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AGGREGATE PRODUCTION PLANNING

Production and Operations Management - R B Khanna Prentice Hall India

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Production Planning and Scheduling System

BUSINESS PLAN (6 TO 18 MONTHS)

OPERATIONS PLAN OUTPUT PLANNING AGGREGATE PRODUCTION CAPACITY PLANNING AGGREGATE CAPACITY ROUGH CUT CAPACITY DETAILED CAPACITY

MPS

MRP

LOADING SCHEDULING SEQUENCING EXPEDITING

Production and Operations Management - R B Khanna Prentice Hall India

SHORT TERM CAPACITY CONTROL

Aggregate Planning Process

Concept of aggregation Goals
Provide levels of output, inventory and backlogs as dictated by the business plan Use capacity consistent with org strategy Should be consistent with org goals and policies regarding its employees

Forecasts of aggregate demand

Developed for 6 to 18 months
Production and Operations Management - R B Khanna Prentice Hall India

Inputs Production Planning System

EXTERNAL FACTORS Market Demand Competitors Behaviour Economic Conditions Planning for production INTERNAL FACTORS

Current Capacity
Current Workforce Inventory Levels

Raw Materials Availability

External Capacity

Policy on Back orders & Sub contracts

Production and Operations Management - R B Khanna Prentice Hall India

Production Planning Strategies

Chase Strategy. Production rate is adjusted to meet forecast demand by increasing or decreasing the level of the work force through hiring and firing. Level Production Strategy. A stable work force is maintained and production rate is kept constant. The work force is based on the total demand for the planning period and shortfalls are carried forward as backorders while surpluses are carried forward as inventories.
Production and Operations Management - R B Khanna Prentice Hall India

Production Planning Strategies

Stable Workforce Variable Work Hours. Have stable work force but adjust the production rate by varying the work hours. Shortfalls can be made up through working overtime and during slack periods the work force can be under utilised. Sub-contracting Part time workers
Production and Operations Management - R B Khanna Prentice Hall India

Production Planning Strategies

Stategy aims at minimising costs Costs
Basic production cost Hiring and firing costs Inventory carrying costs Back-order costs Subcontracting costs

Production and Operations Management - R B Khanna Prentice Hall India

EXAMPLE
Forecast demand Jan 2000 Feb 3000 No of workers 25 Each worker produces 100 units per month Wages Rs 4000 per month Cost of hiring and training Rs 500/Cost of layoff 20% of salary (Rs 800) Inventory carrying cost Rs 10 per unit per month

Production and Operations Management - R B Khanna Prentice Hall India

Inventory Management
Any idle resource with economic value is inventory Costs
Ordering Costs Carrying or Holding Costs Stockout Costs Inventory Costs Cost of purchasing inventory
Production and Operations Management - R B Khanna Prentice Hall India

Costs Associated with Inventory

Ordering costs
Stationary Clerical effort Cost of advertising tenders and documentation costs. Shipment costs Transit insurance and so on Occur each time an order is placed
Production and Operations Management - R B Khanna Prentice Hall India

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Costs Associated with Inventory

Holding or carrying costs
Storage Interest on money invested in inventory Cost of deterioration and obsolescence Security Losses Pilferage Accounting and so on. Incurred because firm holds and maintains inventory

Production and Operations Management - R B Khanna Prentice Hall India

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Relationship Between Ordering And Holding Costs

Ordering costs increase with increase in the number of orders. Holding costs decrease with the increase in number of orders. Size of order reduces and average inventory held reduces. For example, if annual requirement is 1200 units and 4 orders are placed, size of order is 300. If 12 orders are placed size of order is 100. Find optimal total cost.
5000 4500 4000 3500 3000

Rs

2500 2000 1500 1000 500 0 0 5 10 15 No of Orders 20 25

Production and Operations Management - R B Khanna Prentice Hall India

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EOQ Model - Assumptions

Annual usage can be estimated Demand or usage rate is constant or nearly constant. An order is received all at once. Lead time is constant. Ordering costs and carrying costs can be computed with reasonable accuracy.
Production and Operations Management - R B Khanna Prentice Hall India

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EOQ Model
Economic order quantity is given by:
2 AS Ci where Q is the quantity to be ordered A is the annual usage C is the cost of the item per unit S is the ordering cost per order and i is the carrying cost expressed as a percentage of the cost of average inventory held Average Inventory held = Q/2 At EOQ, ordering costs are equal to holding costs. Q

Production and Operations Management - R B Khanna Prentice Hall India

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ABC Analysis
Inventory can be classified according to its annual usage value (numbers used in a year multiplied by the cost per unit) into A, B and C categories. Their distribution is as follows: Category Percentage of Percentage inventory items Cost
A Items B Items C Items
Production and Operations Management - R B Khanna Prentice Hall India

5 to 10 % 20% 70 to 75%

70 to 75% 20% 5 to10%

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ABC Analysis - Steps

Prepare a list of items and estimate annual consumption. Determine unit price. Obtain Annual Usage Value in Rs. Arrange in descending order of annual usage value. Calculate cumulative cost percentage of total value. Calculate cumulative item percentage Plot cumulative cost percentage Vs cumulative item percentage and segregate into A, B and C categories. There is a sharp rise in the curve for A items and a distinct levelling off for C items.

Production and Operations Management - R B Khanna Prentice Hall India

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S No
(a)

Item
(b)

Annual Usage
(c)

Cost per nit

(d)

Annual Usage Value

(e)

Rank
(f)

Revised Rank
(g)

Item
(h)

Annual Usage Value

(i)

Cumulative Usage
(j)

Cumulative Usage %age

(k)

Cumul ative Item %age

(l)

1 2 3 4 5 6 7 8 9

A B C D E F G H I

50 100 160 30 10 18 200 20 180

5 12 55 6 1 90 110 8 30

250 1200 8800 180 10 1620 22000 160 5400

14 10 4 16 20 9 2 18 5

1 2 3 4 5 6 7 8 9

L G P C I N K Q F

35000 22000 10500 8800 5400 5400 3880 3640 1620

35000 57000 67500 76300 81700 87100 90980 94620 96240

34.9 56.9 67.4 76.2 81.6 87 90.8 94.5 96.1

5 10 15 20 25 30 35 40 45

10
11 12 13 14

J
K L M N

50
40 140 60 600

12
97 250 12 9

600
3880 35000 720 5400

12
7 1 11 6

10
11 12 13 14

B
M J R A

1200
720 600 300 250

97440
98160 98760 99060 99310

97.3
98 98.6 98.9 99.2

50
55 60 65 70

15
16 17 18 19 20

O
P Q R S

36
420 260 100 200

5
25 14 3 1

180
10500 3640 300 200

17
3 8 13 15 19

15
16 17 18 19 20

S
D O H T E

200
180 180 160 110 10

99510
99690 99870 100030 100140 100150

99.4
99.5 99.7 99.9 100 100

75
80 85 90 95

Production T and Operations 22 Management 5 - R B Khanna 110 Prentice Hall India

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100

ABC ANALYSIS
100 90 80 70 60 50 40 30 20 10 0 0

CUM COSTS %AGE

50

100

CUM ITE M %AGE

Production and Operations Management - R B Khanna Prentice Hall India

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ABC Analysis
A Items. By top management. Low inventory level Frequent supply orders Minimum safety stock Detailed and rigid control
Production and Operations Management - R B Khanna Prentice Hall India

B Items Middle management Satisfactory inventory level Less frequent supply orders Reasonable safety stock Fair amount of control

C Items Junior Management High inventory level Bulk procurement Large safety stocks Negligible/routine/ procedural checks.
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Ordering Systems
When to order? How much to order?

Production and Operations Management - R B Khanna Prentice Hall India

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Fixed Order Quantity System Q System

Order quantity remains fixed (EOQ) Period between orders varies according to usage Order placed when stock level reaches reorder point Reorder point = Lead Time Consumption + Safety Stock Safety stock caters for fluctuations in lead time and consumption rate
Production and Operations Management - R B Khanna Prentice Hall India

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Safety Stock
Expressed in terms of Service Level Service level is the probability that a stockout will not occur Assumed that daily demand is normally distributed and can be described by mean and standard deviation For a 95% service level, safety stock will be 1.64 times daily consumption (z value for 95%)
Production and Operations Management - R B Khanna Prentice Hall India

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Safety Stock - Example

Let the mean demand per day be 100 with a standard deviation of 20 and a lead time of 9 days. The desired service level is 95%. How much safety stock should be maintained? The lead time consumption is 9 100 900 The standard deviation of daily demand is 20. Calculate standard deviation for 9 days. Standard deviation cannot be added, only variance can be added. S.D. for the lead time is 9 (20)2 3 20 60 Safety stock 1.64 60 98.4 say 99

Reorder point 900 99 999

When inventory level reaches 999 or less, an order for EOQ will be placed
Production and Operations Management - R B Khanna Prentice Hall India

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Fixed Order Quantity System Q System - Advantages

Highly automatic. Simple, reliable and cheap to operate. Lends itself to visual controls and records can be dispensed with. Suitable for items of low value (C items). Can be delegated to lower levels.

Production and Operations Management - R B Khanna Prentice Hall India

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Fixed Order Quantity System Q System - Disadvantages

No records are maintained of stock levels and usage rates. The system does not lend itself to ordering different items simultaneously from the same source as they may reach their reorder points at different times. System does not permit balancing of the work load. Not suitable for items having very long and highly variable lead times.
Production and Operations Management - R B Khanna Prentice Hall India

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Two Bin System

One bin holds the amount that is consumed during the lead time and the safety stock. (Reorder inventory level). The other bin holds the balance of the inventory, which is equal to the EOQ initially. When stock in the second bin is used up, an order is placed and the other bin brought into use. As and when the order materialises the bin in use i.e. the bin with reorder quantity is filled up and the balance put in the bin, which was not in use. The reorder quantity bin is then replaced with the other bin, which is brought in use. The system facilitates visual control and is very simple to operate.
Production and Operations Management - R B Khanna Prentice Hall India

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Fixed Interval System - P System

The interval between orders is kept fixed but the quantity ordered varies. The stock position is reviewed at fixed intervals, for example, monthly. The review period is generally set to correspond to EOQ consumption period. Maximum stock level is fixed MSL = Consumption during review period + lead time consumption + safety stock. Order quantity = Maximum stock level Stock in hand Stock on order. Safety stock has to cater for the review period and the lead time.
Production and Operations Management - R B Khanna Prentice Hall India

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Fixed Interval System - P System

The daily demand for a product is 15 units with a standard deviation of 5 units. The review period is 30 days and the lead time is 6 days. Management has a policy of providing 95% service level. At the beginning of the review period there are 150 units in the inventory. How many units should be ordered? Safety stock z d (T L) 1.64 5 (30 6) 49.2 say 50 MSL 15 30 15 6 50 530 Units Order quantity = 530 150 = 380 units

Production and Operations Management - R B Khanna Prentice Hall India

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Fixed Interval System - P System Advantages

Provides strict control on inventory as at each review the order quantity is refixed according to requirement. It permits even distribution of work load. Review dates of each item can be laid down. Orders from one source of supply can be grouped together by reviewing those items on the same day.
Production and Operations Management - R B Khanna Prentice Hall India

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Fixed Interval System - P System Disadvantages

Skilled man power required for strict control. Adds to the cost. Automatic reordering not possible. Order quantities may vary considerably adversely affecting the supply. Leads to higher inventory levels.

Production and Operations Management - R B Khanna Prentice Hall India

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Other Systems
Variable order, variable interval Fixed order, fixed interval S, s-1.

Production and Operations Management - R B Khanna Prentice Hall India

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MAINTENANCE MANAGEMENT
Maintenance means to maintain the facilities in a system up to some desired level of efficiency or some measure of performance ie to keep assets in a satisfactory condition or to restore them to that condition.

Production and Operations Management - R B Khanna Prentice Hall India

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MAINTENANCE
NECCESSITY
Maintenance is like an unsung hero who works round the clock for benefit of others and does not figure when others get a praise but is first to be crucified when something goes wrong. a) Increased sophistication of equipment, higher cost of maintenance skills has resulted in higher maintenance costs. b) Any temporary stoppage or down time in production owing to machine breakdown or any other maintenance lapse can actually cost more to the organisation. c) Automation & complexities inherent in modern equipment.

Production and Operations Management - R B Khanna Prentice Hall India

MAINTENANCE
OBJECTIVE
a) Maximize availability. b) Preserve the value of assets. c) Perform maintenance activities in most economical manner.

d) Plan & anticipate maintenance jobs to delay/prevent interruptions.

e) Perform activities of inspection, adjustments, repairs & replacements & op of shops performing jobs.

f) To ensure un-interrupted production process at minimum costs.

Production and Operations Management - R B Khanna Prentice Hall India

MAINTENANCE
FUNCTIONS

Inspection

Detection of faults before they develop into breakdown of equipment. Expensive strategy & has to be used selectively. In case of any component or assembly breakdown, then process of repairing/ putting it back in serviceable state or replacing the item is called repairing. Machine is stripped, parts cleaned & oiled. Repairing or replacement of parts if required is carried out.

Repair

Overhaul

Production and Operations Management - R B Khanna Prentice Hall India

MAINTENANCE
FUNCTIONS Salvage
Item that cannot be repaired or cannot be brought to desired level of performance

Cannibalization Replacing an unserviceable component with a

serviceable one.

Lubrication

Is the essence of any good maintenance system. Assists in reducing friction & in cooling.

Production and Operations Management - R B Khanna Prentice Hall India

MAINTENANCE
TYPES OF PLANT MAINTENANCE

Breakdown Maintenance

Preventive Maintenance

Production and Operations Management - R B Khanna Prentice Hall India

BREAKDOWN MAINTENANCE
Also known as corrective maintenance Economical for equipment whose down time & repair costs are less. Administration easier & needs smaller staff.

Strategies are formed on basis of analysis of the causes

of breakdown: Failure to identify & replace worn out parts. Lack of lubrication. Inefficiency of cooling system. Indifference towards minor faults.
Production and Operations Management - R B Khanna Prentice Hall India

BREAKDOWN MAINTENANCE
DISADVANTAGES

Results in dislocation & delays of production. Wages are to be paid for idle : loss.

Failure of machines could lead to accidents time : losses & troubles.

Material wastage.

Production and Operations Management - R B Khanna Prentice Hall India

PREVENTIVE MAINTENANCE

Continuous usage of machines lead to deterioration, changes in dimensions of components , weakening of members owing to impact, fatigue , corrosion.

Symptoms are:
Inability to take specified load

Reduction in speed of machine.

Deterioration in quality of output.
Production and Operations Management - R B Khanna Prentice Hall India

PREVENTIVE MAINTENANCE
OBJECTIVES
Minimize possibility of unanticipated production interruptions by locating source. Make plant , machinery always available & ready to use.

Maintain value of equipment by periodic inspections, repairs and overhaul.

Reduce work content of maintenance jobs. Ensure safety of life & limbs of workmen. .

Production and Operations Management - R B Khanna Prentice Hall India

PREVENTIVE MAINTENANCE
CONSTITUENTS OF PM
1. Lubrication

Right lubricant to suit machine. Application at right time. In right quantity.

2. Inspection

What to inspect ?

Prentice Hall India

How often to inspect ?

How to inspect?

Who should inspect? Production and Operations Management - R B Khanna

PREVENTIVE MAINTENANCE
ADVANTAGES OF PM
Less production down time because of fewer breakdowns. Less overtime payment. Fewer large scale repairs. Fewer product rejects, less spoilage, better Quality Control. Better spare part control leading to minimum inventory level. Ensures greater safety. Reduction in maintenance costs. Lower unit cost of manufacture.
Production and Operations Management - R B Khanna Prentice Hall India

MAINTENANCE MANAGEMENT
IMPROVING MAINTAINABILITY
Accessibility Standardization

Monitoring facilities
Procedures Safety Availability of literature & training

Production and Operations Management - R B Khanna Prentice Hall India