A hierarchical production plan for a make-to-order steel fabrication plant

Journal: Production Planning & Control: The Management of Operations Authors: Brian D. Neureuthe, George G. Polak & Nada R. Sanders

1. Introduction
1.1 Forecasting, aggregate planning, disaggregate planning and sequencing are the principal components of a hierarchical production plan. The hierarchical production plan (HPP) approach and its benefits are well-established in the literature by Bitran and Hax (1977), Leong et al. (1989), Bowers and Jarvis (1992), Qui et al. (2001), and others.. Recent research has been conducted on production planning in hybrid make-to-stock and make-to-order environments. 1.2 In the current paper, a three-tiered hierarchical production plan (HPP) for a strictly make-to-order steel
fabrication plant with the objective of developing a production plan and master schedule for a set of product archetypes is implemented. Data are collected from an actual steel fabrication plant located in the Midwestern section of the US. An aggregate linear programming model, a non-linear disaggregate model and a master production schedule comprise the respective tiers.

1.3 The first tier consists of a linear programming model for an aggregate production plan that minimizes total costs. The output from the first-tier linear program, along with a monthly forecast for each product, becomes the input for the second tier, a nonlinear model, in which each product is assigned to a specific process plan so that set-up costs are minimized. The third tier is a master production schedule designed to sequence the processing of the products, grouped by archetype, on the machines throughout the factory. The goal for this third tier is to minimize makespan, and therefore maximize throughput. 1.4 General background of production facility The steel fabrication facility used to model the HPP is a century-old plant located in the industrial Midwest.Fourteen machines are used to fabricate thousands of different end products, from which 12 product archetypes have been identified (see Rogers et al. 1991).Each product is classified by class, as industrial or commercial; by type, as angle, beam or plate; and by weight, as light or heavy. Production sequences, set-up times and processing times vary among these archetypes. The plant operates on a five-day workweek with one eight-hour shift per day. Overtime can be scheduled on Saturday exclusively. Management follows a strictly make-to-order environment, scheduling production only when an order is received. This policy obviates the need to prioritize between make-to-stock and make-to-order products.

2. Application of Disaggregate plan

2.1 Aggregate Plan The aggregate linear programming model seeks to minimize total costs, consisting of inventory holding, regular time and overtime, and hiring and firing (Bowers and Jarvis 1992). The decision variables are the amounts of each product class to be produced, the inventory at the end of each month, the total number of workers employed in a given month, regular and overtime labour in hours and the number of hires and fires in a given month. The constraints enforce material balance of demand (2), total productive capacity (3), demand for labour (4), the physical storage limit (5), regular (6) and overtime (7) labour time availability, workforce smoothing (8), hours and workforce level (9), and workforce limits (10). LINDO software was used to solve the aggregate

linear program (ALP) to optimality. The optimal solution maintained the workforce at the lower limit of 25 throughout the 12-month horizon, and yielded an objective value of $545,231.25. The months of JuneOctober required overtime due to the production capacity available during regular time

2.2 The disaggregate pan

The optimal solution to the ALP becomes input into the disaggregate model, which assigns production to the appropriate lines for each month. Nine distinct process lines are needed for the 12 product archetypes (certain products share common process plans; see Appendix B) with weight (light or heavy) now becoming relevant. Heavy materials require dedicated cutting and punching machines, i.e. the flange-cutting burner and cold saw for cutting and the 100-ton and greater punch presses for punching. These specialized machines have considerable longer setup times and require more manual labour than those used for the light products. For example, an abrasive cut saw or a band saw requires only 15 minutes for set-up, while a flange-cutting burner can take up to an hour or more. Set-up costs therefore reflect labour and opportunity costs. Leong et al. (1989) state that the key to any disaggregate model is to ensure that the production quantities determined in this model agree with those dictated by the aggregate model. This is the formal link that is required between the aggregate and disaggregate models.. Two special features of the make-to-order environment under consideration should be noted. First, there is no lower bound on production, i.e. items can be produced, no matter how small the order Decision Variables

The objective function represents the minimization of total set-up costs. Constraint system (12) is the link between the aggregate and disaggregate models while (13) expresses the limit imposed by process capacity. Results for a specific month resulted in an objective function value of $18,846 yielding the optimal weekly product schedule.

2.3 The master production schedule

A master production schedule to minimize the makespan, i.e. the time needed to finish all jobs in a shop. This schedule consists of a permutation, or sequencing, of the operations on each machine (

2.4 The scheduling algorithm

Scheduling problems are among the most difficult in combinatorial optimization: even the one-machine scheduling problem with release and due dates is hard (i.e. NP-complete in the strong sense; see Adams et al. 1988; Garey and Johnson 1979). The authors constructed a scheduling program in C++ that was implemented on a Sun workstation running UNIX at Wright State University

3.

Benefits

(a) The company described in the paper should immediately realize approximate savings of $234,603.95 in labor costs for the year due to abandoning its current labour policy and following the chase strategy outlined in the HPP model. (b) A slight modification in the solution by reducing the entire labour force from a lower bound of 25 to a lower bound of 17 (the labour required in the highest-volume month) would result in yearly savings of approximately $174,720 (c) The model can estimate and eliminate the cost of the backlog, although the cost is not readily quantifiable

(d) Further cost savings are realized by the long-run eects of increased service (in terms of lead-time reduction), increased cash ow due to lower work-in-process inventory, customer retention and customer loyalty. (e) A principal benet of the developed MPS is that an optimal scheduling plan was developed for all 12 product archetypes. This benet can be generalized to any make to-order facility that has highly customized parts in which product archetypes can be readily determined. 4. Limitations

(a) Following a chase strategy is challenging due to the number of layoffs involved (b) A suboptimal scheduling plan may have developed a plan that could not be met, due to the severely constrained system (c)The paper ignores other issues that can lead to further increase in net income. For example, there is no discussion of a more ecient plant layout, improved shopoor control and project planning analysis. All of these can drastically improve due date performance.