‘manager mi Product demand requirements, given limitations on p ‘orage space, white minimizing total production costs, they {he next month, for the month after that, and so on. When One advantage of using linear programming. for production schedul ‘scur. A production schedule must be established for the current looking att ‘month, the production manager will find that, although demand for the products Production times, Same, Thus, the Production capacities, storage space limitations, and so on are roughly’ Production manager is basically re-solving the same problem handled Previous months, and a general linear programming model of the production, Procedure may be applied frequently. Once the model has been formulated, the manager can. Simply supply the data—demand, capacities, and so on—for the given production period sh ‘use the linear programming model repeatedly to develop the production schedule. The lanagement Science in Action, Vestel Electroni Uses Linear Programming for Sales and Operations Planning, describes how linear programming is used to plan production to meet sales targets while minimizing total production and procurement costs, been ied Ea VESTEL ELECTRONICS USES LINEAR PROGRAMMING FOR SALES AND OPERATIONS PLANNING* Vestel Electronics manufactures a variety of prod- ucts, including LCD and LED televisions. With a single large manufacturing facility in Manisa, Turkey, it has annual capacity of 15 million units. Vestel’s primary market is in Europe, with nearly 90 percent of its products sold to European cus- tomers. Vestel is very customer-centric and so it allows mass customization of its products. Since a television is a highly customizable product, the number of possible combinations of attributes such as screen size, speaker type, remote control type etc. opens the possibility of ten thousand different versions of the product. Furthermore, Vestel allows low order quantities and order changes until the time of production. This flexibility, while fantastic for customer relations, leads to incredibly chal- Jenging production planning problems. Vestel uses a multiperiod linear programming ‘model to plan its production. The decision variables of the linear programming model are how much of ‘each product to produce/procure and how much to hold in inventory at the end of each period during the planning horizon. The objective function is to minimize the total production and procurement cost. Constraints ensure that demand is satisfied {all sales targets are met), resource capacities are not violated, and inventory balance equations calculate how much inventory to hold per period, In addition to more efficient and cost-effective production plans, the optimization has generated other benefits such as decreased planning time, improved planning accuracy, decreased inventory levels, better data visibility, and improved data standardization, and accuracy. *Based on. Taskin eta, “Mathematical Programming ‘Based Sales and Operations Planning at Vestel Electron- is,” Interfaces 45, no. 4 (July/August, 2015): 325-340. Let us consider the case of the Bollinger Electronics Company, which produces two differ- ent electronic components for a major airplane engine manufacturer. The airplane engine manufacturer notifies the Bollinger sales office each quarter of its monthly requirements for components for each ofthe next three months. The monthly requirements for the components may vary considerably, depending on the type of engine the airplane engine manufacturer is producing. The order shown in Table 4.7 has just been received forthe next three-month period. |Ending inventory from previous month beginning of the three-month scheduling peri were 500 units for component 322A and 200 units for component 802B. The demand for both products in the first month (April) was 1000 units, so the constraints for m demand in the first month become 500 + 1 — 511 = 1000 200 + x21 — s21 = 1000 Suppose that the inventories at the Be Moving the constants to the right-hand side, we have 4 gy ; g fi Month 1 ene : a1 — 521 = 800 pero ss ints for both products in the second and third months. We Similarly, a write them as follows: sux + m2 — S12 = 3000 Month 2 sn +92 $2 = 500 Month 3 sn tay — 53 5000 : sn + 3 ~ 93 = 3000 i)=b- Dy ) Gn) = 4 — Dy machine types, several labor Pence ‘grades, and/or several sto Se more an i (000 variables and constraints ‘igure 4.6 shows the optimal solution to the Bollin; i z er Electronics production schedul- i een Table 4.10 contains a portion of the managerial report based on the optimal Consider the monthly variation in the production and inventory schedule shown in Table 4.10, Recall that the inventory cost for component 802B is one-half the inventory cost for component 322A. Therefore, as might be expected, component 802B is produced heavily in the first month (April) and then held in inventory for the demand that will occur in future months. Component 322A tends to be produced when needed, and only small amounts are carried in inventory. The costs of increasing and decreasing the total production volume tend to smooth the monthly variations. Infact, the minimum-cost schedule calls fora 500-unitinerease in total production in April and a 2200-unit increase in total production in May. The May produetion evel of 5200 units is then maintained during June Pesmachine usage section ofthe report shows ample mache capacity in all hee aaa However, labor capacity is at full utilization (slack = 0 for constraint 13 in Figure 4.6) in the S y Js that an additional hour of labor capacity * ‘of May. The dual value shows that an additional hour of labor capacity in May will decrease imately $1.11 i Be nine ia of a two-product, three-month production system A linear programming fying a minimum-cost production ‘ean provide valuable inform requiring large-scale li a 12-month period ation in terms of identiManagement Scien the Kellogg Compa) Production plannine_ OPTIMIZING PRODUCTION, INVE! AT THE KELLOGG COMPANY* ‘The Kellogg Company is the largest ducer in the world and a hadi wae ee "venience foods, such as Kellogg's Pop-Tarts and ‘Nutri-Grain cereal bars. Kellogg produces more "than 40 different cereals at plants in 19 countries, on six continents. The company markets its prod- ucts in more than 160 countries and employs more than 15,600 people in its worldwide organization. In the cereal business alone, Kellogg coordinates production of about 80 products using a total of approximately 90 production lines and 180 pack- Kellogg has a long history of using ing for production planning and dist n. The Kellogg Planning System (KPS) is @ ‘The oper Scale, multiperiod linear program, The OPC version of KPS makes production, packs ir ,, and distribution decisions on a primary obec he = ently occur when “Workforce assign™ "decisions involving NTORY, AND DISTRIBUTION is to minimize the total cost of meeting ‘demand; constraints involve processing line capaci= ties, packaging line capacities, and satisfying safety stock requirements ‘A tactical version of KPS helps to estab lish plant budgets and make capaeity-expansion ‘and consolidation decisions on a monthly basis. ‘The tactical version was recently used to guide a ‘consolidation of production capacity that resulted. in projected savings of $35 to $40 million per year Because of the success Kellogg has had using KPS in their North American operations, the company is now introducing KPS into Latin America, and is studying the development of a global KPS model, ‘eased on G. Brown, J. Keegan, B. Vigus, and K. ‘Wood, “The Kellogg Company Optimizes Production, Inventory, and Distribution,” Interfaces (November December 2001): I-15. n production managers must make Janning period. Workforce assign- rnnel can be assigned to more than 1c been cross-trained given pl perso en employees hav