Lecture 12. Introductory Production Control

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1 Lecture 12 Introductory Production Control 167

2 Where we ve come from: Models of Manufacturing Systems: Deterministic, Queuing, Simulation Key ideas: Some WIP useful for buffering stations, but More WIP Longer throughput time (Little s law) Variation is undesirable: Sacrifices capacity, longer throughput time, more WIP 168

3 Manufacturing Planning/Production Control Suppose we have a product designed Suppose we have a facility to produce it Question: How do we operate the factory to produce the product? --> Production Control Production Control: coordination of resources to meet customer demands/orders. (Resources mean: inventory, equipment, labor) 169

4 Balancing in production control Production Control requires balance between customer service process efficiency (cost) inventory efficiency (cost) Potential conflicts: Customer service --> provide product with minimum leadtime process efficiency --> avoid overcapacity Inventory efficiency --> avoid tying up capital 170

5 inventory reduces cost through fewer missed sales (if finished product available) amortized setups reduced order costs (administrative overhead) reduced material cost through quantity discounts inventory contributes to cost through cost of invested funds cost of storage space quality costs coordination costs (tracking and transport of WIP) Cost of poor responsiveness, obsolescence, decay 171

6 WIP WIP (Work in Process): parts and products on the factory floor --> not in raw materials inventory --> not in finished goods inventory WIP means money tied up since products not shippable (From Dilworth): Value of inventory in average manufacturing company is 1.61 months sales = 13.4% of annual sales From 1988 to 1989, after tax profits of mfg. Companies averaged 5.4% sales This means manufacturing company had 2.5 years of profits invested in inventory 172

7 Breakdown of time spent by an average part in traditional metalworking batch manufacturing plant: 173

8 Production Control: the coordination of resources to meet customer demands/orders, balancing customer service process efficiency (cost) inventory efficiency (cost) Example of complexity: modern jetliner. How do we go about promising a delivery date? How do we ensure necessary parts come together in a timely manner? Production control addresses these questions: How much can we sell? What parts do we need, and when? What do we have in inventory? What do we have to make, and when? What is the lead time? What processes are required? 174

9 Process Decoupling Low High Complex production control: many products, lots of buffering Low Product Focus High simpler production control: few products, no buffering Process decoupling: separation of direct effects of different processes: examples: job shop (high) vs. transfer line (low) low decoupling --> higher inventory efficiency high decoupling --> higher process efficiency Product Focus: How dedicated are facilities to a specific product. 175

10 Production Control Classifications Methods for Independent Demands External demands (final products) Uncertainty Examples: Economic Order Quantity Fixed Quantity Fixed Interval Methods for Dependent Demands Demand depends directly on demand for higher level products. Examples: Push Systems (MRP) Pull Systems (JIT or lean manufacturing) 176

11 Independent Demand Inventory Methods Fixed Quantity Reorder reorder a fixed quantity when parts fall below reorder point good for parts with constant use rates Two-bin reorder useful for inexpensive parts Fixed Interval System at fixed time points, reorder to replenish up to fill line Useful when multiple part types from same supplier. 177

12 Economic Order Quantity Economic Order Quantity Model: allows determination of optimal order size or order period. Assumes: demand is known and constant setup cost and inventory costs are known C=inventory carrying cost per unit per time Q=batch size S=setup cost per batch D=Demand per unit time 178

13 EOQ C=inventory carrying cost per unit per time Q=batch size --> avg inventory level = Q/2 S=setup cost per batch D=Demand per unit time 179

14 Economic Order Period Optimal order period based on EOQ calculation Optimal period = EOQ Demand / period 180

15 Assumptions of EOQ: Use rate is uniform and known (constant demand) item cost does not vary with order size (no quantity discounts) No backorders (all of order delivered at same time) Lead time is known in advance Cost of order is same regardless of amount ordered Cost of holding inventory is a linear function of # of items held (no economies of scale in holding) No probability or uncertainty 181

16 ABC inventory classification % of $ usage % of items Classify and choose policy based on value: A: items of highest expenditure (top 10-20%) given greatest attention may warrant constant record keeping often fixed quantity reorder or frequent review interval B: items of mid importance (next 20-30%) C: items of lowest value examples: bolts or screws not worthwhile to track individually, don t worry if some extra just reorder on regular basis -- use simple methods 182

17 ABC classification example (Dilworth) Item Annual Use in $ % of Sum Cum. % , , , , , , , , , , , Note: keeping an extra month of A product #5294 is $8165 worth of inventory tied up. Keeping an extra month of C product #3521 is $ Key idea of ABC: for A items, keeping extra inventory is costly, so it is worth careful tracking. For C items, keeping extra inventory is less costly, so use easy tracking methods to save on inventory tracking effort. 183

18 Production control for dependent demand items Dependent demand items: Example: Forklift: each order requires 4 wheels, 4 tires, 1 seat, 1 steering wheel, etc. Methods: Push Pull OPT (drum-buffer-rope methods) 184