production planning and inventory management
DESCRIPTION
The basic concepts of production planning and Inventory Management is carried out in this document to get know how.TRANSCRIPT
Production Planning
All manufacturing and service operations require planning and controlling, although the formality and detail may vary. Some operations are more difficult to plan than others. Those with high unpredictability can be difficult to plan. Some are more difficult to control than others. The day to day running of manufacturing and service system rests with Production Planning.
The purpose of the production planning is to ensure that manufacturing run effectively and efficiently and produces products as required by customers.
Production Planning Activities
Capacity Planning1. Facility Size2. Equipment Procurement
Aggregate Planning1. Facility Utilization2. Personnel needs3. Subcontracting
Master Production Scheduling1. MRP2. Disaggregation of master plan
Short-term Scheduling1. Work center loading2. Job sequencing
Long-term(years)
Intermediate-term(6 to 18 months)
Short-term(weeks)
Very Short-term(hours – days)
Master Production SchedulingMaster Production Scheduling
Production Planning and Control SystemsProduction Planning and Control Systems
Aggregate PlanningAggregate Planning
Long-Range Capacity PlanningLong-Range Capacity PlanningEntire Entire
Product LineProduct Line
ProductProductFamilyFamily
SpecificSpecificProduct ModelProduct Model
Labor, Materials,Labor, Materials,MachinesMachines
Production Planning: Units of Measurement
Aggregate Planning Strategies Pure Strategies
Capacity Options --change capacity: changing inventory levels varying work force size by hiring or layoffs varying production capacity through overtime or
idle time subcontracting using part-time workers
Demand Options --change demand: Influencing demand backordering during high demand periods counterseasonal product mixing
Why Aggregate Planning Is Necessary
Fully load facilities and minimize overloading and underloading
Make sure enough capacity available to satisfy expected demand
Plan for the orderly and systematic change of production capacity to meet the peaks and valleys of expected customer demand
Get the most output for the amount of resources available
Inputs A forecast of aggregate demand covering
the selected planning horizon (6-18 months) The alternative means available to adjust
short- to medium-term capacity, to what extent each alternative could impact capacity and the related costs
The current status of the system in terms of workforce level, inventory level and production rate
Outputs
A production plan: aggregate decisions for each period in the planning horizon about workforce level inventory level production rate
Projected costs if the production plan was implemented
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Cost Information
MaterialsHolding costsMarginal cost of stockoutHiring and training costLayoff costsLabor hours requiredStraight time labor costBeginning inventoryProductive hours/worker/dayPaid straight hrs/day
Inventory Management Inventory-A physical resource that a firm
holds in stock with the intent of selling it or transforming it into a more valuable state.
Inventory System- A set of policies and controls that monitors levels of inventory and determines what levels should be maintained, when stock should be replenished, and how large orders should be
Types of Inventories Raw Materials Works-in-Process Finished Goods Distribution Inventory Supplies: Maintenance, Repair and Operating
(MRO)
Type of Inventory Type of Organization Supplies Raw In-Process Finished
Materials Goods Goods
A. Retail systems 1. Sale of goods 2. Sale of services
B. Wholesale / Distribution systems
C. Manufacturing systems 1. Special project 2. Intermittent process . 3. Continuous process
a. Process industries b. Repetitive mfging.
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Understocking (too few) results in missed deliveries, lost sales, dissatisfied customers, and production bottlenecks (idle workers or machines).
Resulting underage cost. Overstocking (too many) ties up funds that might
be more productive elsewhere.
Resulting overage cost.
Goal: matching supply with demand!
Inadequate control of inventories can result Inadequate control of inventories can result in both under- and overstocking of items.in both under- and overstocking of items.
Reasons for Inventories Improve customer service Economies of purchasing Economies of production Transportation savings Hedge against future Unplanned shocks (labor strikes, natural
disasters, surges in demand, etc.) To maintain independence of supply chain
Reasons Against Inventory
Non-value added costs Opportunity cost Complacency Inventory deteriorates, becomes
obsolete, lost, stolen, etc.
Inventory Related Costs
Procurement Costs: Order processing Shipping Handling
Carrying (Holding) Costs Capital (opportunity) costs Inventory risk costs Space costs Inventory service costs
Out-of-Stock Costs Lost sales cost Back-order cost
Independent and Depenedent Demand
Independent demand items are finished products or parts that are shipped as end items to customers.
Dependent demand items are raw materials, component parts, or subassemblies that are used to produce a finished product.
Independent vs. Dependent Demand
A
Independent Demand(finished goods and spare parts)
B(4) C(2)
D(2) E(1) D(3) F(2)
Dependent Demand(components)
Objectives of Inventory Control
1) Maximize the level of customer service by avoiding understocking.
2) Promote efficiency in production and purchasing by minimizing the cost of providing an adequate level of customer service.
Balance in Inventory Levels
When should the company replenish its inventory, or when should the company place an order or manufacture a new lot?
How much should the company order or produce?
Next: Economic Order Quantity (EOQ)
Balancing Carrying against Ordering Costs
AnnualAnnual Cost ($)Cost ($)
Order QuantityOrder Quantity
MinimumMinimumTotal AnnualTotal Annual
Stocking CostsStocking Costs
AnnualAnnualCarrying CostsCarrying Costs
AnnualAnnualOrdering CostsOrdering Costs
Total AnnualTotal AnnualStocking CostsStocking Costs
SmallerSmaller LargerLarger
Low
erL
ower
Hig
her
Hig
her
EOQEOQ
Classifying Inventory Items ABC Classification (Pareto
Principle) A Items: very tight control, complete
and accurate records, frequent review B Items: less tightly controlled, good
records, regular review C Items: simplest controls possible,
minimal records, large inventories, periodic review and reorder
ABC Classification System
Classifying inventory according to some measure of importance and allocating control efforts accordingly.
AA - very important
BB - mod. important
CC - least important Annual $ value of items
AA
BB
CC
High
Low
Low HighPercentage of Items
ABC Classification System