Inventory Management And Production Planning Scheduling

Inventory Management And Production Planning Scheduling

ACKNOWLEDGEMENTS

In the name of Almighty ALLAH, the most gracious, the most beneficent by the help of whom I am able to complete my assignment and accomplished all the difficult tasks relating to this assignment.

With a deep sense of gratitude, I extend my thanks to the teachers at the Department of Business Administration, Allama Iqbal Open University who provided me the opportunity through this assignment to learn practically.

Abstract

Manufacturers of goods and services often struggle with finding the right mix of identifying their particular product or service with the right customer base along with the appropriate price and quantity to satisfy demand. Supply chain management provides valuable insight and assistance by providing an organization’s information identifying core competencies and competitive advantages. When used to develop a strategic plan supply chain management can identify areas of improvement resulting in improved processes and increased profitability through cost reductions and improved customer responsiveness.

Coca-Cola began as a small organization with a limited supply chain in a small local market. However, as Coca-Cola grew and expanded, its supply chain grew with it. This paper discusses Coca-Cola’s supply chain changes throughout its life cycle from traditional mass merchandising, inventory management and cost containment, supplier and customer alliances, relationship formation, and the future capabilities of its supply chain.

INTRODUCTION OF THE TOPIC:

Production planning

Understanding the behavior of a process, finding bottlenecks, reducing work-in-process inventories, developing optimal scheduling, and forming optimal forecasting methods are the main concerns of production planning, its primary focus is on scheduling and controlling inventory levels.

Production Planning

Production planning, or production schedule, is a term that provides planning of production in all aspects, from workforce activities to product delivery. Production planning is almost exclusively seen in manufacturing environments; however, Production planning is primarily concerned with the efficient and effective use of resources it may be used in service-oriented organizations. Production planning sometimes refers to as operation planning, the main characteristic is that production planning is focused on the actual production, whereas operations planning looks at the operation as a whole.

The objective of production planning

Minimize Production Time:

The main goal of production planning is to ensure that production processes are to be completed within the schedule, as a means to determine the most efficient start and end times for each production activity. Additional capacity must utilize as required in accordance with the past experience

Minimize Production costs:

Supply Chain Scheduling (SCS) is another component of production planning Systems. It synchronizes to reduce materials costs. Apply appropriate manufacturing methods as required on the nature of the materials. The principles of lean manufacturing are very popular and rely heavily on Just-in-Time inventory methods that in turn rely heavily on interaction with suppliers and transparency throughout the supply chain.

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Use Resources Efficiently:

Ensure that each production department has exactly the right materials at the right time. the principles of Supply Chain Scheduling mention that there are always enough raw materials for production processes, Capacity Requirements Planning ensures that there is never too much raw materials inventory on hand, and reduces costs associated with the misallocation of resources.

Customer Satisfaction:

The prime objective of Production planning is to ensure customer satisfaction. By creating a cost-efficient production system, the organization will be able to minimize defects, reduce prices, and quicken throughput, making more reliable products at lower prices available more quickly to your customers.

SUB-TOPIC OF THE TOPIC:

PRODUCTION SCHEDULING

The production schedule is derived from the production plan; it is a plan that authorized the operations function to produce a certain quantity of an item within a specified time frame. The production schedule is drawn in the production planning department

Production scheduling has three primary goals or objectives:

1. The first involves due dates and avoiding late completion of jobs;
2. The second goal involves throughput times;
3. The third goal concerns the utilization of work centers.

Production scheduling involves due dates and avoiding late completion of jobs. The firm wants to minimize the time a job spends in the system, from the opening of a shop order until it is closed or completed. It Concerns the utilization of work centers. Firms usually want to fully utilize costly equipment and personnel.

Inventory Control

An inventory is a stock or store of goods. Keeping an optimal amount of raw materials in stock is a crucial component of any production-oriented organization. Before a product can be manufactured, the raw materials must be in stock and in good quality.

Inventory control is a crucial part of the production system. Essentially inventory control is concerned with production planning. It determines the inventory of a finished product or the inventory of materials used in making such products. Inventory control is affected by changes in customer demand, holding costs, ordering costs, and back-order costs. Improper inventory control hampers operations, diminish customer satisfaction and increase the cost of production.

The nature and importance of inventories controls

Inventories are a vital part of the business. Not only are they necessary for operations, but also they contribute to customer satisfaction. A typical manufacturing firm carries different kinds of inventories, including the following:

1. Raw materials;
2. Partially finish goods (work in progress);
3. Finish goods;
4. Replacement parts;
5. Goods in transit to warehouse or customers;

The function of inventory control

1. To meet anticipated customer demand;
2. To smooth production requirements;
3. To decouple operation
4. To protect against stockouts;
5. To take advantage of order cycles
6. To hedge against price increases
7. To permit operations

To meet anticipated customer demand:

The inventories are referred to as anticipation of stock. The requirements of a customer lead to maintaining sufficient stocks which may possible by using efficient tools of inventory control.

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To smooth production requirements:

Firms that have experienced seasonal demand often build up inventories during preseason periods to meet overly high requirements during seasonal periods.

To decouple operation:

Historically, manufacturing firms have used inventories as buffers between successive operations to maintain the continuity of production. Firms have used buffers of raw materials to insulate production in deliveries from suppliers. Companies have taken a closer look at buffer inventories.

To protect against stockouts

Delayed deliveries and unexpected demand increase the risk of shortages. Delays can occur because of weather conditions, supplier stockouts, delivery of wrong materials, quality problem, and so on. The risk of shortage can be reduced by holding safety stocks.

To take advantage of order cycles:

It is usually economical to produce in large rather than small quantities. To minimize inventory costs a firm buys large quantities that exceed immediate requirements.

To hedge (be cautious) against price increases:

Occasionally, firms suspect substantial price increases and purchase large quantities. It depends on the ability of storage.

To permit operations:

The fact that production operations take a certain amount of time means that there will generally be some work in progress or any other factors may lead to pipeline inventories.

The objective of Inventory control

Inadequate control of inventories can result in both under and overstocking of items. Understocking results in lost sales and dissatisfied customers. Overstocking can be increased holding costs as a result increase product price.

The overall objective of inventory management is to achieve satisfactory levels of customers. Balance of stocking requires to satisfy the customers.

Requirements for effective inventory

Management has two basic functions concerning inventory. To establish a system keeping trucks on items in inventory and make decisions about how much and when to order. To be effective management must have the following:

1. A system to keep track of the inventory on hand and on order;
2. A reliable forecast of demand ;
3. Knowledge of lead times and lead time variability;
4. Reasonable estimates of inventory holding costs, ordering costs, and shortage costs;
5. A classification system for inventory items

The management must take a closer look at each of these requirements.

Operation management

Introduction to operations Management:

In the past manufacturing management, operation management was called production management. Later the name was expanded to production and operation management or simply operation management.

Operations management is the management of a system or process that creates goods/ services. Operation management is the part of the organization that is responsible for producing goods and services. Operation management is involved to supply products or services of the organization in connection with other functions like finance and marketing.

Four major areas need to be considered for operations management:

1. Process: Physical process or facility used to produce the product like equipment, technology, and workforce. (main is capital)
2. Quality: Standards must be set, people trained and the product or service must be inspected.
3. Capacity: the size of the physical facilities.
4. Inventory (stock):  What to order, how much to order, when to order, Inventory control systems are used to materials from purchasing through raw materials, work in process, and finished goods inventory.

As an operation manager requires to consider certain key issues:

What: What resources will be needed?

When: When resources are needed, when work should be done, when ordered for raw materials supply, and corrective actions are needed.

Where: Where will the work will be done

Who: who will do the work

Inputs, (energy, c Transformation (conversion system)

Capital, labor, materials)

Output (goods and services)

All systems interact with the internal and external environments.

The operation function includes many interrelated activities such as forecasting, capacity planning, scheduling, managing inventory, assuring quality, and motivating employees.
Finance	Operations	Marketing (Line management)

Aggregate Planning

A production plan is essentially (basically) the output of aggregate (collective or combined) planning. Aggregate planning begins with the forecast of aggregate demand for the intermediate range.

In the spectrum (range, Scale) of production planning, aggregate planning is intermediate-range capacity planning that typically covers a time horizon of 2 to 12 months in some cases 18 months. It is particularly useful for that kind of organizations that have experienced seasonal or other fluctuations in demand and capacity.

The goal of aggregate planning is to achieve a production plan that will effectively utilize the organization’s resources to satisfy expected demand. The planner must make decisions on output rates, employment levels and changes inventory levels and changes, back order, and subcontracting in or out. Aggregate planners are concerned with the quantity and the timing of expected demand.

Intermediate planning

Intermediate plans consider the function of intermediate decisions, General level of employment, output, finished goods, inventories, subcontracting, and backorder.

Technique for aggregate planning

A general procedure for aggregate planning:

1. Determine the demand for each period.
2. Determine capacity (Regular time, overtime, subcontracting) for each period.
3. Identify companies or departmental policies, that are pertinent (maintain a safety stock of 5 percent of demand, maintain a stable workforce)
4. Determine unit costs for regular time, overtime, subcontracting, holding inventories, back orders, layout (draft), and other relevant const
5. Develop alternative plans and compute the cost for each.

Supply Chain Management

Supply chain management is an integral part of operation management. It includes suppliers, producers, and customers. Managing the supply chain requires all managers to consider the entire flow of materials and information along the supply chain (raw materials, production, and distribution to the final consumer).

The supply chain is a sequence of the organizations their facilities, functions, and activities that are involved in producing and delivering a product or service.

Facilities included: Warehouses, Factories, processing centers, distribution centers, retail outlets (passage or channel), and offices.

Functions and activities: Forecasting, purchasing, inventory management, information management, quality assurance, Scheduling, production, distribution, delivery, and customer service.

The need for Supply chain Management

1. The  need to improve operations
2. Increasing to improve outsourcing
3. Increasing transportation cost
4. Competitive pressure
5. Increasing globalization
6. The increasing importance of eCommerce
7. The complexity of the supply
8. The need to manage inventory

The need to improve operations: The opportunity lies largely with procurement, distribution, and logistics.

Increasing to improve outsourcing: Buying goods or services instead of producing or providing them in-house.

Increasing transportation cost: It is not avoidable

Competitive pressure: Competitive pressure leads to producing new products.The complexity of the supply chain: There are many inherent uncertainties that can adversely affect the supply chain: inaccurate forecasting, late delivery, substandard quality, canceling the order, or changing the order.

Benefits of Supply chain Management

1. Lower inventories
2. Lower cost
3. Higher productivity
4. Grater agility (quickness)
5. shorter lead time
6. Higher profit
7. Grater customer loyalty.

Element of Supply Chain

1. Customers: Determine what products customers want
2. Forecasting: Predicting the quantity and timing of customers’ demand
3. Design: Incorporating customers, wants, manufacturability and time to market.
4. Capacity Planning: Matching supply and demand
5. Processing: Controlling quality, scheduling work
6. Inventory: Meeting demand requirements while managing the costs of holding inventory
7. Purchasing: Evaluating potential supplies, supporting the needs of operations on purchased goods and services
8. Suppliers: Maintaining supply quality on-time delivery and flexibility maintain supplier relations.
9. Location: Determine the location of facilities
10. Logistics: Deciding how to best move information and materials.

Operation Strategy

Operation strategy is a strategy for the operations function that is linked to the business strategy and other functional strategies leading to a competitive advantage for the firm.

Operation strategy is concerned with policies and plans for using the resources of a firm to support its long-term competitiveness. An operation strategy is involved with the decision process to select appropriate technology, physical facilities, and inventory.

Competitiveness:

Companies must be competitive to sell their goods and services in the marketplace. Business organization competes through some techniques. Marketing influences competitiveness in several ways including identifying customers’ wants and needs, pricing, advertising, and promotion.

Operations influence competitiveness through product services, design, cost, location, quality, response time, flexibility, inventory, and supply chain management, and service many of these are interrelated.

The research study was undertaken to design a computerized system to improve production planning and control strategy for the case study company. The developed computer program was formulated to measure the overall equipment effectiveness, identify losses and bottlenecks, as well as help in achieving maximum output with minimum input. A simulation was also done on the pilot section of the production process for the organization. The proposed system of close monitoring of key variables would enable analysis and tracking of manufacturing processes.

PRACTICAL STUDY OF THE ORGANIZATIONS: COCA COLA

Traditional Mass Merchandising

Organizations like Coca-Cola started out as local or regional manufacturers that eventually employed large-scale manufacturing techniques. However, these traditional mass manufacturing techniques prevented quick product design, research, and development. During this timeframe, Coca-Cola focused on producing Coke by keeping equipment operating and maintaining a steady stream of supplies that resulted in excess work-in-process inventory (Wisner, Leong, & Tan, 2005, p. 10, para. 4). In this scenario, because information, design, production, and distribution are conducted in house, outside collaboration is not a viable option.

Inventory Management and Cost Containment

As Coca-Cola expanded nationally and internationally by adding licensed bottlers and distributors, the company recognized the need to control inventory and its related cost to the company. The advent of material requirements planning (MRP) systems and manufacturing resource planning (MRPII) systems along with improved computer capabilities provided organizations like Coca-Cola with the ability to track inventory accurately. As a result, a reduction of inventories such as new and used bottles, sugar, syrup, and other ingredients occurs along with improvements in communication indicating when further acquisitions are necessary. While not implemented, Coca-Cola realizes the importance of radio frequency identification as a benefit for the future.

Supplier and Customer Alliances

Coca Cola along with many other companies found itself in fierce global competition. Coke found itself competing globally with other soft drink manufacturers, most notably Pepsi-Cola. Manufacturers investigated ways to provide low-cost and high-quality products while maintaining high customer service levels. To accomplish these goals, Coca-Cola implemented “just-in-time (JIT) and total quality management (TQM) strategies to improve quality, manufacturing efficiency, and delivery times” (Wisner, Leong, & Tan, 2005, p. 11, para. 1). To minimize disruptions to manufacturing because of schedule or production problems related to safety stock, organizations began to see the value in strategic and cooperative supplier-buyer customer relations through the use of JIT and TQM.

Developing strategic cooperative supplier-buyer customer relationships allows organizations such as Coca-Cola to select suppliers that provide the highest quality service. Coca-Cola identifies those suppliers and gives the majority of its business to those that assist in generating additional sales through improved delivery, quality, and product design as well as provide cost savings, and improvements in processes, materials, and components used in the manufacturing of their products.

SWOT ANALYSIS:

Coca-Cola SWOT analysis

Strengths

• Economies of scale. Economies of scale allow the company to share its fixed costs over hundreds of brands and billions of servings, making each drink as cheap as possible.
• Market power over suppliers and competitors. Due to its size, The Coca-Cola Company can exercise its market power over suppliers by requiring lower prices from them. The company can also use its size to affect the competition by underpricing some of its items, acquiring smaller competitors, or saturating the market with many of its own products.
• Power over the buyers. Unlike some of its smaller competitors, the Coca-Cola brand and the company’s other signature drinks have enormous brand recognition all over the world. The company can influence consumers’ buying decisions through its brand power and massive marketing

Coca-Cola Weaknesses

1. Aggressive competition with Pepsi – Pepsi is the biggest rival of Coca-Cola. Had it not been for Pepsi, Coca-Cola would have been the clear market leader in the beverage.
2. Product diversification – Coca-Cola has low product diversification. Where Pepsi has launched many snack items like Lays and Kurkure, Coca-Cola is lagging in this segment. It gives Pepsi leverage over Coca-Cola.

Health concerns –Carbonated drinks are one of the major sources of sugar intake. It results in two grave health issues – obesity and diabetes. Coca-Cola is the biggest manufacturer of carbonated beverages. Many health experts have prohibited the use of these soft drinks. It is a controversial issue for the company. However, Coca-Cola hasn’t devised any health alternative or solution for this problem yet.

Coca-Cola Opportunities

3. Introduce new products and diversify its segments– Coca-Cola has the opportunity to introduce new offerings in health and food segments just like Pepsi. It can contribute to their revenue, and they can branch out from carbonated drinks.
4. Increase presence in developing nations– Many regions with hot climates have the highest consumption of cold drinks. Thus, increasing presence in such locations can be excellent – Middle Eastern and African countries are a good examples.
5. Bring advanced supply chain system– Coca-Cola’s business is entirely dependent upon logistics and supply chain. Transportation costs and fuel prices are always on the rise. Thus, coming up with some advanced and improved systems for distribution can be an opportunity.
6. Packaged drinking water– Coca-Cola owns several packaged drinking water brands like Kinley. There is great potential for expansion in this segment for Coca-Cola. There is an opportunity to expand and bring more healthy drinks into the market to avoid people’s criticism.

Coca-Cola Threats

1. Water usage controversy – Coca-Cola has faced many criticisms over its water management issue. Many social and environmental groups have claimed that the company has a vast consumption of water in water-scarce Besides, people have alleged that Coca-Cola is polluting water and mixing pesticides in water to clear contaminants.
2. Pollution Lawsuit – Coke and three other companies are being sued by a California environmental group for contributing to plastic pollution. In the lawsuit, Coca-Cola is singled out for misleading the public about the recyclability of its single-use plastic bottles.
3. Direct and indirect competition – Although direct competition from Pepsi is clear in the market, however, there are many other companies that are indirectly competing with Coca-Cola. Starbucks, Costa Coffee, Tropicana, Lipton juices, and Nescafe, are the indirect competitors of Coca-Cola which can threaten its market position.

CONCLUSIONS:

The costs incurred during the implementation of this system entail purchasing the full package of the Flexsim simulation and Microsoft office and training the staff (training and licensing). Having set the actual values of the inputs of the plant in the simulation model, it is observed that the value of the throughput is almost the same. That’s the inventory level can be determined over a period of a week, month, or year depending on how a decision is made to control inventory. Using other graphs such as the time plot bottlenecks can be located thus pinpointing a problem which allows the provision of a better way to solve the problem identified. If enough time is allowed for the programming, the system can be further defined to give more accurate results. Such that more details such as the setup time, and utilizing time can be stated and can allow the calculation of the overall equipment effectiveness. VBA was used to help the simulation system store and analysis data into meaningful information as indicated by the provided Microsoft access and Microsoft excel which contains some macros.

 References:

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