IE 5551 - Production Planning and

Inventory Control
Saif Benjaafar
Industrial & Systems Engineering
University of Minnesota

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 Course Objectives

Introduction to methods for managing production,

inventory, and distribution systems

Topics covered include demand forecasting,

capacity planning, production planning and
scheduling, production and inventory control, and
supply chain coordination

Use of quantitative models and analytical tools for

supporting decisions in each of the above areas
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 Course Objectives (Continued)

Special emphasis will be given to the link between

operational issues and strategic objectives

Implications of various emerging technologies,

business practices, and government regulations

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 Prerequisites

An introductory course in probability and statistics

An introductory course in linear programming

Knowledge of Microsoft Excel & Microsoft Solver

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 Texts

Factory Physics by Wallace Hopp and Mark

Spearman

The Goal by Eliyahu Goldratt

Lean Thinking by James Womack and Daniel Jones

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 Lecture Topics

Week 1 Introduction to Production Planning and

Inventory Control
Week 2 Inventory Control Deterministic
Demand
Week 3 Inventory Control Stochastic Demand
Week 4 Inventory Control Stochastic Demand
Week 5 Inventory Control Stochastic Demand
Week 6 Inventory Control Time Varying
Demand

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 Lecture Topics (Continued)

Week 7 Inventory Control Multiple Echelons

Week 8 Demand Forecasting
Week 9 Demand Forecasting
Week 10 Production Planning and Scheduling
Week 11 Production Planning and Scheduling
Week 12 Managing Manufacturing Operations
Week 13 Managing Manufacturing Operations
Week 14 Managing Manufacturing Operations
Week 15 Project Presentations

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 Group Projects

Teams of 2 or 3
Type of project
Problem solving
Case study
Reviews
Outcome
A proposal
Oral presentation
Written report

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 Problem Solving

A mathematical model

A computer model

Data collection and statistical analysis

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 Case Studies

Focus on one company and document:

managerial practice
use of a technology
decision making processes

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 Reviews

An industry

An emerging technology

A managerial practice

Academic research

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 Example Industries

Electronics

Automotive

Food

Clothing

Medical devices

Energy

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 Example Technologies

RFID

Wireless communication and mobile computing

Online procurement portals

Social media

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 Example Practices
Outsourcing

Vendor managed inventory (VMI)

Delayed product differentiation

Collaborative forecasting, planning, & replenishment

(CFPR)

Third & fourth party logistics (3/4PL)

Green/sustainable supply chains

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 This Years Theme

Energy efficient and sustainable supply chains

Energy consumption

Carbon footprint

Closed loop supply chains

Alternative sourcing, materials, processing

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 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.

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 The Production System

Raw materials
Energy Finished products
Production
Labor Scrap
Equipment
System
Waste
Information

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 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.

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 The Inventory System

Supply source Demand source

Inventory

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 The Production-Inventory System

Distribution
Suppliers and sales
Fabrication Assembly

Raw materials Component parts Finished goods

inventory inventory

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 The Supply Chain

Assembly/
Manufacturing

1st tier Distribution

2nd tier suppliers suppliers centers
Retailers
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 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.

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 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.

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Examples of Decisions

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 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)?

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A Hierarchy of Decisions
Sales &
Marketing

Long term
forecasting Transportation
& Distribution

Capacity Warehousing &

Planning order fulfillment

Network design Inventory

& facility location Management

Production Production 26
Planning Scheduling
Example Performance Measures

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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
met?) 28
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
products?) 29
 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.

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Classification of the Production
Process
Production quantity

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Classification of the Production
Process
Production quantity
Mass production
Batch production
Job shop production

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Classification of the Production
Process
Production quantity
Mass production
Batch production
Job shop production

Product variety

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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

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Mass Production Systems

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 Mass Production Systems

Low product variety

High production volumes
Specialized labor
Dedicated equipment
High reconfiguration costs
Make-to-stock production

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Batch Production Systems

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 Batch Production Systems

Medium product variety

Products are made in larger lots
products are made to stock
Programmable/reconfigurable equipment
Significant setup costs

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Job Shops

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 Job Shops

High product variety

Products are made in small lots
Products are made to order
Flexible equipment and labor
Small setups

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Classification of Production Systems
(continued)

Order fulfillment

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Classification of Production Systems
(continued)
Order fulfillment
Make-to-stock systems (MTS)
Make-to-order systems (MTO)
Hybrid MTO/MTS

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Classification of Production Systems
(continued)
Order fulfillment
Make-to-stock systems (MTS)
Make-to-order systems (MTO)
Hybrid MTO/MTS

Resource configuration

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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

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 Classification of Production
Systems (continued)
Inputs/outputs

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 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)

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 Process capabilities
& business strategy

Example product attributes: price, quality,

variety, service, demand uncertainty

Example process attributes: cost, quality,

flexibility, lead time

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 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.

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 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.

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 Matching Process Choice with
HighProduct Strategy Choice
Process flexibility

Area of
strategic fit
Low

Low High
Product variety 50
Matching Process Choice with Product
Strategy Choice (Continued)
Low
Lead time

Area of
strategic fit
High

Low High
Demand uncertainty 51
 The Evolution of Process
Capabilities

Volume (1920/30/40s)

Cost (1950/60s)

Quality (1970/80s)

Time (1980/1990s)

Flexibility (1990/2000s)

Mass customization (2000s & beyond)

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 Other Emerging Trends

Resiliency

Sustainability (and stewardship)

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 Assignment

Read Chapters 0, 1 & 2 of text book (Factory Physics)

Read paper 1 from the reading list

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