SCRAP ESTIMATES

Chapter 2
EIN4364 Chapter2 - Product, Process, and Schedule Design 1
Scrap Estimate
Scrap: the material waste generated in due to
geometric or quality consideration.




O
k
= output of non-defective product from operation k.
I
k
= production input to operation k.
P
k
= the percentage of scrap produced on the k
th

operation
EIN4364 Chapter2 - Product, Process, and Schedule Design 2
k k k k
O I P I =
) 1 (
k k k
P I O =
Percentage of non-scrap
(good) production
1
I
1
O
1
Example
Market estimate =
97,000 units
Product requires 3
processes having scrap
rates:
P
1
= 0.04,
P
2
= 0.01,
P
3
= 0.03
How many unit should
we start with to meet
the demand?

EIN4364 Chapter2 - Product, Process, and Schedule Design 3
000 , 100
) 03 . 0 1 (
000 , 97
3
=

= I
000 , 101
) 01 . 0 1 (
000 , 100
2
=

= I
219 , 105
) 04 . 0 1 (
000 , 101
1
=

= I
1 2 3
I
S
=I
1
O
1=
I
2
O
2=
I
3
O
3
=O
S
Scrap Estimate
EIN4364 Chapter2 - Product, Process, and Schedule Design 4
1 2 3
I
S
=I
1
O
1=
I
2
O
2=
I
3
O
3
=O
S
) 1 (
1 1 1
P I O =
) 1 (
2 2 2
P I O =
) 1 (
3 3 3
P I O =
) 1 (
1
1
1
P
O
I

=
) 1 (
2
2
2
P
O
I

=
) 1 (
3
3
3
P
O
I

=
) 1 )( 1 (
2 1
2
) 1 (
) 1 (
1
1
2
2
P P
O
I
P
P
O

= =

) 1 )( 1 )( 1 ( ) 1 )( 1 (
) 1 (
3 2 1 2 1
3
3
1
P P P
O
P P
P
O
I I
S
S

=


= =
Scrap Estimate
The expected # of units to start into production for a
part having n operations:





Example solution:


EIN4364 Chapter2 - Product, Process, and Schedule Design 5
1
1 2
(1 )(1 )...(1 )
n
n
O
I
P P P
=

1
97, 000
105, 219
(1 0.04)(1 0.01)(1 0.03)
I = =

Scrap calculations with rework (*)
EIN4364 Chapter2 - Product, Process, and Schedule Design 6
1
R
1
2
I
S
=I
1
O
1=
I
1
*(1-P
1
)

I
R1=
I
1
*P
1
O
2
=O
S
(?)
I
2
= O
1
+O
R1
O
R1=
I
R1
*(1-P
R1
)

I
R1
*P
R1
I
2
*P
2

Scrap calculations with rework (*)
If O
s
=O
3
and there are no reworks for R1 and
2:


Write I
s
required for a given O
s
.
EIN4364 Chapter2 - Product, Process, and Schedule Design 7
1
R
1
2
I
S
=I
1
O
1
I
R1
O
2
=O
S

I
2
O
R1
Scrap calculations with rework (*)
If O
s
=O
3
and there are no reworks for R1 and 2:


EIN4364 Chapter2 - Product, Process, and Schedule Design 8
I
S
=I
1 O
2
=O
S
(?)
1
R
1
2
O
1=
I
1
*(1-P
1
)

I
R1=
I
1
*P
1
I
2
=
O
1
+O
R1
O
R1=
I
R1
*(1-P
R1
)

I
R1
*P
R1
I
2
*P
2
| |
| |
| | | | | |
| | | |
) 1 )( 1 (
) 1 ( ) 1 ( ) 1 ( ) 1 (
) 1 (
) 1 ( ) 1 ( ) 1 (
) 1 ( ) 1 ( ) 1 (
) 1 ( ) 1 (
) 1 (
2 1 1
1
2 1 1 1 2 1 1 1
1 1 1 1 1 1 1 1 1 1 1 1 1 1
2 1 1 1 1 1
2 1 1 1 1 2
1 1 1 1 1 1
2
2
2
P P P
O
I I
P P P I P P P I O
PP I P P I I P P I P I P I I
P P P I P I O
P P I P I O O
P I P I O O
P
O
I
R
S
S
R R S
R R R
R S
R R S
R R R

= =
= =
= = +
+ =
+ = =
+ = + =

=
EQUIPMENT FRACTIONS
Chapter 2
EIN4364 Chapter2 - Product, Process, and Schedule Design 9
Equipment Fractions
The quantity of equipment required for an operation.



F = number of machines required per shift
S = standard time (minutes) per unit produced
Q = number of units to be produced per shift
E = actual performance, expressed as a % of standard
time.
H = amount of time (minutes) available per machine
R = reliability of machine expressed as percent up
time

EIN4364 Chapter2 - Product, Process, and Schedule Design 10
SQ
F
EHR
=
Example
Machine part has machinery time of 2.8 min per part
on a milling machine.
During 8-hr shift 200 units are to be produced.
Of the 480 min available for production, the milling
machine will be operational 80% of the time.
During the time, the machine is operational, parts are
produced at a rate of 95% of standard rate.
How many milling machines are required?

S, Q, H, R, E = ?

EIN4364 Chapter2 - Product, Process, and Schedule Design 11
Example
S = 2.8 minutes/unit
Q = 200 units/shift
H = 480 minutes/machine
R = 0.80 (reliability)
E = 0.95 (effective performance)

SQ = 560 minutes/shift
EHR = 364.8 minutes/machine
F = SQ/EHR = 1.535 (may need 2 machines/shift)
EIN4364 Chapter2 - Product, Process, and Schedule Design 12
More on equipment fractions
Additional information is required such as
equipment setup time
cost of inventory
feasibility of overtime
expected future growth of demand

Question: How would you include setup times into
the calculation?
EIN4364 Chapter2 - Product, Process, and Schedule Design 13
Setup times (cont.)
Setup times are also a type of process done on machines.
What is the reliability (R
S
) and efficiency (E
S
) of machine
setup?

=100%

=100%
o There are special cases where reliability and/or efficiency of
setup processes are less than 100%!
We assume that we do machine setup only one time
over the production horizon unless specified otherwise.

=1
o We might observe situations in which we need to do setup
more than once (e.g., once before every shift)

=setup time

=machine availability
EIN4364 Chapter2 - Product, Process, and Schedule Design 14
H
S
EHR
SQ
R H E
Q S
EHR
SQ
F
Setup
S S S
S S
+ = + =
Most of the time
(but not always!)
REJECT ALLOWANCE PROBLEM
Chapter 2
EIN4364 Chapter2 - Product, Process, and Schedule Design 15
Reject Allowance
Consider production of small amount of customized
parts.
Customer has right to reject the order if certain
conditions are not satisfied.
How many parts should be produced in order to
satisfy the order?
How much does it cost to produce a good part? How
much for a bad part?
How much revenue is generated from a good part?
How much from a bad part?
What is the probability distribution for the number of
good castings resulting from a production lot?
EIN4364 Chapter2 - Product, Process, and Schedule Design 16
Reject Allowance
X = number of good variables
p(x) = probability of producing exactly x good units
Q = quantity of units to produce
C(Q,x) = cost of producing Q units, of which x are
good units
R(Q,x) = revenue
P(Q,x) = profit = R(Q,x) - C(Q,x)
E[P(Q)] = expected profit from producing Q units
EIN4364 Chapter2 - Product, Process, and Schedule Design 17

=
=
Q
x
x p x Q P Q P E
0
) ( ) , ( )] ( [
Example
A foundry produces castings to order.
An order of 20 castings
Casting cost = $1,100 per unit
If a casting is not sold, it has a recycle value of $200
Customer will pay $2,500 per unit if 20 castings are
produced no more, no less!
Probability distributions are given based on historical
records.
How many castings should be scheduled for
production to maximize expected profit?
What is the probability of losing money at this
production level?
EIN4364 Chapter2 - Product, Process, and Schedule Design 18
Profit function
EIN4364 Chapter2 - Product, Process, and Schedule Design 19
Q x Q x Q C
Q x Q
x Q
x Q R
s s =

s s +
<
=
0 100 , 1 $ ) , (
20 ) 20 ( 200 $ ) 20 ( 500 , 2 $
20 200 $
) , (

s s
<
=
Q x Q
x Q
x Q P
20 900 $ 000 , 46 $
20 900 $
) , (
Expected profit


= =
= =
+ =
+ =
19
0 20
19
0 20
) ( ) 900 000 , 46 ( ) ( 900
) ( ) , ( ) ( ) , ( )] ( [
x
Q
x
x
Q
x
x p Q x Qp
x p x Q P x p x Q P Q p E
EIN4364 Chapter2 - Product, Process, and Schedule Design 20

s s
<
=
Q x Q
x Q
x Q P
20 900 $ 000 , 46 $
20 900 $
) , (
It can be reduced to:
Q x p Q Q p E
Q
x
900 ) ( ) 200 000 , 46 ( )] ( [
20
+ =

=
Excel calculations
Look at the MS Excel file named reject_allowance.

Hint: Use SumProduct function of Excel.
EIN4364 Chapter2 - Product, Process, and Schedule Design 21
Binomial distribution
Discrete distribution
Distribution of the number of successes in a number
of independent experiments
Denote
p : success probability of an individual experiment
(Bernouilli)
n : number of experiments in the sequence
X : variable corresponding to the number of successes
X~B(n,p)

EIN4364 Chapter2 - Product, Process, and Schedule Design 22
) , (
)! ( !
!
) , (
) 1 ( ) , ( ) (
x n n C
x n
n
x n x
n
x
n
x n C
p p p n C x X P
x n x
=
|
|
.
|

\
|

=
|
|
.
|

\
|
=
= =

Example: Binomial distribution
MS Excel :
BINOMDIST(number_s, trials, probability_s, cumulative)

X~B(20, 0.7)
P(X=10) = 0.031
o BINOMDIST(10,20,0.7,0)
P(X=12) = 0.114
o BINOMDIST(12,20,0.7,0)

X~B(30, 0.8)
P(X=20) = 0.035
o BINOMDIST(20,30,0.8,0)
P(X=23) = 0.154
o BINOMDIST(23,30,0.8,0)
EIN4364 Chapter2 - Product, Process, and Schedule Design 23
Reject allowance with binomial dist.
Suppose castings are produced independently with
the probability of an individual casting being good
being equal to 0.88 .
Determine the optimum number of castings to
produce.
What is the probability of losing money on the
transaction?

Look at the MS Excel file named reject_allowance.
EIN4364 Chapter2 - Product, Process, and Schedule Design 24