This post is a sequel to an introduction post that i recommend reading before you read this post.
What is a simple organization?
A simple organization is an organization with one main production process and 1 or 2 secondary processes.
The main process usually consists of standalone machines that are a production line in their own right. The secondary processes might be a raw material mixing phase before the main process or/and a packaging line after it. The 2 secondary processes will usually not have a capacity problem. That means that they are always available and we don’t need to schedule them.
What are the planning challenges in a simple organization?
– Batch size planning
– Batch prioritization
– Minimum setup time
– Inventory planning of raw materials and finish goods (This issue is more complicated so I will write about it in a different post).
The batch size can be calculated by the following formula:
Max inventory – the finish goods inventory level we want to reach at the end of production.
Current inventory – the current finish goods inventory level
Customer orders/ Forecasts – customers’ orders or forecast that should be supplied in a given time period
An example of given time period: suppose that we produce specially made waffles and we have a huge variety of products. Some of our customers have long-term orders of chocolate waffles they want every month for the next 6 months. Let’s assume that we produce those waffles every 1.5 month, thus there is no point in making the whole 6-month order. We decide on a time bucket and produce every order that is required in that time bucket. In this example we will make a 2-month time bucket.
% Waste – The average waste we produce during the entire production (including packaging and QA)
Inventory completion = Max inventory – Current inventory
Batch size = (orders/forecast + Inventory completion) * (1+ % waste)
Batch prioritization
– If there are more customer orders than we can produce in a specific time period, we need to decide which order to produce first. That is batch prioritization. Different organizations pick different ways to deal with this issue. I highly recommend deciding in advance what is the organization policy. Don’t wait for it to happen and then decide.
Here are some prioritization policies you can choose from:
1. Fifo + Priority
This is the classic policy where orders are produced as FIFO and the exception is a special request from sales to prioritize a specific order or orders.
Pros:
1. All customers are equal
2. Easy to plan. You always know which order comes first.
Cons:
1. Batch size – if we have a huge customer order, then there is no problem. But what if we have a small order? Should we wait for other orders to the same product? More orders mean bigger batch (less setup time) and if so, how long to wait?
2. Setup – scheduling production only based on FIFO might result in an increase in setup time for reasons I will explain later in this post.
2. Batching
We can decide on a fixed production schedule for some products. For example we can decide that every Monday we will produce a specific product. We will produce every customer orders that will be received until Monday. That way we have a larger batch.
Pros:
Less waste – Since you only have to do one setup every X days for every product, you save a lot of time and waste.
Cons:
Cycle time – every order needs to wait for the specific date when it will be produced. If your business is based on very short cycle time then this is not the policy for you.
3. Make to stock –
For every product we will have a finish goods inventory. We supply customer orders from the inventory. Whenever the inventory level drops from a specific level we produce a large batch. This is the saw tooth model that you can read about here. This policy will work only if you have a standard product.
Pros:
1. Very efficient in terms of minimal setup time and minimal waste.
2. Fast supply to customers since it comes straight from our inventory.
3. Good control of the scheduling process since there is no customer who needs higher priority.
Cons:
1. Inventory requires a large warehouse. 
2. Inventory costs money.
3. If your organization has many products you can not hold all of them (if you have a limited storage space), so you need to decide which products you will hold in inventory and which you will not.
4. If your organization makes custom-made products for your customer, you will need to hold WIP (work in process) as your inventory. That also requires the planner to plan which WIP to hold in inventory and how much.
4. Mid/long term sales forecast production –
When the production process is long, we can produce according to forecasts from sales. An example is a medical device organization. If a customer wants to buy a device, you need to supply it from the inventory, so that he gets it as soon as possible. But to produce the device requires 2-3 months, and ordering the parts requires another 2-6 months in lead time.
Pros:
1. This is the easiest way to plan production since you always knows what is the demand for the next 2-4 quarters.
2. You can maximize your system potential since you know exactly what you will produce.
Cons:
1. Unfortunately forecasts are not always accurate, and you might end up with extra expensive devices that you need to store in a large warehouse.
2. You will also end up with raw materials that were ordered and got into the supply chain. It might be a big problem to stop the supply chain since it also works on the forecast you gave them.
3. The other end of the problem is when you have an extra demand which puts pressure on the supply chain to change the number of devices it needs to supply. In this case it takes time to adjust the supply chain to fit the extra demand.
Reducing setup time using smart planning
This is a complicated issue and I also address it in other posts. Let me give you the main issues we need to look for:
1. The setup time is determined by a combination of the product that was on the tool before the setup and the product that you want to be next.
2. Good and smart planning will reduce your setup time by a lot.
Examples:
1. In a plastic factory that uses colored polymers and needs to get to a precise color
there is high importance to the order of the batches. If we have a thorough cleaning at the beginning of the week and produce white products followed by darker products, we will need much less setup time than if we produced randomly. Taking the color of the product into consideration allows us to produce more on the same production line due to minimal setup time.
2. In a chocolate factory, we have different types of chocolate
(milk , dark , white chocolate ….). We want to produce more products from one type of chocolate. When we move from one product to another without changing the chocolate type, we will have much fewer parts to clean.
As always if you have any questions or comments please send them to
theplanningmaster@gmail.com
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