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
Total cost as
a function of X

c1*X
C+c2*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
1
17K

17K

0.8

60K-40K=20K

2
0.2
60K-40K-15K=5K
3

13.5K

0.8

0.2

60K-45K=15K

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 (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.)

Production
volume
& mix
Process
type
Jumbled
flow (job
Shop)

The product-process matrix

Low volume,
low standardization
Commercial
printer

Disconnected
line flow
(batch)

High volume, high

standardization,
commodities

Void

Heavy
Equipment

Connected
line flow
(assembly
Line)
Continuous
flow
(chemical
plants)

Multiple products, Few major products,

low volume
high volume

Auto
assembly

Void

Sugar
refinery

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

P1
P2
P3
P4
P5
P6

P1
P3
P2
P4
P5
P6

M1
1

M2

M3

M4
1

M5

M4
1
1

1
1

1
M1
1

1
1

1
M6
1
1

M7

1
1

M6
1

M2

M3

M5

1
1

1
1
1

M7

1
1

Clustering Algorithms for Cellular Manufacturing

Row & Column Masking
P1
P2
P3
P4
P5
P6

P1
P3
P2
P4
P5
P6

M1
1

M2

M3

M4
1

M5

M4
1
1

1
1

1
M1
1

1
1

1
M6
1
1

M7

1
1

M6
1

M2

M3

M5

1
1

1
1
1

M7

1
1

Clustering Algorithms for Cellular Manufacturing:

Similarity Coefficients - Motivation
P1
P2
P3
P4
P5
P6

P1
P3
P2
P4
P5
P6

M1
1

M2

M3

M4
1

1
1

1
M6
1
1

M7

1
1

1
M4
1
1

M6
1

1
1

M1
1

M5

M2

M3

M5

1
1

1
1
1

M7

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

Raw
Material
& Comp.
Inventory

S1,i

S1,2

S1,n

Fabrication (or Backend Operations)

Dept. 1

S2,1

S2,2

Dept. 2

Dept. j

S2,i

Assembly Line 2: Product Family 2

Finished
Item
Inventory

Dept. k

S2,m

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
Demand

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

Capacity and Aggregate Production Plans

End Item (SKU)
Demand

Master Production Scheduling

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

SKU-level Production Plans

Manufacturing
and Procurement
lead times
Part process
plans

Materials Requirement Planning

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

Component Production lots and due dates

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
A5532

Required labor time

(hrs)
4.2

Item demand as % of
aggregate demand
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
Unit Availability
(Current Inventory
Position)

Aggregate
Production Plan

Aggregate Planning

Aggregate Production Plan:

Aggregate Production levels
Aggregate Inventory levels
Aggregate Backorder levels

Required
Production Capacity

Production Capacity Plan:

Workforce level(s)
Overtime level(s)
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
W
H
F
O
U
S
I
B

D
Io
Wo

+
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:
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

Cost structure:
Inv. holding cost: $80/unit x month
Hiring cost: $500/worker
Firing cost: $1000/worker

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

A prototype problem (cont.)

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

Net predicted demand:

Jan: 780
Feb: 640
Mar: 900
Apr: 1200
May: 2000
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

t 1

t 1

t 1

min(C H H t C F Ft C I I t )
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+
s.t.
Prod. Capacity:

SCt*St+ICt*It+BCt*Bt )
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
Forecasted Demand
Current and Planned
Availability, eg.,
Initial Inventory,
Initiated Production,
Subcontracted quantities

Master Production
Schedule:
When & How Much
to produce for each
product

MPS

Planning
Horizon

Time
unit
Capacity
Planning

MPS Example: Company Operations

Grain cracking
(1 milling
machine)

Fermentation
(3 40-barrel
ferm. tanks)

Mashing
(1 mashing tun)

Boiling
(1 brew kettle)

Bottling
(1 bottling
station)

Filtering
(1 filter tank)

Fermentation Times:
Brew
Pale Ale
Stout

Ferm. Time
2 weeks
3 weeks

Winter Ale

2 weeks

Summer Brew
Octoberfest

2 weeks
8-10 weeks

Example: Implementing the Empirical

Approach in Excel
# Fermentors:

Microbrewery Performance
Week
# Fermentors Req'd
Feasible Loading?
Min # Fermentors Req'd
Fermentor Utilization
Total Spoilage

Pale Ale
Week
Demand
Scheduled Receipts
Fermentors Released
Inventory Spoilage
Inventory Position
Net Requirements
Batched Net Receipts
Scheduled Releases
Fermentors Seized
Total Fermentors Occupied
Stout
Week
Demand
Scheduled Receipts
Fermentors Released
Inventory Spoilage
Inventory Position
Net Requirements
Batched Net Receipts
Scheduled Releases
Fermentors Seized
Total Fermentors Occupied

Unit Cap:

200

1
0

2
0

3
0

2
0%
0

2
0%
0

2
0%
0

Fermentation Time:
0
1
45
200
1
100

255

Fermentation Time:
0
1
35

150

2
2

115

Shelf Life:

20

4
0

5
0

6
0

7
0

8
0

9
0

10
0

2
0%
0

2
0%
0

2
0%
0

2
0%
0

2
0%
0

2
0%
0

2
0%
0

10

50

40

40

40

40

40

40

40

40

205

165

125

85

45

-35
35

-40
40

-40
40

3
2

10

40

30

30

40

40

40

40

50

50

75

45

15

-25
25

-40
40

-40
40

-40
40

-50
50

-50
50

Computing Inventory Positions and

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

(IPi-1)+
SRi+BNRi

Di
IPi

Net Requirement:
NRi = abs(min{0, IPi})

Problem Decision Variables:

Scheduled Releases
# Fermentors:

Microbrewery Performance
Week
# Fermentors Req'd
Feasible Loading?
Min # Fermentors Req'd
Fermentor Utilization
Total Spoilage

Pale Ale
Week
Demand
Scheduled Receipts
Fermentors Released
Inventory Spoilage
Inventory Position
Net Requirements
Batched Net Receipts
Scheduled Releases
Fermentors Seized
Total Fermentors Occupied
Stout
Week
Demand
Scheduled Receipts
Fermentors Released
Inventory Spoilage
Inventory Position
Net Requirements
Batched Net Receipts
Scheduled Releases
Fermentors Seized
Total Fermentors Occupied

Unit Cap:

200

1
0

2
0

3
0

2
0%
0

2
0%
0

2
0%
0

Fermentation Time:
0
1
45
200
1
100

2
2

255

Shelf Life:

20

4
0

5
0

6
1

7
1

8
0

9
0

10
0

2
0%
0

2
0%
0

2
100%
0

2
100%
0

2
0%
0

2
0%
0

2
0%
0

10

50

40

40

40

40

40

40

40

40

205

165

125

85

45

165

125

85

200
200
1
1
Fermentation Time:
0
1
35

150

115

3
2

10

40

30

30

40

40

40

40

50

50

75

45

15

-25
25

-40
40

-40
40

-40
40

-50
50

-50
50

Testing the Schedule Feasibility

# Fermentors:

Microbrewery Performance
Week
# Fermentors Req'd
Feasible Loading?
Min # Fermentors Req'd
Fermentor Utilization
Total Spoilage

Pale Ale
Week
Demand
Scheduled Receipts
Fermentors Released
Inventory Spoilage
Inventory Position
Net Requirements
Batched Net Receipts
Scheduled Releases
Fermentors Seized
Total Fermentors Occupied
Stout
Week
Demand
Scheduled Receipts
Fermentors Released
Inventory Spoilage
Inventory Position
Net Requirements
Batched Net Receipts
Scheduled Releases
Fermentors Seized
Total Fermentors Occupied

Unit Cap:

200

1
0

2
1

3
1

2
0%
0

2
100%
0

2
2

Fermentation Time:
0
1
45
200
1
100

255

Shelf Life:

20

4
1

5
0

6
1

2
100%
0

2
100%
0

2
0%
0

8
1

9
1

10
0

2
100%
0

7
2
NO
2
200%
0

2
100%
0

2
100%
0

2
0%
0

10

50

40

40

40

40

40

40

40

40

205

165

125

85

45

165

125

85

200
200
1
1
Fermentation Time:
0
1
35

150

115

3
2

10

40

30

30

40

40

40

40

50

50

75

45

15

175

135

95

55

155

200
200
1
1

200
200
1
1

Fixing the Original Schedule

# Fermentors:

Microbrewery Performance
Week
# Fermentors Req'd
Feasible Loading?
Min # Fermentors Req'd
Fermentor Utilization
Total Spoilage

Pale Ale
Week
Demand
Scheduled Receipts
Fermentors Released
Inventory Spoilage
Inventory Position
Net Requirements
Batched Net Receipts
Scheduled Releases
Fermentors Seized
Total Fermentors Occupied
Stout
Week
Demand
Scheduled Receipts
Fermentors Released
Inventory Spoilage
Inventory Position
Net Requirements
Batched Net Receipts
Scheduled Releases
Fermentors Seized
Total Fermentors Occupied

Unit Cap:

200

1
0

2
1

3
1

2
0%
0

2
100%
0

2
2

Fermentation Time:
0
1
45
200
1
100

255

Shelf Life:

20

4
1

5
1

6
1

7
1

8
1

9
1

10
0

2
100%
0

2
100%
0

2
100%
0

2
100%
0

2
100%
0

2
100%
0

2
100%
0

2
0%
0

10

50

40

40

40

40

40

40

40

40

205

165

125

85

45

205

165

125

85

200
200
1
1
Fermentation Time:
0
1
35

150

115

3
2

10

40

30

30

40

40

40

40

50

50

75

45

15

175

135

95

55

155

200
200
1
1

200
200
1
1

Infeasible Production Requirements

# Fermentors:

Microbrewery Performance
Week
# Fermentors Req'd
Feasible Loading?
Min # Fermentors Req'd
Fermentor Utilization
Total Spoilage

Pale Ale
Week
Demand
Scheduled Receipts
Fermentors Released
Inventory Spoilage
Inventory Position
Net Requirements
Batched Net Receipts
Scheduled Releases
Fermentors Seized
Total Fermentors Occupied
Stout
Week
Demand
Scheduled Receipts
Fermentors Released
Inventory Spoilage
Inventory Position
Net Requirements
Batched Net Receipts
Scheduled Releases
Fermentors Seized
Total Fermentors Occupied

Unit Cap:

200

1
1

2
1

3
1

2
100%
0

2
100%
0

2
2

Fermentation Time:
0
1
45

100

55

Shelf Life:

20

4
1

5
0

6
0

7
0

8
0

9
0

10
0

2
100%
0

2
100%
0

2
0%
0

2
0%
0

2
0%
0

2
0%
0

2
0%
0

2
0%
0

10

50
200
1

40

40

40

40

40

40

40

40

205

165

125

85

45

-35
35

-40
40

-40
40

1
Fermentation Time:
0
1
35

150

115

3
2

10

40

40

40

40

40

40

40

50

50

75

35

-5
5

160

120

80

40

-10
10

-50
50

200
200
1
1

A feasible schedule with spoilage effects

# Fermentors:

Microbrewery Performance
Week
# Fermentors Req'd
Feasible Loading?
Min # Fermentors Req'd
Fermentor Utilization
Total Spoilage

Pale Ale
Week
Demand
Scheduled Receipts
Fermentors Released
Inventory Spoilage
Inventory Position
Net Requirements
Batched Net Receipts
Scheduled Releases
Fermentors Seized
Total Fermentors Occupied
Stout
Week
Demand
Scheduled Receipts
Fermentors Released
Inventory Spoilage
Inventory Position
Net Requirements
Batched Net Receipts
Scheduled Releases
Fermentors Seized
Total Fermentors Occupied

Unit Cap:

200

1
1

2
1

3
1

2
100%
0

2
100%
0

2
2

Fermentation Time:
0
1
45
200
1
100

255

Shelf Life:

4
1

5
1

6
0

7
1

8
1

9
1

10
0

2
100%
0

2
100%
0

2
100%
0

2
0%
0

2
100%
45

2
100%
0

2
100%
0

2
0%
5

10

50

40

40

40

40

40

40

40

40

205

165

125

85

245

45
160

120

80

40

200
200
1
1
Fermentation Time:
0
1
35

150

115

3
2

10

40

30

30

40

40

40

40

50

50

75

45

215

175

135

95

55

5
150

200
200
1
1

200
200
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)+
SRi+BNRi

Di
SPi
IPi

The Driving Logic behind the Empirical Approach

Demand

Availability:

Initial Inventory Position

Scheduled Receipts due to
initiated production or
subcontracting

Compute Future
Inventory Positions
Net
Requirements

Future inventories
Lot Sizing

Scheduled
Releases

Resource (Fermentor)
Occupancy

Feasibility
Testing

Product i

Schedule
Infeasibilities

Master Production Schedule

Revise
Prod. Reqs

Materials Requirements Planning

(MRP)

The MRP Explosion Calculus

BOM

Lead
Times

MPS
Current
Availabilities

MRP

Lot Sizing
Policies

Planned
Order Releases
Priority
Planning

Example: The (complete) MRP Explosion

Calculus
Item BOM:
Alpha
B(1)
D(2)

C(1)
C(2)

E(1)

E(1)
F(1)

F(1)

Item
Alpha
B
C
D
E
F

Gross Reqs for Alpha

Period
Gross Reqs.

Item Levels:
Level 0: Alpha Level 1: B Level 2: C, D Level 3: E, F

Lead Time
1
2
3
1
1
1

8
9
50

Current Inv. Pos.

10
20
0
100
10
50

10

11 12
50

13
100

(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
Gross Requirements

Planned
Order Releases

Computing the item Scheduled Releases

Item C
Period
Gross Requirements
Scheduled Receipts
Inventory Position: 20
Net Requirements
Planned Sched. Receipts
Planned Sched. Releases

20

20
40

40

40

40

6
12

7
10

28

18

72

Safety Stock
Requirements
Gross
Projecting Net
Synthesizing Reqs
Inv. Positions Reqs
item demand
and
series
Net Reqs.
Item External
Demand

18

Initial
Inventory

-72
72
72

10

11
75
0

-75
75
75

12

75

Lot Sizing
Policy

Parent
Sched. Rel.

Scheduled
Receipts

9
90

Lot Sizing

Lead Time
Planned
Order
Receipts

TimePhasing

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
150

100

50

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

J_N

W_2

W_q

W_i

W_M

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
1
2
3

5
Job 1

Job 2

10
Job 3

15
Job 4

20 Time
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
Lateness
Tardiness
Flow time
Tardy index
Completion

min total
j L_j
j T_j
j F_j
NT
j C_j

min weighted total

j w_j*L_j
j w_j*T_j
j w_j*F_j

min max
max_j L_j
max_j T_j
max_j F_j

min weighted max

max_j w_j*L_j
max_j w_j*T_j
max_j w_j*F_j

j w_j*C_j

max_j C_j

max_j w_j*C_j

Schedule Performance Evaluation

Job
1
2
3
4
5
Total
average
max

d_j
17
18
19
17
20

C_j
15
20
17
18
18

F_j
15
20
17
18
18

L_j
-2
2
-2
1
-2

T_j
0
2
0
1
0

TI_j
0
1
0
1
0

88
17.6
20

88
17.6
20

-3
-0.6
2

3
0.6
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!