Transcript Slide 1

module 9:Tactical Decisions and Review
Project and Production Management
Module 9
Tactical Decisions and Review
Prof Arun Kanda & Prof S.G. Deshmukh,
Department of Mechanical Engineering,
Indian Institute of Technology, Delhi
Back to main index
exit
continue
module 9:Tactical Decisions and Review
MODULE 9:
Tactical Decisions and Review
1.Basic Inventory
Principles
2.Inventory Modeling
3.Material
Requirements
Planning
4.Job shop scheduling
Back to main index
5.Course Summary
and Review
6. Illustrative Examples
7. Self Evaluation Quiz
8. Problems for
Practice
9. Further exploration
exit
module 9:Tactical Decisions and Review
1. Basic Inventory
Principles
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
FUNCTIONS OF INVENTORIES
Inventories are Idle Resources maintained
in various forms:
- Raw materials
- Purchased & manufactured parts
- Subassemblies
- Finished products
Since inventories represent a sizable
investment in a logistic system, we must
be aware of the functions they perform
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
FIVE CATEGORIES OF
PIPELINE stock (in STOCKS
process stock, in transit stock)
CYCLE stocks
(batch production owing to
- economies of scale
- technological requirements)
SEASONAL stocks ( time varying requirements of an item)
SAFETY stocks
(supply and demand uncertainties,
lead time uncertainties)
Stocks held for OTHER REASONS (- decoupling stages of
production
- price, quantity discounts,
- speculation)
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
INVENTORY RELATED COSTS
• Procurement cost
Cost/order generally fixed
(not dependent on order qty)
• Costs associated with
existence of inventories
(supply exceeds demand)
Cost/unit/unit time
iC
(i = inventory carrying cost rate)
• Costs associated with
stock outs
(demand exceeds supply)
(cost/unit) (cost/unit/unit time)
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
PROCUREMENT COSTS
Procurement cost
Cost/order generally fixed
(not dependent on order qty)
Cost of goods
Ordering cost
- Administrative component
- Handling
- Transportation
- Inspection of arrivals
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
INVENTORY HOLDING
COSTS
Costs associated with existence of inventories
(supply exceeds demand)
Cost/unit/unit time
iC
(i = inventory carrying cost rate)
- Storage and handling
- Interest on tied up capital
- Property taxes
- Insurance
- Spoilage
- Obsolescence
- Pilferage
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
SHORTAGE COSTS
Costs associated with stock outs
(demand exceeds supply)
(cost/unit) (cost/unit/unit time)
-
Back to main index
Additional costs of special order
Backorder, if possible
Loss of customer goodwill
Lost sales
exit
back to module contents
module 9:Tactical Decisions and Review
SELECTIVE INVENTORY
CONTROL
In a large number there are
PARETO’s Law
significant few insignificant many
Typical organisations deal with a large variety of stocked items
(10,000 – 100,000 …is not uncommon)
Depending on rankings of
• VALUE ((Annual demand X unit price))  ABC Analysis
(Always Better Control)
• CRITICALITY (Vital, Essential, Desirable)  VED Analysis
 FSN Analysis
• USAGE FREQUENCY
(Fast moving, Slow moving, Non moving)
D
E
V
A B C
F
S
N
Back to main index
Based on product characteristics,
suitable policies can be chosen
USAGE FREQUENCY
exit
back to module contents
Percent of average inventory investment
module 9:Tactical Decisions and Review
ABC ANALYSIS
100
90
75
C
50
B
25
A
10
25
50
75
100
Percent of number of inventory items
5-10% items account for about 75% value
15-20% items account for about 15% value
Balance items account for about 10% value
(or A class ≥ 6 items average annual usage
C class ≤ 0.5 items average annual usage
B in between) TotalMaterial cost / year
Where, Average Annual usage=
Back to main index
Tota lno.ofitems
exit
back to module contents
OBJECTIVE OF ABC ANALYSIS:
Rationalization of Ordering Policies
EQUAL TREATMENT TO ALL
Item no.
Annual Consumption
Value (Rs.)
Number of
Orders
Value per order
Average inventory
1
2
3
60,000
4,000
1,000
4
4
4
15,000
1,000
250
7500
500
125
Total Inventory: Rs. 8125
PREFERENTIAL TREATMENT on basis of ABC analysis
1
2
3
60,000
4,000
1,000
8
3
1
7,500
1,333
1,000
3750
667
500
Total Inventory
Rs 4917
inventory
Annual cost
The optimum no of orders can be arrived at by using models of inventory
control eg. EOQ
time
Total cost
carriage
ordering
Q*
Q* =
2do
ic
module 9:Tactical Decisions and Review
DETERMINATION OF REORDER POINT
Reorder point = Max. reasonable demand during lead time
= expected demand during lead time + safety stock
Prob. of stockout
(usually pre specified
by management)
kL
xL
xL+ kL
Total demand in lead time
K= 0; risk of shortage = 50% service level = 50%
K= 0; risk of shortage = 15.87% service level = 84.13%
K= 0; risk of shortage = 2.28% service level = 97.72%
K= 0; risk of shortage = 0.13% service level = 99.87%
Higher safety stock
A class items have relatively low service levels (0.8 or so)
- Lower safety stocks
- Tighter control & efficient expediting
B class items handled routinely with service levels of 0.95 or so
C class items should be present in ample supply, minimum records,
controls, procedure very high service levels (0.95 to 0.98)
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
POLICY IMPLICATIONS OF SELECTIVE
INVENTORY CONTROL
ABC analysis
A class items need continuous rigourous control
(use of mathematical models justified)
B class items – relaxed control (periodic review)
C class items – simple rules of thumb
VED analysis
(min)
V class items call for a high level of service
% risk
Of shortage
E class items call for medium level of service
(max)
D class items call for tolerable level of service
VED
 jointly determine service levels
ABC
FSN analysis
Fast  most inventory models apply to this class
Slow ( spare parts etc)
Non – moving (dead stock) (optimal stock disposal rules)
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
High cost of
stockout
decreasing
A SAMPLE SET OF SERVICE LEVELS FOR
DIFFERENT CATEGORIES OF ITEMS
A
B
C
V
0.80
E
0.75
D
0.6
0.95
0.99
0.90
0.97
0.85
0.95
Low cost of
stockout
decreasing
decreasing
A
B
V
0.7
0.9
E
0.6
0.8
D
0.5
0.7
C
0.95
0.9
0.85
decreasing
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
OBJECTIVE OF INVENTORY
MANAGEMENT SYSTEM
An inventory system consists of a set of rules and procedures that allow
1
for routine decisions on when & how much to order of each item needed
in the manufacturing or procurement process,
2
which call attention to the non-routine situations, the rules do not cover &
3
which provide managers with the necessary information to make these
decisions effectively.
The objective of a well designed procedure should be the minimization
of the costs incurred in the inventory system, attaining at the same time
the customer service level specified by the company policies.
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
STRUCTURE OF A TYPICAL
COMPUTERISED
INVENTORY MANAGEMENT
SYSTEM
Basic sub systems or modules:• Transactions and file maintenance module
• Decision rules module
• System integrative module
• System-management interaction and evaluation module
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
TRANSACTIONS AND
FILE MAINTENANCE MODULE
Book keeping of inventory control –
Entry, auditing, control and processing of inventory
transactions
NECESSITY: Continuous updating to provide accurate information on
-Available stock (on hand and on order)
-Customer order status
-Cost of items
-Delivery lead times
-Source of acquisition
-Ordering restrictions
- …
DEVELOPMENT: mainly the area of data processing.
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
THE DECISION RULES MODULE
This is concerned with the fundamental components of inventory
planning and control procedures aimed at answering when and how
much to order of each item to maintain inventories at the right level.
A forward looking system should include forecasting capabilities safety
stocks (to account for unavoidable in accuracies) decision rules are
needed to guarantee some desired level of customer service.
A-class
ITEM
C-class
B-class
Use EOQ and
continuous
monitoring
EOQ, q* = 2do
ic
Back to main index
Order in lots of
3 months
demand if stock
at hand is less
than ROP
exit
Order in lots of
6 months
demand if stock
on hand is less
than ROP
back to module contents
module 9:Tactical Decisions and Review
SYSTEM INTEGRATIVE MODULE
Decision rules
Distinct inventory policies
The various items being controlled, depending on their
inherent characteristics require specific degree of
management attention and service levels that can be
achieved by using some appropriate stock policy
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
SYSTEM MANAGEMENT INTERACTION
AND EVALUATION MODULE
Intended to provide management with
such information as to permit evaluation
Evaluation of operating performance
 Identify problem areas
 Allow for management selection of policy
variables (system parameters)

Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
SUMMARY & CONCLUSIONS
- Omnipresence of inventories (‘necessary evil’)
- Nature of inventory related costs
- Principles of selective inventory management
ABC analysis
VED analysis
FSN analysis
- Ordering rules and reorder point determination
- Policy implications of selective inventory management
- Features of a computerized inventory management system
- Relevance ? – independent vs. dependent demand systems
- MRP vs. conventional inventory management
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
2. Inventory Modelling
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
LOT SIZING
- When to order ?
- How much to order ?
I
PURCHASE
NO BACKLOGGING
Inv.
Order qty., q
Reorder point
Lead time
Decision variables are
 Order quantity, q per lot
 Maximum backorder level, b (in class III, IV)
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
LOT SIZING
- When to order ?
- How much to order ?
II
PRODUCTION
Inv.
q
Decision variables are
 Order quantity, q per lot
 Maximum backorder level, b (in class III, IV)
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
LOT SIZING
- When to order ?
- How much to order ?
III
BACKLOGGING
Inv.
q
b
Decision variables are
 Order quantity, q per lot
 Maximum backorder level, b (in class III, IV)
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
LOT SIZING
- When to order ?
- How much to order ?
IV
Inv.
b
Decision variables are
 Order quantity, q per lot
 Maximum backorder level, b (in class III, IV)
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
ANALYSIS
BROAD APPRAOCH
(1) Identify the cost components in each cycle (of length t)
 Carrying cost
 Shortage cost
 Set up or order cost
(2) Express costs in terms of decisions variables
(order qty, q and backorder level, b)
(3) Develop annual cost by multiplying (1) by number of
cycles/year
(4) Optimize to find q*, b*
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
VARIATIONS IN THE LOT-SIZE FORMULE
WITHOUT BACKLOGGING
q* 
2C3d
,b*  0
C1
C = unit cost (Rs/piece)
C1 = i X C = carrying cost (Rs/unit/time)
C2 = shortage/backlogging cost (Rs/unit/time)
C3 = order cost (Rs/order)
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
VARIATIONS IN THE LOT-SIZE FORMULE
2C3d
q* 
, b*  0
C1(1  d / p)
C = unit cost (Rs/piece)
C1 = i X C = carrying cost (Rs/unit/time)
C2 = shortage/backlogging cost (Rs/unit/time)
C3 = order cost (Rs/order)
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
VARIATIONS IN THE LOT-SIZE FORMULE
WITH BACKLOGGING
b
2C3d C1  C2
q* 
C1
C2
C1q *
b* 
C1  C2
C = unit cost (Rs/piece)
C1 = i X C = carrying cost (Rs/unit/time)
C2 = shortage/backlogging cost (Rs/unit/time)
C3 = order cost (Rs/order)
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
VARIATIONS IN THE LOT-SIZE FORMULE
b
2C3d
C1  C2
q* 
C1(1  d / p)
C2
C1q * (1  d / p)
b* 
C1  C2
C = unit cost (Rs/piece)
C1 = i X C = carrying cost (Rs/unit/time)
C2 = shortage/backlogging cost (Rs/unit/time)
C3 = order cost (Rs/order)
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
ASSUMPTIONS in
CLASSICAL LOT-SIZE SYSTEM
1. Demand fixed at constant rate of d units/unit time
2. Replenishments made when inventory reaches zero level
so that no shortages occur.
3. Fixed lot size q.
4. Infinite replenishment rate
5. Lead time is known
6. The unit carrying cost, c, is constant Rs/unit/unit time.
7. The replenishment cost, C3 is constant Rs/Order.
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
Total cost
Carrying cost
TC
ANNUAL COSTS
Avg. Inventory = q/2
SENSITIVITY STUDIES ON
CLASSICAL LOT-SIZE MODEL
C1q iCq

2
2
TCmin
Inv.
Level
q*
q1
q2
LOT SIZE q
K(q) 
C1q C3d

2
q
q* 
q
Order cost
C3d
q
TCmin  2dC1C3
2dC3
C1
TC
1
1  b2
1
 (b  b ) 
TC m in 2
2b
Sensitivity Q = bq*, b > 0
b
0.5
0.8
0.9
1.0
1.1
1.2
1.5
2.0
TC/TCmin
1.250
1.025
1.006
1.000
1.005
1.017
1.083
1.29
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
EOQ WITH QUANTITY DISCOUNTS
q
2
d
q
Total annual cost = C1  C3  dC
Annual usage
Example
Annual demand = 5000 parts
Order cost = Rs 49
Inventory carrying cost = Re 1 per part/year
EOQ 
2(5000)49
 700
1
Discount schedule
Order quantity
Unit cost/part
0 – 999
1000 – 2499
2500 – over
Back to main index
Rs 5
Rs 4.85
Rs 4.75
exit
back to module contents
module 9:Tactical Decisions and Review
TOTAL ANNUAL COSTS for THREE ORDERING POLICIES
ORDER
QTY.
ANNUAL HOLDING
COST
ANNUAL
ORDER COST
PURCHASE
COST
TOTAL
700
1000
2500
350
500
1250
350
245
98
25,000
24,250
23,750
25,700
24,995
25,098
TAC(Rs 5)
TAC(Rs 4.85)
TAC(Rs 4.75)
25,700
OPERATING AT A LOTSIZE of 1000 rather
than EOQ of 700 is
WARRANTED HERE
25,098
24,995
ANNUAL
COSTS
Back to main index
700
1000
2500
q
exit
back to module contents
module 9:Tactical Decisions and Review
AN EXAMPLE ILLUSTRATING SHIFT OF EOQs
Quantity
1 99
Unit cos t
Rs2
100 and over
EOQ(Rs 2) 
2X 250X 5
0.2( 2)
D = 250/yr
C3 = Rs 5/order
i = 20%
Re 1
 79
EOQ(Rs1) 
2X 250 X 5
0.2(1)
112
q
 112
ANNUAL
COSTS
EOQ=79 100
IN THIS CASE A LOT SIZE OF 112 RESULTS IN MINIMUM COST
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
DETERMINISTIC SINGLE ITEM MODEL
Imax
Rate of
rise p-d
Rate of fall, d
0
-b
t1
t2
t3
t4
NOTATION
tp
t
d
= demand rate (units per unit time)
P
= production rate (unit per unit time)
Q
= order/production quantity
T
= cycle length
B
= maximum backorder level permitted
Imax = maximum on-hand inventory level
C
= unit item cost
C1
= inventory carrying cost in Rs/unit/unit time = iC
C2
= shortage cost in Rs/unit/unit time (back logged demand)
C2
= shortage cost/unit short independent of time (lost sales)
C3
= set up cost per order/batch
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
Cycle time t = q/d
Time to produce a lot, tp = q/p
max. inventory, Imax =
q
d
(p  d)  b  q(1  )  b
p
p
b
pd
t1 = time for backorder b to be cleared once production
starts

t2 = time for inventory level to build up from zero to Imax
I
 max
pd
t3 = time for inventory level to drop to zero from Imax at
constant demand, d
I
 max
d
t4 = time for backlog b to buildup at a demand rate, d
Back to main index
exit

b
d
back to module contents
module 9:Tactical Decisions and Review
COSTS/CYCLE
During (t2 + t3) there is inventory and
carrying costs = ½ Imax (t2 + t3) c1
t1
t2
t3
t4
During ( t1 + t4) there is shortage cost = ½ b (t1 + t4) C2 + C’2 b
Ordering / replenishment cost per cycle = C3
Notice that
1
p
 1
(t1  t 4)  b 
  b
d(p  d)
p  d d 
1
p
 1
(t 2  t 3)  Im ax 
   Im ax
d(p  d)
p  d d 
 d
& Im ax  q1    b
 p
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
AVERAGE ANNUAL COSTS K (q, b)
K (b, q) = C1
Im ax t 2  t 3
b t1  t 4
b C3
 C2
 C'2 
2
t
2 t
t
t
Substituting for t, (t1 + t4), (t2 + t3) &
Imax in terms of q, b we obtain
K (b, q) =
Back to main index
C2b2
C'2bd C3d
C1q(1d / p)b2



2q(1  d / p)
2q(1  d / p)
q
q
exit
back to module contents
module 9:Tactical Decisions and Review
OPTIMAL RESULTS
Annual cost is K (b, q)
The solution of these
K K

 0 simultaneous equations yields
q b
the optimum values q* and b*
as follows:
2
(
C
'
2d )
2C 3d
C1  C 2
q* 

C1(1  d / p) C1(C1  C 2)
C2
and
Back to main index
(C1q * C'2d)(1  d / p)
b* 
C1  C2
exit
back to module contents
module 9:Tactical Decisions and Review
FAST vs SLOW MOVING ITEMS
Slow moving items
• Low level of demand
• Frequent periods of no usage
Thresholds difficult to define [ depend on item nature]
 Likely to be between 50-100 units/yr
Peterson & Silver (1979) recommend classifying items
according to demand over the replenishment lead time:
An expected lead time demand of 10 units or larger puts
the item in the fast mover’s class, while an expected lead
time demand of less than 10 units defines a slow mover
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
CONTINUOUS (PERPETUAL) REVIEW SYSTEM WITH
REPLENISHMENT ORDER QTY. Q AND REORDER LEVEL R
Amt. of
inventory
on hand
Amt. used
during Lead
time
Q
Reorder
level, R
U1
Avg. lead
time usage
(U)
Safety
stock (s s)
Q
LT1
U3
LT3
LT2
Amt. of
inventory on
hand
Amt. of inventory
on hand
Back to main index
U2
Order
qty, Q
Amt. of
inventory on
hand
Amt. of inventory
on hand
exit
Amt. of
inventory on
hand
Time
Amt. of inventory
on hand
back to module contents
module 9:Tactical Decisions and Review
COMPUTATIONS FOR R
U = Lead time demand
LT = Lead time (working days)
D = daily demand
_ _ __
U  d LT
_2
__
Var(U)  ( Vard) LT  ( VarLT)( d)
N(U, u2 )
u  Var(U)
R  U  Zu
Z
Probability of stockout
Z is obtained from the NORMAL TABLES based on
either • A pre specified stockout probability, P
or
• Optimal stockout frequency based on costs of
shortage and carrying inventory
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
EXAMPLE (p305, ch. 10)
Per unit holding cost = Re 1/yr
Ordering policy : 4 times a yr
Pre specified service level : 1 stockout/3 yrs
SQ/yr = 0.33
LEAD Times from SUPPLIER
Order
placed
1/7
2/3
3/16
5/2
6/2
Order received
1/18
2/21
4/20 4/28 5/20
6/23
Lead times
Calendar days
Working days
11
7
18
12
Back to main index
Month/
day
exit
35
25
4/6
22
16
18
14
21
15
back to module contents
module 9:Tactical Decisions and Review
EXAMPLE (p305, ch. 10) (contd.)
LT = 7 + 12 +25 + 16 + 14 + 15
6
= 14.83 days
Var (LT) = (7 – 14.83)2 + (12 – 14.83)2 + …
6 -1
= 34.97 (day)2
Similar data on demands for last six months yield
d = 40 units/day
Var (d) = 30 (units/day)2
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
EXAMPLE (contd.)
U  (40)(14.83)  593.3
Units demanded per lead time
Var(U)  (30)(14.83)  (34.97) (40)2  56,397
u 
56,397  237.5
Units per lead time
Desired SO/yr = 0.33 (as stated earlier)
Order cycles/yr = 4 (given) = n
P = desired probability of stockout per order cycle

0.083
SO / yr 0.33

 0.083
n
4
From tables Z = 1.39
SS = 1.39 (237.5) = 330.1
Z
R = 593.3 + 330.1 = 923.4
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
IMPROVING RELIABILITY OF LEAD TIME
If var (LT) = 0
Then var (U) = 30 X 14.83 = 444.9
u = 444.9 = 21.09 units per lead time
(compared to the original 237.5)
Safety stock = 1.39 (21.09) = 29 ( compared to 330 earlier)
R = 622 (compared to 923 earlier)
 Inventory lowered by 301 units
 Annul savings = Rs 1 X 301 = Rs 301
Thus it is worthwhile to improve reliability of lead time
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
OPTIMAL STOCKOUT FREQUENCY AND
IMPLIED BACKORDER COSTS
Cost of shortage X Optimal SO/yr = Inventory carrying cost
Shortage cost = Rs 10
 optimal SO/yr = 1/10 = 0.10
P* = SO/yr = 0.01 = 0.025
n
4
Z = 1.96 (from normal tables)
 R* = 593.3 + 1.96(237.5) = 593.3 + 465.5 = 1058.8
For R = 926
SO/yr = C1/shortage cost
0.33 = 1/shortage cost
CB = 1/0.33 = Rs 3 (implied shortage cost)
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
INVENTORY CONTROL POLICIES
CONTINUOUS REVIEW SYSTEMS
• (S, Q) policy – when available inventory reaches level s, order Q
• (s, S) policy – when available inventory becomes equal to or less
than s, order upto level S
PERIODIC REVIEW SYSTEMS
• (nQ, s, R) policy – If at a review time the available inv. < s, an amt.
nQ is ordered (n=1,2,3) n is such that after the
order is placed, the avail. Inv. Reaches a level
in (s, s+Q)
• (S, R) policy – At each review time a sufficient qty. is ordered
to bring the level of ave. inv. upto S.
• (s, S, R) policy – If at a review time, the available inv. < s a
sufficient qty. is ordered to bring level upto S,
otherwise no order is placed
Available inventory = inventory on hand + amount on order Units back ordered
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
Lead time
Stock
Reorder
point
Avg.
Lead time
consumption
Reserve stock
Safety stock


Demand uncertainties
Lead time uncertainties
a) Avg. demand during avg. lead time (buffer)
(DXL)
b) Variations in demand during avg. lead time, depending on
service level
(reserve stock)
(kxDL )
a) Avg. demand during delivery delays
Avg. demand for
maximum delay
Back to main index
(safety stock)
Probability
of delay
exit
back to module contents
module 9:Tactical Decisions and Review
EXAMPLE
For the following data work out the costs under both
• A continuous review, fixed order qty (Q system)
• A periodic review, variable order qty (P system)
• Avg. annual demand = 20,000 units
• Std. deviation of demand per week = 50 units
• Unit price = Rs 10
• Ordering cost = Rs 100
• Inventory carrying cost rate = 20%
• Avg. lead time = 4 weeks
• Max. delay = 3 week
• Probability of delay = 0.31
• Service level = 95% (prob. Of stockout during lead
time = 5%)
Back to main index
exit
back to module contents
Q system
Order qty 
module 9:Tactical Decisions and Review
2x20,000x100
 1414 units
(0.2)x10
reorder point  Buffer  Reserve  Safety
Buffer  avg. demand during lead time 
20,000
x 4  1540 units
52
Reserve stock  k x std. deviation of demand during lead time
 1.64 ( 4 x 50)  164 units
Safety stock  Avg. demand during max delay x probability of delay
20,000 x 3
(
)x0.31  1154x0.31  358 units
52
Reorder point  1540  164  358  2062 units
S
2062
0.95
Q = 1414
Lead time = 4 weeks
Stock
level
Back to main index
Mean, 
time
exit
1.64 
back to module contents
P system
Review period 
module 9:Tactical Decisions and Review
EOQ
1414
1414

years 
x 52 weeks  3.7 wks.
Demand 20,000
20,000
Can be rounded off to either 3 or 4 weeks depending on
cost consideration
3 weeks
52
x Rs 100  Rs 1733
3
20,000 1
Annual inventory carrying cost 
x x10x0.20  Rs 1,154
17.33 2
Annual ordering cost 
 Total inv. Cost = 1733 + 1154 = Rs 2887
Back to main index
exit
back to module contents
P system
module 9:Tactical Decisions and Review
4 weeks
52
x 100  Rs 1300
4
20,000 1
Annual inventory carrying cost 
x x10x0.20  Rs 1,154
13
2
Annual ordering cost 
 Total inv. Cost = 1300 + 1154 = Rs 2840
 Review period is 4 weeks
Desired inventory level = Buffer + Reserve + safety = 3668
Buffer 
20,000
x 8  3080 units
52
Reserve  8 x 50 x 1.64  230 units
Safety  (20,000/52 ) x 3 x 0.31  350 units
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
SAFETY STOCK DETERMINATION
Issues
1) What is the optimal level of protection ?
How often do we tolerate running out of stock ?
Tradeoff between holding costs & shortages
2) What reorder level should we set to achieve to achieve
this theoretically optimal protection ?
Practical question answered through statistics.
Distribution of lead time demand
Prob. Of stockout
Chosen
reorder level
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
SUMMARY
The EOQ formula with sensitivity analysis
was discussed
Many variations of the lot size formula with
and without backlogging for purchase and
production situations were considered
Quantity discounts were explored
The P & Q policies for inventory control were
compared
Safety stock determination in inventory
systems was considered
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
3. Material
Requirements
Planning
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
WHAT MRP DOES ?
MASTER SCHEDULE
FOR END ITEMS
MRP
DETAILED SCHEDULE FOR
RAW MATERIALS &
•Dependent demand
•lumpy
Back to main index
COMPONENTS
USED IN THE END PRODUCTS
exit
back to module contents
module 9:Tactical Decisions and Review
INDEPENDENT VS
DEPENDENT DEMAND
Independent Demand:
• Demand unrelated to demand of other products
(end products, spare parts)
• Usually forecast
• Conventional inventory control (EOQ,
Wagner/Whitin) applicable.
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
.
INDEPENDENT VS DEPENDENT
DEMAND
Dependent Demand:
Demand directly related to demand of some
other product (components, raw materials,
subassemblies)
• Requirements derived from delivery schedule
of end items.
• MRP is the appropriate tool for planning &
control of manufacture inventories
raw materials
WIP
Component parts
Subassemblies
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
LUMPY DEMAND
Avg.
rate of
demand
CONTINUOUS DEMAND
Assumed in economic lot size
formula
Inv.
LEVEL
TIME
Inv.
LEVEL
t1 t2
t3
t4 t5
t6
LUMPY DEMAND
TYPICAL OF MRP
APPLICATIONS
(raw materials, components
sub-assemblies consumed in
Large increments
corresponding to a certain
batch of final product)
TIME
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
LEAD TIMES
Ordering Lead Time:
(for purchased parts)
Initiation of
purchase
requisition
Receipt of item from vendor
(off shelf / fabricate)
Manufacturing Lead Time:
Place order
Process part through sequence of
machines as given on route sheet
(operation + non-productive times)
Item delivered
In MRP, lead times are used to determine starting dates for
assembling final products and subassemblies, for producing
component parts, and for ordering raw materials.
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
INPUTS TO MRP
• The master production schedule and other
order data.
• The bill of materials file. (The product
structure)
• The inventory record file.
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
COMMON USE ITEMS
BASIC RAW MATERIAL
COMPONENTS
C1
C2
C3
Cn
PRODUCTS
P1
P2
P3
PN
MRP collects the common use items from different products to
effect economics in ordering the raw materials and
manufacturing the components/sub assemblies
Back to main index
exit
back to module contents
STRUCTURE OF AN MRP SYSTEM
Customer
orders
Sales
forecasts
Service
Parts
requirements
Engg.
changes
Master
Production
schedule
Inventory
transactions
Bill of
Materials
file
MRP
PROCESSOR
Inventory
Record
file
OUT PUT
REPORTS
…
Gross &
Net requirements
report
Back to main index
Capacity vs
Load report
Shop floor
Planning
report
exit
Production Order
Status & exceptions
report
back to module contents
module 9:Tactical Decisions and Review
MASTER PRODUCTION SCHEDULE
Week no
6
7
Product P1
Product P2
8
9
50
70
80
10
100
25
Etc.
TYPICAL INFORMATION IN MPS:
(a) What end products are to be produced?
(b) How many of each product to be produced?
(c) When the products are to be ready for shipment?
Firms customer orders
DEMAND
Forecasted demand
Often excluded from MPS,
Demand for individual component
since it does not include
Parts (for repair and service)
end product demand.
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
BILL OF MATERIALS (BOM) FILE
Level 0
(product)
P1
Level 1
(sub-assemblies)
Level 2
(raw materials)
S1
C1
C2
(1)
S2
(1)
C3
(4)
C4
(1)
(2)
C5
(2)
C6
(2)
(1)
Sub assembly S1 is the PARENT of components C1,
C2 & C3. Any engg. Changes affecting product
structure must be fed to BOM file.
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
INVENTORY RECORD FILE
• Accurate current data on inventory status
• Generally computerized (item master file)
• Lead times must be established in inventory
Record file
Ordering
Lead time
Manufacturing
Lead time
Purchasing
records
Process
Route
sheets
• INVENTORY TRANSACTIONS (issue, arrivals, order
placement/realization) MUST BE KEPT CURRENT
Back to main index
exit
back to module contents
INPUTS FOR MRP EXAMPLE
P2
P1
S1
C1
(1)
C2
S2
(1)
C3
(4)
(1)
C4
(2)
C5
S3
(2)
(2)
C6
(1)
C4
(1)
S4
(1)
C6
C7
(4)
(2)
C2
(1)
C8
(2)
(1)
M4
PRODUCT STRUCTURE FOR PRODUCTS P1 & P2
Week
P1
P2
6
7
70
8
50
80
Initial inventory status for M4
PERIOD
1 2 3 4 5 6
ITEM RAW MATERIAL M4
GROSS REQUIREMENTS
SCHEDULED RECEIPTS
40
ON HAND
90
50
NET REQUIREMENTS
PLANNED ORDER RELEASES
9
Master
Production
Schedule
10
100
25
Lead times (in weeks)
Assembly
Manufacturing
Ordering
P1 = 1
P2 = 1
S2 = 1
S3 = 1
C4 = 2
M4 = 3
module 9:Tactical Decisions and Review
BASIC MRP LOGIC
Input MPS, BOM, Inventory Status,
Lead times
Do Parts Explosion
Offset requirements by lead times
Netting of requirements from Gross by
considering availabilities
Lot sizing of net requirements for
procurement or production
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
PERIOD
1
2
3
4
5
6
7
8
9
10
ITEM PRODUCT P1
GROSS REQUIREMENTS
50
100
50
100
SCHEDULED RECEIPTS
ON HAND
0
NET REQUIREMENTS
PLANNED ORDER RELEASES
50
100
ITEM PRODUCT P2
GROSS REQUIREMENTS
70
80
25
70
80
25
80
25
SCHEDULED RECEIPTS
ON HAND
0
NET REQUIREMENTS
PLANNED ORDER RELEASES
Back to main index
70
exit
back to module contents
module 9:Tactical Decisions and Review
PERIOD
1
2
3
4
5
6
7
8
9
10
ITEM SUB ASSEMBLY S2
GROSS REQUIREMENTS
100
200
100
200
SCHEDULED RECEIPTS
ON HAND
NET REQUIREMENTS
PLANNED ORDER RELEASES
100
200
ITEM SUB ASSEMBLY S3
GROSS REQUIREMENTS
70
80
25
70
80
25
80
25
SCHEDULED RECEIPTS
ON HAND
NET REQUIREMENTS
PLANNED ORDER RELEASES
Back to main index
70
exit
back to module contents
module 9:Tactical Decisions and Review
PERIOD
1
2
3
4
5
6
7
8
9
10
ITEM COMPONENT C4
GROSS REQUIREMENTS
70
280
25
400
70
280
25
400
SCHEDULED RECEIPTS
ON HAND
NET REQUIREMENTS
PLANNED ORDER RELEASES
70
280
25
400
GROSS REQUIREMENTS
70
280
25
400
SCHEDULED RECEIPTS
40
25
400
ITEM RAW MATERIAL M4
ON HAND
50
NET REQUIREMENTS
PLANNED ORDER RELEASES
Back to main index
260
90
20
-20
260
25 400
exit
back to module contents
module 9:Tactical Decisions and Review
MRP OUTPUT REPORTS
Primary Outputs:
1. Order release notice, to place orders that have been
planned by the MRP system
2. Reports showing planned orders to be released in future
periods.
3. Rescheduling notices, indicating changes in due dates for
open orders.
4. Cancellation notices, including cancellation of open orders
because of changes in the master schedule
5. Reports on inventory status.
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
MRP OUTPUT REPORTS
Secondary Outputs
1. Performance reports of various types – costs, item usage,
actual vs planned lead times and other measures of
performance.
2. Exceptions reports showing – deviations from schedule,
overdue orders, scrap, and so on.
3. Inventory forecasts indicating projected inventory levels
(both aggregate inventory as well as item inventory) in
future periods.
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
BENEFITS OF MRP
1. Reduction in inventory (30-50% in WIP)
2. Improved customer service (late orders reduced by 90%)
3. Quicker response to changes in demand and master
schedule.
4. Greater productivity
5. Reduced set up and product changeover costs
6. Better machine utilization
7. Increased sales and reductions in sales price.
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
EVOLUTION OF MRP
Improved
computational
efficiency of
computers
AN IMPROVED ORDERING METHOD

Unrealistic M/c
schedules, ignoring
plant capacities
PRIORITY PLANNING
Not only plans priorities
but provides feedback to
executing the priority
plan
CLOSED LOOP MRP


MRP II
Manufacturing
Resource
Planning
(Links functions
-Capacity planning
-Inventory management
-Shop floor control
-MRP)
• Links up the closed loop MRP system with the
financial systems of the company
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
FOR CLASSES OF MRP USERS
Class A (most advanced)
 Uses closed loop MRP
 Integrated System has MRP, Capacity planning, shop
floor, control, vendor scheduling etc.
 MRP system used to help plan sales, engg, production,
purchasing, etc
 No shortage lists of override the production schedules.
Class B
 System has MRP, capacity planning shop floor control,
but no vendor scheduling
 Used as a production control system
 Needs help from shortage list
 Inventory higher than need be
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
FOR CLASSES OF MRP USERS
Class C
 System used for inventory Ordering rather than scheduling
 Scheduling by shortage list
 Master schedule over loaded
Class D (beginner)
 MRP working in the data processing department only
 Inventory records are poor
 Master schedule, if it exists at all is overstated and
mismanaged
 Relies on shortage list & expediting rather than MRP
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
ADDITIONAL FUNCTIONS OF
MRP II
IT IS AN OPERATIONAL & FINANCIAL SYSTEM
 Company wide, Sales, Production, Engineering,
inventories, cash flows
 All operating data expressed in money terms
IT IS A SIMULATOR
 “What if” questions
 Simulate probable outcomes of alternative production
plans and management decisions.
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
SUMMARY
Dependent vs Independent Demand
MRP is useful for planning requirements of
components and parts knowing end item
demand
Major inputs to MRP include Master
Production Schedule, BOM, Inventory and
Lead Times
The MRP logic goes through Explosion,
Offsetting, Netting and Lot sizing
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
SUMMARY (Contd)
Major benefits of MRP include improved
planning, lesser inventories, shorter lead
times
However MRP does not integrate cost
functions in different departments
MRPII (Manufacturing Resource Planning)
links the financial functions across the
organization
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
4. Job Shop
Scheduling
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
NATURE OF JOB
PRODUCTION
Variety of jobs produced
Both nature and demand of jobs is
unpredictable
Consists of general purpose machines
Each job depending on its technological
requirements, demands processing on
machines in a certain order
Jobs queue before machines or there may be
idle machines
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
OBJECTIVES IN JOB
SHOP SCHEDULING
Minimize total processing time or makespan
Minimize mean flow time
Minimize idle time of machines
Minimize mean lateness/earliness
Minimize mean tardiness
Minimize number of tardy jobs
Minimize mean queue time
Minimize the number of jobs in the system
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
COMPLEXITY OF THE
PROBLEM
n
With n jobs to be processed on m
machines the number of possible
5
15
sequences
is 10(n!)m
20
m
2
4
5
5
(n!)m
14400
1,73x1026
3.8x1060
8.5x1091
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
PRELIMINARY
DEFINITIONS
A job shop is characterised by
No of jobs (n)
 Number of Machines (m)
 Pattern of arrival of jobs (static/dynamic)
 Objective of scheduling(minimise inventory,
makespan, maximum tardiness,
lateness…)
 Sequencing rule (FCFS, LIFO, SPT, LPT,
EDD ...)

Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
DEFINITIONS-I
Processing time, ti
Completion
Start of
time ,Ci
processing
Waiting time, wi
Job arrival
time, ai
Flow time, Fi = wi + ti = Ci - ai = Time job spends
on the shop floor, waiting and being processed
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
DEFINITIONS II
module 9:Tactical
Decisions
Due
Date,and
di
Review
Job arrival
time, ti
Start of
Processing
Completion
time, Ci
Job lateness, Li = Ci- di (could be positive or negative)
Job earliness, Ei = max (0, -Li)
Job tardiness, Ti = max (0, Li)
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
N/1 PROBLEM
All sequences for the n/1 problem have
the same makespan
Therefore other objectives are relevant
mean flowtime
 average inventory
 mean lateness
 mean completion time

Back to main index
exit
back to module contents
RELATIONSHIP
BETWEEN F AND OTHER
VARIABLES
module 9:Tactical Decisions and Review
Fi = Ci -ai = wi + ti
Li = Ci - di
From these equations it is easy to see
that a sequence that minimises mean F
also simultaneously minimises
mean Completion times
 mean Waiting times
 mean Lateness

Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
INVENTORY VARIATION FOR AN
ARBITRARY N/1 SEQUENCE
n Inventory
n-1
n-2
2
1
1
Back to main index
2 3
Avg inventory = [nt1+ (n-1)t2 + … 1 tn]/T
Avg inventory I = Area /T
Summing horizontal strips:
Area = F1 + F2 + … +Fn
= n avg Flow time
Thus
T(avg inventory) = n (avg flow time)
n-1 n
exit
Job under
process (Total
Time T)
back to module contents
module 9:Tactical Decisions and Review
SPT vs LPT
LPT maximizes
what SPT minimises
n
LPT
SPT
T
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
SPT RULE
Thus the rule that minimizes mean flow
time also minimises the mean inventory
It is seen that the SPT (Shortest
Processing Time Rule) minimises
mean inventory
 mean flow time
 mean waiting time
 mean completion time
 mean lateness

Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
AN EXAMPLE
Six jobs with processing times
4, 8 5, 9, 2 and 6 respectively
Due dates 10, 8, 12, 15, 9 and 20
respectively
Solution
The SPT sequence is 5(2), 1(4), 3(5),
6(6), 2(8) , 4(9)
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
EXAMPLE (Contd)
The SPT sequence is 5(2), 1(4), 3(5), 6(6),
2(8) , 4(9)
Completion (Flow Times) are
2, 6, 11, 17, 25, 34
Due Dates are job (due date)
5(9), 1(10), 3(12), 6(20), 2(8) , 4(15)
Lateness values are
-7, -4, -1, -3, 17, 19
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
RESULTS
SPT sequence: 5 1 3 6 2 4
Mean Flow time: 95/6 =15.833
Average Inventory : (6*95)/(6*34)=
2.794
Mean Lateness: 21/6 =3.5
Mean Tardiness: 36/6 =6
Mean Earliness: 15/6 =2.5
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
EXAMPLE 2
Task
1
2
3
4
5
6
7
8
Back to main index
Process
ing time
5
8
6
3
10
14
7
3
Due
date
15
10
15
25
20
40
45
50
exit
Slack
time
10
2
9
22
10
26
38
47
back to module contents
module 9:Tactical Decisions and Review
Rule
Objectiv
e
Mean
Flow
Time
Weighte
d Mean
Flow
time
Mean
Maximu
Lateness m
Tardines
s
No of
Tardy
jobs
Mean
Tardines
s
SPT
MFT,AV
G INV,
23.9
29.0
-3.6
22
4
7.8
WSPT
WMFT
27.0
27.5
-0.5
36
4
10.6
EDD
Max job 32.0
lateness/
tardiness
31.7
4.5
9
6
5. 0
Hodgson
No of
tardy
jobs
29.1
29.9
1.6
36
2
9.0
SLACK
Mean
32.1
tardiness
(heuristic
)
31,1
4.6
9
6
5,0
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
n/2 PROBLEM
n job 2 machine
A
B
Flowshop
Different sequences now have different
completion times (makespan)
Therefore unlike the n/1 problem minimizing
the makespan is a legitimate objective
Johnson’s Rule is commonly used to solve
the problem
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
AN EXAMPLE
Time on M/c A Time on M/c B
Job1
10
2
Job2
5
7
Job3
4
10
Job 4
12
8
Job 5
9
6
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
JOHNSON’S SEQUENCE
M/c A
M/c B
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
n/3 FLOWSHOP
M/c M/c
Notion of dominance
Back to main index
A
B
M/c
C
1
10
4
5
2
12
6
2
3
8
8
5
4
9
7
4
5
14
3
8
exit
back to module contents
module 9:Tactical Decisions and Review
n/3 FLOWSHOP
M/c M/c
When Dominance
does not exist
Back to main index
A
B
M/c
C
1
10
8
6
2
4
6
9
3
8
4
4
4
6
2
8
5
5
8
3
exit
back to module contents
module 9:Tactical Decisions and Review
COMPUTATIONS
M/c A+B
M/c B+C
1
2
3
4
5
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
COMPUTATIONS
M/c A+B
M/c B+C
1
2
3
4
5
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
2/m/JJOBSHOP
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
PRACTICAL SOLUTIONS
TO JOBSHOP TRAINING
Priority Dispatching Rules










FCFS
SPT
EDD
SLACK
RANDOM
LRPT (Least Remaining Processing Time)
S/OPR (Min Ratio oof job slack time to the number of
operations remaining
LCFS
DS (Least Dynamic Slack)
DS/PT Minimum ratio of Dynamic Slack to remaining
Processing Time
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
SUMMARY AND
CONCLUSIONS
The complexity of Job Shop Scheduling
n/1 problem
n/2 flow shop problem
n/ 3 problem
2/m/job shop
General job shops
Simulation
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
5. Course Summary
and Review
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
PROJCT MANAGEMENT
(CONTENTS)
A.
PROJECT MANAGEMENT (19 Lectures)
a.1
Project conception and appraisal ( 5 lectures)
Concept of a project, historical perspective, various issues: Time, cost, Quality, Project
Identification and Screening: Various methods and frameworks, Factors for project
appraisal, Criteria for project selection, Financial measures, some examples
a.2
Project Planning ( 4 lectures)
Project representation, network concepts, Consistency and Redundancy in Project
Networks, Activity on arc representation, concept of scheduling, Critical Path Method, Basic
Scheduling with A-O-A, Activity on node representation, Basic Scheduling with A-O-N
Networks
a.3
Project crashing and Resource considerations ( 5 lectures )
Probabilistic Scheduling: Uncertainty and probabilistic considerations in project, PERT,
Three-estimate approach, Project Scheduling with Probabilistic Activity Times, Heuristic
approach for Linear Time-Cost Tradeoffs in Projects, Resource Profiles and leveling, Limited
Resource Allocation
a.4
Project Implementation:( 5 lectures )
Considerations in implementation, Project Monitoring and Control with PERT / Cost,
Behavioral and human issues, Team Building, Desirable attributes of project leader,
computers in project management , Project Completion, Review
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
PRODUCTION
MANAGEMENT(CONTENTS
)
b.1 Strategic decisions in production management (5 lectures )
Concept of a production system, historical perspectives on production system, a
generalized model of production system, Concept of a life cycle, various stages in life
cycle, implications for managerial decision making vis-à-vis life cycle, Financial
Evaluation Of Production Related Decisions: Typical Performance Measures of a
Production System, Criteria such as net present value, rate of return, Financial
Evaluation of Capital Decisions, concept of a decision tree, evaluation of risk
b.2 Product and process selection ( 4 lectures )
Designing Products and Services: Factors for New product/service introduction,
product mix decisions using linear programming approach, stochastic product mix
decisions
b.3 Facility Location and Layout ( 4 lectures )
Considerations in Plant Location, various models for location (gravity etc.), Process
Layouts, Product Layouts, comparison of process and product layout, concept of
Assembly Line Balancing, heuristic approaches for assembly line balancing (rank
position weight etc.), Cellular Layouts
b.4 Production planning over the short Term Horizon ( 4 lectures )
Demand Forecasting, various methods for forecasting (qualitative and quantitative),
Aggregate Production Planning (APP), models for APP
b.5 Tactical decisions and review (5 lectures )
Inventory: necessity, and costs involved, deterministic inventory models, Dependant
demand systems, Material Requirements Planning, Scheduling of Job Shops, various
heuristics for scheduling, course review
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
Project and Production
Management
Project Conception and Appraisal
Project Management: An Overview
Project Identification and Screening
Project Appraisal: Part I
Project Appraisal: Part II
Project Selection
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
Project Management
Project Planning
Project Representation
Consistency and Redundancy in Project
Networks
Basic Scheduling with A-O-A Networks
Basic Scheduling with A-O-N Networks
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
Project Management
Project Crashing and Resources
Project Scheduling with Probabilistic Activity
Times
Linear Time-Cost Tradeoffs in Projects: A
Heuristic Approach
Resource Profiles and leveling
Project crashing with multiple objectives
Limited Resource Allocation
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
Project Management
Project Implementation
Project Monitoring and Control with PERT /
Cost
Team Building and Leadership in Projects
Organizational and behavioral issues
Computers in project management
Project Completion and Review
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
Project & Production
Management
Project Conception and Appraisal
Project Management: An Overview
Project Identification and Screening
Project Appraisal: Part I
Project Appraisal: Part II
Project Selection
Project Planning
Project Representation
Consistency and Redundancy in Project Networks
Basic Scheduling with A-O-A Networks
Basic Scheduling with A-O-N Networks
Project Crashing and Resources
Project Scheduling with Probabilistic Activity Times
Linear Time-Cost Tradeoffs in Projects: A Heuristic Approach
Resource Profiles and leveling
Project crashing with multiple objectives
Limited Resource Allocation
Project Implementation
Project Monitoring and Control with PERT / Cost
Team Building and Leadership in Projects
Organizational and behavioral issues
Computers in project management
Project Completion and Review
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
Production Management
Strategic Decisions in Production
Management
Introduction to Production Systems and a
Generalized Model of Production
Life cycle of a Production System and Major
managerial Decisions
Performance Measures of a Production
System
Financial Evaluation of Capital Decisions
Decision Trees and evaluation of risk
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
Production Management
Product and Process Selection
Introducing New Products and Services
I
Introducing new products and services
II
Product Mix Decisions
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
Production Management
Facility Location and Layout
Plant Location
Process Layouts
Product Layouts and Assembly Line
Balancing
Cellular Layouts
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
Production Management
Production Over the Medium
Term Horizon
Demand Forecasting: General
considerations
Models for forecasting
Aggregate Production Planning I
Aggregate Production Planning II
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
Production Management
Production Over the Medium
Term Horizon
Demand Forecasting: General
considerations
Models for forecasting
Aggregate Production Planning I
Aggregate Production Planning II
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
Production Management
Tactical Decisions over the Short
Term Horizon
Inventory considerations and various factors
Inventory modeling
Material Requirements Planning`
Scheduling of Job Shops
Course summary and review
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
WHAT IS A PROJECT?
PURPOSE
An undertaking or venture to accomplish some
objective or goal
STRUCTURE
A set of interrelated jobs whose accomplishment
leads to the completion of the project
COMPONENTS
Jobs or activities consume time and resources and
are governed by precedence relations
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
PROJECTS AS
AGENTS OF CHANGE
State B
Alternative
Projects
(Paths)
State A
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
FEATURES OF
PROJECTS
Well defined collection of jobs
Generally non-repetitive, one time effort
Jobs interrelated through precedence
Jobs otherwise independent
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
PROJECT FEATURES
(Continued)
Jobs consume time and resources
Coordination needed between
individuals, groups & organisations
Constant pressure of conformance to
time/cost /performance goals
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
A Project as a Production System
Mass
production
Batch
Production
Job
Production
Q
Quantity
to be
Made
1
Back to main index
Projects
P (No. of Products or
“VARIETY”)
exit
back to module contents
module 9:Tactical Decisions and Review
LIFE CYCLE OF A
PROJECT
Selection of the project
Project Planning
Scope of work & network development
Basic Scheduling
Time Cost tradeoffs
Resource Considerations in projects
Project Implementation
Project Completion and Audit
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
Motivation in Introducing
New Products
For profit
To satisfy need
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
CONTRIBUTION TO NEW
PRODUCT IDEAS
Sales and Marketing (close touch with
customer)
Top management (Active listener to visitor
and customer feedback)
Production department (limited to production
ease and economics)
Research and Development (prompted by
new developments in materials & technology)
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
GENERATION OF NEW
PRODUCT IDEAS
Brain storming (preferably by
interdisciplinary team)
Team apprised of




Company objectives & long term goals
Current economic scenario
Preferred field of activity (expertise)
Approximate budget for new product
Each one generates ideas which are
recorded without criticism or evaluation
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
EVALUATION OF NEW
PRODUCT IDEAS
The evaluation of the new product ideas
could be done on a number of criteria






Likely demand and pattern of growth
Ease of raw material availability
Availability of Production technology
Competition and likely market share
Likely revenues and costs of operation
The product life cycle
An example to illustrate this process is taken
up next
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
AN EXAMPLE OF
SCREENING OF IDEAS
Idea/
Demand Comp
etition
factor
Ease
of
Raw
Mtl
Cost of Likely
process profit
ing
Scor
e
Computer
peripheral
s
6
3
6
5
6
26
Fast food
8
6
9
7
5
35
Fashion
clothing
4
5
7
4
4
24
Soaps and 9
2scale of71(least desirable)
6
410 (most desirable)
28
Each
factor
evaluated
on
a
–
detergents
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
INPUT(S)
OUTPUT(S)
Transformation
-Men
-Machines
Useful
Goods or
Services
Economic/Social/Political
Environment
-dynamic
-uncertain
-Materials
-Money
-Information
-Energy
----------
FEED BACK
Undesirable
outputs
(Effluents, Fumes etc.)
A PRODUCTION SYSTEM AS
AN INPUT-OUTPUT SYSTEM
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
AN EXAMPLE OF
SCREENING OF IDEAS
Idea/
Demand Comp
etition
factor
Ease
of
Raw
Mtl
Cost of Likely
process profit
ing
Scor
e
Computer
peripheral
s
6
3
6
5
6
26
Fast food
8
6
9
7
5
35
Fashion
clothing
4
5
7
4
4
24
Soaps and 9
2scale of71(least desirable)
6
410 (most desirable)
28
Each
factor
evaluated
on
a
–
detergents
Back to main index
exit
back to module contents
module 9:Tactical Decisions and Review
CUSTOMER NEEDS AND
DESIRES
Desires

Natural, as hunger,
shelter, love and security

Generated by exposure
to circumstances and
temptations
(as in advertisements on
media, TV,neighbour)
Needs



Back to main index
exit
When a desire becomes
strong enough and
warrants fulfilment, it
becomes a need.
Customer demand is
based on real or
artificially generated
needs
Needs are constantly
changing
back to module contents
module 9:Tactical Decisions and Review
MORTALITY OF IDEAS
Screening
35-40 ?
Economic
evaluation Development
Testing
Commercialization
Number
of ideas
Time
Back to main index
exit
3-24 months ?
back to module contents
module 9:Tactical Decisions and Review
NEW CHALLENGES IN
PRODUCTION
Price
Quality
COMPETITION
• More producers
• Demanding customers
Reduced
lead times
Back to main index
Greater
variety
exit
Customer
satisfaction
back to module contents
PRODUCTION AS A
PART OF THE SUPPLY
CHAIN
module 9:Tactical Decisions and Review
Transformatio
n
process
Vendors
Back to main index
Warehouses
exit
Retailers
back to module contents
module 9:Tactical Decisions and Review
CONCLUSIONS
This course has focussed on the Life Cycle
issues in Projects and Production Systems
The Strategic, Operational and Tactical
Issues in Projects and Production Systems
have been discussed
The approach has been on conceptual issues
as well as modelling of key processes and
decisions
Back to main index
exit
back to module contents