IE 5551 - Production Planning and Inventory Control

Saif Benjaafar Industrial & Systems Engineering University of Minnesota

Course Objectives
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
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Course Objectives (Continued)

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

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

Prerequisites

An introductory course in probability and statistics An introductory course in linear programming Knowledge of Microsoft Excel & Microsoft Solver

Texts
Factory Physics by Wallace Hopp and Mark Spearman The Goal by Eliyahu Goldratt Lean Thinking by James Womack and Daniel Jones

Lecture Topics
Week 1

Week 2

Week 3 Week 4 Week 5 Week 6

Introduction to Production Planning and Inventory Control Inventory Control Deterministic Demand Inventory Control Stochastic Demand Inventory Control Stochastic Demand Inventory Control Stochastic Demand Inventory Control Time Varying Demand
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Lecture Topics (Continued)

Week 7 Week 8 Week 9 Week 10 Week 11 Week 12 Week 13 Week 14 Week 15 Inventory Control Multiple Echelons Demand Forecasting Demand Forecasting Production Planning and Scheduling Production Planning and Scheduling Managing Manufacturing Operations Managing Manufacturing Operations Managing Manufacturing Operations Project Presentations
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Group Projects
Teams of 2 or 3 Type of project

Outcome

Problem solving Case study Reviews A proposal Oral presentation Written report

Problem Solving
A mathematical model
A computer model Data collection and statistical analysis

Case Studies
Focus on one company and document:
managerial practice
use of a technology decision making processes

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Reviews
An industry An emerging technology

A managerial practice
Academic research

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Example Industries
Electronics

Automotive
Food

Clothing
Medical devices

Energy
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Example Technologies
RFID Wireless communication and mobile computing

Online procurement portals

Social media

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Example Practices
Outsourcing Vendor managed inventory (VMI) Delayed product differentiation Collaborative forecasting, planning, & replenishment (CFPR) Third & fourth party logistics (3/4PL)

Green/sustainable supply chains

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This Years Theme

Energy efficient and sustainable supply chains
Energy consumption Carbon footprint Closed loop supply chains Alternative sourcing, materials, processing

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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

Raw materials Energy Labor Equipment Information

Production System

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

Suppliers

Fabrication

Assembly

Distribution and sales

Raw materials

Component parts inventory

Finished goods inventory

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The Supply Chain

Assembly/ Manufacturing

2nd tier suppliers

1st tier suppliers

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
Sales & Marketing

Long term forecasting

Transportation & Distribution

Capacity Planning

Warehousing & order fulfillment

Network design & facility location

Inventory Management

Production Planning

Production Scheduling

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Example Performance Measures

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Examples of Performance Measures

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 28 met?)

Examples of Performance Measures (continued)

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 29 products?)

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

High Process flexibility

Area of strategic fit

Low

Low Product variety

High
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Matching Process Choice with Product Strategy Choice (Continued)

Low Lead time

Area of strategic fit

High

Low Demand uncertainty

High
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The Evolution of Process Capabilities

Volume (1920/30/40s)
Cost (1950/60s) Quality (1970/80s) Time (1980/1990s) Flexibility (1990/2000s) Mass customization (2000s & beyond)
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Other Emerging Trends

Resiliency
Sustainability (and stewardship)

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Assignment

Read Chapters 0, 1 & 2 of text book (Factory Physics) Read paper 1 from the reading list

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