manufactured during a given day or shift They may also use specialized software to

evaluate multiple scenarios before making a final decision on the production schedule for the day

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Production Scheduling Stakeholders and Business Issues

We have established the outputs from and the capabilities required for production scheduling During production scheduling, companies strive to:

Maximize throughput

The MPS process during supply planning considers high-level capacity constraints and creates a daily schedule for production scheduling to follow The goal of the production scheduling process

is to ensure that manufacturers can produce maximum product using available resources

Maximize resource utilization

Since factory resources are very expensive and require large capital expenditures, a company must ensure that they utilize such resources effectively to obtain a high return on investment Idle resources are resources not fully utilized; in other words, the factory may not be operating to its optimal capacity

Minimize changeover times and costs

Many resources can be used for manufacturing multiple products In many instances, when a resource is switched from manufacturing one type of product to another, there is some

changeover time and cost Generally, machines are not usable during changeover periods, leading to lost capacity One of the goals during production scheduling is to minimize such changeover times and costs

Minimize lateness

Orders scheduled in the factory have a due date, i.e., a date prior to which they must be

completed In many cases, sufficient capacity and/or materials are not available to meet all due dates During the detailed scheduling process, manufacturers strive to minimize late orders

Minimize earliness

Orders scheduled in the factory have a due date, i.e., a date prior to which they must be

completed In many cases, sufficient capacity and/or materials are not available to meet all due dates on the exact date specified, and items may be manufactured ahead of that date Early completion means incurring undesirable inventory-carrying costs During the detailed scheduling process, manufacturers strive to minimize early orders

Manufacturing uses the output from the production scheduling process to ensure that machines, labor, and materials are available when required Fulfillment may use the production schedule as

an input to determine when transportation is needed to move the product from the factory to the distribution centers and/or customers Customer service may use the production plan to

determine whether orders will be met on time or late

Production scheduling is typically performed for one to seven days, and updated daily Some advanced companies update their schedules more frequently, e.g., a high-volume discrete manufacturer has a four-hour scheduling horizon

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Key Inputs, Outputs, and Considerations

A key concept related to production scheduling is the concept of production scheduling

algorithms, including:

• Shortest process time

• Earliest due date

• Minimum total manufacturing time

Additional considerations include:

• Business objectives

• Customer prioritization

• Supply prioritization

• Alternate production routes

The figure illustrates the key inputs and outputs for production scheduling

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Key Outputs - Production Schedule

The production schedule specifies what items are started on which resources at what times The schedule considers capacity constraints and manufacturing cycle times while trying to ensure maximum utilization of resources and maximum throughput of product

Example

Consider the example of a cookie manufacturer that bakes two types of cookies—chocolate chip (CC) and peanut butter (PB)

• The CC cookies are baked at 275 degrees F for one hour, and the PB cookies are baked

at 350 degrees F for one hour

• The company only has one oven in which to bake these cookies

• If the oven is already set at 275 degrees, it requires another 15 minutes for it to heat up

to 350 degrees, whereas if it has been set at 350 degrees, it takes 45 minutes for it to cool down to 275 degrees (both of these times are analogous to changeover times)

• Due to the capacity constraints of the oven, the company can bake a maximum of 15 CC cookies or 10 PB cookies at one time

• The baker (and hence the oven) works from 7 a.m to 3:30 p.m

• According to the Cookie Delivery Schedule, the company needs to produce 30 CC

cookies and 50 PB cookies

Quantity Due Time

The following information is required to create a solution:

• Identify the factory resources required - an oven is the only resource that is required

• Understand the manufacturing process/routes - in this case, the process and the

route is very simple Put the cookies in the oven at the appropriate temperature and bake for the required time period

• Define the raw materials required to make the cookies - the dough for each type of

cookie is premixed

• Identify the constraints - the constraint for baking cookies is that only one oven is

available from 7 a.m to 3:30 p.m., and the set-up time to change the temperature from

275 degrees to 350 degrees is 15 minutes, while the set-up time to change the

temperature from 350 degrees to 275 degrees is 45 minutes The company can bake a maximum of 15 CC cookies or 10 PB cookies at one time

• Determine when the items are demanded - the schedule of demand for the cookies is

identified in the problem description

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Key Outputs - Production Schedule - continued

There are many ways to go about determining a feasible production schedule One approach is trial and error—try a sequence of activities and determine if the resulting sequence satisfies all the constraints If it does, you have a solution If it does not, you then must modify some aspect of the sequence, and try again until you reach a feasible solution

Determine which of the following sequences provides a feasible production schedule Be sure to

consider the Cookie Delivery Schedule and Capacity Constraints Click the button below to

review the schedule and constraints

2 Heat Oven to 350 degrees

3 Bake 10 Peanut Butter Cookies

5 Cool Oven to 275 degrees

6 Bake 15 Chocolate Chip Cookies

2 Cool Oven to 275 degrees

Schedule and Constraints

Cookie Delivery Schedule

Quantity Due Time

is 45 minutes The company can bake a maximum of 15

CC cookies or 10 PB cookies at one time

Production Schedule Solution

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In most cases, a product would have to go through multiple resources before it is completely

manufactured To simplify this example, we considered only one resource

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Key Concepts - Production Scheduling Algorithms

Generating a production schedule is extremely difficult, especially in cases where the goods must

be processed on multiple machines and can have multiple routes through the manufacturing facility Commonly used methods for solving such scheduling problems include:

Shortest Process Time

On a given machine, complete the job that has the shortest process time first, and the job with the longest process time last This ensures that short jobs move through the manufacturing facility more quickly than long jobs This tends to reduce congestion

Earliest Due Date

Order jobs according to their due dates, with the earliest due date first and the latest due date last This minimizes the maximum lateness of any one job This approach will also allow the manufacturer to finish all jobs on time if it is possible to do so

Minimum Total Manufacturing Time

Minimize the time to complete n jobs through m machines in a manufacturing facility While this is

a well-known and well-researched problem by practitioners and researchers, obtaining an optimal solution for this is extremely difficult One possible heuristic approach is used to schedule jobs using their latest possible start times (LPST) for each machine, which allows manufacturers to take into consideration the due dates for the jobs and the manufacturing lead-times To

accomplish this, planners use a job and its due date, then subtract the manufacturing lead-time for the last operation (in its manufacturing sequence) to determine its LPST for the last operation They continue this process backwards until they determine the start time for the first operation

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Inputs for Production Scheduling

There are several inputs required for production scheduling The most common and important inputs are classified into three types—demand inputs, supply inputs, and static inputs (inputs that seldom change)

Demand Inputs

Customer Orders

Orders placed by customers and given top priority for scheduling to ensure that due

dates are met

Manufacturing Orders

Generated during distribution planning and master production scheduling, and used as

the key input for developing the production schedule

Stock Orders

Requests to increase inventory (demand) at certain locations Stock orders are not

customer specific, but placed according to inventory location (e.g., distribution centers)

and are not tied to any specific customers

Inventory of materials that has been shipped and is en route to the appropriate location;

this information is used to determine the net material requirements

Work in Process (WIP)

Work that has already started and is partially completed The WIP may be used during

the calculation of net material requirements

Static Inputs

Run Rates

The rate at which resources manufacture goods, e.g., a machine may be capable of

manufacturing 30 units of Product A per hour, or 20 units of Product B per hour Its run

rate would then be 30 units per hour for Product A, and 20 units per hour for Product B

Cycle Times

The time it takes to manufacture an item

Set-up Times

Some resources may require an initial set-up time before they can become operational

for production Set-up time is usually defined in units of time, e.g., 30 minutes or two

hours

Transfer Times

The amount of time required to move product from one factory resource to another As

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The number of items that can be simultaneously processed on a resource There are

numerous resources that can produce many units of a product at the same time A

conventional oven able to bake several cookies simultaneously is one such example

(e.g., 15 chocolate chip cookies or 10 peanut butter cookies per oven batch)

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Additional Considerations

In developing production schedules, companies may account for additional considerations, such as:

• Business Objectives - In addition to maximizing product throughput and resource

utilization, a company may consider additional business objectives at this time, e.g., minimizing the cost of production, or minimizing the cost of goods sold

• Customer Prioritization - Some customers are more important than others, and

companies go to great lengths to satisfy this customer base (e.g., meeting delivery dates) Companies develop production schedules that accomplish this even if it means slippage

in delivery dates to some other customers

• Supply Prioritization - A company may have multiple sources of supply for certain raw

materials, or sub-assemblies and components, and they will typically specify the primary source and a secondary source of supply for each of these items They will use

secondary sources only if the primary source is unable to meet requirements

• Alternate Production Routes - In many instances, a product can follow more than one

manufacturing route through a factory In such cases, the company may be able to

specify a primary route and one or more alternate routes The alternate routes may be used in cases of insufficient capacity and/or materials

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Organizational Implications

Currently, many organizations create production schedules manually, e.g., by using spreadsheets, pegboards, and/or whiteboards Consequently, they cannot consider all the possible inputs and constraints To use and benefit from the production scheduling process, companies must

implement scheduling software that, in turn, leads to fundamental changes in the process,

including:

• Centralized Decisions - Often there is a central schedule coordinator who works with

schedulers from each manufacturing line or factory to coordinate all production schedules and ensure that the business objectives of the organization are met

• Team-based Decisions - Decisions made by the schedulers are team-based, preventing

individual schedulers from making isolated decisions

• Coordinated Decision Support - The schedule coordinator, who provides coordinated

decision support to all schedulers, now coordinates any changes and decisions that must

be made in the production schedules

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Organizational Implications - continued

Such changes to the production scheduling process also lead to several organizational changes within the company:

• Decreased Number of Schedulers - The use of advanced software usually leads to a

decrease in the number of schedulers required to create production schedules In many cases, it may even lead to centralized scheduling in which schedules for multiple plants are handled by one scheduler With increased responsibility for the centralized scheduler, other associates and planners may interpret it as an increase in power

• Different Performance Metrics - Measurement of individual performance will likely

change For example, while in the past a scheduler may have been measured on

resource utilization, they may now be measured on the ability to achieve the goals set forth in the production schedule

• Different Skill Requirements - Skill requirements for the scheduler change, e.g., ability

to manage multiple schedules simultaneously, increased analytical capability, and the ability to manage more complexity This may lead to retraining or even a new job grade

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A Production Scheduling Example

We will now consider a complex example by taking into account work in progress (WIP) and alternate routes

Example

A company manufactures two products—Product A and Product B It has three machines—Machine 1, Machine 2, and Machine 3

• Product B has only one route—process on Machine 3 for 30 minutes and then on

Machine 2 for 30 minutes

• Product A has two routes; the primary route is to process on Machine 1 for two hours, and then on Machine 2 for 90 minutes; the alternate route is to process on machine 3 for three hours, and then on Machine 2 for one hour

• We will assume that there are no materials constraints, set-up times, or changeover times

• The figure shows the routes

The factory is required to complete five units of Product B today, and four units of Product A today The only available WIP today is one unit of Product B that has completed processing on Machine 3 The machines are available during the hours of 8 a.m and 4 p.m The company's goals are to maximize resource utilization and product throughput

Solution Approach

The following information is required to create a production schedule

• Determine the materials required - The problem states that there are no materials

constraints, but in this case there is one WIP unit of Product B

• Identify the resources required - Machines 1, 2, and 3

• Understand the manufacturing process/routes - In this case, there is a different route

for each product; there is also an alternate route for Product A

• Identify the constraints - The constraints for the machines are the times they are

available (8 a.m to 4 p.m.)

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• Determine when the items are demanded - The schedule of demand for the products is

to complete five units of Product B today, and four units of Product A today

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A Production Scheduling Example - continued

There are many ways to go about solving this problem Select the Sample Solution button to

reveal one feasible solution

Sample Solution

A sample production schedule for each machine and product is shown in the tables (note that we have used A1, A2, etc., to differentiate between each unit of the product)

Select the Sample Solution Considerations button to reveal how this solution addresses capacity

and materials constraints and achieves production scheduling objectives

Sample Solution Considerations

Although the problem appears to be relatively simple, the solution procedure is very complex; it may take several minutes, or sometimes hours, for specialized software to generate a good

solution for the typical company that has several products and resources For this example, note the following:

• Only four units of Product B are manufactured on Machine 3 because one unit was

already a WIP and was netted out to determine the net requirements for the day

• Schedulers consider cycle time for each machine and unit in developing the schedule

• The capacity constraints are satisfied for each resource

• One unit of Product A is manufactured on the alternate route because not enough

capacity is available on the primary route

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• The goal of maximizing factory utilization is met because all the resources are fully utilized and are not idle at any time

• The goal of maximizing product throughput is met because after completing the required number of units for Product A, some additional units of Product A are manufactured, and they will serve as WIP for the subsequent days

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Topic Summary

What is it?

• How to manufacture the product (i.e., what

resources will be used, and in what sequence (and time)

the manufacturing operations will be performed)

Key output

• Detailed production schedule

Business problems addressed

• Maximize throughput

• Maximize resource utilization

• Minimize changeover times and costs

• Minimize lateness

Key capabilities

• Schedule production activities

• Ability to consider different constraints

• Evaluate multiple scenarios

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