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Firm
Customer
Supplier
Information / Planning
SA SA SA SA
MRP
A A
MPS Product
CDC
Sales/Marketing Plan
Pro’s
• Smooth
and
stable
produc)on
opera)ons
for
labor
• Avoid
change
or
switching
costs
• Minimizes
need
for
extra
capacity
Con’s
• Can
lead
to
excessive
inventory
build
up
in
low-‐demand
periods
• Can
result
in
shortages
during
peak
demand
periods
Pro’s
• Inventory
is
kept
to
a
minimum
• Product
is
made
when
required
–
minimizes
obsolesence
Con’s
• Can
lead
to
wild
swings
in
produc)on
&
labor
needs
• Requires
firm
to
have
capacity
equal
to
peak
demand
• U)liza)on
of
equipment
will
be
very
inconsistent
CTL.SC2x - Supply Chain Design Lesson: Production Planning 12
Produc)on
Strategies
• Pure
Strategies
n Level
–
stable
produc)on
=>
varying
inventory
n Chase
–
varying
produc)on
=>
stable
inventory
• Hybrid
Strategies
n Outsourcing/Subcontrac)ng
w Keep
level
produc)on
in-‐house
w Outsource
the
variable
component
of
demand
n Op)mal
Cost
Trade-‐offs
w Lot
Sizing
w Fixed
Planning
Horizon
• Simple
Heuris)cs
n One
Time
Run
n Lot
for
Lot
(Chase)
Pro’s
• Very
simple
to
implement
and
very
fast!
Con’s
• No
guarantee
of
op)mality
or
proximity
• Single
dimension
-‐
tend
to
reduce
either
inventory
or
set
ups
CTL.SC2x - Supply Chain Design Lesson: Production Planning 25
Specialized
Heuris)cs
for
FPH
• Specialized
Heuris)cs
n Silver-‐Meal
(Least
Cost
Period)
n Least
Unit
Cost
(LUC)
1 0 TRCUT(1) = (500+0)/1 = 500 Make 200 in month 1 – no holding costs
1 1 TRCUT(2) = (500+150)/2 = 325 Make 350 in month 1, hold 150 for 1 month
1
2
TRCUT(3)
=
Make
450
in
month
1,
hold
150
for
1
month,
and
100
(500+150+2(100))/3
=
283
for
2
months
1
3
TRCUT(4)
=
Make
500
in
month
1,
hold
150
for
1
month,
100
for
(500+150+2(100)+3(50))/4
=
250
2
months,
and
50
for
3
months
1
4
TRCUT(5)
=
Make
550
in
month
1,
hold
150
for
1
month,
100
for
(500+150+2(100)+3(50)+4(50))/5
=
240
2
months,
50
for
3
months,
and
50
for
4
months
1
5
TRCUT(6)
=
(500+150+2(100)+3(50)
Make
650
in
month
1,
hold
150
for
1
month,
100
for
+4(50)+5(100))/6
=
283
2
months,
50
for
3
months,
50
for
4
months,
and
100
for
5
months.
1
5
TRCUT(6)
>
TRCUT(5)
so:
Set
t=6,
Go
to
Step
2
–
so
we
now
want
to
determine
Make
CTL.SC2x - Supply 550
units
in
Month
1.
Lesson:
Chain Design how
much
to
make
in
month
6
Production Planning 29
Silver-‐Meal
Algorithm
1. Start
at
t=1
2. Set
n
=
0
3. Calculate
TRCUTt+n
Set up 500 $/run 4. Set
n
=
n
+
1
Holding 1 $/item/mon 5. Calculate
TRCUTt+n
6. If
TRCUTt+n
>
TRCUTt+n-‐1
then
a. Make
Sum(Ft
to
Ft+n-‐1)
in
t
b. Set
t
=
t+n
go
to
Step
2
7. Else,
go
to
Step
4
6
0
TRCUT(6)
=
(500+0)/1
=
500
Make
100
in
month
6
–
no
holding
costs
6
1
TRCUT(7)
=
(500+150)/2
=
325
Make
250
in
month
6,
hold
150
for
1
month
6
2
TRCUT(8)
=
(500+150+2(200))/3
=
350
Make
450
in
month
6,
hold
150
for
1
month,
and
200
for
2
months
6
2
TRCUT(8)
>
TRCUT(7)
so:
Set
t=8,
Go
to
Step
2
–
so
we
now
want
to
determine
Make
250
units
in
Month
6.
how
much
to
make
in
month
8
8
0
TRCUT(8)
=
(500+0)/1
=
500
Make
200
in
month
8
–
no
holding
costs
8
1
TRCUT(9)
=
(500+200)/2
=
350
Make
400
in
month
8,
hold
200
for
1
month
8
2
TRCUT(10)
=
(500+200+2(250))/3
=
400
Make
650
in
month
8,
hold
200
for
1
month,
and
250
for
2
months
8
2
TRCUT(10)
>
TRCUT(9)
so:
Set
t=10,
Go
to
Step
2
–
so
we
now
want
to
Make
400
units
in
Month
8.
determine
how
much
to
make
in
month
10
CTL.SC2x - Supply Chain Design Lesson: Production Planning 30
Silver-‐Meal
Algorithm
1. Start
at
t=1
2. Set
n
=
0
3. Calculate
TRCUTt+n
Set up 500 $/run 4. Set
n
=
n
+
1
Holding 1 $/item/mon 5. Calculate
TRCUTt+n
6. If
TRCUTt+n
>
TRCUTt+n-‐1
then
a. Make
Sum(Ft
to
Ft+n-‐1)
in
t
b. Set
t
=
t+n
go
to
Step
2
7. Else,
go
to
Step
4
10
0
TRCUT(10)
=
(500+0)/1
=
500
Make
250
in
month
10
–
no
holding
costs
10
1
TRCUT(11)
=
(500+300)/2
=
400
Make
550
in
month
10,
hold
300
for
1
month
10
2
TRCUT(12)
=
(500+300+2(250))/3
=
433
Make
800
in
month
10,
hold
300
for
1
month,
and
250
for
2
months
10
2
TRCUT(12)
>
TRCUT(11)
so:
Set
t=12,
Go
to
Step
2
–
so
we
now
want
to
Make
550
units
in
Month
10.
determine
how
much
to
make
in
month
12
12 0 Make 250 units in Month 12. Make the remaining amount.
Production Plan
• Produce 550 in month 1 • Produce 550 in month 10
• Produce 250 in month 6 • Produce 250 in month 12
• Produce 400 in month 8
CTL.SC2x - Supply Chain Design Lesson: Production Planning 31
Silver-‐Meal
Algorithm
Order
to
minimize
cost
per
unit
)me
(T
and
Q
vary)
Pro’s
• Simple
to
implement
and
SM
tends
to
lead
to
beter
solu)ons
Con’s
• No
guarantee
of
op)mality
or
proximity
CTL.SC2x - Supply Chain Design Lesson: Production Planning 33
Op)mal
Methods
for
FPH
Problem
Wagner-‐Whi)n
MILP
1
Op)on
#1:
Make
200
units
for
D(1)
There
are
no
other
op)ons
TC
=
$500
2
Op)on
#1:
Make
enough
in
Period
1
for
D(1
&
2)
There
are
two
op)ons.
TC
=
500
+
(1)150
=
$650
Op)on
#1
is
the
best
current
Op)on
#2:
Best
Period
1
Plan
+
Make
enough
for
D(2)
solu)on.
TC
=
500
+
500
=
$1000
3
Op)on
#1:
Make
enough
in
Period
1
to
cover
D(1,
2,
&
3)
There
are
three
op)ons.
TC
=
500
+
(1)150
+
(2)100
=
$850
Op)on
#1
is
the
best
current
Op)on
#2:
Best
Period
1
Plan
+
Make
enough
in
2
for
D(2)
&
D(3)
op)on.
TC
=
500
+
500
+
(1)100
=
$1100
Op)on
#3:
Best
Period
2
Plan
+
Make
enough
for
D(3)
TC
=
650
+
500
=
$1150
CTL.SC2x - Supply Chain Design Lesson: Production Planning 37
Wagner-‐Whi)n
(forward)
1. Start
at
)me
t=1
2. Find
cost
for
D(t).
3. Find
cost
for
ordering
enough
for
Set up 500 $/run
Holding 1 $/item/mon D(t)
by
adding
it
to
exis)ng
previous
order
for
D(t-‐1).
4. Pick
lowest
cost
of
op)ons
–
Go
to
next
t
un)l
t-‐N.
5. At
t=N
work
backwards
to
find
lowest
cost
op)ons
for
each
D(t).
Period 1 2 3 4 5 6 7 8 9 10 11 12
Demand 200 150 100 50 50 100 150 200 200 250 300 250
1 Order 1 $500 $650 $850 $1,000 $1,200 $1,700 $2,600 $4,000 $5,600 $7,850 $10,850 $13,600
2 Order 2 $1,000 $1,100 $1,200 $1,350 $1,750 $2,500 $3,700 $5,100 $7,100 $9,800 $12,300
3 Order 3 $1,150 $1,200 $1,300 $1,600 $2,200 $3,200 $4,400 $6,150 $8,550 $10,800
4 Order 4 $1,350 $1,400 $1,600 $2,050 $2,850 $3,850 $5,350 $7,450 $9,450
5 Order 5 $1,500 $1,600 $1,900 $2,500 $3,300 $4,550 $6,350 $8,100
6 Order 6 $1,700 $1,850 $2,250 $2,850 $3,850 $5,350 $6,850
7 Order 7 $2,100 $2,300 $2,700 $3,450 $4,650 $5,900
8 Order 8 $2,350 $2,550 $3,050 $3,950 $4,950
9 Order 9 $2,750 $3,000 $3,600 $4,350
10 Order 10 $3,050 $3,350 $3,850
11 Order 11 $3,500 $3,750
12 Order 12 $3,850
s.t.
I0 = 0 Conservation of Flow or Inventory Balance
constraint for time period t.
Qt − Dt + I t−1 − I t = 0 ∀t ∈ T
Linking/logical constraint ensuring binary flag
MZ t − Qt ≥ 0 ∀t ∈ T for a time period is ON if we manufacture any
quantity during that time period.
Qt ≤ CAPt ∀t ∈ T
I t ,Qt ≥ 0 ∀t ∈ T Maximum capacity constraint for time period
t.
Z t = {0,1} ∀t ∈ T
Decision Variables
Qt = Quantity produced in time period t (units) ∀t
Z t = 1 if manufacture in time period t, = 0 o.w. ∀t
Input Data
CAPt = Manufacturing capacity for time period t (units) ∀t ∈ T
Dt = Demand for time period t (units) ∀t ∈ T
I t = Inventory at end of time period t (units) ∀t ∈ T
csetup = Cost to make a production run ($/run)
h = Inventory holding cost for one time period ($/unit/time period)
M = Large number
CTL.SC2x - Supply Chain Design Lesson: Production Planning 42
Produc)on
Planning
MILP
-‐
Formula)on
“Wilson – upon learning that the Silver-Meal algorithm has nothing to do with food”
Yankee Golden Retriever Rescued Dog (www.ygrr.org)