Production …

… includes all activities required to produce a product or service.

In business administration, production is one of the three most
important corporate areas along with procurement and sales.

The production process includes three essential tasks:

§ Production planning,
§ Production control,
§ Production execution.

Source: https://www.wirtschaftswissen.de/warenwirtschaft/produktion/
Production planning includes:
§ determining the production quantity,
§ the organization of the workforce,
§ the procurement of means of production.
In the next step, the secondary requirement can be determined from the
primary requirement, which describes customer demand.
The second step is production control. This phase ensures that the entire
production process meets internal and external requirements and runs
smoothly. Production control includes monitoring production processes and
quality control.
Production execution is the last step and describes the practical creation of
services in production. In this phase, the products are manufactured and
delivered to the customers.

Source: https://www.wirtschaftswissen.de/warenwirtschaft/produktion/
 PPC Periods

Source: Biswas, T.; Baral, R. N.: A Review on Production Planning and Control, in:
International Journal of Multidisciplinary Innovative Research, 2021, 70-78.
 Statistical forecast models for determining the
primary demand from past values

• Constant model
• Trend model
• Seasonal model
• Trend-seasonal
model
Source: silo.tips
Problem:
Draw a Gozinto graph for a bicycle and use it to determine the order
quantity of wheels for 200 bicycles and an inventory of 30 wheels.

Solution:
The order quantity of wheels
for 200 bicycles (primary
demand forecast) and an
inventory of 30 wheels is:
200 multiplied by 2 is 400
(gross requirements), and
minus 30 (inventory), i.e.,
370 wheels must be ordered
(net requirements).
Order Management
Economic Order Quantity

... is a term for the ideal quantity a company should purchase to minimize its
inventory costs. It applies only when demand for a product is constant over a
period of time and each new order is delivered in full when inventory reaches zero.

Source: Vaz, Anthony & Mansori, Shaheen. (2017). Target Days versus Actual Days of Finished
Goods Inventory in Fast Moving Consumer Goods, in: International Business Research
Source: Biswas, T.; Baral, R. N.: A Review on Production Planning and Control, in:
International Journal of Multidisciplinary Innovative Research, 2021, 70-78.
Linear programming as a suitable method for
production program planning

Linear Programming (LP) can be applied to production planning to

optimize resource allocation, such as labor, machines, and materials.
It helps in determining the optimal production quantities to meet
demand while minimizing costs.

Linear programming is a mathematical modeling technique in which

a linear function is maximized or minimized when subjected to
various constraints. This technique has been useful for guiding
quantitative decisions in business planning and in industrial
engineering.
 Production program planning

Objective: - Profit contribution

- Sales quantity
- Capacity utilization
- Emissions
Constraints: - Procurement market
- Sales market
- Legal regulations
- Production and storage capacities
- Financial situation
-…
Decision variable: - Production quantities
 Case-by-case analysis

No bottlenecks (except upper sales limit):

Decision criteria: max. PC = (p – kvar) . x

Profit contribution per unit

One bottleneck and upper sales limit:

Decision criteria:

Relative profit contribution per unit: (pj – kj,var)/aj

aj: Claiming of bottleneck units

 Case-by-case analysis

m bottlenecks → Linear Programming (LP):

Objective function: max. profit contribution
Constraints: as far as necessary
n

∑( p − k ) • x → max!
j j, var j
j=1

Constraints:
Nebenbedingungen: Simplex-
n Algorithm
∑ aij•xj ≤bi (i = 1,…,m)
j=1
xj ≤ nj Upper sales limit

xj ≥ 0 (j = 1,…, n)
 P1 P2
90 parts/period 60 parts/period

M1 1,0 Min/part 2,0 Min/part 120 Min/period

M2 1,4 Min/part 1,0 Min/part 105 Min/period

M3 - 1,5 Min/part 75 Min/period

400 Euro/part 450 Euro/part

Objective function: 400 x1 + 450 x2 è max.

Constraints: x1 + 2 x2 ≤ 120 (1)

1,4 x1 + x2 ≤ 105 (2)

1,5 x2 ≤ 75 (3)

x1 ≤ 90

x2 ≤ 60

Decision variable: x 1, x 2 ≥ 0
 Graphical solution
x2
The objective function is
105 moved to the optimal point.

(2)

60
50 (3)

Opt. (1)
75 90 120 x1
 1
x 2 = 60 − x1
2
x 2 = 105 −1, 4x1
1
60 − x1 = 105 −1, 4x1
2
0, 9x1 = 45 x1* = 50St. / Periode
x 2 * = 35St. / Periode
DB* = 35.750
Possible increments:

§ Integrity

§ Multiple objective functions

§ Sensitivity analysis

§ Multiperiod analysis

§ Stochastic constraints

§ ...
Increment 1: Sensitivity analysis

Objective function: 400 x1 + 450 x2 è max.

Constraints: x1 + 2 x2 ≤ 120 (1) ≤ 121

1,4 x1 + x2 ≤ 105 (2)

1,5 x2 ≤ 75 (3)

x1 ≤ 90

x2 ≤ 60

Decision variable: x 1, x 2 ≥ 0
Increment 1: Sensitivity analysis

x2

105
(2)

60,5
60
50 (3)

Opt. (1)
75 90 120 121 x1
Increment 1: Sensitivity analysis

1
x 2 = 60, 5 − x1
2
x 2 = 105 −1, 4x1
1
60, 5 − x1 = 105 −1, 4x1
2
0, 9x1 = 44, 5 x1* = 49, 4St. / Periode
x 2 * = 35,8St. / Periode
DB* = 35.878
The difference to €35,750 are opportunity costs of €128 per
period. This means that if expanding the bottleneck capacity
is more expensive than €128, it is not worth expanding.