BUSS211

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Lecture 4
Lean Operations
MRP vs. JIT
Professor Kihoon Kim

Lean Operations

Slide 1

Outline
Independent demand vs. dependent demand

MRP (Push) vs. JIT (Pull)

How MRP works?
How JIT works?

Lean Operations Tactics

Lean Operations

Slide 2

Independent vs. Dependent Demand

Independent

Dependent

1. End or finished items

1. Subassemblies,
Components/Materials

2. May be uniform demand

2. Lumpy demand

3. Few items - carefully monitored

3. Many items less emphasis

Lean Operations

Slide 3

Material Requirements Planning for Components

EOQ analysis for Finished Goods

1. For items with independent demand

Deterministic demand
Probabilistic demand

Standard EOQ
EOQ with safety stock

2. Answers one question: How much is needed

MRP for Components

1. For inventory systems with dependent demand

2. Answers two questions: How much & When

Lean Operations

Slide 4

MRP vs. JIT

MRP. (Materials Requirements Planning). MRP is the basic

process of translating a production schedule for an end product

(MPS or Master Production Schedule) to a set of requirements
for all of the subassemblies and parts needed to make that item.
JIT. Just-in-Time. Derived from the original Japanese Kanban

system developed at Toyota. JIT seeks to deliver the right amount

of product at the right time. The goal is to reduce WIP (work-inprocess) inventories to an absolute minimum.

Lean Operations

Slide 5

Push vs. Pull

MRP is the classic push system. The MRP system computes

production schedules for all levels based on forecasts of sales of

end items. Once produced, subassemblies are pushed to next
level whether needed or not.
JIT is the classic pull system. The basic mechanism is that

production at one level only happens when initiated by a request

at the higher level. That is, units are pulled through the system
by request.

Lean Operations

Slide 6

Advantages of MRP and JIT

Main Advantage of MRP over JIT: MRP takes forecasts for end

product demand into account. In an environment in which

substantial variation of sales are anticipated (and can be
forecasted accurately), MRP has a substantial advantage.
Main Advantage of JIT over MRP: JIT reduces inventories to a

minimum. In addition to saving direct inventory carrying costs,

there are substantial side benefits, such as improvement in
quality and plant efficiency.

Lean Operations

Slide 7

MRP Basics

The MRP system starts with the MPS or Master Production

Schedule. This is the forecast for the sales of the end item over
the planning horizon. The data sources for determining the MPS
include:
Firm customer orders
Forecasts of future demand by item
Safety stock requirements
Seasonal variations
Internal orders from other parts of the organization.

Lean Operations

Slide 8

The Explosion Calculus

The explosion calculus is a set of rules for converting the master

production schedule to a requirements schedule for all subassemblies,
components, and raw materials necessary to produce the end item.
Work backward from finished goods production schedule (assumed
fixed)
Each finished good has its Bill of Materials
Each component has quantity multiplier & lead time

There are two basic operations comprising the explosion calculus:

Time phasing: Requirements for lower level items must be shifted

backwards by the lead time required to produce the items
Multiplication: A multiplicative factor must be applied when more than
one subassembly is required for each higher level item.
Given how much is ordered, determine when inputs are needed
Determine when you would run out of the input given the fixed production
schedule
Lean Operations

Slide 9

Typical Product Structure Diagram (Bill of Materials)

Lean Operations

Slide 10

Developing a Materials Requirements Plan

Work downwards through the production hierarchy, starting
with finished goods. For each item, carry out the following
steps:
1. Use projected requirements and scheduled receipts to
calculate on-hand inventory (finished good):

General On-Hand Inventory: I t I t 1 St Dt

Lean Operations

Slide 11

11

Developing a Materials Requirements Plan

2. Look forward to find the first period in which on-hand
inventory will be negative. Then work backward using the
ordering/ production lead time to generate a planned order
release. The order size is determined by lot sizing analysis.
(In this example, lets assume that 70 has been chosen.)

Lean Operations

Slide 12

Developing a Materials Requirements Plan

3. Update on-hand inventory and continue generating planned
order releases for this item to the end of the time horizon.
(we assume that 90 and 30 have been chosen)

Lean Operations

Slide 13

Developing a Materials Requirements Plan

3. Update on-hand inventory and continue generating
planned order releases for this item to the end of the time
horizon. Then calculate projected requirements for items
in the next level down in the production hierarchy.

Lean Operations

Slide 14

Enterprise Resource Planning (ERP)

ERP is an extension of the ideas of MRP. It aims to integrate all functions

of the business, including planning, manufacturing, sales, and marketing.
1960s Focus on traditional inventory control, single item

1970s MRP emerges: translates Master Production Schedule into timephased net requirements for sub-assemblies, components, and raw materials

1980s Manufacturing Resources Planning (MRP II) emerges: extension

of MRP to shop floor and distribution management activities

1990s Enterprise Resource Planning (ERP) emerges: extension of MRP

II to cover areas such as Engineering, Finance, Sales and Marketing, etc.

Lean Operations

Slide 15

15

Closed-Loop Manufacturing Planning & Control System

Production Planning
Master Production Scheduling
Material Requirements Planning
Capacity Requirements Planning

Revise

Lean Operations

No

Realistic
?
Yes
Execute Plans
Slide 16

Introduction to JIT

JIT (Just In Time) is an outgrowth of the Kanban system developed by

Toyota.

Kanban refers to the posting board where the evolution of the manufacturing
process would be recorded.

The Kanban system is a manual information system that relies on various

types of cards.
Direction of production flow
upstream

downstream

Authorize
production
of next unit

Lean Operations

Slide 17

River/Inventory Analogy
Illustrating the Advantages of Just-in-Time

Lean Operations

Slide 19

Reducing waste: Increase Problem Visibility

Analogy: Lower the Water to Expose the Rocks

Missed Due
Dates

Inventory

Late
Deliveries

Scrap &
Rework
Poor
Quality

Lean Operations

Too Much
Space

Too much paperwork

Engineering
Change
Orders

100% inspection

Slide 20

Long queues Machine

Downtime

JIT purchasing system

If we apply JIT to suppliers,
Advantages:
1. Inventory reduction
2. Improved coordination
3. Better relationships with vendors
Disadvantages:
1. Decreased opportunity for multiple sourcing
2. Suppliers must react quickly
3. Potential for congestion
4. Suppliers must be reliable.

Lean Operations

Slide 21

Lean Operations Tactics

Supply Chain Management

Slide 22

Basic Tools towards Lean Operations

In addition to Pull rather than push
1. Batch-size reduction
2. Mixed Level Production
3. Quality at source
4. Resource flexibility / Cross training
5. Cellular layout

Lean Operations

Slide 23

Lean Tool #1: cut batch sizes

An illustrative example
Remind that a small batch implies a small amount of inventory.
Consider the following 4-step process:
A
1 min/job
Resource 1

B
1 min/job
Resource 2

C
1 min/job
Resource 3

D
1 min/job
Resource 4

(Dont worry; well learn how to answer question below soon)

What is the theoretical flow time of the process?
What is the capacity of the process?
What does that imply for the amount of inventory needed in the process?

Lean Operations

Slide 24

Lean Tool #1: cut batch size

ABCD example continued
Flow Shop (Batchsize = 1)

Batch Shop (Batchsize=4)

B

2
3

T=
Lean Operations

I=

T
Elapsed Time

Elapsed Time

R=

T=
Slide 25

I=

R=

How to run Lean Operations:

Managing Variety

Monthly Production Requirement:

Model

Sedan

Quantity

10,000

Station
Wagon
10,000

How should production be scheduled for the month?

Lean Operations

Slide 26

Lean Tool #2: Mixed Level/Balanced Production

Batch Production Schedule

Mixed Production Schedule

(AAAABBBB..)
Product

(ABAB...)

April 1.................15...........................30

April 1....................15.......................30

A
B

FGI

FGI

time

time
Lean Operations

Slide 27

Lean Tool #3: Quality at the Source

Defects
Found at:

Own Station Next Station End of Line

Final
Inspection

End Users
Hand

Impact to the Very

Company
Minor

Lean Operations

Minor
Delay

Rework
Significant
Resched.
Rework
Delay in
of work
Delivery
Additional
Inspection

Slide 28

Warranty
costs
Administra
tive costs
Reputation
Loss of
Market
Share

Lean Tool #4: Flexible Resources

Cross training of workforce

Use of IT in services
Under JIT, if a problem occurs,
the line stops; all the workers involved in the problem join the discussion to

find out why the problem has occurred.

Lean Operations

Slide 29

Lean Tool #5 to reducing waste:

From Functional Layout to Product Cell organization
A cell focuses on a narrow range of
customer needs

High utilization of critical resources

Department 1
Production
Control

Production
Control

Production
Control

Production
Control
Roof
Cut

Department 2
Roof
Cut

Roof
Cut

Roof
Cut

Department 3
Base
Cut

Base
Cut

Department 5

FA

Base
Assy

FA

Base
Assy

Production
Control

Base
Assy

Roof
Cut

FA

Lean Operations

Base
Assy

FA

Base
Cut

Department 4
FA

Cell 1

Slide 30

Cell 2

Base
Cut

Production
Control
Base
Cut

Roof
Cut

Base
Assy

FA

Cell 3

Base
Cut

Base
Assy

Pros and Cons of Cellular Layouts

Pros of cells:
Synchronization of information and material flows
Less travel distances

more visibility within the cell

cross-trained workforces.

Cons of cells:
may require additional capital
risk of machine break-downs
Idle time may increase for some cells

Lean Operations

Slide 31

Teams in Cells and Lean Ops:

Human Resources issues

Advantages
Consistent with the moral ideal of autonomy.

Empowers the workforce through participation and autonomy in managing

daily activities
Gives unprecedented responsibility to workers:

Immediate and impartial feedback of problems

Investigation of process improvements
Monitoring quality
They also gain better understanding of the process

Challenges:
Team dynamics: incentives, team pressure,
From monthly 30-day goals before to 3-minute goals now
Does not leave much room for variability

Lean Operations

Slide 32

Key Takeaways: Lean Operations

MRP vs. JIT

MRP is a Push system; works well even when the demand variation is high
JIT is a Pull system; reduce inventory visibility increases, flow time
decreases

Lean Operations: In Search for the Holy Grail and zero Waste

Efficient Workflow: Cellular Layout

Level Mixed Production: Heijunka

Flow Synchronization

Reduced batch sizes

Pull Execution: Kanbans

Quality at source: Jidoka
Continuous Improvement: Kaizen

Lean Operations

Low Cost
Get ever closer to ideal

Slide 33