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PROJECT REPORT

Planning

Submitted By:

0

INDEX

1. Literature Review 2

2. Introduction 4

3. Lot Sizing 5

8. References 14

1

LITERATURE REVIEW

Most practical scheduling problems involve setup times (costs). In general, setup

includes work required to prepare a machine (or process) to produce parts of a given

type, including setting jigs and fixtures, adjusting tools, and acquiring material.

Because of their prevalence in, and importance to, industry and because of the

challenges they present to solution methodologies, scheduling problems that involve a

Sequence-Dependent Setup (SDS) have attracted attention from many researchers.

Lot sizing is intimately related to scheduling and a significant body of literature deals

with integrating these issues (Potts and Van Wassenhove,; Hasse, 1994; Drexl and

Kimms, 1997; Karimi et al., 2003. Typical studies seek to prescribe the schedule as

well as lot sizes to minimize the average setup cost over all jobs and holding cost over

the entire schedule.

The purpose of this is to review the body of work related to the class of scheduling

problems that involve SDS as a guide for future research. Specific objectives of this

paper are: (i) an overview with emphasis on recent results; (ii) an integrated view of

lot sizing and SDS scheduling; (iii) a perspective of this line of research; and (iv)

fertile opportunities for future research.

The problem of prescribing a sequence, even for a single machine with SDS with

makespan as the objective, is equivalent to the Traveling Salesman Problem (TSP)

and is therefore NP-hard (Pinedo, 2002). This difficulty has motivated a number of

solution methods, including optimizing methods (Branch and Bound (B&B), branch

and cut (B&C), Dynamic Programming (DP), and Mixed-Integer Programming (MIP)

solvers), hybrids (methods that combine B&B, DP, or MIP solvers with a heuristic),

and heuristics (metaheuristics such as genetic algorithms (GAs), simulated annealing

(SA), tabu search (TS), and greedy randomized adaptive search procedure (GRASP);

methods based on TSP algorithms, greedy algorithm; decomposition; dispatching

rules; simulation; list scheduling). Each approach has unique characteristics that make

it suitable for application to specific problems.

2

Several earlier papers have reviewed research related to setup times

(e.g., Allahverdi et al. (1999) & Yang and Liao (1999). In particular, Allahverdi et al.

(1999) cited nearly 200 references that deal with setup issues, but most were

published before the 1990s. They categorized setup as sequence independent or

sequence dependent as well as batch and non-batch. Batch setups involve times (or

costs) that are typically much larger between batches (i.e., “major”) than those

between jobs within a batch (i.e., “minor”). Batches are also called families. They

addressed traditional configurations (single machine, parallel machines, flow shops,

and job shops) and emphasized that future research should focus on objectives related

to due dates.

Other review papers have focused on specific machine configurations. Cheng et al.

(2000) reviewed research on flow shop scheduling problems with setup times.

Yet other papers have focused on combined lot sizing and scheduling. Potts and Van

Wassenhove (1992) reviewed work that combined batching, lot sizing and scheduling,

stressing that, up to 1992, few studies had considered this important set of interrelated

decisions. Drexl and Kimms (1997) summarized more recent work by presenting MIP

formulations for different single-and multi-level lot sizing and scheduling problems.

However, these formulations do not incorporate SDS.

Lot sizing models determine the optimal timing and level of production. They can be

classified according to their time scale, the demand distribution and the time horizon.

The famous Economic Order Quantity model (EOQ) assumes a continuous time scale,

constant demand rate and infinite time horizon. The extension to multiple items and

constant production rates is known as the Economic Lot Scheduling Problem (ELSP)

(Elmaghraby 1978, Zipkin 1991). The subject of this review is the dynamic lot sizing

problem with a discrete time scale, deterministic dynamic demand and finite time

horizon. We will see that lot sizing models will incorporate more and more scheduling

aspects. These scheduling models essentially determine the start and finish times of

jobs (scheduling), the order in which jobs are processed (sequencing) and the

assignment of jobs to machines (loading). Lawler et al. (1993 Lawler, give an

extensive overview of models and algorithms for these problems.

3

INTRODUCTION

Manufacturing businesses need to balance the necessity of having stock to fill orders

with the cost of storing too much inventory. How do they know how many units

create that balance? In this report, we'll explore lot sizing in MRP systems.

inventory control system used to manage manufacturing processes. Most MRP

systems are software-based, but it is possible to conduct MRP by hand as well.

• Ensure materials are available for production and products are available for

delivery to customers.

• Maintain the lowest possible material and product levels in store

• Plan manufacturing activities, delivery schedules and purchasing activities.

As part of the MRP system, businesses have to calculate how much product they

should manufacture. This guides their material purchasing decisions and also impacts

how efficiently their business runs. To help figure out how many products to

manufacture, let's take a closer look at the lot sizing aspect of MRP.

4

LOT SIZING

Material requirements planning implement in the business so that it will run

efficiently. But for an MRP program to work: how can be make sure that

manufactures just enough and not too many?

item that needs to be manufactured. lot sizing will

help determine the perfect lot size, or number of

units. So, how to approach lot sizing?

It involves manufacturing the same quantity of items regularly. For example, if Adam

decides that he needs to make 100 glucose monitors per week on average, a static lot

sizing approach will allow him to make 100 monitors every single week. But what

happens if the amount he needs varies from week to week? He ends up with leftover

inventory (sometimes called safety stock) in the weeks where he sells less than he

makes, and the safety stock can then be used in those weeks where he sells more than

he makes.

All that sounds okay, but what if Adam doesn't want a large safety stock and doesn't

want to store the extra monitors in his warehouse? What if, instead, he wants to

produce just the right number of monitors each week to keep up with demand?

Dynamic lot sizing involves manufacturing different quantities of items based on

what orders have been placed. For example, if Adam has a big order from a hospital

one week and needs 150 monitors, then dynamic lot sizing will allow him to make

150 monitors that week. Then, the following week, if he only needs 50 monitors,

that's how many he'll produce. Dynamic lot sizing does away with having a large

safety stock (though Adam still might have some inventory set aside in his

warehouse). It allows him to respond to the demand he's seeing at the moment.

5

Of course, there's a problem with this approach, too: Adam could run into trouble if

he gets a big order and doesn't have enough time to manufacture enough monitors.

For example, if a client wants to order 300 monitors, but his factory can only make

150 monitors by the time the client needs them, then he's out of luck. On the other

hand, if he has a large safety stock (as he likely will with static lot sizing), he can

make up the rest of the order from the inventory in his warehouse.

The dynamic models consider the problem of determining production lot sizes when

demand is deterministic but varies with the time.

6

METHODS:

The benefits and drawbacks of both static and dynamic lot sizing are known now, but

still doesn't know exactly how to figure out how many to produce. Just to take a shot

in the dark? How to calculate lot size?

There are several methods for lot sizing. Some of the most popular are:

1. Lot for Lot (LFL): Order the exact amount of the net requirement each

period.

2. Single Lot: Order quantity is equal to the total requirement and only one

order is to be placed.

3. Economic Order Quantity (EOQ): Order an EOQ or ERL amount.

4. Least Unit Cost (LUC): Order the net requirement for the current period

or current plus next or current plus next two and so on, depending upon

which gives the lowest unit cost.

5. Minimum Cost Period (MCP): Order quantity is selected in such a way

the cost period must be minimum.

6. Part-Period Algorithm (PPA): Use the ratio of ordering and carrying

costs to derive a part-period number and use the number as a criterion for

cumulating requirements.

7. Period Order Quantity (POQ): Divide the Economic Order Quantity

(EOQ) into the annual demand and order that many times per year.

7

FIXED ORDER QUANTITY

The Fixed Order Quantity is the inventory control system, wherein the maximum and

minimum inventory levels are fixed, and maximum and fixed amount of inventory

can be replenished at a time when the inventory level reaches the auto set reorder

point or the minimum stock level.

inventory in the system, which automatically places an order with the supplier for the

maximum stock capacity, as soon as the inventory level reaches its minimum set-

point. The firm is required to set the maximum and minimum stock capacity based on

its storage space and the sales trend.

The Fixed Order Quantity system is followed by many firms since it helps to reduce

the reorder mistakes, manage the storage capacity efficiently and prevent the

unnecessary blockage of funds, which can be used elsewhere. Also, this method

ensures the regular replenishment of inventory items, which are currently being used

in the production process.

The Fixed Order Quantity method assumes that all the variables are known with

certainty and remains constant. Such variables could be the sales, unit cost, holding

cost, Lead time, stock out cost, etc. But, however, this assumption could not be true in

the real life situations and despite this, the method is frequently applied by the firms

and yields excellent results.

8

THE ECONOMIC ORDER QUANTITY (EOQ) MODEL

One of the earliest application of mathematics to factory management was the work of

Ford W. Harris on the problem of setting manufacturing lot sizes.

The problem is originated from fact that of a factory producing various products

where switching between products entails a costly set-up, machines had to be

adjusted, clerical work had to be done, and material might be wasted. Set-up cost is

defined as the sum of total of the labour and material cost to ready the shop to

produce a product. If we make changeovers on the line infrequently, we will keep set-

up cost low. However, infrequent set-ups also imply that we will produce huge lots of

a given type of components before switching to a different one. If demand for

components is relatively steady, then a substantial portion of each lot will be held in

inventory before being sold. Money tied up in this inventory is unavailable for use

elsewhere. To reduce this cost we could reduce inventory by producing in smaller

lots. This is the basic dilemma behind the EOQ model.

In order to derive a lot size formula the following assumptions about the

manufacturing system are made:

produced simultaneously.

to satisfy demand.

demand.

With these assumptions, we can develop the EOQ model for computing optimal

production lot sizes. The notation we will use is as follows:

9

A = constant set - up to produce (purchase) a lot

h = holding cost; if the holding cost consists entirely of interest on money tied up in

inventory, then h = ic, where i is an annual interest rate

hQ A

Y (Q ) c

2D Q

The total (inventory, set-up, and production) cost per unit of product can be

expressed as:

dY (Q) h A

2 0

dQ 2D Q

Taking the derivative of Y (Q) and setting the result equal to zero, yields

2 AD

Q*

h

The lot size Q* that minimises Y (Q) is:

This square root formula is the well-known economic order quantity (EOQ) (also

referred as the economic lot size). The obvious implication of the above result is that

the optimal order quantity increases with the square root of the set-up cost or demand

rate and decreases with the square root of the holding cost. Increasing the lot size

increases the average amount of inventory on hand, but reduces the frequency of

ordering.

To examine the sensitivity of the cost to lot size, we begin by substituting Q* for Q

into equation for Y (but omitting the c term, since this is not affected by lot size) and

find that the minimum holding plus set-up cost per unit is given by

hQ* A 2 Ah

Y Y (Q )

* *

*

2D Q D

To convert this into an annual cost, we multiply by D, which yields

AnnualCost 2 ADh

10

Now, suppose that instead of using Q*, we use some other arbitrary lot size, Q´ =

(1+α)Q*. Here, α represent the fractional error, which could be positive or negative.

Hence, the ratio of the annual cost using lot size Q` to that using lot size Q* is given

by

hQ ' AD

'

2 Q 1 Q ' Q*

( )

2 ADh 2 Q* Q '

Suppose that Q` = 2Q* then ratio of the resulting holding plus set-up cost to the

optimum is 1.25. That is, a 100 per sent error in lot size results in a 25 per sent error.

This is useful in multi-product settings, where it is desirable to order such that

different products are frequently replenished at the same time (e.g. to facilitate sharing

of delivery trucks).

Harris's original formula has been extended in variety of ways over years. One of the

earliest extensions was to the case where replenishment is not instantaneous, but,

instead, there is a finite but constant and deterministic production rate P. This model

is sometimes called the economic production lot (EPL) model. Using the same

notation as that used for the EOQ model we can analogically find the cost minimising

2 AD

Q*

h(1 D )

P

value of Q which is identical to the EOQ formula.

11

LOT FOR LOT (LFL)

It is called DOQ (Discrete Order Quantity), and is a method for lot sizing, where the

net requirements occurring for each period are the quantity of order. This method is

often used mainly for expensive items and the items whose demand occurs

intermittently. In this case the quantity is the same as that of the case in which one

period is specified in the fixed period requirements.

t 1 2 3 4 5 6 7 8 9 10

Dt 20 50 10 50 50 10 20 40 20 30

Ct 10 10 10 10 10 10 10 10 10 10

At 100 100 100 100 100 100 100 100 100 100

Ht 1 1 1 1 1 1 1 1 1 1

The simplest dynamic lot-sizing rule is, known as lot-for-lot, states that the amount to

be produced in a period id equal to that period's requirements. Table X.X shows the

production schedule and resulting costs for this policy. Since we never carry

inventory, the total cost is just that of the 10 set-ups, or 1000 kroons.

Table X.X. Lot-for-Lot solution to example

t 1 2 3 4 5 6 7 8 9 10 Total

Dt 20 50 10 50 50 10 20 40 20 30 300

Qt 20 50 10 50 50 10 20 40 20 30 300

It 0 0 0 0 0 0 0 0 0 0 0

Set-up cost 100 100 100 100 100 100 100 100 100 100 1000

Holding 0 0 0 0 0 0 0 0 0 0 0

cost

Total cost 100 100 100 100 100 100 100 100 100 100 1000

12

PERIOD ORDER QUATITY (POQ)

Uses EOQ to calculate a fixed umber of period requirements to include in each order.

POQ= EOQ / Avg. Period Usage

In case of fraction round to the nearest number.

13

REFERENCES:-

• Potts, C. N. and Van Wassenhove, L. N. 1992. Integrating scheduling with batching and

lot-sizing: a review of algorithms and complexity. Journal of the Operations Research

Society, 43(5): 395–406.[CROSSREF][CSA]

• Drexl, A. and Kimms, A. 1997. Lot sizing and scheduling—survey and

extensions. European Journal of Operational Research, 99: 221–

235.[CROSSREF][CSA]

• Karimi, B., Fatemi Ghomi, S. M.T.and Wilson, J. M. 2003. The capacitated lot-sizing

problem: a review of models and algorithms. Omega, 31: 365–

378.[CROSSREF][CSA]

• Pinedo, M. 2002. Scheduling: Theory, Algorithms and Systems, , 2nd edn., Englewood

Cliffs, NJ: Prentice Hall. [Google Scholar]

• Allahverdi, A., Gupta, J. N.D. and Aldowaisan, T. 1999. A review of scheduling research

involving setup considerations. Omega, 27(2): 219–239.[CROSSREF][CSA]

• Yang, W. H. and Liao, C. J. 1999. Survey of scheduling research involving setup

times. International Journal of Systems Science, 30(2): 143–155.[CROSSREF][CSA]

• Allahverdi, A., Gupta, J. N.D. and Aldowaisan, T. 1999. A review of scheduling research

involving setup considerations. Omega, 27(2): 219–239.[CROSSREF][CSA]

• Cheng, T. C.E., Gupta, J. N.D. and Wang, G. 2000. A review of flowshop scheduling

with setup times. Production and Operations Management, 9(3): 262–282.[CSA]

• Monma, C. L. and Potts, C. N. 1989. On the complexity of scheduling with batch setup

times. Operations Research, 37(5): 798–804.[CSA]

• Kim, S. C. and Bobrowski, P. M.1994. Impact of sequence-dependent setup time on

job shop scheduling performance. International Journal of Production Research,

32(7): 1503–1520.[CSA]

• Potts, C. N. and Van Wassenhove, L. N. 1992. Integrating scheduling with batching and

lot-sizing: a review of algorithms and complexity. Journal of the Operations Research

Society, 43(5): 395–406.[CROSSREF][CSA]

• Drexl, A. and Kimms, A. 1997. Lot sizing and scheduling—survey and

extensions. European Journal of Operational Research, 99: 221–

235.[CROSSREF][CSA]

• Zipkin, PH. 1991. Computing optimal lot sizes in the economic lot scheduling

problem. Oper. Res., 39(1): 56–63.[Crossref], [Web of Science ®], [Google Scholar]

• Lawler, EG, Lenstra, JK, Rinnooy Kan, AHG and Shmoys, DB. 1993. “Sequencing and

scheduling: algorithms and complexity”. In Handbooks in Operations Research and

Management Science Vol. 4: Logistics of Production and Inventory, Edited

by: Graves, SC, Rinnooy Kan, AHG and Zipkin, PH. 445–522. Amsterdam: North

Holland. [Google Scholar]

14

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