Planning Production Activity

Preview
Planning Manufacturing Facilities
Quantitative Tools in Production Planning
Production Planning and Control
Flexible Manufacturing Systems

Assoc.Prof.Dr.B.G.etiner

Planning Production Activity

Planning Manufacturing Facilities
Plant Location: 7 Basic Steps in locating and
building every new plant
1. Establish the need for a new plant
2. Determine best geographical area based on needs
3. Establish the requirements
4. Screen many communities
5. Pinpoint few communities for detailed study
6. Select the best location
7. Build the plant

Assoc.Prof.Dr.B.G.etiner

Planning Production Activity

Planning Manufacturing Facilities
Plant Location
Some of the factors affecting choice of region
* Transportation (highway, rail, air, water)
* Labor (supply, skill level, local wages, and attitudes)
* Geographical location (raw materials, customers etc)
* Utilities (supply and cost of water, electricity etc)
* Business Climate (taxes, pollution controls, community)
* Comfortableness (Climate, educational facilities etc)
* Plant Sites (land cost etc)

Assoc.Prof.Dr.B.G.etiner

Planning Production Activity

Planning Manufacturing Facilities
Plant Location
Most important factors for plant location will vary with
industry
* For producing the bricks, plant has to be close to raw material
* Aluminum production needs cheap electricity
* High-technology electronic firms have tended to cluster
together with technical professionals and educational institutions
* Clothing manufacturers look for lower labor-cost areas

Assoc.Prof.Dr.B.G.etiner

Planning Production Activity

Planning Manufacturing Facilities
Plant Design
Nature of plant and its arrangement on the site
Multistory plants: Conserve land area, permit use
of gravity flow, and cheaper to heat
Singlestory plants: More flexible, permit lighter
foundations.

Assoc.Prof.Dr.B.G.etiner

Planning Production Activity

Planning Manufacturing Facilities
Plant Layout
Try to achieve most effective arrangement of physical
facilities and personnel for making a product.
Product Layout: Machines and personnel are arranged
along the production line so minimum travel is obtained
between processing steps
Process Layout: All machines or activity of a particular
type are located together. Useful for job-shop
environment

Assoc.Prof.Dr.B.G.etiner

Planning Production Activity

Planning Manufacturing Facilities
Plant Layout
Try to achieve most effective arrangement of physical
facilities and personnel for making a product.
Fixed-position Layout: Product remains stationary.
(for example; shipbuilding or mass construction)
Group Technology: A set of products requiring similar
processing equipment is identified, and a small group
of the machines needed to make this set of similar
products is placed together.

Assoc.Prof.Dr.B.G.etiner

Planning Production Activity

Plant Layout
Product A
2

Planning Milling Grinding

Drill Inspection
Press

Product B
I

II

Drill
Press

Turning

III

IV

Shipping

Receiving

Milling Painting Inspection

Assoc.Prof.Dr.B.G.etiner

Planning Production Activity

Product A
Product B

Plant Layout
Planning

Grinding

Receiving

Shipping

Turning

II
Painting

IV

III
Milling

4
I

Drill
Press

Inspection

Assoc.Prof.Dr.B.G.etiner

Planning Production Activity

Quantitative Tools in Production Planning
Economic Order Quantity (EOQ) to Inventory
Break-Even Charts
Learning Curves

Assoc.Prof.Dr.B.G.etiner

Planning Production Activity

Quantitative Tools in Production Planning
Inventory
Inventory Level

Production

Production Problem

Assoc.Prof.Dr.B.G.etiner

Planning Production Activity

Quantitative Tools in Production Planning
Economic Order Quantity (EOQ) to Inventory
Consider an inventory item for which annual
requirement is R units. Storing each unit of the item
in inventory will cost I dollars per year.
Each batch involves a setup cost of S dollars.

EOQ=

2 RS
I
Assoc.Prof.Dr.B.G.etiner

Planning Production Activity

Quantitative Tools in Production Planning
Economic Order Quantity (EOQ) to Inventory
a) If it costs $2 per unit to store an item for one year,
$40 setup cost every time you produce a lot, and you
use 1000 units per year, how many lots of what size
should be produced each year
b) What is the answer if setup cost is reduced to $10?

a)

2 RS
EOQ=
I

b)

2 RS
EOQ=
I

2.1000.40
200 1000 / 200 5 lots
2

2.1000.10
EOQ is decreased
100
(more flexible)
2
Assoc.Prof.Dr.B.G.etiner

Planning Production Activity

Quantitative Tools in Production Planning
Economic Order Quantity (EOQ) to Inventory

Cost (Dollars)

R
Q
CT I
S( )
Q
2

Q is batch quantity

Annual Total Cost

y
r
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I
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C
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A
Ho
Annual Ordering Cost

Order Quantity (Q)

Assoc.Prof.Dr.B.G.etiner

Planning Production Activity

Quantitative Tools in Production Planning
Problem with Economic Order Quantity
Why does the setup cost have to be so high?
It doesnt need to be.
Solution is
a) designing dies and tools to switch to new batch
b) including simple cards (kanban) in each small lot
Assoc.Prof.Dr.B.G.etiner

Planning Production Activity

Quantitative Tools in Production Planning
Break-Even Charts
Break-even analysis divides costs into fixed and
variable components to estimate the production
levels for profitable operation.

Assoc.Prof.Dr.B.G.etiner

Planning Production Activity

Quantitative Tools in Production Planning
Break-Even Charts
A plant may produce and sell U units of product up to a capacity of
2000 units. Fixed costs F1 of $100,000 must be paid in any case. The
selling price is assumed a constant S=$250, regardless of volume, so
that total revenue R=UxS. The unit variable cost V1 is assumed to
be constant $150. Each unit sold makes a contribution C1 of
C1=S-V1=$250-$150=$100
The break-even point BE1 is the production level U where total costs
TC equals to total revenue R:
R=UxS=TC1=F1+UxV1

BE1=U=

F1
S-V1

$100,000
$250-$150

=1000 units

Assoc.Prof.Dr.B.G.etiner

Planning Production Activity

Quantitative Tools in Production Planning
Break-Even Charts
500

S-V1

$250-$150

=1000 units

ue
n
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it
f
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r
R
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P
a
t
To
st
o
C
l
Tota 1
TC
BE Point

400
300
200
100

BE1=U=

$100,000

ss
o
L

400

800
1200
Units Sold (U)

1600

2000

Production Capacity

Thousands of dollars

R=UxS=TC1=F1+UxV1

F1

Planning Production Activity

Quantitative Tools in Production Planning
Break-Even Charts (Automation)
500

ue
n
ve
it
f
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r
R
l
P
a
t
To
st
o
C
l
Tota 1
TC
BE Point

400
300
200
100
400

800
1200
Units Sold (U)

1600

Production Capacity

Thousands of dollars

More efficient production F1=$180,000 and V2=$100 BE2=1200

2000

BE After Automation

Planning Production Activity

Quantitative Tools in Production Planning
Break-Even Charts (Automation)
Total Cost Before=F1+UxV1=$100,000+2000x150=$400,000
Total Cost in Automation=F2+UxV2=$180,000+2000x100=$380,000
Total Revenue=UxS=2000x250=$500,000
Maximum Profit Before=Total Revenue-Total Cost=$500,000-$400,000

$100,000

Maximum Profit in Automation=Total Revenue-Total Cost

=$500,000-$380,000

$120,000
In case of using maximum capacity,
it is better to automate in this example
Assoc.Prof.Dr.B.G.etiner

Labor hours per unit Y

Planning Production Activity

Quantitative Tools in Production Planning
Learning Curves With Learning Curve Rate %90

If the first unit takes 1000 labor hours

Second will take 900,
Fourth will take 810,
Eight will take 729

1000
500

300
100
1

10

100

1000

Number of units produced n

Assoc.Prof.Dr.B.G.etiner