The processing time could be defined as the time required for manufacturing a batch of several identical items, where the entire batch of items is distinct from another batch of items either because of different processing requirements or because each batch is manufactured for a different customer. Job shop analysis is applicable when each job has its own identity (processing requirements, due date, customer type etc) and production is customized to the order.
Batch production falls between job shop production and continuous production. It is an extremely common type of production system when the output is inventoriable and is produced in substantial volume, even though the volume may not justify continuous production. In these situations, the manager must determine the lot size for a batch to be produced at one time in addition to scheduling the batch on the facilities. An example of batch production is the bottling of gin, vodka, rum, and the like using the same production facility. The manager must decide how many cases of vodka in a given bottle size (e.g. a quart) should be bottled at one time (the determination of lot size) and when the processing of this batch should begin (the scheduling decision). If 12,000 cases of vodka in a quart size are required in a year, many options, such as to produce 6000 cases twice a year or 3000 cases four times a year, are available. A key trade off in the determination of the lot size for an item is between set-up costs and inventory holding costs. Another equally important consideration is the requirement to produce a feasible schedule that meets the demand for all items. For example, if set-up costs are low relative to holding costs, indicating small lot sizes, it may not be possible to produce the required quantities of all items within the specified time period if these small lot sizes are employed. This will happen if much of the time is consumed by merely setting up machines, thereby reducing the available production time. In order to meet requirements for different items, larger lot sizes may have to be employed. We will now illustrate this problem of obtaining a feasible schedule and discuss a method for computing lot sizes while maintaining feasibility in scheduling the batches of items under consideration.
Independent EOQ Scheduling:
Why not determine lot sizes economically, according to the EOQ equations EOQs would be computed independently for each item and processed through the system as a lot. Sometimes this decision may be a good one, but quite often the EOQ equations are oversimplification of the true situations and improved decision policies can be used. Some of the complexities that commonly intrude on the simplicity of EOQ equations are as follows:
1) Because of differing requirements, set up costs, and inventory carrying costs for each job, inventories that result from EOQ lots may not last through a complete cycle. Because of stock outs, special orders of smaller size may then be needed, resulting in capacity dilution.
2) When operating near capacity limits, competition for machine and / or worker time may cause scheduling interference. In order to maintain scheduled commitments, lots may be split. Again, a side effect of this is reduced capacity.
3) Sometimes there is a bottleneck machine or process through which all or most of the jobs must be sequenced. Its limited capacity may exert pressure toward smaller lot sizes, diluting capacity in order to meet scheduled commitments on at least a part of job orders.
4) Where parts or products are produced in regular cycles, individual lot sizes are constructed to fit in with the cycles, rather than from the balance of set up and inventory holding costs for each individual item.
5) The assumptions of constant demand is not met, either as a result of seasonal usage or sales or because demand is dependent on the production schedules of other parts, sub-assembles, or products.
6) The process and transit lot sizes are not equal, so that the inventory structure of the EOQ formulation is not valid.
Most of these reasons for deviating from the concepts of the EOQ equations lead to smaller lot sizes and to reduction in effective capacity. Under these conditions, relatively larger fractions of the available machine and worker time are devoted to machine set up.