Production Planning and Control Lecture Notes PDF

Zagazig University College of Engineering Department of Industrial Engineering Production Planning and Control Dr. Mansour Abou Gamila 2024/2025 September, 2024 Dr. Mansour Abou Gamila 1 Your Instruc...

Zagazig University College of Engineering Department of Industrial Engineering Production Planning and Control Dr. Mansour Abou Gamila 2024/2025 September, 2024 Dr. Mansour Abou Gamila 1 Your Instructor Dr. Mansour Abou Gamila Department of Industrial Engineering College of Engineering Zagazig University Mobile: 01027330688 Email : [email protected] [email protected] September, 2024 Dr. Mansour Abou Gamila 2 1  Lecture Schedule Lecture: Monday: 9:00 – 11:15 Lecture Hall: 27208 Office hours Saturday: 11:00-1:30 Monday: 1:00-2:00 Tuesday: 9:00- 11:00 or by appointment September, 2024 Dr. Mansour Abou Gamila 3 Text Book 1. Steven Nahmais (2015). “Production and operations analysis” , Seven edition, Irwin. References 1. Jay Heizer and Barry Render (2011). “Operations Management”, 10 edition, Pearson Prentice Hall, Inc. 2. Russell and Taylor (2009). “Operations Management”, Six edition, John Wiley & Sons, Inc. September, 2024 Dr. Mansour Abou Gamila 4 2  Assessment and Grading System Third year Students: Assessment and grades will be determined based on the following distributions: Midterm Exam 20 Assignments 05 Projects & Presentations 10 Quizzes 10 Final exam 80 Total 125 September, 2024 Dr. Mansour Abou Gamila 5 Assessment and Grading System Second year Students: Assessment and grades will be determined based on the following distributions: Midterm Exam 15 Assignments 03 Projects & Presentations 07 Quizzes 05 Oral & Practical Exam 25 Final exam 70 Total September, 2024 Dr. Mansour Abou Gamila 125 6 3  Chapter 1. Strategy and Competition September, 2024 Dr. Mansour Abou Gamila 7 Topic Areas in Operations Analysis Forecasting Aggregate Planning Inventory Control: Deterministic Environments Inventory Control: Stochastic Environments Supply Chain Management Production Control Systems: MRP and JIT Operations Scheduling Project Scheduling Facilities Planning Quality and Assurance Maintenance and Reliability September, 2024 Dr. Mansour Abou Gamila 8 4  Functional Areas of the Firm Operations Marketing Finance  Essential functions:  Marketing – generates demand  Production/operations – creates the product  Finance/accounting – tracks how well the organization is doing, pays bills, collects the money September, 2024 Dr. Mansour Abou Gamila 9 Organizational Charts Manufacturing Operations Finance/ Marketing Facilities accounting Sales Construction; maintenance Disbursements/ promotion Production and inventory control credits Advertising Scheduling; materials control Receivables Sales Quality assurance and control Payables General ledger Market Supply-chain management research Funds Management Manufacturing Tooling; fabrication; assembly Money market International Design exchange Product development and design Detailed product specifications Capital requirements Industrial engineering Stock issue Efficient use of machines, space, Bond issue and personnel Process analysis Development and installation of production tools and equipment September, 2024 Dr. Mansour Abou Gamila 10 5  What Is Operations Management? Production is the creation of goods and services Operations management (OM) is the set of activities that creates value in the form of goods and services by transforming inputs into outputs September, 2024 Dr. Mansour Abou Gamila 11 Why Study OM?  OM is one of three major functions (marketing, finance, and operations) of any organization  We want (and need) to know how goods and services are produced  We want to understand what operations managers do  OM is such a costly part of an organization September, 2024 Dr. Mansour Abou Gamila 12 6  What Operations Managers Do? Basic Management Functions  Planning  Organizing  Staffing  Leading  Controlling September, 2024 Dr. Mansour Abou Gamila 13 The Critical Decisions  Service and product design  What good or service should we offer?  How should we design these products and services?  Quality management  How do we define quality?  Who is responsible for quality?  Process and capacity design  What process and what capacity will these products require?  What equipment and technology is necessary for these processes? September, 2024 Dr. Mansour Abou Gamila 14 7  The Critical Decisions  Location  Where should we put the facility?  On what criteria should we base the location decision?  Layout design  How should we arrange the facility and material flow?  How large must the facility be to meet our plan?  Human resources and job design  How do we provide a reasonable work environment?  How much can we expect our employees to produce? September, 2024 Dr. Mansour Abou Gamila 15 The Critical Decisions  Supply-chain management  Should we make or buy this component?  Who are our suppliers and who can integrate into our e- commerce program?  Inventory, material requirements planning, and JIT  How much inventory of each item should we have?  When do we re-order?  Intermediate and short–term scheduling  Are we better off keeping people on the payroll during slowdowns?  Which jobs do we perform next?  Maintenance  Who is responsible for maintenance?  When do we do maintenance? September, 2024 Dr. Mansour Abou Gamila 16 8  New Trends in OM  Global focus  Just-in-time performance  Supply chain partnering  Rapid product development  Mass customization  Empowered employees  Environmentally sensitive production  Ethics September, 2024 Dr. Mansour Abou Gamila 17 Characteristics of Goods  Tangible product  Production usually separate from consumption  Can be inventoried  Low customer interaction September, 2024 Dr. Mansour Abou Gamila 18 9  Characteristics of Service  Intangible product  Produced and consumed at same time  Often unique  High customer interaction  Often knowledge-based September, 2024 Dr. Mansour Abou Gamila 19 Goods Versus Services Attributes of Goods Attributes of Services (Tangible Product) (Intangible Product) Can be resold Reselling unusual Can be inventoried Difficult to inventory Some aspects of quality Quality difficult to measure measurable Selling is distinct from Selling is part of service production Product is transportable Provider, not product, is often transportable Site of facility important for cost Site of facility important for customer contact Often easy to automate Often difficult to automate Revenue generated primarily Revenue generated primarily from tangible product from the intangible service September, 2024 Dr. Mansour Abou Gamila 20 10  Goods and Services Automobile Computer Installed carpeting Fast-food meal Restaurant meal/auto repair Hospital care Advertising agency/ investment management Consulting service/ teaching Counseling 100% 75 50 25 0 25 50 75 100% | | | | | | | | | Percent of Product that is a Good Percent of Product that is a Service Figure 1.4 September, 2024 Dr. Mansour Abou Gamila 21 Time Horizons for Strategic Decisions 1. Long Term Decisions  Locating and Sizing New Facilities  Finding New Markets for Products  Mission Statement: meeting quality objectives 2. Intermediate Term Decisions  Forecasting Product Demand  Determining Manpower Needs  Setting Channels of Distribution  Equipment Purchases and Maintenance 3. Short Term Decisions  Purchasing  Shift Scheduling  Inventory Control September, 2024 Dr. Mansour Abou Gamila 22 11 The Elements of Strategy Time Horizon Focus Short Term Process Technology Intermediate Market Issues Long Term Volume Quality Tasks Evaluation Consistency Cost Professionalism Quality Proliferation ‫تكاثر‬ Profitability Changes in the task Customer satisfaction Explicit goals September, 2024 Dr. Mansour Abou Gamila 23 History of POM Major Thrust of the Industrial Revolution 1850-1890.  Factories tended to be small. Boss had total control. Little regard for workers safety or workers rights. Production Manager Position. 1890-1920.  Frederick Taylor champions the idea of “scientific management”. As complexity grows specializations take hold.  Inventory Control Manager  Purchasing Manager  Scheduling Supervisor  Quality Control Manager etc. September, 2024 Dr. Mansour Abou Gamila 24 12 History of POM  Division of labor (Adam Smith 1776; Charles Babbage 1852)  Standardized parts (Whitney 1800)  Scientific Management (Taylor 1881)  Coordinated assembly line (Ford/ Sorenson 1913)  Gantt charts (Gantt 1916)  Motion study (Frank and Lillian Gilbreth 1922)  Quality control (Shewhart 1924; Deming 1950) September, 2024 Dr. Mansour Abou Gamila 25 History of POM  Computer (Atanasoff 1938)  CPM/PERT (DuPont 1957)  Material requirements planning (Orlicky 1960)  Computer aided design (CAD 1970)  Flexible manufacturing system (FMS 1975)  Baldrige Quality Awards (1980)  Computer integrated manufacturing (1990)  Globalization (1992)  Internet (1995) September, 2024 Dr. Mansour Abou Gamila 26 13 Global Competition Global competition is heating up to an unprecedented degree. It appears that several factors favor the success of some industries in some countries: For example:  Germany: printing presses, luxury cars, chemicals  Switzerland: pharmaceuticals, chocolate  Sweden: heavy trucks, mining equipment  United States: personal computers, software, entertainment  Japan: automobiles, consumer electronics September, 2024 Dr. Mansour Abou Gamila 27 Competitive Advantage A company has a competitive advantage when its profit rate is higher than the average for its industry. A company has a sustained competitive advantage when it is able to maintain this high profit rate over a number of years. September, 2024 Dr. Mansour Abou Gamila 28 14 Porter’s Thesis Famed management guru, Michael Porter, has developed a theory to explain the determinants of national competitive advantage. These include: Factor Conditions (Land, Labor,Capital, etc.) Demand Conditions (local marketplace may be more sophisticated/demanding than world marketplace) Related and Supporting Industries Firm Strategy, structure, rivalry (e.g.: Germans are strong technically, Italian family structure, Japanese management methods) September, 2024 Dr. Mansour Abou Gamila 29 How Do Firms Differentiate Themselves from Competitors? Low Cost Leaders: Some examples include  Korean automakers (Hyundai, Kia, etc.)  e machines personal computers High Quality (and price) Leaders. Ex:  Mercedes Benz automobiles  Rolex Watches  (some firms do both: Chevrolet and Cadillac) September, 2024 Dr. Mansour Abou Gamila 30 15  The Nature of Differentiation “Differentiation means providing something unique that is valuable to the buyer beyond simply offering a low price.” (M. Porter) THE KEY IS CREATING VALUE FOR THE CUSTOMER TANGIBLE INTANGIBLE DIFFERENTIATION DIFFERENTIATION Observable product characteristics: Unobservable and subjective size, color, materials, etc. characteristics relating to image performance status, exclusively, identity. packaging complementary services TOTAL CUSTOMER RESPONSIVENESS: Differentiation not just about the product, it embraces the whole relationship between the supplier and the customer. September, 2024 Dr. Mansour Abou Gamila 31 Factors That Drive Differentiation Unique product features  Unique product performance  Exceptional services  New technologies  Quality of inputs  Exceptional skill or experience  Detailed information September, 2024 Dr. Mansour Abou Gamila 32 16 Keys to Successful Differentiation Understanding customer needs and preferences Commitment to customers Knowledge of company's capabilities Innovation September, 2024 Dr. Mansour Abou Gamila 33 Competitive Advantage Means Your Company’s Your Competitors’ Revenue Revenue - Expenses - Expenses = Gross Margin = Gross Margin September, 2024 Dr. Mansour Abou Gamila 34 17  Competitive Advantage Best-Cost Provider Strategy Margin Components Value Value for the client Margin Margin $ Cost Cost Competitor without Competitor with Competitive competitive Advantage advantage (average) September, 2024 Dr. Mansour Abou Gamila 35 Competitive Advantage Low-Cost and Differentiation Strategy Margin Components Value Differentiation Value for the Strategy client Margin Margin $ Low-Cost Leadership Strategy Cost Cost Competitor without Competitor with Competitive competitive Advantage advantage (average) September, 2024 Dr. Mansour Abou Gamila 36 18  Building Competitive Advantage SUPERIOR CUSTOMER RESPONSIVENESS SUPERIOR COMPETITIVE SUPERIOR INNOVATION ADVANTAGE QUALITY SUPERIOR EFFICIENCY September, 2024 Dr. Mansour Abou Gamila 37 Time-Based Competition “Time-based competitors focus on the bigger picture, on the entire value-delivery system. They attempt to transform an entire organization into one focused on the total time required to deliver a product or service. Their goal is not to devise the best way to perform a task, but to either eliminate the task altogether or perform it in parallel with other talks so that over-all system response time is reduced. Becoming a time-based competitor requires making revolutionary changes in the ways that processes are organized” (Blackburn(1991). Being not only the first to market but the first to volume production as well gives a firm a decided advantage. September, 2024 Dr. Mansour Abou Gamila 38 19 Just-In-Time JIT is a production control system that grew out of Toyota’s kanban system. It is a philosophy of production control (also know as lean production) that attempts to reduce inventories to an absolute minimum. It has become pretty much a standard way of thinking in many industries (especially the automobile.) We will discuss JIT and its relationship to MRP in Chapter 7. September, 2024 Dr. Mansour Abou Gamila 39 The Product Life-Cycle Curve September, 2024 Dr. Mansour Abou Gamila 40 20  The Product Life-Cycle Curve Product life cycle: for the following analysis, it would be helpful to consider the implications of product and technology life cycles for the exercise of technology evaluation. The curve of product life cycle is S-shaped and shows three phases : growth, ascent and maturity phases. By then, however, they will reflect the growth of the industry rather than of the product. September, 2024 Dr. Mansour Abou Gamila 41 The Product Life-Cycle Curve September, 2024 Dr. Mansour Abou Gamila 42 21  The Product Life-Cycle Curve Introduction Growth Maturity Decline Best period to Practical to change Poor time to Cost control increase market price or quality change image, critical share image price, or quality R&D engineering is Strengthen niche Competitive costs Company Strategy/Issues critical become critical Defend market position Drive-through Internet search engines restaurants CD-ROMs iPods LCD & Xbox 360 plasma TVs Sales Avatars Boeing 787 Analog TVs Twitter September, 2024 Dr. Mansour Abou Gamila 43 The Product Life-Cycle Curve Introduction Growth Maturity Decline Product design Forecasting Standardization Little product and critical Fewer product differentiation development Product and changes, more Cost critical process minor changes minimization Frequent reliability Optimum Overcapacity product and Competitive capacity in the process design product industry changes Increasing improvements OM Strategy/Issues stability of Prune line to Short production and options process eliminate runs Increase capacity items not Long production High production Shift toward runs returning costs product focus good margin Product Limited models Enhance improvement Reduce Attention to distribution and cost cutting capacity quality September, 2024 Dr. Mansour Abou Gamila 44 22  Technology Selection Criteria The criteria for selecting technology stem from a host of factories surrounding both the firm and the country. There are firm/country-specific aspects that shape the choice of technology. The more information about alternative technologies and markets that available, the wider the scope for a better selection of technology. September, 2024 Dr. Mansour Abou Gamila 45 Technical Market factors Environmental factors Technology Country / Company Selection Community Criteria Financia Else Legal and l factors Institutional September, 2024 Dr. Mansour Abou Gamila 46 23  The S-Curve of Technological Progress Technology progresses through a three-stage technology life cycle (TLC) The new invention period The technology improvement period The mature-technology period September, 2024 Dr. Mansour Abou Gamila 47 Technology progresses through a three- stage technology life cycle (TLC) New invention period (Embryonic stage) The new invention period is characterized by a period of slow initial growth. This is the time when experimentation and initial bugs are worked out of the system. September, 2024 Dr. Mansour Abou Gamila 48 24  Technology progresses through a three- stage technology life cycle (TLC) Technology improvement period (growth stage) The technology improvement period is characterized by rapid and sustained growth. September, 2024 Dr. Mansour Abou Gamila 49 Technology progresses through a three- stage technology life cycle (TLC) Mature-technology period. (maturity stage) The mature technology period starts when the upper limit of the technology is approached and progress in performance slows down. This is when the technology reaches its natural limits as dictated by factors such as physical limits. September, 2024 Dr. Mansour Abou Gamila 50 25  Technology progresses through a three- stage technology life cycle (TLC) Mature-technology period. (maturity stage) The technology becomes vulnerable to substitution or obsolescence when a new or better-performing technology emerges. September, 2024 Dr. Mansour Abou Gamila 51 Break-even Curves for the Make or Buy Problem Cost to Buy = c1x Cost to make=K+c2x K Break-even quantity September, 2024 Dr. Mansour Abou Gamila 52 26 Example A large international computer manufacturer is designing a new model of personal computer and must decide whether to produce the keyboards internally or to purchase them from an outside supplier. The supplier is willing to sell the keyboards for $50 each, but the manufacturer estimates that the firm can produce the keyboards for $35 each. Management estimates that expanding the current plant and purchasing the necessary equipment to make the keyboards would cost $8 million. Should they undertake the expansion? The break-even quantity is x = 8,000,000/(50 - 35) = 533,333. Hence, the firm would have to sell at least 533,333 keyboards in order to justify the $8 million investment required for the expansion. September, 2024 Dr. Mansour Abou Gamila 53 Learning and Experience Curves As experience is gained with the production of a particular product, either by a single worker or by an industry as a whole, the production process becomes more efficient. The division of labor, by reducing every man’s business to some one simple operation, and by making this operation the sole employment of his life, necessarily increases very much the dexterity of the worker. As the cumulative number of units produced increases, management can accurately predict the eventual capacity of existing facilities and the unit costs of production. Today we recognize that many other factors besides the improving skill of the individual worker contribute to this effect. Some of these factors include the following: Improvements in production methods. Improvements in the reliability and efficiency of the tools and machines used. Better product design. Improved production scheduling and inventory control. Better organization of the workplace. 54 September, 2024 Dr. Mansour Abou Gamila 27  Learning Curves The basic concept is that as a worker or an industry gains experience with a task or product, the process becomes more efficient. Experience has shown that this relationship is accurately described by an exponential function. Let Y(u) be the number of hours to produce the uth unit. Then the theory says that Y(u) = a u -b which gives Y(u) a(2u)-b ______ = _______ = 2-b Y(2u) a u –b where a is the number of hours required to produce the first unit and b measures the rate at which the marginal production hours decline as the cumulative number of units produced increases. A typical value is an 80% learning curve which is 2-b =.80. (This gives a value of b = -ln(.80)/ln(2) =0.322.) September, 2024 Dr. Mansour Abou Gamila 55 Learning Curves - b ln(2) = ln(0.8) or b= -ln(0.8)/ ln(2) =0.3219. (ln is the natural logarithm.) More generally, if the learning curve is a 100L percent learning curve, then, b=-ln(L)/ln(2). ln(Y(u)) = ln(a) - b ln(u). September, 2024 Dr. Mansour Abou Gamila 56 28  An 80% Learning Curve September, 2024 Dr. Mansour Abou Gamila 57 Example 1 XYZ has kept careful records of the average number of labor hours required to produce one of its new products, a pressure transducer used in automobile fuel systems. These records are represented in the following table. September, 2024 Dr. Mansour Abou Gamila 58 29 Example 1 n (  X Y )  (  X )(  Y ) b  n( X 2 )  ( X )2 Y X a   b n n Ln A Ln B (Ln A)2 Ln A*Ln B 2.3 2.22 5.29 5.11 3.22 1.58 10.37 5.09 4.61 1.34 21.25 6.18 5.52 0.89 30.5 4.92 6.21 0.53 38.56 3.29 6.91 0.53 47.75 3.66 8.52 -0.51 72.6 -4.35 9.21 -0.69 84.8 -6.36 ∑ 46.5 5.89 311.12 17.53 September, 2024 Dr. Mansour Abou Gamila 59 Example 1 Intercept = 3.1301, Slope.= -0.42276. the value of a is exp(3.1301) = 22.88 It should have taken about 23 hours to produce the first unit. The slope term is the constant b. ln(L) = -b ln(2) = - (0.42276)(0.6931) =-0.293. L = exp(-0.293) =0.746 Hence, these data show that the learning effect for the production of the transducers can be accurately described by a 75 percent learning curve. This curve can be used to predict the number of labor hours that will be required for continued production of these particular transducers. For example, substituting u = 50,000 into the relationship Y(u) = 22.88u-0.42276 Y(50,000) = 0.236 hour. September, 2024 Dr. Mansour Abou Gamila 60 30  Prices of Integrated Circuits During the Period 1964-1972 September, 2024 Dr. Mansour Abou Gamila 61 Capacity Strategy Fundamental issues:  Amount. When adding capacity, what is the optimal amount to add? Too little means that more capacity will have to be added shortly afterwards. Too much means that capital will be wasted.  Timing. What is the optimal time between adding new capacity?  Type. Level of flexibility, automation, layout, process, level of customization, outsourcing, etc. September, 2024 Dr. Mansour Abou Gamila 62 31 Three Approaches to Capacity Strategy Policy A: Try not to run short. Here capacity must lead demand, so on average there will be excess capacity. Policy B: Build to forecast. Capacity additions should be timed so that the firm has excess capacity half the time and is short half the time. Policy C: Maximize capacity utilization. Capacity additions lag demand, so that average demand is never met. September, 2024 Dr. Mansour Abou Gamila 63 Capacity Leading and Lagging Demand September, 2024 Dr. Mansour Abou Gamila 64 32 Determinants of Capacity Strategy Highly competitive industries (commodities, large number of suppliers, limited functional difference in products, time sensitive customers) – here shortages are very costly. Use Type A Policy. Monopolistic environment where manufacturer has power over the industry: Use Type C Policy. (Intel, Lockheed/Martin). Products that obsolete quickly, such as computer products. Want type C policy, but in competitive industry, such as computers, you will be gone if you cannot meet customer demand. Need best of both worlds: Dell Computer. September, 2024 Dr. Mansour Abou Gamila 65 Mathematical Model for Timing of Capacity Additions Let D = Annual Increase in Demand x = Time interval between adding capacity r = annual discount rate (compounded continuously) f(y) = Cost of operating a plant of capacity y Let C(x) be the total discounted cost of all capacity additions over an infinite horizon if new plants are built every x units of time. Then C ( x )  f ( xD )  e rx f ( xD)  e 2 rx f ( xD )    f ( xD)(1  e rx  (e rx ) 2  (e rx )3   f ( xD)  1  e  rx Dr. Mansour Abou Gamila September, 2024 66 33 Mathematical Model (continued A typical form for the cost function f(y) is: f ( y )  ky a Where k is a constant of proportionality, and a measures the ratio of incremental to average cost of a unit of plant capacity. A typical value is a=0.6. Note that a