AMERICAN AUTOMOBILES LIMITED: PRODUCTION PLANNING

It was a bright morning in mid-April. Waking up, the first thing that Michael Adams remembered was the
production planning and control (PPC) meeting to be held later in the day, at American Automobiles Limited
(AAL). Adams had recently been promoted as Deputy Manager and had been looking after production
planning in the stamping department, also known as the stamping shop. He reported to Chris Davis, the
functional head, who was also the newest member in the stamping shop. Davis had been transferred there
from the weld shop just two months ago.

“In PPC meetings, they do not usually call someone at my level, so it must be something serious”, Adams
thought. The agenda was to discuss capacity constraints that became evident from the increased demand
forecast for the upcoming months. The meeting would be chaired by the Director of Production. All
divisional and functional heads would attend and contribute to the discussions.

Adams recollected a conversation he had had with Davis, the previous day –

Davis– Adams, have we calculated the load per press for the next month?

Adams– Yeah. There is pretty much no change in this month’s plan.

Davis– Sounds good. We need to explain the calculations in tomorrow’s PPC meeting. Management
has certain queries regarding stamping shop planning. Please take a print of your workings, and also
paste them into a PPT. Hmm…can you join the meeting?

ABOUT AAL
AAL was a significant player in the North American car manufacturing industry. The company focused
on three criteria: product quality, safety and cost. AAL’s technical distinctiveness represented by its
ability to pack power and performance into a compact, lightweight engine, made well for city conditions.
The company also recognized that employees were its prime strength and adopted norms such as wearing
uniforms of the same color and quality of fabric, having lunch together in the same canteen regardless of
their level in the hierarchy and commuting in the same buses without any discrimination in seating
arrangements. Employees would solve operational problems in a mode of teamwork with a strong culture
of on-the-job training, quality circles and continuous improvement. This culture pervaded AAL.

AAL devoted itself to building value through continuous improvement by following the Plan-Do-Check-
Act (PDCA) cycle, made popular by Edwards Deming. The concept of PDCA was instituted across all
functions and levels.

AAL’s facility, located south of Detroit, Michigan, consisted of three vehicle plants (Plant A, B and C),
each having a weld shop, a paint shop, and an assembly shop. Plant A also had a stamping shop.

THE STAMPING SHOP

The stamping shop consisted of six press machines, numbered according to their age in the plant: M1, M2,
M3, M4, M5 and M6. M1 was the oldest and M6, the youngest. The stamping shop was the largest
department of AAL. It supplied stamped body panels to all three plants of the Michigan facility, some
other plants of AAL and to some joint ventures of AAL. Thus, its resources were used widely.

The different sections inside the stamping shop were a) Quality b) Die maintenance c) Safety d)
Production Planning e) Shift operation control and f) Budgetary control. Each section was headed by a
section manager, who reported to the functional manager.
THE STAMPING PROCESS
Stamping was a batch production process. Steel coils were procured from multiple vendors, both domestic
and abroad. The coils were then cut to exact sizes in a shearing operation. During shearing, a steel coil
was fed at one side of the shearing machine and a shearing blade (for straight cut) or shearing die (for
contoured cut) moved up and down to shear the coil to the desired size. The resulting output was known
as a ‘flat product blank’.

A flat product blank was then fed to a stamping press, which morphed it to a car body panel, by applying
pressure. This action was called a “stamping shot”, or simply “shot”. Dies were used in press machines
during shots. Separate dies were used for different parts. A die was loaded onto a machine for stamping a
particular part and removed only after a pre-decided number of pieces of that part (also known as the lot
size) had been stamped. Removing a die and loading the next one was known as ‘changeover’. The
changeover time varied with the tonnage of the machine (Exhibit 1). The average cost per shot varied
between machines and there was also a constant ‘shift cost’ for operating a machine in a shift (Exhibit 1).

Lot sizes were driven by two factors: the space available for storing the part and the number of parts that
could be kept on a single pallet. Pallets were used not only to keep the parts but also to transfer them from
one place to another. A typical lot size was 2.5 days of inventory. A schematic of the stamping process is
given in Exhibit 2. After stamping, the panels moved to the weld shop.

THE PPC MEETING

The PPC department was responsible for planning the production of vehicles in all plants in accordance with
the demand presented by Marketing. A typical PPC meeting aimed to synchronize the capacity
requirements of the near future (one month), between the plants. The summary of the vehicle-wise plan, as
published by PPC, for the first fortnight of July 2015 is given in Exhibit 3.

Davis and Adams presented the part-machine allocations and capacity calculations made for the coming
month (Exhibit 4). Director (Production) expressed a concern, “I appreciate the efforts you are exerting to
achieve a sound plan. Much of your planning, however, relies on experience and intuition. This is
actually good, but it can sometimes lead to personal biases. I would like you to develop an objective and
scientific process that will work in tandem with intuition. Please focus on lowering the cost of production
as much as possible, but without any compromise on quality.”

THE COMPLEXITY
Intuitive judgement-based allocation of parts to presses was customary. It was known in the stamping shop
as a job that required good understanding and skill. A senior-level associate who reported to Adams did the
allocations by an iterative process. Now, inspired by the challenge posed by the Director (Production),
Davis and Adams occupied themselves with pursuing a scientific method to optimize the cost of
production.

Both also knew that not all parts could interchangeably be produced in any of the press machines. The
flexibility-hurdle matrix, which showed machine-wise, the number of parts of a given model that could be
stamped only on that machine, is given in Exhibit 5. It was also not common to shift a part from one
machine to another. Such activity was done only when there was a capacity constraint. Shifting, when
necessary, needed to follow the process given in the flow diagram in Exhibit 6.

Adams and Davis discussed the feasibility of their mathematical model, its implementation with smooth
and uninterrupted operation, actual cost savings that would be realized and the impact of the change on the
mindset of the people involved.

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 EXHIBIT 1– AVERAGE CHANGEOVER TIME IN PRESS MACHINES

Changeover Shift cost Shot cost

Press
time (sec) (USD) (USD)

M1 1125 15 0.29
M2 4500 15 0.65
M3 1425 15 0.52
M4 1075 15 0.39
M5 1075 15 0.39
M6 1500 15 0.58

EXHIBIT 2– THE STAMPING PROCESS

Steel coil from Flat product
supplier blank Body panel

SHEARING STAMPING

EXHIBIT 3 – MASTER PRODUCTION SCHEDULE FOR THE FIRST FORTNIGHT OF JULY 2015 IN AAL

Day
SL.
Model FN1
No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Total
1 VM1002 53 53 59 53 52 53 53 53 429
2 VM1011 55 55 55 55 55 55 55 53 438
3 VM1030 79 79 79 80 79 79 79 79 633
4 VM2011 38 39 40 35 40 40 40 40 312
5 VM1333 35 30 30 26 30 30 35 35 251
6 VM1153 66 67 67 57 67 67 67 67 525
7 VM2341 71 71 71 71 71 71 71 71 568
8 VM1043 9 9 9 9 9 9 10 10 74
Total 406 403 410 386 403 404 410 408 3230

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 EXHIBIT 4 – PART-MACHINE ALLOCATION AND CALCULATION OF DAILY CAPACITY REQUIREMENTS

M1 M2 M3 M4 M5 M6
Demand Total
Model Total Total Total Total Total Total
(daily) Parts Parts Parts Parts Parts Parts Parts
Shots Shots Shots Shots Shots Shots
b
VM1002 53 20a 1 53 0 0 6 318 13 689 0 0 0 0
VM1011 55 25 0 0 0 0 3 165 19 1045 0 0 3 165
VM1030 79 24 20 1580 0 0 0 0 1 79 0 0 3 237
VM2011 39 23 0 0 0 0 4 156 8 312 6 234 3 117
VM1333 31 20 1 31 0 0 2 62 0 0 14 434 3 93
VM1153 65 24 3 195 0 0 2 130 16 1040 0 0 3 195
VM1153 9 2 0 0 0 0 0 0 0 0 2 18 0 0
VM2341 71 22 12 852 0 0 2 142 5 355 0 0 3 213
e
MR128374 136 2 0 0 1 136 0 0 0 0 1 136 0 0
e
MR128361 7 1 0 0 1 7 0 0 0 0 0 0 0 0
Total 3824 163 37 2711 2 143 19 973 62 3520 23 822 18 1020
c
Average shots per minute 2.53 4.93 3.25 4.03 3.72 2.73
d
Minimum number of shifts needed 3 1 1 2 1 1

a
There were 20 parts in all for VM1002, which were allocated to the six presses as 1, 0, 6, 13, 0 and 0 respectively. Read similarly
for other models.
b
Computed as: demand of 53 units per day * 1 parts per unit * 1 shot per part = 53 shots per day on M1. Read similarly for other
models and machines.
c
Average shots per minute is a measure of the productivity of a press. Data of the last three months has been taken. This does not
include the part changeover times.
d
No. of shifts required = {2711/(2.53*60* 7.5)} = 2.38 ~ 3 shifts. A shift has 7.5 working hours. A maximum of 3 shifts is possible
per day for any press.
e
Vehicles made in other plants of AAL.

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 EXHIBIT 5 – FLEXIBILITY HURDLE MATRIX

Model M1 M2 M3 M4 M5 M6

VM1002 0 0 6* 0 0 0
VM1011 0 0 3 0 0 3
VM1030 0 0 0 0 0 3
VM2011 0 0 4 0 0 3
VM1333 0 0 2 0 0 3
VM1153 0 0 2 0 0 3
VM1153 0 0 0 0 0 0
VM2341 0 0 2 0 0 3
MR128374 0 1 0 0 0 0
MR128361 0 1 0 0 0 0

* e.g. six parts of the VM1002 can be stamped only on M3 and so on.

EXHIBIT 6 – PROCESS FLOW DIAGRAM: PART SHIFTING FROM ONE PRESS TO THE OTHER

* Fabrication of Trials on press

Die transportation
special transfer machines for quality
with Truck
attachments and productivity

Transfer Transfer
Attachment Attachment

Part