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PRODUCTION PLANNING AND CONTROL
UNIT-I
INTRODUCTION : Definition – Objectives of production Planning andControl – Functions of
production planning and control – Elements ofproduction control – Types of production – Organization of productionplanning and control department – Internal organization of department –
Product design factors – Process Planning sheet.
UNIT-II FORECASTING – Importance of forecasting – Types of forecasting,their uses – General principles offorecasting – Forecasting techniques– qualitative methods and quantitive methods.
UNIT-III INVENTORY MANAGEMENT : Functions of inventories – relevantinventory costs – ABC analysis – VED analysis – EOQ model – Inventorycontrol systems – P–Systems and Q-Systems.
UNIT-IV
Introduction to MRP & ERP, LOB (Line of Balance), JIT inventory, andJapanese concepts,
Introduction to supply chain management.
UNIT-V
ROUTING : Definition – Routing procedure – Route sheets – Bill ofmaterial – Factors affecting routing procedure. Scheduling – definition – Difference with loading.
UNIT-VI
SCHEDULING POLICIES : Techniques, Standard scheduling methods.
UNIT-VII
Line Balancing, Aggregate planning, Chase planning, Expediting, controllingaspects.
UNIT-VIII
DISPATCHING : Activities of dispatcher – Dispatching procedure – follow up – definition – Reason
for existence of functions – types of followup, applications of computer in production planning and control.
TEXT BOOKS:
- Samuel Eilon, “Elements of Production Planning and Control”,
1st Edition, Universal Publishing Corp., 1999.
- Baffa&RakeshSarin, “Modern Production / OperationsManagement”, 8th Edition, John Wiley &
Sons, 2002.
PPC
Introduction
Production Planning is a managerial function which is mainly concerned with the following important issues:
What production facilities are required? How these production facilities should be laid down in the space available for production? and How they should be used to produce the desired products at the desired rate of production?
Broadly speaking, production planning is concerned with two main aspects: (i) routing or planning work tasks (ii) layout or spatial relationship between the resources. Production planning is dynamic in nature and always remains in fluid state as plans may have to be changed according to the changes in circumstances.
Production control is a mechanism to monitor the execution of the plans. It has several important functions:
Making sure that production operations are started at planned places and planned times. Observing progress of the operations and recording it properly. Analyzing the recorded data with the plans and measuring the deviations. Taking immediate corrective actions to minimize the negative impact of deviations from the plans. Feeding back the recorded information to the planning section in order to improve future plans.
A block diagram depicting the architecture of a control system is shown in Figure1.
Figure 1: Architecture of Control System
Important functions covered by production planning and control (PPC) function in any manufacturing system are shown in Table1along with the issues to be covered.
They are broadly classified into three categories:
Job shop production Batch production Mass production
Job Production
In this system products are made to satisfy a specific order. However that order may be produced-
only once or at irregular time intervals as and when new order arrives or at regular time intervals to satisfy a continuous demand
The following are the important characteristics of job shop type production system:
Machines and methods employed should be general purpose as product changes are quite frequent. Planning and control system should be flexible enough to deal with the frequent changes in product requirements. Man power should be skilled enough to deal with changing work conditions. Schedules are actually non existent in this system as no definite data is available on the product. In process inventory will usually be high as accurate plans and schedules do not exist. Product cost is normally high because of high material and labor costs. Grouping of machines is done on functional basis (i.e. as lathe section, milling section etc.) This system is very flexible as management has to manufacture varying product types. Material handling systems are also flexible to meet changing product requirements.
Batch Production
Batch production is the manufacture of a number of identical articles either to meet a specific order or to meet a continuous demand. Batch can be manufactured either-
only once or repeatedly at irregular time intervals as and when demand arise or repeatedly at regular time intervals to satisfy a continuous demand
The following are the important characteristics of batch type production system:
As final product is somewhat standard and manufactured in batches, economy of scale can be availed to some extent. Machines are grouped on functional basis similar to the job shop manufacturing. Semi automatic, special purpose automatic machines are generally used to take advantage of the similarity among the products. Labor should be skilled enough to work upon different product batches. In process inventory is usually high owing to the type of layout and material handling policies adopted. Semi automatic material handling systems are most appropriate in conjunction with the semi automatic machines.
Normally production planning and control is difficult due to the odd size and non repetitive nature of order.
Mass Production
In mass production, same type of product is manufactured to meet the continuous demand of the product. Usually demand of the product is very high and market is going to sustain same demand for sufficiently long time.
The following are the important characteristics of mass production system:
As same product is manufactured for sufficiently long time, machines can be laid down in order of processing sequence. Product type layout is most appropriate for mass production system. Standard methods and machines are used during part manufacture. Most of the equipments are semi automatic or automatic in nature. Material handling is also automatic (such as conveyors). Semi skilled workers are normally employed as most of the facilities are automatic. As product flows along a pre defined line, planning and control of the system is much easier. Cost of production is low owing to the high rate of production. In process inventories are low as production scheduling is simple and can be implemented with ease.
PRODUCT DESIGN
Product design is a strategic decision as the image and profit earning capacity of a small firm depends largely on product design. Once the product to be produced is decided by the entrepreneur the next step is to prepare its design. Product design consists of form and function. The form designing includes decisions regarding its shape, size, color and appearance of the product. The functional design involves the working conditions of the product. Once a product is designed, it prevails for a long time therefore various factors are to be considered before designing it. These
factors are listed below: -
(a) Standardization (b) Reliability (c) Maintainability (d) Servicing (e) Reproducibility (f) Sustainability (g) Product simplification (h) Quality Commensuration with cost (i) Product value (j) Consumer quality (k) Needs and tastes of consumers.
The creation of plans of action. The general use of forecasting is to be found in monitoring the continuing progress of plans based on forecasts. The forecast provides a warning system of the critical factors to be monitored regularly because they might drastically affect the performance of the plan.
It is important to note that the objective of business forecasting is not to determine a curve or series of figures that will tell exactly what will happen, say, a year in advance, but it is to make analysis based on definite statistical data, which will enable an executive to take advantage of future conditions to a greater extent than he could do without them. In forecasting one should note that it is impossible to forecast the future precisely and there always must be some range of error allowed for in the forecast. FORECASTING FUNDAMENTALS
Forecast: A prediction, projection, or estimate of some future activity, event, or occurrence.
Types of Forecasts
- Economic forecasts o Predict a variety of economic indicators, like money supply, inflation rates, interest rates, etc.
- Technological forecasts o Predict rates of technological progress and innovation.
- Demand forecasts o Predict the future demand for a company’s products or services.
Since virtually all the operations management decisions (in both the strategic category and the
tactical category) require as input a good estimate of future demand, this is the type of forecasting that is emphasized in our textbook and in this course.
TYPES OF FORECASTING METHODS
Qualitative methods: These types of forecasting methods are based on judgments, opinions,
intuition, emotions, or personal experiences and are subjective in nature. They do not rely on any
rigorous mathematical computations
Quantitative methods: These types of forecasting methods are based on mathematical (quantitative) models, and are objective in nature. They rely heavily on mathematical computations.
QUALITATIVE FORECASTING METHODS
Qualitative Methods
Executive
Opinion
Approach in which a group of managers meet
and collectively develop a forecast
Market
Survey
Approach that uses interviews and surveys to judge preferences of customer and to assess demand
Delphi
Method
Approach in which consensus agreement is reached among a group of experts
Sales Force Composite
Approach in which each salesperson estimates sales in his or her region
Trend Projection
Technique that uses the least squares method to fit a straight line to the data
Seasonal Indexes A mechanism for adjusting the forecast to accommodate any seasonal patterns inherent in the data
DECOMPOSITION OF A TIME SERIES
Patterns that may be present in a time series
Trend: Data exhibit a steady growth or decline over time.
Seasonality: Data exhibit upward and downward swings in a short to intermediate time frame (most
notably during a year).
Cycles: Data exhibit upward and downward swings in over a very long time frame.
Random variations: Erratic and unpredictable variation in the data over time with no discernable pattern.
ILLUSTRATION OF TIME SERIES DECOMPOSITION
Hypothetical Pattern of Historical Demand
Dependent versus Independent Demand
Demand of an item is termed as independent when it remains unaffected by the demand for any other item. On the other hand, when the demand of one item is linked to the demand for another item, demand is termed as dependent. It is important to mention that only independent demand needs forecasting. Dependent demand can be derived from the demand of independent item to which it is linked.
Business Time Series The first step in making a forecast consists of gathering information from the past. One should collect statistical data recorded at successive intervals of time. Such a data is usually referred to as time series. Analysts plot demand data on a time scale, study the plot and look for consistent shapes and patterns. A time series of demand may have constant, trend, or seasonal pattern ( Figure 1 )
Figure 1: Business Time Series
Simple moving average method: In this method, the average of the demands from several of the most recent periods is taken as the demand forecast for the next time period. The number of past periods to be used in calculations is selected in the beginning and is kept constant (such as 3-period moving average). (Example 2 )
Simple Moving Average : A XYZ refrigerator supplier has experienced the following demand for refrigerator during past five months.
Month Demand February 20 March 30 April 40 May 60 June 45
Find out the demand forecast for the month of July using five-period moving average & three-period moving average using simple moving average method.
Weighted moving average method: In this method, unequal weights are assigned to the past demand data while calculating simple moving average as the demand forecast for next time period. Usually most recent data is assigned the highest weight factor. (Example 3 )
Example 3 Weighted Moving Average Method : The manager of a restaurant wants to make decision on inventory and overall cost. He wants to forecast demand for some of the items based on weighted moving average method. For the past three months he exprienced a demand for pizzas as follows:
Month Demand October 400 November 480 December 550
Find the demand for the month of January by assuming suitable weights to demand data.
Exponential smoothing method: In this method, weights are assigned in exponential order. The weights decrease exponentially from most recent demand data to older demand data. (Example 4 )
Example 4 Exponential Smoothing : One of the two wheeler manufacturing company exprienced irregular but usually increasing demand for three products. The demand was found to be 420 bikes for June and 440 bikes for July. They use a forecasting method which takes average of past year to forecast future demand. Using the simple average method demand forecast for June is found as 320 bikes (Use a smoothing coefficient 0.7 to weight the recent demand most heavily) and find the demand forecast for August.
Regression analysis method: In this method, past demand data is used to establish a functional relationship between two variables. One variable is known or assumed to be known; and used to forecast the value of other unknown variable (i.e. demand). (Example 5 )
Example 5
INVENTORY
Introduction
The amount of material, a company has in stock at a specific time is known as inventory or in terms of money it can be defined as the total capital investment over all the materials stocked in the company at any specific time. Inventory may be in the form of,
raw material inventory in process inventory finished goods inventory spare parts inventory office stationary etc.
As a lot of money is engaged in the inventories along with their high carrying costs, companies cannot afford to have any money tied in excess inventories. Any excessive investment in inventories may prove to be a serious drag on the successful working of an organization. Thus there is a need to manage our inventories more effectively to free the excessive amount of capital engaged in the materials.
Why Inventories?
Inventories are needed because demand and supply can not be matched for physical and economical reasons. There are several other reasons for carrying inventories in any organization.
To safe guard against the uncertainties in price fluctuations, supply conditions, demand conditions, lead times, transport contingencies etc. To reduce machine idle times by providing enough in-process inventories at appropriate locations. To take advantages of quantity discounts, economy of scale in transportation etc. To decouple operations i.e. to make one operation's supply independent of another's supply. This helps in minimizing the impact of break downs, shortages etc. on the performance of the downstream operations. Moreover operations can be scheduled independent of each other if operations are decoupled. To reduce the material handling cost of semi-finished products by moving them in large quantities between operations. To reduce clerical cost associated with order preparation, order procurement etc.
Inventory Costs
In order to control inventories appropriately, one has to consider all cost elements that are associated with the inventories. There are four such cost elements, which do affect cost of inventory.
Unit cost: it is usually the purchase price of the item under consideration. If unit cost is related with the purchase quantity, it is called as discount price. Procurement costs: This includes the cost of order preparation, tender placement, cost of postages, telephone costs, receiving costs, set up cost etc.
Cost of items per year = Annual demand * unit cost
= D.C
Total annual inventory cost (TC) =
The objective of inventory management team is to minimize the total annual inventory cost. A simplified graphical presentation in which cost of items, procurement cost and carrying cost are depicted is shown in Figure 1. It can be seen that large values of order quantity Q result in large carrying cost. Similarly, when order quantity Q is large, fewer orders will be placed and procurement cost will decrease accordingly. The total cost curve indicates that the minimum cost point lies at the intersection of carrying cost and procurement cost curves.
Figure 1 : Inventory Related Costs
Inventory Operating Doctrine
When managing inventories, operations manager has to make two important decisions:
When to reorder the stock (i.e. time to reorder or reorder point) How much stock to reorder (i.e. order quantity)
Reorder point is usually a predetermined inventory level, which signals the operations manager to start the procurement process for the next order. Order quantity is the order size.
Inventory Modelling
This is a quantitative approach for deriving the minimum cost model for the inventory problem in hand.
Economic Order Quantity (EOQ) Model
This model is applied when objective is to minimize the total annual cost of inventory in the organization. Economic order quantity is that size of the order which helps in attaining the above set objective. EOQ model is applicable under the following conditions.
Demand per year is deterministic in nature Planning period is one year Lead time is zero or constant and deterministic in nature Replenishment of items is instantaneous Demand/consumption rate is uniform and known in advance No stockout condition exist in the organization
The total annual cost of the inventory (TC) is given by the following equation in EOQ model.
The graphical representation of the EOQ model is shown in Figure 2.
Figure 2: Economic Order Quantity Model (EOQ Model)
