Chapter Five

Operations Planning
and
Control
Managerial Issues

• Translating long-range strategic plans into daily work schedules for the
shop floor.

• Using aggregate planning to develop intermediate-range plans that link

the long-range strategic plan and the short-range operational plan.

• Developing aggregate plans that match the demand for products with the
firm’s ability to supply the products at minimum cost.

• Coordinating marketing management and operations to develop an

aggregate plan that is both effective and efficient.
Overview of Operational Planning Activities

• Long-Range Planning

– Focuses on strategic issues relation to capacity, process

selection, and plant location.

• Intermediate-Range Planning

– Focuses on tactical issues pertaining to aggregate workforce and

material requirements for the coming year.

• Short-Range Planning

– Addresses day-to-day issues of scheduling workers on jobs at

assigned work stations.
Planning Horizons
Short-range plans Responsible:
 Job assignments Operations
 Ordering managers
Intermediate-range plans
 Job scheduling Responsible:
o Sales planning
 Dispatching Top executives
o Production planning and
Responsible: budgeting Long-range plans
Operations o Setting employment, inventory,  R&D
managers, subcontracting levels  New product plans
supervisors,
foremen
o Analyzing operating plans  Capital expenses
 Facility location, expansion

Today 3 Months 1 year 5 years

Planning Horizon
Dealing with the Problem
Complexity through Decomposition
Corporate Strategy

Aggregate Unit Aggregate Planning

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

Capacity and Aggregate Production Plans

End Item (SKU) Master Production Scheduling
Demand (Plan. Hor.: a few months, Time Unit: 1 week)

SKU-level Production Plans

Manufacturing Materials Requirement Planning
and Procurement (Plan. Hor.: a few months, Time Unit: 1 week)
lead times
Component Production lots and due dates

Part process Shop floor-level Production Control

plans (Plan. Hor.: a day or a shift, Time Unit: real-time)
BY:Chalchissa A.(Assi.Prof.)
Aggregate Planning
• Aggregate planning is essentially a "big-picture"
approach to planning.
• It involves translating annual and quarterly business plan
into broad labor and output plans for the intermediate
term (6 – 18 months).
• Its objective is to minimize the cost of resources required
to meet demand over that period or
• Main purpose of aggregate planning is to specify the
optimal combination of production rate, work force level,
and inventory on hand.
Aggregate Planning
• Aggregate Production Planning
– The process for determining the most cost effective
way to match supply and demand over the next 12–18
months.
• Master Production Scheduling (MPS)
– Short-term scheduling of specific end product
requirements for the next several quarters.
• Rough-Cut or Resource Capacity Planning
– Determining that adequate production capacity and
warehousing are available to meet demand.
Aggregate Planning…

• Provides the quantity and timing of production

for intermediate future
– Usually 3 to 18 months into future
• Combines (‘aggregates’) production
– Often expressed in common units
• Example: Hours, dollars, equivalents, birr …

• Involves capacity and demand variables

Aggregate Planning Goals

• Meet demand
• Use capacity efficiently
• Meet inventory policy
• Minimize cost
– Labor
– Inventory
– Plant & equipment
– Subcontract
Overview of
Manufacturing
Planning
Activities
Aggregate Production Planning
• Production Rate
–The capacity of output per unit of time (such as
units per day or units per week.
• Workforce Level
–Number of workers required to provide a
specified level of production.
Cont’d …
• Inventory on Hand
–The surplus of units that results when
production exceeds demand in a given time
period.
• Backlog (or Stock out)
–The deficit in units that results when demand
exceeds the number of units produced in a
given time period.
Cont’d …
• Relevant Costs
– Basic production costs (fixed and variable).
– Costs associated with changes in the
production rate (e.g., labor costs).
– Inventory holding costs.
– Backlog (stock out) costs.
Required Inputs to the Production Planning System
Production Planning Strategies
• Chase Strategy
– Matching the production rate to exactly meet the order rate by
hiring and laying off workers as the order rate varies.
– Works well for make-to-order firms.
• Stable Workforce — Variable Work Hours
– Varying output by varying the number of hours worked through
flexible schedules or overtime.
• Level Strategy
– Maintain a stable workforce working at constant output rate;
absorb demand variations with inventory, backlogs, or lost sales.
– Works well for make-to-stock manufacturing firms.
Pure Chase and Pure Level Strategies
Demand/Capacity Options or Proactive
Approaches to Aggregate Planning

• Demand Options;
• Influencing demand variation so that it aligns to available
production capacity:
– Pricing
– advertising
 Capacity Options;
• Hiring and firing
• Overtime work
• Par-time work
• Inventories
• Subcontracting
Master Production Scheduling

Master Production Schedule- A detailed

disaggregation of the aggregate production plan,
listing the exact end items to be produced by a
specific period.
More detailed than APP & easier to plan under stable
demand.
Planning horizon is shorter than APP, but longer than
the lead time to produce the item.

Note: For the service industry, the master production

schedule may just be the appointment log or book,
which ensures that capacity (e.g., skilled labor or
professional service) is balance with demand.

18
Operations Scheduling- Key Concepts
• Scheduling: a time table for performing activities, utilizing
resources and allocating facilities.
• process of establishing the timing of the use of equipment,
human resources and facilities.
• It lies at the heart of the process because it is related to
workflow which is related to cash flow.
• Effective scheduling can yield:
–cost savings.
–increase productivity.
–jobs completed on time
–Company competitive advantage in terms of customer
services.
Key Concepts…

• Loading- involves assigning jobs to work centers and to

various machines in the work centers.

• If a job can be processed on only one machine, no difficulty

is presented.

• Sequencing- is concerned with determining the order in

which jobs are processed.
Scheduling n Jobs on one Machines
• Scheduling is done based on the job sequencing.

• Job sequencing is attained using priority rules.

• to evaluate the priority rules the following standard measures
should be used:
– meeting due dates.
– minimizing the flow time (the time that a job spends in the
process).
– minimize work in process inventory.
– minimize idle time of machineries and work centers.
Cont’d …
• Priority rules and techniques of job sequences
– FCFS ( first come first served) orders run in the order they arrive in the
department.
– SPT (shortest processing time) run the job with the shortest completion
time first, next shortest and so on.
– EDD (earliest due date) run the job with the earliest due date first.
– LCFS (last come first served)- the rule occurs frequently by default run
the job with the Latest arrive first.
– LS (least slack)- the slack is calculated as the difference between the
time remaining before its due date minus the processing time remaining.
Orders with the shortest slack are run first.
Example
• Suppose Mr. x is the managing director of xyz
service business enterprise. Five customers
submitted their orders at the beginning of the
week. All orders require the use of only one
machine available, Mr. x must decide on the
processing sequence for the first orders. The
evaluation criterion is minimum flow time. Mr. x
wants to sequence the jobs using the priority
rules:
– FCFS ii. SPT iii. EDD iv. LCFS v. LS
– Specific scheduling data are as follows
Scheduling …

Job Due date Processing time

A 8 7
B 3 4
C 7 5
D 9 2
E 6 6
Solution using FCFS
Job Processing Flow time Due date Days late
time
A 7 0 +7 = 7 8 0 we take 0 here b/c
7-8= -1
It shows job completed
before due date

B 4 7+4= 11 3 8 =11-3
C 5 11+5=16 9 7

D 2 16+2=18 7 11
E 6 18+6=24 6 18

Total 24 76 44
Cont…
• Total flow time = 76 days
• Average flow time = 76 days/5 = 15.2 days
• Average job lateness = 44days/5 = 8.8 days
• Average number of jobs at work centre =
76days/24days = 3.2 jobs
Solution using SPT

Job Process Flow time Due date Days late

time
D 2 0 +2 = 2 9 0
B 4 2+4= 6 3 3
C 5 6+5=11 7 4
E 6 11+6=17 6 11
A 7 17+7=24 8 16
Total 24 60 34
Cont…
• Total flow time = 60 days
• Average flow time = 60 days/5 = 12 days
• Average job lateness = 34days/5 = 6.8 days
• Average number of jobs at work centre =
60days/24days = 2.5 jobs
Solution using EDD

Job Process Flow Due date Days late

time time
B 4 0 +4 = 4 3 1
E 6 464= 10 6 4
C 5 10+5=15 7 8
A 7 15+7=22 8 14
D 2 22+2=24 9 15
Total 24 75 42
Cont…
• Total flow time = 75 days
• Average flow time = 75 days/5 = 15 days
• Average job lateness = 42days/5 = 8.4 days
• Average number of jobs at work centre =
75days/24days = 3.2 jobs
Solution using LCFS
Job Process Flow Due date Days late
time time
E 6 0 +6 = 6 6 0
D 2 6+2= 8 9 0
C 5 8+5=13 7 6
B 4 13+4=17 3 14
A 7 17+7=24 8 16
Total 24 68 36
Cont…
• Total flow time = 68 days
• Average flow time = 68 days/5 = 13.6days
• Average job lateness = 36days/5 = 7.2 days
• Average number of jobs at work centre =
68days/24days = 2.85
Solution using LS

JOB SLACK (DD – PT)

A 1
B -1
C 2
D 7
E 0
Solution using LS
Job Process Flow Due date Days late
time time
B 4 0 +4 = 4 3 1
E 6 4+6= 10 6 4
A 7 10+7=17 8 9
C 5 17+5=22 7 15
D 2 22+2=24 9 15
Total 24 77 44
Cont…
• Total flow time = 77 days
• Average flow time = 77 days/5 = 15.4 days
• Average job lateness = 44days/5 = 8.8 days
• Average number of jobs at work centre =
76days/24days = 3.25 jobs
Summary

Rule Total flow Average Average Average job

time flow time job at work
lateness centre

FCFS 76 15.2 8.8 3.2

SPT 60 12 6.8 2.5
EDD 75 15 8.4 3.2
LCFS 68 13.6 7.2 2.8
LS 77 15.4 8.8 3.25
Cont…
• As you can observe in the above table, using
the shortest processing time rule results in the
minimum flow time. In short SPT is better than
the rest of the rules.
Sequencing n jobs on 2 machines or
work centers (wc)

• Johnson’s rule
–Managers use to minimize the make span for a group
of jobs to be processed on two machines (work
centers)
–It also minimize the total idle time at the work centre
Steps
• Determination of the optimum sequence involves
these steps.
I. List the jobs at each work center.
II. Select the job with the shortest processing time – if the
shortest time is at the first work center schedule that
job first; if the time is at the second work center
schedule the time last.
III. Eliminate the job and its time from further
consideration.
IV. Repeat step 2 and 3.
Example

• E.g. a group of six jobs to Job wc1 wc2

be processed through a
A 5 5
two step operation,
determine a sequence B 4 3
that will minimize the total C 8 9
completion time for the D 2 7
group of jobs E 6 8
F 12 15
Example …

 select the job with the D E C F A B

shortest processing time it
is D.
 Since the time is at the first
center schedule job D first.
Eliminate from further
consideration.
 Job B has the next shortest
time, since it is at the
second work center
schedule at the last.
Cont’d …

JOB WC1 WC2 ME

Time in Processi Time Time in Processi Time
ng time out ng time out

D 0 2 2 2 7 9 2
E 2 6 8 9 8 17 -
C 8 8 16 17 9 26 -
F 16 12 28 28 15 43 2
A 28 5 33 43 5 48 -
B 33 4 37 48 3 51 -
Cont’d …
• Thus, the group of jobs will take 51 hours. Machine
2 will wait two hours for its first job and also two
hours after finishing job C. machine one will finish in
37 hours
• Minimum flow time = 51 hours
• Through put time = 47 hours
• Idle time for work centre 2 is 4 hours
Materials Requirement
Planning (MRP) and Enterprise
Resource Planning (ERP)
Material Requirement Planning (MRP)

• Material requirements planning (MRP): is

Computer-based information system for ordering
and scheduling of dependent demand inventories.
Independent and Dependent Demand
Independent Demand

A Dependent Demand

B(4) C(2)

D(2) E(1) D(3) F(2)

Independent demand is uncertain.

Dependent demand is certain.
Independent and Dependant Demand….
• Independent demand –demand for finished goods, items that are
ready to be sold or required to be used.
– E.g. a computer
• Dependent demand – components of finished products or
subassemblies, components, & raw materials are examples of
dependent demand items.
– E.g. parts that make up the computer
• Once the independent demand is known, the dependent demand can be
determined.
MRP Inputs MRP Processing MRP Outputs

Changes
Order releases
Master
schedule Planned-order
schedules
Primary
reports Exception reports
Bill of Planning reports
materials MRP computer Secondary
Performance-
programs reports control
reports

Inventory
records Inventory
transaction
Master Schedule

Master schedule: One of three primary inputs in

MRP; states which end items are to be produced,
when these are needed, and in what quantities.
Cumulative lead time: The sum of the lead times
that sequential phases of a process require, from
ordering of parts or raw materials to completion of
final assembly.
Bill-of-Materials

Bill of materials (BOM): One of the three primary

inputs of MRP; a listing of all of the raw materials, parts,
subassemblies, and assemblies needed to produce one
unit of a product.
Product structure tree: Visual description of the
requirements in a bill of materials, where all
components are listed by levels.
Product Structure Tree

Level Chair
0

1 Leg Back
Assembly Assembly
Seat

Cross Side Cross Back

2 Legs (2)
bar Rails (2) bar Supports (3)

3
Inventory Records

• One of the inputs in MRP

• Includes information on the status of each item by
time period.
 Gross requirements
 Scheduled receipts
 Amount on hand
 Lead times
 Lot sizes
 And more …
MRP Processing

• Gross requirements
–Total expected demand
• Scheduled receipts
–Open orders scheduled to arrive
• Planned on hand
–Expected inventory on hand at the beginning of each
time period
MRP Processing

• Net requirements
–Actual amount needed in each time period
• Planned-order receipts
–Quantity expected to received at the beginning of the
period.
• Planned-order releases
–Planned amount to order in each time period
MRP Outputs

• Planned orders - schedule indicating the amount

and timing of future orders.
• Order releases - Authorization for the execution of
planned orders.
• Changes - revisions of due dates or order quantities,
or cancellations of orders.
MRP Secondary Reports

• Performance-control reports
• Planning reports
• Exception reports e.g cancelation /defect report
MRP in Services

• Food catering service

–End item => catered food
–Dependent demand => ingredients for each recipe,
i.e. bill of materials
• Hotel renovation
–Activities and materials “exploded” into component
parts for cost estimation and scheduling
Benefits of MRP

• Low levels of in-process inventories

• Ability to track material requirements
• Ability to evaluate capacity requirements
• Means of allocating production time
Requirements of MRP

• Computer and necessary software

• Accurate and up-to-date
– Master schedules
– Billsof materials
– Inventory records

• Integrity of data
Manufacturing Resource Planning (MRP
II)
• Expanded MRP with emphasis placed on
integration wit functional activities.
– Financial planning
– Marketing

– Engineering

– Purchasing

– Manufacturing
MRP II

Market Master
Finance Manufacturing production schedule
Demand

Adjust master schedule

Marketing
Production
plan MRP

Rough-cut Capacity
capacity planning planning
Adjust
production plan
Yes No Requirements No Yes
Problems? schedules Problems?
Enterprise resource planning (ERP)
ERP:
– Next step in an evolution that began with MRP and evolved into
MRPII
– Integration of financial, manufacturing, and human resources
etc. on a single computer system. Or
• The functions include:
Sales Marketing Purchasing
Operations Logistics Finance
Inventory control Accounting
Human resources etc.
• ERP runs as a client-server system - users access the system through
their PCs
• ERP operates company-wide, not just plant-based.
ERP Strategy Considerations

• High initial cost

• High cost to maintain
• Future upgrades
• Training
END