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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 products 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
X
Total cost as
a function of X
C
C+c2*X
c1*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
1
2
3
0.8
0.2
0.8
0.2
60K-20K-2*15K=10K
10K
60K-40K=20K
60K-40K-15K=5K
17K
60K-45K=15K
60K-45K-7.5K=7.5K
13.5K
17K
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 (NPVs) 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
Jumbled
flow (job
Shop)
Disconnected
line flow
(batch)
Connected
line flow
(assembly
Line)
Continuous
flow
(chemical
plants)
Process
type
Production
volume
& mix
Low volume,
low standardi-
zation
Multiple products,
low volume
Few major products,
high volume
High volume, high
standardization,
commodities
Commercial
printer
Heavy
Equipment
Auto
assembly
Sugar
refinery
Void
Void
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.
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
Part-Machine Indicator Matrix
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
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
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 s SC(Mi,Mj) s 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
Raw
Material
& Comp.
Inventory
Finished
Item
Inventory
S1,2
S1,1 S1,n
S2,1 S2,2 S2,m
Assembly Line 1: Product Family 1
Assembly Line 2: Product Family 2
Fabrication (or Backend Operations)
Dept. 1 Dept. 2 Dept. k
S1,i
S2,i
Dept. j
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
Aggregate Planning
Master Production Scheduling
Materials Requirement Planning
Aggregate Unit
Demand
End Item (SKU)
Demand
Corporate Strategy
Capacity and Aggregate Production Plans
SKU-level Production Plans
Manufacturing
and Procurement
lead times
Component Production lots and due dates
Part process
plans
(Plan. Hor.: 1 year, Time Unit: 1 month)
(Plan. Hor.: a few months, Time Unit: 1 week)
(Plan. Hor.: a few months, Time Unit: 1 week)
Shop floor-level Production Control
(Plan. Hor.: a day or a shift, Time Unit: real-time)
Aggregate Planning
Product Aggregation Schemes
Items (or Stock Keeping Units - SKUs): 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
Model Number
Required labor time
(hrs)
Item demand as % of
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
Aggregate Planning
Aggregate
Unit Demand
Aggregate
Unit Availability
(Current Inventory
Position)
Aggregate
Production Plan
Required
Production Capacity
Aggr. Unit
Production Reqs
Corporate Strategy
Aggregate Production Plan:
Aggregate Production levels
Aggregate Inventory levels
Aggregate Backorder levels
Production Capacity Plan:
Workforce level(s)
Overtime level(s)
Subcontracted Quantities
Pure Aggregate Planning Strategies
1. Demand Chasing: Vary the Workforce Level
D(t) P(t) = D(t)
W(t)
PC WC HC FC
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:
D(t) P(t)
O(t)
PC WC OC UC
U(t)
S(t)
SC
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:
D(t) P(t)
I(t)
PC WC IC
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:
D(t) P(t)
B(t)
PC WC BC
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:
D
PC WC HC FC OC UC SC IC BC
P
W
H
F
O
U
S
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.
Io
Wo
Solution Approaches
Graphical Approaches: Spreadsheet-based simulation
Analytical Approaches: Mathematical (mainly linear
programming) Programming formulations
A prototype problem
Forecasted demand:
Jan: 1280
Feb: 640
Mar: 900
Apr: 1200
May:2000
Jun: 1400
On-hand Inventory:
500
Required on-hand
Inventory at end
of June:
600
Current Workforce
Level: 300
Worker prod.capacity:
0.14653 units/day
Working days per month
Jan: 20
Feb: 24
Mar: 18
Apr: 26
May: 22
Jun: 15
Cost structure:
Inv. holding cost: $80/unit x month
Hiring cost: $500/worker
Firing cost: $1000/worker
A prototype problem (cont.)
Net predicted demand:
Jan: 780
Feb: 640
Mar: 900
Apr: 1200
May: 2000
Jun: 2000
Forecasted demand:
Jan: 1280
Feb: 640
Mar: 900
Apr: 1200
May:2000
Jun: 1400
On-hand Inventory:
500
Required on-hand
Inventory at end
of June:
600
An LP formulation for the prototype problem
Problem Parameters
D
t
= Forecasted demand for period t
d
t
= working days at period t
c = daily worker capacity
W
0
=Initial workforce level
I
0
= Current on-hand inventory
C
H
= Hiring cost per worker
C
F
= Firing cost per worker
C
I
= Inventory holding cost per unit per period
Problem Decision Variables
H
t
= Workers hired at period t
F
t
= Workers fired at period t
W
t
= Workforce level at period t
P
t
= Level of production at period t
I
t
= Inventory at the end of period t

An LP formulation for the prototype problem
) min(
6
1
6
1
6
1

= = =
+ +
t
t I
t
t F
t
t H
I C F C H C
s.t.
6 ,..., 1 ,
1
= + =

t F H W W
t t t t
6 ,..., 1 , ) ( = = t W c d P
t t t
6 ,..., 1 ,
1
= + =

t D P I I
t t t t
600
6
= I
6 ,..., 1 , 0 , , , , = > t I P F H W
t t t t t
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 = E
t
( PC
t
*P
t
+WC
t
*W
t
+OC
t
*O
t
+HC
t
*H
t
+FC
t
*F
t
+
SC
t
*S
t
+IC
t
*I
t
+BC
t
*B
t
)
s.t.
t, P
t
+I
t-1
+S
t
= (D
t
-B
t
)+B
t-1
+I
t

t, W
t
= W
t-1
+H
t
-F
t

t, (u_l_r)*P
t
s (s_d)-(w_d)
t
*W
t
+O
t

t, P
t
, W
t
, O
t
, H
t
, F
t
, S
t
, I
t
, B
t
> 0
(
) Any additional policy constraints
Prod. Capacity:
Material Balance:
Workforce Balance:
Var. sign restrictions:
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
MPS
Placed Orders
Forecasted Demand
Current and Planned
Availability, eg.,
Initial Inventory,
Initiated Production,
Subcontracted quantities
Master Production
Schedule:
When & How Much
to produce for each
product
Capacity
Consts.
Company
Policies
Economic
Considerations
Product
Charact.
Planning
Horizon
Time
unit
Capacity
Planning
MPS Example: Company Operations
Mashing
(1 mashing tun)
Boiling
(1 brew kettle)
Fermentation
(3 40-barrel
ferm. tanks)
Filtering
(1 filter tank)
Bottling
(1 bottling
station)
Grain cracking
(1 milling
machine)
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
Week 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
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 -35 -40 -40
Net Requirements 35 40 40
Batched Net Receipts
Scheduled Releases
Fermentors Seized
Total Fermentors Occupied
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
Computing Inventory Positions and
Net Requirements
Net Requirement:
NR
i
= abs(min{0, IP
i
})
Inventory Position:
IP
i
= max{IP
i-1
,0}+ SR
i
+BNR
i
-D
i
(Material Balance Equation)
i
D
i
IP
i
(IP
i-1
)
+

SR
i
+BNR
i
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
Week 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
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 15 175 135 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:
SP
i
= max{0, IP
i-1
-(SR
i-1
+SR
i-2
++SR
i-sl+1
)
-(BNR
i-1
+BNR
i-2
++BNR
i-sl+1
)}
Inventory Position:
IP
i
= max{IP
i-1
,0}+ SR
i
+BNR
i
-D
i
-SP
i
(Material Balance Equation)
i
D
i
IP
i
(IP
i-1
)
+

SR
i
+BNR
i
SP
i
The Driving Logic behind the Empirical Approach
Demand Availability:
Initial Inventory Position
Scheduled Receipts due to
initiated production or
subcontracting
Future inventories
Net
Requirements
Lot Sizing
Scheduled
Releases
Resource (Fermentor)
Occupancy
Product i
Feasibility
Testing
Master Production Schedule
Schedule
Infeasibilities
Revise
Prod. Reqs
Compute Future
Inventory Positions
Materials Requirements Planning
(MRP)
The MRP Explosion Calculus
BOM
MRP
MPS
Current
Availabilities
Planned
Order Releases
Priority
Planning
Lead
Times
Lot Sizing
Policies
Example: The (complete) MRP Explosion
Calculus

Item BOM:
Alpha
C(2) D(2)
B(1) C(1)
E(1)
E(1)
F(1)
F(1)
Item Lead Time Current Inv. Pos.
Alpha 1 10
B 2 20
C 3 0
D 1 100
E 1 10
F 1 50
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
Level 0
Level 1
Level 2
Level N
Initial
Inventories
Scheduled
Receipts
External Demand
Capacity
Planning
Planned
Order Releases
Gross Requirements
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
Synthesizing
item demand
series
Projecting
Inv. Positions
and
Net Reqs.
Lot Sizing
Time-
Phasing
Parent
Sched. Rel.
Item External
Demand
Gross
Reqs
Scheduled
Receipts
Initial
Inventory
Safety Stock
Requirements
Net
Reqs
Lot Sizing
Policy
Planned
Order
Receipts
Lead Time
Planned
Order
Releases
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
Periods 1 2 3
4 5 6 7
8
50
100
150
(borrowed from Heizer and Render)
Pegging and Bottom-up Replanning
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
W_q
W_2 W_i
W_M
W_1
J_1
J_2
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
1
2
3
4
5
5 10 15 20
Machine
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 Ej L_j Ej w_j*L_j max_j L_j max_j w_j*L_j
Tardiness Ej T_j Ej w_j*T_j max_j T_j max_j w_j*T_j
Flow time Ej F_j Ej w_j*F_j max_j F_j max_j w_j*F_j
Tardy index NT
Completion Ej C_j Ej 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!