Production and logistics management
CHAPTER 1: INTRODUCTION......................................................................................................... 3
EXAMPLE ................................................................................................................................................. 3
DEFINITIONS OF OPERATIONS MANAGEMENT .................................................................................................... 3
Characteristics of goods & services: ......................................................................................... 4
STRATEGY AND COMPETITION ....................................................................................................................... 4
Performance management: ..................................................................................................... 6
Productivity: ........................................................................................................................... 7
CHAPTER 2: FORECASTING ........................................................................................................... 8
INTRODUCTION ......................................................................................................................................... 8
SUBJECTIVE VS OBJECTIVE FORECASTING METHODS ........................................................................................... 9
EVALUATION OF FORECASTS ......................................................................................................................... 9
FORECASTING FOR STATIONARY SERIES ......................................................................................................... 10
TREND-BASED METHODS ........................................................................................................................... 12
METHODS FOR SEASONAL SERIES ................................................................................................................ 13
LITTLE’S LAW .......................................................................................................................................... 15
CONCLUSION ......................................................................................................................................... 16
CHAPTER 3: PROCESS ANALYSIS ..................................................................................................16
PROCESS ANALYSIS .................................................................................................................................. 16
Multistep process: .................................................................................................................17
PROCESS ANALYSIS WITH MULTIPLE FLOWS .................................................................................................... 17
FLOW-DEPENDENT PROCESSING TIMES ........................................................................................................ 18
ATTRITION LOSSES & YIELDS ....................................................................................................................... 19
REWORK ................................................................................................................................................ 19
PROCESS INTERRUPTIONS: SETUPS (ZIE SLIDES).............................................................................................. 19
CHAPTER 4: INVENTORY MANAGEMENT – SUBJECT TO DETERMINISTIC DEMAND ...........................20
BASIC EOQ MODEL (ECONOMIC ORDER QUANTITY) ........................................................................................ 20
EOQ WITH FINITE PRODUCTION RATE: EPQ (ECONOMIC PRODUCTION QUANTITY) ................................................. 22
QUANTITY DISCOUNTS .............................................................................................................................. 23
All-units discounts .................................................................................................................23
Incremental discounts ...........................................................................................................23
RESOURCE-CONSTRAINED MULTIPLE PRODUCT SYSTEMS .................................................................................. 24
MOTIVATION FOR HOLDING INVENTORIES ...................................................................................................... 25
CHAPTER 5: INVENTORY MANAGEMENT – SUBJECT TO STOCHASTIC DEMAND ...............................25
INTRODUCTION ....................................................................................................................................... 25
SINGLE-PERIOD INVENTORY: NEWSVENDOR MODEL = NEWSBOY MODEL .............................................................. 26
Optimal solution – normal demand distribution .........................................................................26
Optimal solution – discrete probability distribution ....................................................................27
Performance measures ..........................................................................................................28
Other objectives for choosing an order quantity .........................................................................28
MULTIPLE PERIOD INVENTORY MODEL ........................................................................................................... 29
INVENTORY MANAGEMENT ......................................................................................................................... 30
CHAPTER 6: SUPPLY CHAIN MANAGEMENT ...................................................................................31
WHAT IS SUPPLY CHAIN MANAGEMENT (SCM)? ............................................................................................ 31
(DE)CENTRALIZING INVENTORIES ................................................................................................................ 31
Safety stock aggregation & risk pooling .....................................................................................32
BULLWHIP EFFECTS & REMEDIES ................................................................................................................. 33
TRANSPORTATION & ROUTING..................................................................................................................... 34
SUSTAINABLE SUPPLY CHAINS ..................................................................................................................... 34
1
,CHAPTER 7: MANUFACTURING PLANNING & CONTROL – SALES & OPERATIONS PLANNING – MASTER
PRODUCTION SCHEDULING ........................................................................................................34
MANUFACTURING PLANNING & CONTROL (MPC) AND ENTERPRISE RESOURCE PLANNING (ERP) ........................... 34
MPC .....................................................................................................................................35
ERP ......................................................................................................................................35
AGGREGATE PLANNING / SALES AND OPERATIONS PLANNING (S&OP) ............................................................... 36
Aggregate planning strategies ..................................................................................................37
MASTER PRODUCTION SCHEDULING ........................................................................................................... 40
CHAPTER 8: MANUFACTURING PLANNING AND CONTROL – MATERIALS REQUIREMENTS PLANNING
(MRP) ..........................................................................................................................................43
MRP BASICS........................................................................................................................................... 43
EXPLOSION CALCULUS .............................................................................................................................. 44
ALTERNATIVE LOT-SIZING SCHEMES.............................................................................................................. 45
EOQ lot sizing ........................................................................................................................46
Silver-meal-heuristic ..............................................................................................................46
Least unit cost .......................................................................................................................47
Part period balancing .............................................................................................................48
Comparison of lot-sizing schemes ...........................................................................................48
LOT SIZING WITH CAPACITY CONSTRAINTS...................................................................................................... 49
SHORTCOMINGS OF MRP.......................................................................................................................... 50
CHAPTER 9: MANUFACTURING PLANNING AND CONTROL – OPERATIONS SCHEDULING & LINE
BALANCING ................................................................................................................................51
OVERVIEW ............................................................................................................................................. 51
JOB SHOP SCHEDULING PROBLEM ............................................................................................................... 51
Scheduling n jobs on 1 machine ..............................................................................................52
Scheduling n jobs on m machines............................................................................................53
2
,CHAPTER 1: INTRODUCTION
Example
Cheeseburgerstand • meat must be ordered in advance → takes
4 weeks before delivered
• Meat can only be kept for 2 weeks
Replenishment lead time • How often order meat?
➢ Delivery costs, stocking costs…
• How much meat to order?
➢ Based on historical sales data & analysis of customer behavior
• Find other supplier with shorter replenishment lead time
Customer lead time < • Keep intermediate buffer or semi-finished product
production lead time • Increase customer patience
➢ Video games, free drink…
• Reduce production lead time
➢ New technology
Definitions of operations management
What is operations • The planning, scheduling & control of the activities that transform inputs into
management? finished goods & services
➢ APICS Dictions
• Deals with the design & management for products, processes, services &
supply chains. Considers acquisition, development & utilization of resources
that firms need to deliver the goods & services their clients want
➢ MIT Sloan School of Management
• Operations management is an area of management concerned with
overseeing, designing, and controlling the process of production & redesigning
business operations in production of goods or services. Involves responsibility
of ensuring that business operations are efficient in terms of using as few
resources as needed & effective in terms of meeting customer requirements.
Concerned with managing transformation process that converts inputs into
outputs
➢ Wikipedia
➢ You can be very efficient in doing something, but if it’s not effective it’s still a
waste of time
Operations • = transformation processes
• Typical material processors
➢ Input & output are materials
➢ Eg. food production, mining & extraction, warehousing
• Typical information processors
➢ Input & output is info
➢ Eg. Accountants, bank back officers
• Typical people processors
➢ What you transform are people
➢ Eg. hairdressers, hotels, hospitals
Goods • Physical items that include raw materials, parts, subassemblies & final
products
Services • Activities that provde some combiation of time, location, form or psychological
value
Service & good occur • Eg. Having oil changed in car -> service, but the oil -> good
jointly
3
, Why does manufacturing • We see shift from manufacturing sector to service sector → developing to
matters knowledge economy
➢ Many services exist to support manufacturing
• Manufacturing ⟹ innovation ⟹ even more manufacturing
➢ How make processes faster, more efficient ⟹ machines need to be made
Decision horizon • Short (hours or days) → operational
➢ Production scheduling
➢ Quality control & inspection
• Intermediate (weeks or months) → tactical
➢ Decisions made by management level
➢ Plant layout & structure
➢ Equipment selection & replacement
• Long (year or longer) → strategic
➢ Size & location of manufacturing plants
➢ Structure of services
Flows between processes • Flow of goods
➢ Suppliers → manufacturers → warehouses → customers
• Flow of funds
➢ Customers pay suppliers for goods
• Flow of information
➢ To optimize supply chain it’s necessary to share information & give feedback
Supply chain • A sequence of activities and organizations involved in producing and delivering
a good or service
• everything from raw material until finished product & everything that’s in
between
• in reality → more often supply network
Characteristics of goods & services:
Goods Services
Tangible (tastbaar) Intangible
➢ Seat itself ➢ Ride in airline seat
Can be kept in inventory Produced & consumed simultaneously
Similar products Unique
Limited customer involvement High customer interaction
Standardized Inconsistent product definition
➢ Car insurance → changes with age & type of car
Automation feasible (mogelijk) Often knowledge based
Produced at fixed facility Dispersed (verspreid)
Many aspects of quality are easy to evaluate Quality may be hard to evaluate
Often residual value (restwaarde Reselling unusual
Strategy and competition
Business strategy • Sets terms & goals for a company to follow
• Long term plan of action
• Marketing strategy, operations strategy & financial strategy
Operations strategy • Means by which firm deploys (inzetten) its resources to achieve its competitive
goals
Operations management • Implementing the operations strategy to achieve leadership along one of these
dimensions
• Strategic dimensions
➢ Cost
➢ Product differentiation
➢ Quality
4
CHAPTER 1: INTRODUCTION......................................................................................................... 3
EXAMPLE ................................................................................................................................................. 3
DEFINITIONS OF OPERATIONS MANAGEMENT .................................................................................................... 3
Characteristics of goods & services: ......................................................................................... 4
STRATEGY AND COMPETITION ....................................................................................................................... 4
Performance management: ..................................................................................................... 6
Productivity: ........................................................................................................................... 7
CHAPTER 2: FORECASTING ........................................................................................................... 8
INTRODUCTION ......................................................................................................................................... 8
SUBJECTIVE VS OBJECTIVE FORECASTING METHODS ........................................................................................... 9
EVALUATION OF FORECASTS ......................................................................................................................... 9
FORECASTING FOR STATIONARY SERIES ......................................................................................................... 10
TREND-BASED METHODS ........................................................................................................................... 12
METHODS FOR SEASONAL SERIES ................................................................................................................ 13
LITTLE’S LAW .......................................................................................................................................... 15
CONCLUSION ......................................................................................................................................... 16
CHAPTER 3: PROCESS ANALYSIS ..................................................................................................16
PROCESS ANALYSIS .................................................................................................................................. 16
Multistep process: .................................................................................................................17
PROCESS ANALYSIS WITH MULTIPLE FLOWS .................................................................................................... 17
FLOW-DEPENDENT PROCESSING TIMES ........................................................................................................ 18
ATTRITION LOSSES & YIELDS ....................................................................................................................... 19
REWORK ................................................................................................................................................ 19
PROCESS INTERRUPTIONS: SETUPS (ZIE SLIDES).............................................................................................. 19
CHAPTER 4: INVENTORY MANAGEMENT – SUBJECT TO DETERMINISTIC DEMAND ...........................20
BASIC EOQ MODEL (ECONOMIC ORDER QUANTITY) ........................................................................................ 20
EOQ WITH FINITE PRODUCTION RATE: EPQ (ECONOMIC PRODUCTION QUANTITY) ................................................. 22
QUANTITY DISCOUNTS .............................................................................................................................. 23
All-units discounts .................................................................................................................23
Incremental discounts ...........................................................................................................23
RESOURCE-CONSTRAINED MULTIPLE PRODUCT SYSTEMS .................................................................................. 24
MOTIVATION FOR HOLDING INVENTORIES ...................................................................................................... 25
CHAPTER 5: INVENTORY MANAGEMENT – SUBJECT TO STOCHASTIC DEMAND ...............................25
INTRODUCTION ....................................................................................................................................... 25
SINGLE-PERIOD INVENTORY: NEWSVENDOR MODEL = NEWSBOY MODEL .............................................................. 26
Optimal solution – normal demand distribution .........................................................................26
Optimal solution – discrete probability distribution ....................................................................27
Performance measures ..........................................................................................................28
Other objectives for choosing an order quantity .........................................................................28
MULTIPLE PERIOD INVENTORY MODEL ........................................................................................................... 29
INVENTORY MANAGEMENT ......................................................................................................................... 30
CHAPTER 6: SUPPLY CHAIN MANAGEMENT ...................................................................................31
WHAT IS SUPPLY CHAIN MANAGEMENT (SCM)? ............................................................................................ 31
(DE)CENTRALIZING INVENTORIES ................................................................................................................ 31
Safety stock aggregation & risk pooling .....................................................................................32
BULLWHIP EFFECTS & REMEDIES ................................................................................................................. 33
TRANSPORTATION & ROUTING..................................................................................................................... 34
SUSTAINABLE SUPPLY CHAINS ..................................................................................................................... 34
1
,CHAPTER 7: MANUFACTURING PLANNING & CONTROL – SALES & OPERATIONS PLANNING – MASTER
PRODUCTION SCHEDULING ........................................................................................................34
MANUFACTURING PLANNING & CONTROL (MPC) AND ENTERPRISE RESOURCE PLANNING (ERP) ........................... 34
MPC .....................................................................................................................................35
ERP ......................................................................................................................................35
AGGREGATE PLANNING / SALES AND OPERATIONS PLANNING (S&OP) ............................................................... 36
Aggregate planning strategies ..................................................................................................37
MASTER PRODUCTION SCHEDULING ........................................................................................................... 40
CHAPTER 8: MANUFACTURING PLANNING AND CONTROL – MATERIALS REQUIREMENTS PLANNING
(MRP) ..........................................................................................................................................43
MRP BASICS........................................................................................................................................... 43
EXPLOSION CALCULUS .............................................................................................................................. 44
ALTERNATIVE LOT-SIZING SCHEMES.............................................................................................................. 45
EOQ lot sizing ........................................................................................................................46
Silver-meal-heuristic ..............................................................................................................46
Least unit cost .......................................................................................................................47
Part period balancing .............................................................................................................48
Comparison of lot-sizing schemes ...........................................................................................48
LOT SIZING WITH CAPACITY CONSTRAINTS...................................................................................................... 49
SHORTCOMINGS OF MRP.......................................................................................................................... 50
CHAPTER 9: MANUFACTURING PLANNING AND CONTROL – OPERATIONS SCHEDULING & LINE
BALANCING ................................................................................................................................51
OVERVIEW ............................................................................................................................................. 51
JOB SHOP SCHEDULING PROBLEM ............................................................................................................... 51
Scheduling n jobs on 1 machine ..............................................................................................52
Scheduling n jobs on m machines............................................................................................53
2
,CHAPTER 1: INTRODUCTION
Example
Cheeseburgerstand • meat must be ordered in advance → takes
4 weeks before delivered
• Meat can only be kept for 2 weeks
Replenishment lead time • How often order meat?
➢ Delivery costs, stocking costs…
• How much meat to order?
➢ Based on historical sales data & analysis of customer behavior
• Find other supplier with shorter replenishment lead time
Customer lead time < • Keep intermediate buffer or semi-finished product
production lead time • Increase customer patience
➢ Video games, free drink…
• Reduce production lead time
➢ New technology
Definitions of operations management
What is operations • The planning, scheduling & control of the activities that transform inputs into
management? finished goods & services
➢ APICS Dictions
• Deals with the design & management for products, processes, services &
supply chains. Considers acquisition, development & utilization of resources
that firms need to deliver the goods & services their clients want
➢ MIT Sloan School of Management
• Operations management is an area of management concerned with
overseeing, designing, and controlling the process of production & redesigning
business operations in production of goods or services. Involves responsibility
of ensuring that business operations are efficient in terms of using as few
resources as needed & effective in terms of meeting customer requirements.
Concerned with managing transformation process that converts inputs into
outputs
➢ Wikipedia
➢ You can be very efficient in doing something, but if it’s not effective it’s still a
waste of time
Operations • = transformation processes
• Typical material processors
➢ Input & output are materials
➢ Eg. food production, mining & extraction, warehousing
• Typical information processors
➢ Input & output is info
➢ Eg. Accountants, bank back officers
• Typical people processors
➢ What you transform are people
➢ Eg. hairdressers, hotels, hospitals
Goods • Physical items that include raw materials, parts, subassemblies & final
products
Services • Activities that provde some combiation of time, location, form or psychological
value
Service & good occur • Eg. Having oil changed in car -> service, but the oil -> good
jointly
3
, Why does manufacturing • We see shift from manufacturing sector to service sector → developing to
matters knowledge economy
➢ Many services exist to support manufacturing
• Manufacturing ⟹ innovation ⟹ even more manufacturing
➢ How make processes faster, more efficient ⟹ machines need to be made
Decision horizon • Short (hours or days) → operational
➢ Production scheduling
➢ Quality control & inspection
• Intermediate (weeks or months) → tactical
➢ Decisions made by management level
➢ Plant layout & structure
➢ Equipment selection & replacement
• Long (year or longer) → strategic
➢ Size & location of manufacturing plants
➢ Structure of services
Flows between processes • Flow of goods
➢ Suppliers → manufacturers → warehouses → customers
• Flow of funds
➢ Customers pay suppliers for goods
• Flow of information
➢ To optimize supply chain it’s necessary to share information & give feedback
Supply chain • A sequence of activities and organizations involved in producing and delivering
a good or service
• everything from raw material until finished product & everything that’s in
between
• in reality → more often supply network
Characteristics of goods & services:
Goods Services
Tangible (tastbaar) Intangible
➢ Seat itself ➢ Ride in airline seat
Can be kept in inventory Produced & consumed simultaneously
Similar products Unique
Limited customer involvement High customer interaction
Standardized Inconsistent product definition
➢ Car insurance → changes with age & type of car
Automation feasible (mogelijk) Often knowledge based
Produced at fixed facility Dispersed (verspreid)
Many aspects of quality are easy to evaluate Quality may be hard to evaluate
Often residual value (restwaarde Reselling unusual
Strategy and competition
Business strategy • Sets terms & goals for a company to follow
• Long term plan of action
• Marketing strategy, operations strategy & financial strategy
Operations strategy • Means by which firm deploys (inzetten) its resources to achieve its competitive
goals
Operations management • Implementing the operations strategy to achieve leadership along one of these
dimensions
• Strategic dimensions
➢ Cost
➢ Product differentiation
➢ Quality
4
