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IE 5551 - Production Planning and Inventory Control

Saif BenjaafarIndustrial & Systems Engineering

University of Minnesota

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Introduction to methods for managing production, inventory, and distribution systems

Topics covered include demand forecasting, capacity planning, production planning and scheduling, production and inventory control, and supply chain coordination

Use of quantitative models and analytical tools for supporting decisions in each of the above areas

Course Objectives

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Special emphasis will be given to the link between operational issues and strategic objectives

Implications of various emerging technologies, business practices, and government regulations

Course Objectives (Continued…)

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An introductory course in probability and statistics

An introductory course in linear programming

Knowledge of Microsoft Excel & Microsoft Solver

Prerequisites

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Factory Physics by Wallace Hopp and Mark Spearman

The Goal by Eliyahu Goldratt

Lean Thinking by James Womack and Daniel Jones

Texts

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Week 1 Introduction to Production Planning and Inventory Control Week 2 Inventory Control – Deterministic

Demand Week 3 Inventory Control – Stochastic Demand Week 4 Inventory Control – Stochastic Demand Week 5 Inventory Control – Stochastic Demand Week 6 Inventory Control – Time Varying

Demand

Lecture Topics

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Week 7 Inventory Control – Multiple Echelons Week 8 Demand Forecasting Week 9 Demand Forecasting Week 10 Production Planning and Scheduling Week 11 Production Planning and Scheduling Week 12 Managing Manufacturing Operations Week 13 Managing Manufacturing Operations Week 14 Managing Manufacturing Operations Week 15 Project Presentations

Lecture Topics (Continued…)

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Teams of 2 or 3 Type of project

Problem solving Case study Reviews

Outcome A proposal Oral presentation Written report

Group Projects

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A mathematical model

A computer model

Data collection and statistical analysis

Problem Solving

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Focus on one company and document:

managerial practice use of a technology decision making processes

Case Studies

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An industry

An emerging technology

A managerial practice

Academic research

Reviews

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Electronics

Automotive

Food

Clothing

Medical devices

Energy

Example Industries

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RFID

Wireless communication and mobile computing

Online procurement portals

Social media

Example Technologies

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Outsourcing

Vendor managed inventory (VMI)

Delayed product differentiation

Collaborative forecasting, planning, & replenishment (CFPR)

Third & fourth party logistics (3/4PL)

Green/sustainable supply chains

Example Practices

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Energy efficient and sustainable supply chains

Energy consumption

Carbon footprint

Closed loop supply chains

Alternative sourcing, materials, processing

This Year’s Theme

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Production/Manufacturing

Production/manufacturing is the process of converting raw materials or semi-finished products into finished products that have value in the market place. This process involves the contribution of labor, equipment, energy, and information.

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The Production System

Production System

Raw materials

Energy

Labor

Equipment

Information

Finished products

Scrap

Waste

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Inventory

Inventory is both an input and output of the production process. Inventory can be in the form of raw materials, semi-finished, and finished products.

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The Inventory System

Supply source Demand source

Inventory

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The Production-Inventory System

Raw materials

Suppliers Fabrication

Component partsinventory

Assembly

Finished goods inventory

Distribution and sales

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The Supply Chain

2nd tier suppliers1st tier

suppliers

Assembly/ Manufacturing

Distribution centers

Retailers

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Supply Chain Management

Supply Chain Management (SCM) is the set of functions concerned with the effective utilization of limited resources that may reside with one or more independent firms and the management of material, information, and financial flows within and between these firms, so as to satisfy customer demands and create profits for all firms.

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Production Planning and Inventory Control

Production planning and inventory control is the subset of SCM functions that focus on managing production operations and inventory throughout the supply chain.

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Examples of Decisions

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Examples of Decisions

What should we produce, how much, and when (forecasting)?

How much can we produce (capacity planning)?

How much do we have and how much do we need (inventory management)?

When should we produce (production planning and scheduling)?

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A Hierarchy of Decisions

Long termforecasting

Capacity Planning

Network design & facility location

Production Planning

Production Scheduling

Inventory Management

Warehousing & order fulfillment

Transportation& Distribution

Sales & Marketing

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Example Performance Measures

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Cost (are products being created at minimum or acceptable cost?)

Quality (what are the specifications of the products? What percentages of shipped products meet specification?)

Variety (how many types of products are - or can be – simultaneously produced?)

Service (how long does it take to fulfill a customer order? how often are quoted lead times met?)

Examples of Performance Measures

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Flexibility (how quickly can existing resources be reconfigured to produce new products?)

Worker satisfaction (are workers and managers throughout the supply chain happy and motivated?)

Safety (are work environments safe for workers and the surrounding community?)

Environmental impact (how environmentally friendly are the supply chain processes and the products?)

Examples of Performance Measures (continued…)

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The Bottom Line

In the long run, the supply chain must be profitable by delivering value to the end customer and to do so over the long run.

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Classification of the Production Process

Production quantity

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Classification of the Production Process

Production quantity– Mass production – Batch production – Job shop production

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Classification of the Production Process

Production quantity– Mass production – Batch production – Job shop production

Product variety

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Classification of the Production Process

Production quantity– Mass production – Batch production – Job shop production

Product variety– Single product or product line

– Family of similar products

– One-of-a-kind products

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Mass Production Systems

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Mass Production Systems

Low product variety

High production volumes

Specialized labor

Dedicated equipment

High reconfiguration costs

Make-to-stock production

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Batch Production Systems

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Batch Production Systems

Medium product variety Products are made in larger lots products are made to stock Programmable/reconfigurable equipment Significant setup costs

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Job Shops

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Job Shops

High product variety Products are made in small lots Products are made to order Flexible equipment and labor Small setups

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Classification of Production Systems

(continued…) Order fulfillment

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Classification of Production Systems

(continued…) Order fulfillment

– Make-to-stock systems (MTS)– Make-to-order systems (MTO)– Hybrid MTO/MTS

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Classification of Production Systems

(continued…) Order fulfillment

– Make-to-stock systems (MTS)– Make-to-order systems (MTO)– Hybrid MTO/MTS

Resource configuration

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Classification of Production Systems

(continued…) Order fulfillment

– Make-to-stock systems (MTS)– Make-to-order systems (MTO)– Hybrid MTO/MTS

Resource configuration– Product layout– Process layout– Cellular layout– Fixed position layout

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Classification of Production Systems (continued…)

Inputs/outputs

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Classification of Production Systems (continued…)

Inputs/outputs– Discrete production systems (discrete inputs and outputs - cars, computers, machine tools, etc)

– Continuous production systems (continuous inputs and outputs - chemicals, textiles, food processing, pharmaceuticals)

– Hybrid systems (Discrete inputs/continuous outputs or continuous inputs/discrete outputs - steel, plastics, recycling)

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Process capabilities & business strategy

Example product attributes: price, quality, variety, service, demand uncertainty

Example process attributes: cost, quality, flexibility, lead time

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A firm must choose a business strategy - attribute values for its portfolio of products - that differentiates it from the competition.

A firm must choose process capabilities, attribute values for its process, that support its business strategy.

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A business strategy can be driven by market opportunities or by a competitive advantage in process capabilities.

In both cases, there must be a fit between process capability and business strategy.

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Matching Process Choice with Product Strategy

Choice

Product variety Low High

Area of strategic fit

L

ow

Hig

h

Pro

cess

fle

xib

ilit

y

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Matching Process Choice with Product Strategy Choice

(Continued…)

Demand uncertainty Low High

Area of strategic fit

H

igh

L

ow

Lea

d t

ime

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The Evolution of Process Capabilities

Volume (1920/30/40’s)

Cost (1950/60’s)

Quality (1970/80’s)

Time (1980/1990’s)

Flexibility (1990/2000’s)

Mass customization (2000’s & beyond)

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Other Emerging Trends

Resiliency

Sustainability (and stewardship)

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Read Chapters 0, 1 & 2 of text book (Factory Physics)

Read paper 1 from the reading list

Assignment