ME 5004 - Production Planning and
Inventory Control
1
Production/Manufacturing
Production/manufacturing is the process of converting
raw materials or semi-finished products into finished
products that have value in the market place. This
process involves the contribution of labor, equipment,
energy, and information.
2
The Production System
Raw materials
Energy
Labor
Equipment
Information
Production
System
Finished products
Scrap
Waste
3
Inventory
Inventory is both an input and output of the production
process. Inventory can be in the form of raw materials,
semi-finished, and finished products.
4
The Inventory System
Supply source
Demand source
Inventory
5
The Production-Inventory System
Suppliers
Raw materials
Fabrication
Component parts
inventory
Assembly
Distribution
and sales
Finished goods
inventory
6
The Supply Chain
Assembly/
Manufacturing
2nd tier suppliers
1st tier
suppliers
Distribution
centers
Retailers
7
Supply Chain Management
Supply Chain Management (SCM) is the set of
functions concerned with the effective utilization of
limited resources that may reside with one or more
independent firms and the management of material,
information, and financial flows within and between
these firms, so as to satisfy customer demands and create
profits for all firms.
8
Production Planning and
Inventory Control
Production planning and inventory control is the subset
of SCM functions that focus on managing production
operations and inventory throughout the supply chain.
9
Examples of Decisions
10
Examples of Decisions
 What should we produce, how much, and when
(forecasting)?
 How much can we produce (capacity planning)?
 How much do we have and how much do we
need (inventory management)?
 When should we produce (production planning
and scheduling)?
11
A Hierarchy of Decisions
Sales &
Marketing
Long term
forecasting
Transportation
& Distribution
Capacity
Planning
Warehousing &
order fulfillment
Network design
& facility location
Inventory
Management
Production
Planning
Production
Scheduling
12
Example Performance Measures
13
Examples of Performance Measures
 Cost (are products being created at minimum or
acceptable cost?)
 Quality (what are the specifications of the
products? What percentages of shipped products
meet specification?)
 Variety (how many types of products are - or
can be – simultaneously produced?)
 Service (how long does it take to fulfill a
customer order? how often are quoted lead times
14
met?)
Examples of Performance Measures
(continued…)
 Flexibility (how quickly can existing resources
be reconfigured to produce new products?)
 Worker satisfaction (are workers and managers
throughout the supply chain happy and
motivated?)
 Safety (are work environments safe for workers
and the surrounding community?)
 Environmental impact (how environmentally
friendly are the supply chain processes and the
15
products?)
The Bottom Line
In the long run, the supply chain must be
profitable by delivering value to the end customer
and to do so over the long run.
16
Classification of the Production
Process
 Production quantity
17
Classification of the Production
Process
 Production quantity
– Mass production
– Batch production
– Job shop production
18
Classification of the Production
Process
 Production quantity
– Mass production
– Batch production
– Job shop production
 Product variety
19
Classification of the Production
Process
 Production quantity
– Mass production
– Batch production
– Job shop production
 Product variety
– Single product or product line
– Family of similar products
– One-of-a-kind products
20
Mass Production Systems
21
Mass Production Systems
 Low product variety
 High production volumes
 Specialized labor
 Dedicated equipment
 High reconfiguration costs
 Make-to-stock production
22
Batch Production Systems
23
Batch Production Systems
 Medium product variety
 Products are made in larger lots
 products are made to stock
 Programmable/reconfigurable equipment
 Significant setup costs
24
Job Shops
25
Job Shops
 High product variety
 Products are made in small lots
 Products are made to order
 Flexible equipment and labor
 Small setups
26
Classification of Production Systems
(continued…)
 Order fulfillment
27
Classification of Production Systems
(continued…)
 Order fulfillment
– Make-to-stock systems (MTS)
– Make-to-order systems (MTO)
– Hybrid MTO/MTS
28
Classification of Production Systems
(continued…)
 Order fulfillment
– Make-to-stock systems (MTS)
– Make-to-order systems (MTO)
– Hybrid MTO/MTS
 Resource configuration
29
Classification of Production Systems
(continued…)
 Order fulfillment
– Make-to-stock systems (MTS)
– Make-to-order systems (MTO)
– Hybrid MTO/MTS
 Resource configuration
– Product layout
– Process layout
– Cellular layout
– Fixed position layout
30
Classification of Production
Systems (continued…)
 Inputs/outputs
31
Classification of Production
Systems (continued…)
 Inputs/outputs
– Discrete production systems (discrete inputs and
outputs - cars, computers, machine tools, etc)
– Continuous production systems (continuous inputs
and outputs - chemicals, textiles, food processing,
pharmaceuticals)
– Hybrid systems (Discrete inputs/continuous outputs
or continuous inputs/discrete outputs - steel, plastics,
recycling)
32
Process capabilities
& business strategy
 Example product attributes: price, quality,
variety, service, demand uncertainty
 Example process attributes: cost, quality,
flexibility, lead time
33
 A firm must choose a business strategy - attribute
values for its portfolio of products - that
differentiates it from the competition.
 A firm must choose process capabilities, attribute
values for its process, that support its business
strategy.
34
 A business strategy can be driven by market
opportunities or by a competitive advantage in
process capabilities.
 In both cases, there must be a fit between process
capability and business strategy.
35