Production-related Decision

Making in Large Corporations

Production-related Decision Making
in Large Corporations
(borrowed from Heizer and Render)
 Product and Process Design,
Sourcing, Equipment Selection
and Capacity Planning
 Major Topics
• Product and Process Design
• Documenting Product and Process Design
• Sourcing Decisions:
– A simple “Make or Buy” model
– Decision Trees: A scenario-based approach
• Equipment Selection and Capacity Planning
Product Selection and Development Stages
(borrowed from Heizer & Render)
 Quality Function Deployment (DFD)
and the House of Quality
• QFD: The process of
– Determining what are the customer “requirements” /
“wants”, and
– Translating those desires into the target product design.

• House of quality: A graphic, yet systematic technique for

defining the relationship between customer desires and the
developed product (or service)
 House of Quality Example
(borrowed from Heizer & Render)
 The “House of Quality” Chain
(borrowed from Heizer & Render)
Concurrent Engineering: The current approach for
organizing the product and process development
• The traditional US approach (department-based):
Research & Development => Engineering => Manufacturing =>
Production
Clear-cut responsibilities but lack of communication and “forward thinking”!
• The currently prevailing approach (cross-functional team-based):
Product development (or design for manufacturability, or value engineering)
teams: Include representatives from:
– Marketing
– Manufacturing
– Purchasing
– Quality assurance
– Field service
– (even from) vendors
Concurrent engineering: Less costly and more expedient product development
 The time factor: Time-based competition
• Some advantages of getting first a new product to the market:
– Setting the “standard” (higher market control)
– Larger market share
– Higher prices and profit margins
• Currently, product life cycles get shorter and product
technological sophistication increases => more money is
funneled to the product development and the relative risks
become higher.
• The pressures resulting from time-based competition have led to
higher levels of integrations through strategic partnerships, but
also through mergers and acquisitions.
 Additional concerns in contemporary
product and process design
– promote robust design practices
Robustness: the insensitivity of the product performance to small variations in the production
or assembly process => ability to support product quality more reliably and cost-effectively.
– Control the product complexity
– Improve the product maintainability / serviceability
– (further) standardize the employed components
Modularity: the structuring of the end product through easily segmented components
that can also be easily interchanged or replaced => ability to support flexible production and
product customization;increased product serviceability.
– Improve job design and job safety
– Environmental friendliness: safe and environmentally sound products, minimizing
waste of raw materials and energy, complying with environmental regulations,
ability for reuse, being recognized as good corporate citizen.
 Documenting Product Designs
• Engineering Drawing: a drawing that shows the dimensions, tolerances, materials and
finishes of a component. (Fig. 5.9)
• Bill of Material (BOM): A listing of the components, their description and the quantity of
each required to make a unit of a given product. (Fig. 5.10)
• Assembly drawing: An exploded view of the product, usually via a three-dimensional or
isometric drawing. (Fig. 5.12)
• Assembly chart: A graphic means of identifying how components flow into subassemblies
and ultimately into the final product. (Fig. 5.12)
• Route sheet: A listing of the operations necessary to produce the component with the material
specified in the bill of materials.
• Engineering change notice (ECN): a correction or modification of an engineering drawing or
BOM.
• Configuration Management: A system by which a product’s planned and changing
components are accurately identified and for which control of accountability of change are
maintained
 Documenting Product Designs (cont.)
• Work order: An instruction to make a given quantity (known as production
lot or batch) of a particular item, usually to a given schedule.
• Group technology: A product and component coding system that specifies
the type of processing and the involved parameters, allowing thus the
identification of processing similarities and the systematic
grouping/classification of similar products. Some efficiencies associated
with group technology are:
– Improved design (since the focus can be placed on a few critical
components
– Reduced raw material and purchases
– Improved layout, routing and machine loading
– Reduced tooling setup time, work-in-process and production time
– Simplified production planning and control
 Engineering Drawing Example
(borrowed from Heizer & Render)
 Bill of Material (BOM) Example
(borrowed from Heizer & Render)
Assembly Drawing & Chart Examples
(borrowed from Heizer & Render)
Operation Process Chart Example
(borrowed from Francis et. al.)
 Route Sheet Example
(borrowed from Francis et. al.)
 “Make-or-buy” decisions
• Deciding whether to produce a product component “in-house”, or
purchase/procure it from an outside source.
• Issues to be considered while making this decision:
– Quality of the externally procured part
– Reliability of the supplier in terms of both item quality and
delivery times
– Criticality of the considered component for the
performance/quality of the entire product
– Potential for development of new core competencies of
strategic significance to the company
– Existing patents on this item
– Costs of deploying and operating the necessary infrastructure
 A simple economic trade-off model for
the “Make or Buy” problem
Model parameters:
• c1 ($/unit): cost per unit when item is outsourced (item price,
ordering and receiving costs)
• C ($): required capital investment in order to support internal
production
• c2 ($/unit): variable production cost for internal production (materials,
labor,variable overhead charges)
• Assume that c2 < c1
• X: total quantity of the item to be outsourced or produced internally

Total cost as c1*X

a function of X
C+c2*X

X
X0 = C / (c1-c2)
 Example: Introducing a new (stabilizing)
bracket for an existing product
• Machine capacity available
• Required “infrastructure” for in-house production
– new tooling: $12,500
– Hiring and training an additional worker: $1,000
• Internal variable production (raw material + labor) cost: $1.12 / unit
• Vendor-quoted price: $1.55 / unit
• Forecasted demand: 10,000 units/year for next 2 years

X0 = (12,500+1,000)/(1.55-1.12) = 31,395 > 20,000

Buy!
 Evaluating Alternatives through
Decision Trees
• Decision Trees: A mechanism for systematically pricing all options /
alternatives under consideration, while taking into account various
uncertainties underlying the considered operational context.

• Example
– An engineering consulting company (ECC) has been offered the design of a new
product.The price offered by the customer is $60,000.
– If the design is done in-house, some new software must be purchased at the price
of $20,000, and two new engineers must be trained for this effort at the cost of
$15,000 per engineer.
– Alternatively, this task can be outsourced to an engineering service provider
(ESP) for the cost of $40,000. However, there is a 20% chance that this ESP will
fail to meet the due date requested by the customer, in which case, the ECC will
experience a penalty of $15,000. The ESP offers also the possibility of sharing
the above penalty at an extra cost of $5,000 for the ECC.
– Find the option that maximizes the expected profit for the ECC.
 Decision Trees: Example

10K
60K-20K-2*15K=10K

60K-40K=20K
17K 17K 0.8
2
0.2

60K-40K-15K=5K

3 13.5K
0.8 60K-45K=15K

0.2
60K-45K-7.5K=7.5K
 Technology selection
• The selected technology must be able to support the quality
standards set by the corporate / manufacturing strategy
• This decision must take into consideration future expansion plans
of the company in terms of
– production capacity (i.e., support volume flexibility)
– product portfolio (i.e., support product flexibility)
• It must also consider the overall technological trends in the
industry, as well as additional issues (e.g., environmental and other
legal concerns, operational safety etc.) that might affect the
viability of certain choices
• For the candidates satisfying the above concerns, the final
objective is the minimization of the total (i.e., deployment plus
operational) cost
 Production Capacity
• Design capacity: the “theoretical” maximum output of a system,
typically stated as a rate, i.e., product units / unit time.
• Effective capacity: The percentage of the design capacity that the system
can actually achieve under the given operational constraints, e.g.,
running product mix, quality requirements, employee availability,
scheduling methods, etc.
• Plant utilization = actual prod. rate / design capacity
• Plant efficiency = actual prod. rate / (effective capacity x
design capacity)
• Notice that
actual prod. rate = (design capacity) x (utilization) =
(design capacity) x (effective capacity) x (efficiency)
 Capacity Planning
• Capacity planning seeks to determine
– the number of units of the selected technology that needs to be deployed in
order to match the plant (effective) capacity with the forecasted demand,
and if necessary,
– a capacity expansion plan that will indicate the time-phased deployment of
additional modules / units, in order to support a growing product demand,
or more general expansion plans of the company (e.g., undertaking the
production of a new product in the considered product family).
• Frequently, technology selection and capacity planning are addressed
simultaneously, since the required capacity affects the economic viability of a
certain technological option, while the operational characteristics of a given
technology define the production rate per unit deployed and aspects like the
possibility of modular deployment.
 Quantitative Approaches to Technology
Selection and Capacity Planning
• All these approaches try to select a technology (mix) and determine the capacity to be deployed
in a way that it maximizes the expected profit over the entire life-span of the considered product
(family).
• Expected profit is defined as expected revenues minus deployment and operational costs.
• Typically, the above calculations are based on net present values (NPV’s) of the expected costs
and revenues, which take into consideration the cost of money: NPV = (Expense or
Revenue) / (1+i)N
where i is the applying interest rate and N the time period of the considered expense.
• Possible methods used include:
– Break-even analysis, similar to that applied to the “make or buy” problem, that seeks to
minimizes the total (fixed + variable) cost.
– Decision trees which allow the modeling of problem uncertainties like uncertain market
behavior, etc., and can determine a strategy as a reaction to these unknown factors.
– Mathematical Programming formulations which allow the optimized selection of technology
mixes.
Selecting the Process Layout
Operation Process Chart Example
for discrete part manufacturing
(borrowed from Francis et. al.)
 Major Layout Types
(borrowed from Francis et. al.)
 Advantages and Limitations of the various
layout types (borrowed from Francis et. al.)
Advantages and Limitations of the various layout
types (cont. - borrowed from Francis et. al.)
Selecting an appropriate layout
(borrowed from Francis et. al.)
 The product-process matrix
Production
volume Low volume, Multiple products, Few major products, High volume, high
& mix low standardi- low volume high volume standardization,
Process
zation commodities
type

Jumbled Commercial
flow (job printer Void
Shop)

Disconnected
line flow Heavy
(batch) Equipment

Connected Auto
line flow assembly
(assembly
Line)

Continuous
flow Sugar
Void refinery
(chemical
plants)
 Cell formation in group technology:
A clustering problem
Partition the entire set of parts to be produced on the plant-floor into
a set of part families, with parts in each family characterized by
similar processing requirements, and therefore, supported by the
same cell.
Part-Machine Indicator Matrix
M1 M2 M3 M4 M5 M6 M7
P1 1 1 1
P2 1 1 1
P3 1 1
P4 1 1
P5 1 1
P6 1 1 1

M1 M4 M6 M2 M3 M5 M7
P1 1 1 1
P3 1 1
P2 1 1 1
P4 1 1
P5 1 1
P6 1 1 1
Clustering Algorithms for Cellular Manufacturing
Row & Column Masking

M1 M2 M3 M4 M5 M6 M7
P1 1 1 1
P2 1 1 1
P3 1 1
P4 1 1
P5 1 1
P6 1 1 1

M1 M4 M6 M2 M3 M5 M7
P1 1 1 1
P3 1 1
P2 1 1 1
P4 1 1
P5 1 1
P6 1 1 1
Clustering Algorithms for Cellular
Manufacturing:
Similarity Coefficients - Motivation
M1 M2 M3 M4 M5 M6 M7
P1 1 1 1
P2 1 1 1 1
P3 1 1
P4 1 1
P5 1 1
P6 1 1 1

M1 M4 M6 M2 M3 M5 M7
P1 1 1 1
P3 1 1
P2 1 1 1 1
P4 1 1
P5 1 1
P6 1 1 1
Clustering Algorithms for Cellular Manufacturing:
Similarity Coefficients - Definitions
• P(Mi) = set of parts supported by machine Mi
• |P(Mi)| = cardinality of P(Mi), i.e., the number of elements
of this set
• SC(Mi,Mj) = |P(Mi)P(Mj)| / |P(Mi)P(Mj)| =
|P(Mi)P(Mj)| / (|P(Mi)|+|P(Mj)|-|P(Mi)P(Mj)|)

• Notice that: 0  SC(Mi,Mj)  1.0, and the closer this value is

to 1.0 the greater the similarity among the part sets supported
by machines Mi and Mj.
• By picking a desired threshold, one can cluster together all
machines that have a similarity coefficient greater than or
equal to this threshold.
 A typical (logical) Organization of the
Production Activity in
Repetitive Manufacturing
Assembly Line 1: Product Family 1
S1,1 S1,2 S1,i S1,n

Raw Fabrication (or Backend Operations)

Finished
Material Dept. 1 Dept. 2 Dept. j Dept. k Item
& Comp.
Inventory
Inventory

S2,1 S2,2 S2,i S2,m

Assembly Line 2: Product Family 2

Synchronous Transfer Lines: Examples
(Pictures borrowed from Heragu)
Flow Patterns for Product-focused Layouts
(borrowed from Francis et. al.)
 Discrete vs. Continuous Flow and
Repetitive Manufacturing Systems
(Figures borrowed from Heizer and Render)
Production Planning and
Scheduling
 Dealing with the Problem Complexity
through Decomposition
Corporate Strategy

Aggregate Unit Aggregate Planning

Demand (Plan. Hor.: 1 year, Time Unit: 1 month)

Capacity and Aggregate Production Plans

End Item (SKU) Master Production Scheduling

Demand (Plan. Hor.: a few months, Time Unit: 1 week)

SKU-level Production Plans

Manufacturing Materials Requirement Planning

and Procurement (Plan. Hor.: a few months, Time Unit: 1 week)
lead times
Component Production lots and due dates

Part process Shop floor-level Production Control

plans (Plan. Hor.: a day or a shift, Time Unit: real-time)
Aggregate Planning
 Product Aggregation Schemes
•Items (or Stock Keeping Units - SKU’s): The final products delivered to the
(downstream) customers
•Families: Group of items that share a common manufacturing setup cost;
i.e., they have similar production requirements.

•Aggregate Unit: A fictitious item representing an entire product family.

•Aggregate Unit Production Requirements: The amount of (labor) time
required for the production of one aggregate unit. This is computed by
appropriately averaging the (labor) time requirements over the entire set of
items represented by the aggregate unit.
•Aggregate Unit Demand: The cumulative demand for the entire set of items
represented by the aggregate unit.

Remark: Being the cumulate of a number of independent demand series, the

demand for the aggregate unit is a more robust estimate than its constituent
components.
 Computing the Aggregate Unit
Production Requirements
Washing machine Required labor time Item demand as % of
Model Number (hrs) aggregate demand
A5532 4.2 32

K4242 4.9 21

L9898 5.1 17

3800 5.2 14

M2624 5.4 10

M3880 5.8 06

Aggregate unit labor time = (.32)(4.2)+(.21)(4.9)+(.17)(5.1)+(.14)(5.2)+

(.10)(5.4)+(.06)(5.8) = 4.856 hrs
 Aggregate Planning Problem
Aggr. Unit
Production Reqs Corporate Strategy

Aggregate
Unit Demand Aggregate
Production Plan

Aggregate
Aggregate Planning
Unit Availability Required
(Current Inventory Production Capacity
Position)

Aggregate Production Plan: Production Capacity Plan:

•Aggregate Production levels •Workforce level(s)
•Aggregate Inventory levels •Overtime level(s)
•Aggregate Backorder levels •Subcontracted Quantities
 Pure Aggregate Planning Strategies
1. Demand Chasing: Vary the Workforce Level
PC WC HC FC

D(t) P(t) = D(t)

W(t)

•D(t): Aggregate demand series

•P(t): Aggregate production levels
•W(t): Required Workforce levels
•Costs Involved:
•PC: Production Costs
•fixed (setup, overhead)
•variable (materials, consumables, etc.)
•WC: Regular labor costs
•HC: Hiring costs: e.g., advertising, interviewing, training
•FC: Firing costs: e.g., compensation, social cost
 Pure Aggregate Planning Strategies
2. Varying Production Capacity with Constant Workforce:
PC SC WC OC UC

D(t) P(t)
S(t)
O(t)
U(t)
W = constant
•S(t): Subcontracted quantities
•O(t): Overtime levels
•U(t): Undertime levels
•Costs involved:
•PC, WC: as before
•SC: subcontracting costs: e.g., purchasing, transport, quality, etc.
•OC: overtime costs: incremental cost of producing one unit in overtime
•(UC: undertime costs: this is hidden in WC)
 Pure Aggregate Planning Strategies
3. Accumulating (Seasonal) Inventories:
PC WC IC

D(t) P(t)

I(t)

W(t), O(t), U(t), S(t) = constant

•I(t): Accumulated Inventory levels
•Costs involved:
•PC, WC: as before
•IC: inventory holding costs: e.g., interest lost, storage space, pilferage,
obsolescence, etc.
 Pure Aggregate Planning Strategies
4. Backlogging:
PC WC BC

D(t) P(t)

B(t)

W(t), O(t), U(t), S(t) = constant

•B(t): Accumulated Backlog levels

•Costs involved:
•PC, WC: as before
•BC: backlog (handling) costs: e.g., expediting costs, penalties, lost sales
(eventually), customer dissatisfaction
Typical Aggregate Planning Strategy
A “mixture” of the previously discussed pure options:
PC WC HC FC OC UC SC IC BC

P
D W
H
F
Io O
U
S
Wo I
B

+
Additional constraints arising from the company strategy; e.g.,
•maximal allowed subcontracting
•maximal allowed workforce variation in two consecutive periods
•maximal allowed overtime
•safety stocks
•etc.
 Solution Approaches
• Graphical Approaches: Spreadsheet-based simulation
• Analytical Approaches: Mathematical (mainly linear
programming) Programming formulations
 A prototype problem
Forecasted demand: On-hand Inventory: Current Workforce
Jan: 1280 500 Level: 300
Feb: 640 Required on-hand
Mar: 900 Inventory at end Worker prod.capacity:
Apr: 1200 of June: 0.14653 units/day
May:2000 600 Working days per month
Jun: 1400 Jan: 20
Cost structure: Feb: 24
Inv. holding cost: $80/unit x month Mar: 18
Hiring cost: $500/worker Apr: 26
Firing cost: $1000/worker May: 22
Jun: 15
 A prototype problem (cont.)
Forecasted demand: On-hand Inventory: Net predicted demand:
Jan: 1280 500 Jan: 780
Feb: 640 Required on-hand Feb: 640
Mar: 900 Inventory at end Mar: 900
Apr: 1200 of June: Apr: 1200
May:2000 600 May: 2000
Jun: 1400 Jun: 2000
An LP formulation for the prototype problem
Problem Parameters
Dt = Forecasted demand for period t
dt = working days at period t
c = daily worker capacity
W0=Initial workforce level
I0 = Current on-hand inventory
CH = Hiring cost per worker
CF = Firing cost per worker
CI = Inventory holding cost per unit per period
Problem Decision Variables
Ht = Workers hired at period t
Ft = Workers fired at period t
Wt = Workforce level at period t
Pt = Level of production at period t
An LP formulation for the prototype problem
6 6 6
min(C H  H t  C F  Ft  C I  I t )
t 1 t 1 t 1

s.t.
Wt  Wt 1  H t  Ft , t  1,...,6
Pt  (d t  c)  Wt , t  1,...,6
I t  I t 1  Pt  Dt , t  1,...,6
I 6  600
Wt , H t , Ft , Pt , I t  0, t  1,...,6
Optimal Plan for the considered example

•Fire 27 workers in January

•Hire 465 workers in May
•Produce at full (labor) capacity every month
Resulting total cost:
$379320.900
 Analytical Approach:
A Linear Programming Formulation
min TC = t ( PCt*Pt+WCt*Wt+OCt*Ot+HCt*Ht+FCt*Ft+
SCt*St+ICt*It+BCt*Bt )
s.t.
Prod. Capacity: t,(u_l_r)*Pt s_d)w_d)t*Wt+Ot
Material Balance: t, Pt+It-1+St = (Dt-Bt)+Bt-1+It

Workforce Balance: t, Wt = Wt-1+Ht-Ft

( Any additional policy constraints )
Var. sign restrictions: t, Pt, Wt, Ot, Ht, Ft, St, It, Bt  0

Time unit: month / unit_labor_req. /shift_duration (in hours) /

(working_days) for month t
 Demand (vs. Capacity) Options or
Proactive Approaches to
Aggregate Planning
• Influencing demand variation so that it aligns to available production
capacity:
– advertising
– promotional plans
– pricing
(e.g., airline and hotel weekend discounts, telecommunication companies’ weekend
rates)
• “Counter-seasonal” product (and service) mixing: Develop a product
mix with antithetic (seasonal) trends that level the cumulative required
production capacity.
– (e.g., lawn mowers and snow blowers)
• => The outcome of this type of planning is communicated to the
overall aggregate planning procedure as (expected) changes in the
demand forecast.
 Disaggregation and
Master Production Scheduling
(MPS)
 The (Master) Production Scheduling Problem
Capacity Company Product Economic
Consts. Policies Charact. Considerations

Placed Orders Master Production

Forecasted Demand Schedule:
Current and Planned MPS When & How Much
Availability, eg., to produce for each
•Initial Inventory, product
•Initiated Production,
•Subcontracted quantities
Planning Time
Horizon unit
Capacity
Planning
 MPS Example: Company Operations
Grain cracking
Mashing Boiling
(1 milling
(1 mashing tun) (1 brew kettle)
machine)

Fermentation Bottling
Filtering
(3 40-barrel (1 bottling
(1 filter tank)
ferm. tanks) station)

Fermentation Times:
Brew Ferm. Time
Pale Ale 2 weeks
Stout 3 weeks
Winter Ale 2 weeks
Summer Brew 2 weeks
Octoberfest 8-10 weeks
 Example: Implementing the Empirical
Approach in Excel
# Fermentors: 1 Unit Cap: 200 Shelf Life: 20

Microbrewery Performance
W eek 0 1 2 3 4 5 6 7 8 9 10
# Fermentors Req'd 0 0 0 0 0 0 0 0 0 0
Feasible Loading?
Min # Fermentors Req'd 2 2 2 2 2 2 2 2 2 2
Fermentor Utilization 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
Total Spoilage 0 0 0 0 0 0 0 0 0 0

Pale Ale Fermentation Time: 2

W eek 0 1 2 3 4 5 6 7 8 9 10
Demand 45 50 40 40 40 40 40 40 40 40
Scheduled Receipts 200
Fermentors Released 1
Inventory Spoilage
Inventory Position 100 255 205 165 125 85 45 5 -35 -40 -40
Net Requirements 35 40 40
Batched Net Receipts
Scheduled Releases
Fermentors Seized
Total Fermentors Occupied

Stout Fermentation Time: 3

W eek 0 1 2 3 4 5 6 7 8 9 10
Demand 35 40 30 30 40 40 40 40 50 50
Scheduled Receipts
Fermentors Released
Inventory Spoilage
Inventory Position 150 115 75 45 15 -25 -40 -40 -40 -50 -50
Net Requirements 25 40 40 40 50 50
Batched Net Receipts
Scheduled Releases
Fermentors Seized
Total Fermentors Occupied
 Computing Inventory Positions and
Net Requirements

Inventory Position:
IPi = max{IPi-1,0}+ SRi+BNRi -Di
(Material Balance Equation)
(IPi-1)+ Di
i

SRi+BNRi IPi
Net Requirement:

NRi = abs(min{0, IPi})

 Problem Decision Variables:
Scheduled Releases
# Fermentors: 1 Unit Cap: 200 Shelf Life: 20

Microbrewery Performance
Week 0 1 2 3 4 5 6 7 8 9 10
# Fermentors Req'd 0 0 0 0 0 1 1 0 0 0
Feasible Loading?
Min # Fermentors Req'd 2 2 2 2 2 2 2 2 2 2
Fermentor Utilization 0% 0% 0% 0% 0% 100% 100% 0% 0% 0%
Total Spoilage 0 0 0 0 0 0 0 0 0 0

Pale Ale Fermentation Time: 2

Week 0 1 2 3 4 5 6 7 8 9 10
Demand 45 50 40 40 40 40 40 40 40 40
Scheduled Receipts 200
Fermentors Released 1
Inventory Spoilage
Inventory Position 100 255 205 165 125 85 45 5 165 125 85
Net Requirements
Batched Net Receipts 200
Scheduled Releases 200
Fermentors Seized 1
Total Fermentors Occupied 1 1

Stout Fermentation Time: 3

Week 0 1 2 3 4 5 6 7 8 9 10
Demand 35 40 30 30 40 40 40 40 50 50
Scheduled Receipts
Fermentors Released
Inventory Spoilage
Inventory Position 150 115 75 45 15 -25 -40 -40 -40 -50 -50
Net Requirements 25 40 40 40 50 50
Batched Net Receipts
Scheduled Releases
Fermentors Seized
Total Fermentors Occupied
 Testing the Schedule Feasibility
# Fermentors: 1 Unit Cap: 200 Shelf Life: 20

Microbrewery Performance
W eek 0 1 2 3 4 5 6 7 8 9 10
# Fermentors Req'd 0 1 1 1 0 1 2 1 1 0
Feasible Loading? NO
Min # Fermentors Req'd 2 2 2 2 2 2 2 2 2 2
Fermentor Utilization 0% 100% 100% 100% 0% 100% 200% 100% 100% 0%
Total Spoilage 0 0 0 0 0 0 0 0 0 0

Pale Ale Fermentation Time: 2

W eek 0 1 2 3 4 5 6 7 8 9 10
Demand 45 50 40 40 40 40 40 40 40 40
Scheduled Receipts 200
Fermentors Released 1
Inventory Spoilage
Inventory Position 100 255 205 165 125 85 45 5 165 125 85
Net Requirements
Batched Net Receipts 200
Scheduled Releases 200
Fermentors Seized 1
Total Fermentors Occupied 1 1

Stout Fermentation Time: 3

W eek 0 1 2 3 4 5 6 7 8 9 10
Demand 35 40 30 30 40 40 40 40 50 50
Scheduled Receipts
Fermentors Released
Inventory Spoilage
Inventory Position 150 115 75 45 15 175 135 95 55 5 155
Net Requirements
Batched Net Receipts 200 200
Scheduled Releases 200 200
Fermentors Seized 1 1
Total Fermentors Occupied 1 1 1 1 1 1
 Fixing the Original Schedule
# Fermentors: 1 Unit Cap: 200 Shelf Life: 20

Microbrewery Performance
Week 0 1 2 3 4 5 6 7 8 9 10
# Fermentors Req'd 0 1 1 1 1 1 1 1 1 0
Feasible Loading?
Min # Fermentors Req'd 2 2 2 2 2 2 2 2 2 2
Fermentor Utilization 0% 100% 100% 100% 100% 100% 100% 100% 100% 0%
Total Spoilage 0 0 0 0 0 0 0 0 0 0

Pale Ale Fermentation Time: 2

Week 0 1 2 3 4 5 6 7 8 9 10
Demand 45 50 40 40 40 40 40 40 40 40
Scheduled Receipts 200
Fermentors Released 1
Inventory Spoilage
Inventory Position 100 255 205 165 125 85 45 205 165 125 85
Net Requirements
Batched Net Receipts 200
Scheduled Releases 200
Fermentors Seized 1
Total Fermentors Occupied 1 1

Stout Fermentation Time: 3

Week 0 1 2 3 4 5 6 7 8 9 10
Demand 35 40 30 30 40 40 40 40 50 50
Scheduled Receipts
Fermentors Released
Inventory Spoilage
Inventory Position 150 115 75 45 15 175 135 95 55 5 155
Net Requirements
Batched Net Receipts 200 200
Scheduled Releases 200 200
Fermentors Seized 1 1
Total Fermentors Occupied 1 1 1 1 1 1
 Infeasible Production Requirements
# Fermentors: 1 Unit Cap: 200 Shelf Life: 20

Microbrewery Performance
Week 0 1 2 3 4 5 6 7 8 9 10
# Fermentors Req'd 1 1 1 1 0 0 0 0 0 0
Feasible Loading?
Min # Fermentors Req'd 2 2 2 2 2 2 2 2 2 2
Fermentor Utilization 100% 100% 100% 100% 0% 0% 0% 0% 0% 0%
Total Spoilage 0 0 0 0 0 0 0 0 0 0

Pale Ale Fermentation Time: 2

Week 0 1 2 3 4 5 6 7 8 9 10
Demand 45 50 40 40 40 40 40 40 40 40
Scheduled Receipts 200
Fermentors Released 1
Inventory Spoilage
Inventory Position 100 55 205 165 125 85 45 5 -35 -40 -40
Net Requirements 35 40 40
Batched Net Receipts
Scheduled Releases
Fermentors Seized
Total Fermentors Occupied 1

Stout Fermentation Time: 3

Week 0 1 2 3 4 5 6 7 8 9 10
Demand 35 40 40 40 40 40 40 40 50 50
Scheduled Receipts
Fermentors Released
Inventory Spoilage
Inventory Position 150 115 75 35 -5 160 120 80 40 -10 -50
Net Requirements 5 10 50
Batched Net Receipts 200
Scheduled Releases 200
Fermentors Seized 1
Total Fermentors Occupied 1 1 1
 A feasible schedule with spoilage effects
# Fermentors: 1 Unit Cap: 200 Shelf Life: 6

Microbrewery Performance
Week 0 1 2 3 4 5 6 7 8 9 10
# Fermentors Req'd 1 1 1 1 1 0 1 1 1 0
Feasible Loading?
Min # Fermentors Req'd 2 2 2 2 2 2 2 2 2 2
Fermentor Utilization 100% 100% 100% 100% 100% 0% 100% 100% 100% 0%
Total Spoilage 0 0 0 0 0 0 45 0 0 5

Pale Ale Fermentation Time: 2

Week 0 1 2 3 4 5 6 7 8 9 10
Demand 45 50 40 40 40 40 40 40 40 40
Scheduled Receipts 200
Fermentors Released 1
Inventory Spoilage 45
Inventory Position 100 255 205 165 125 85 245 160 120 80 40
Net Requirements
Batched Net Receipts 200
Scheduled Releases 200
Fermentors Seized 1
Total Fermentors Occupied 1 1

Stout Fermentation Time: 3

Week 0 1 2 3 4 5 6 7 8 9 10
Demand 35 40 30 30 40 40 40 40 50 50
Scheduled Receipts
Fermentors Released
Inventory Spoilage 5
Inventory Position 150 115 75 45 215 175 135 95 55 5 150
Net Requirements
Batched Net Receipts 200 200
Scheduled Releases 200 200
Fermentors Seized 1 1
Total Fermentors Occupied 1 1 1 1 1 1
 Computing Spoilage and
Modified Inventory Position

Spoilage:
SPi = max{0, IPi-1-SRi-1+SRi-2+…+SRi-sl+1)
-BNRi-1+BNRi-2+…+BNRi-sl+1)}
Inventory Position:
IPi = max{IPi-1,0}+ SRi+BNRi -Di-SPi
(Material Balance Equation)

(IPi-1)+ Di
i
SPi
SRi+BNRi IPi
The Driving Logic behind the Empirical Approach

•Initial Inventory Position

Demand Availability: •
Scheduled Receipts due to
initiated production or
subcontracting
Compute Future
Inventory Positions
Net
Requirements
Future inventories

Lot Sizing

Scheduled Resource (Fermentor)

Releases Occupancy Product i

Feasibility Schedule Revise

Testing Prod. Reqs
Infeasibilities

Master Production Schedule

Materials Requirements Planning
(MRP)
 The “MRP Explosion” Calculus

Lead Lot Sizing

BOM Times Policies

Planned
MPS
Order Releases
MRP
Current Priority
Availabilities Planning
 Example: The (complete) MRP Explosion
Calculus
Item BOM:
Alpha Item Lead Time Current Inv. Pos.
Alpha 1 10
B 2 20
B(1) C(1) C 3 0
D 1 100
E 1 10
F 1 50
D(2) C(2) E(1) F(1)

E(1) F(1) Gross Reqs for Alpha

Period 6 7 8 9 10 11 12 13
Gross Reqs. 50 50 100

Item Levels:
Level 0: Alpha Level 1: B Level 2: C, D Level 3: E, F
(borrowed from Heizer and Render)
 The “MRP Explosion” Calculus
External Demand

Level 0
Initial
Inventories
Level 1

Capacity
Planning
Level 2
Scheduled
Receipts

Level N
Planned
Gross Requirements Order Releases
 Computing the item Scheduled Releases

Item C
Period 1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements 12 10 90 75
Scheduled Receipts 20
Inventory Position: 20 20 40 40 40 40 28 18 18 -72 0 -75 0
Net Requirements 72 75
Planned Sched. Receipts 72 75
Planned Sched. Releases 72 75

Safety Stock Lot Sizing

Lead Time
Requirements Policy
Parent Gross Planned Planned
Sched. Rel. Reqs Projecting Net Order Order
Synthesizing Releases
Inv. Positions Reqs Receipts Time-
item demand and Lot Sizing
Phasing
series Net Reqs.
Item External
Demand
Scheduled
Receipts
Initial
Inventory
 Some Lot Sizing Heuristics
• Economic Order Quantity (EOQ): Compute a lot size using the EOQ formula with
the demand rate D set equal to the average of the demand values observed over the
considered planning horizon.
• Periodic Order Quantity (POQ): Compute T = round(EOQ/D), and every time you
schedule a new lot, size it to cover the net requirements for the subsequent T periods.
• Silver-Meal (SM): Every time you start a new lot, keep adding the net requirements
of the subsequent periods, as long as the average (setup plus holding) cost per period
decreases.
• Least Unit Cost (LUC): Every time you start a new lot, keep adding the net
requirements of the subsequent periods, as long as the average (setup plus holding)
cost per unit decreases.
• Part Period Balancing (PPB): Every time you start a new lot, add a number of
subsequent periods such that the total holding cost matches the lot set up cost as
much as possible.
 Capacity Planning (Example)
Available
labor
hours
150

100

50

1 2 3 4 5 6 7 8 Periods
Pegging and Bottom-up Replanning
(borrowed from Heizer and Render)
 Shop floor-level
Production Control / Scheduling
 General Problem Definition

Determine the timing of

– the releases of the various production lots on the shop-floor
and
– the allocation to them of the system resources required for
the execution of their various operations
so that the production plans decided at the tactical planning - i.e.,
MPS & MRP - level are observed as close as possible.
 Example

J_2

J_1
W_1 W_2 W_i

W_q W_M
J_N
 A modeling abstraction
• M: number of machine types / workstations.
• N: number of jobs to be scheduled.
• Job routing: an ordered list / sequence of machines that a job
needs to visit in order to be completed.
• Operation: a single processing step executed during the job
visit to a machine.
• P_j: the set of operations in the routing of job j.
• t_kj: the processing time for the k-th operation of job j.
• d_j: due date for job j.
• r_j: the release date of job j, i.e., the date at which the material
required for starting the job processing will be available.
 Example

Jon number Due Date Oper. #1 Oper. #2 Oper. #3 Oper. #4 Oper. #5

1 17 (1,2) (2,4) (4,3) (5,3)
2 18 (1,4) (3,2) (2,6) (4,2) (5,3)
3 19 (2,1) (5,4) (1,3) (3,4) (2,2)
4 17 (2,4) (4,2) (1,2) (3,5)
5 20 (4,5) (5,3) (1,7)
 A feasible schedule and its Gantt Chart
Machine

5 10 15 20 Time
Job 1 Job 2 Job 3 Job 4 Job 5
 Performance-related job and schedule
attributes
• job completion time: C_j
• schedule makespan: max_j C_j
• job lateness: L_j = C_j - d_j (notice that, by definition, job lateness
can be either positive or negative - in which case that the job is
finished earlier than its due date)
• job tardiness: T_j = max (0, L_j) = [L_j]+
• job flow time: F_j =C_j - r_j (i.e., the amount of time the job
spends on the shop-floor)
• job tardy index: TI_j = 1 if job is tardy; 0 otherwise.
• Number of tardy jobs: NT
• job importance weight: w_j (the higher the weight, the more
important the job)
 Performance Criteria

Job Attribute min total min weighted total min max min weighted max
Lateness S _j L_j S_j w_j*L_j max_j L_j max_j w_j*L_j
Tardiness S_j T_j S_j w_j*T_j max_j T_j max_j w_j*T_j
Flow time S_j F_j S_j w_j*F_j max_j F_j max_j w_j*F_j
Tardy index NT
Completion S_j C_j S_j w_j*C_j max_j C_j max_j w_j*C_j
 Schedule Performance Evaluation

Job d_j C_j F_j L_j T_j TI_j

1 17 15 15 -2 0 0
2 18 20 20 2 2 1
3 19 17 17 -2 0 0
4 17 18 18 1 1 1
5 20 18 18 -2 0 0

Total 88 88 -3 3 2
average 17.6 17.6 -0.6 0.6
max 20 20 2 2
 Problem variations
• Based on job routing:
– job shop: each job has an arbitrary route
– flow shop: all jobs have the same route, but different operational processing times
– re-entrant flow shop: some machine(s) is visited more than once by the same job
– flexible job shop / flow shop: each operation has a number of machine alternatives for its
execution
• Based on the operational processing times:
– deterministic: the various processing times are known exactly
– stochastic: the processing times are known only in distribution
• Based on the possibility of pre-emption:
– pre-emptive: the execution of a job on a machine can be interrupted upon the arrival of a
new job
– non-preemptive: each machine must complete its currently running job before switching
to another one.
• Based on the considered performance objective(s)
 Solution Approaches
• Analytical (Mixed Integer Programming) formulations:
Notoriously difficult to solve even for relatively small configurations
• Heuristics:
In the scheduling literature, the applied heuristics are known as
dispatching rules, and they determine the sequencing of the various jobs
waiting upon the different machines, based upon job attributes like
– the required processing times
– due dates
– priority weights
– slack times, defined as d_j - (current time + total remaining
processing time for job j)
– Critical ratios, defined as (d_j-current time)/rem. proc. time for job j
Assembly Line Balancing
Synchronous Transfer Lines: Examples
(Pictures borrowed from Heragu)
 Balancing Synchronous Transfer Lines
• Given:
– a set of m tasks, each requiring a certain (nominal) processing time t_i,
and
– a set of precedence constraints regarding the execution of these m tasks,
• assign these tasks to a sequence of k workstations, in a way that
– the total amount of work assigned to each workstation does not exceed a
pre-defined cycle time c, (constraint I)
– the precedence constraints are observed, (constraint II)
– while the number of the employed workstations k is minimized.
(objective)
• Remark: The problem is hard to solve optimally, and quite often it
is addressed through heuristics.
Heuristics for Assembly Line Balancing

Developed in class – c.f. your class notes!