Introduction Material Management

9/1/2015
IntroductionMaterialManagement
Tuesday,September01,201510:50:55PM
Management&DevelopmentCenter
AboutUs|OurServices|Training|Consulting|
M&DC/
to Material Management
Introduction
IntroductiontoMaterialManagement
Contents
1.
IntroductiontoMaterialsManagement
2.
ProductionPlanningSystem
3.
MasterScheduling
4.
MaterialRequirementsPlanning
5.
CapacityManagement
6.
ProductionActivityControl
7.
Purchasing
8.
Forecasting
9.
InventoryFundamentals
10.
OrderQuantities
11.
IndependentDemandOrderingSystems
12.
PhysicalInventoryandWarehouseManagement
13.
PhysicalDistribution
14.
ProductsandProcesses
15.
JustinTimeManufacturing
16.
TotalQualityManagement
1.IntroductiontoMaterialManagement
1.1Introduction
Wealthismeasuredbytheoutputofgoodsandservicesproducedinagiventime.
Goodsarephysicalobjectsandservicesaretheperformanceofsomeusefulfunction.
Aproductionfunctionisneededtotransformresourcesintousefulgoods.
Ateachstageinthedevelopmentofthefinalproduct,valueisadded,thuscreating
morewealth.
Togetthemostvalueoutofourresources,wedesignproductionprocessesthatmake
productsmostefficiently.
Oncetheprocessesexist,weneedtomanagetheoperationsoitproducesgoodsmost
economically.
Managingtheoperationmeansplanningforandcontrollingtheresourcesusedinthe
process:labor,capitalandmaterial.
Themajorwayinwhichmanagementplansandcontrolsisthroughtheflowof
materialstherightmaterialsintherightquantitiesandattherighttime.
1.2OperatingEnvironment
Themostimportantfactorsaffectingtheenvironmentinwhichweoperateare
Government,Economy,Competition,CustomersandQuality.
Governmentregulationofbusinessaffectsthewaybusinessisconducted.
Economicconditionsinfluencedemandforproductsorservicesandavailabilityof
inputs.
Companiesfaceglobalcompetition.Transportingmaterialsislesscostlytoday.Global
communicationsarefast,effectiveandinexpensive.
Customersexpectmorefromsuppliers.Customerselectioncriteriaincludeafairprice,
qualityproductsandservices,reductionindeliveryleadtime,betterpreandpostsales
service,andproductandvolumeandflexibility.
Qualitymustmeetorexceedcustomerexpectations.
Definitions
OrderQualifierMinimumrequirementsthatasuppliermustmeettobea
http://www.mdcegypt.com/Pages/Purchasing/Material%20Management/Introduction%20Material%20Management.asp
1/37
9/1/2015
viablecompetitor
OrderWinnersCompetitiveCharacteristicsthatpersuadeacustomerto
chooseaparticularproductorservice
DeliveryLeadTimeTimefromthereceiptofanordertothedeliveryof
theproduct.(Fromthecustomerperspectivemayincludeorderpreptime)
ManufacturingStrategies(FourLeadTimeStrategies)
PullStrategy(TheCustomerPullshisneeds)
EngineerToOrderETO
Designedtocustomerspecification
Productswhosecustomerspecificationsrequireuniqueengineeringdesign
orsignificantcustomization.Eachcustomerorderrequiresacost
estimate,andspecialpricing.Theseordersgenerallyresultinauniqueset
ofcomponents,billsofmaterial,andproductionroutings
www.leanmeanmanufacturing.com/glossary2.html
MakeToOrderMTO
Standarddesign,producedonlyuponorder
Amanufacturingprocessstrategywherethetriggertobeginmanufacture
ofaproductisanactualcustomerorderorrelease,ratherthanamarket
forecast.ForMaketoOrderproducts,morethan20%ofthevalueadded
takesplaceafterthereceiptoftheorderorrelease,andallnecessary
designandprocessdocumentationisavailableattimeoforderreceipt.
Pull/PushStrategy
AssembleToOrderATO
Subassembliesproduced,assembleduponorder
"Aproductionenvironmentwhereaproductorservicecanbemade
afterreceiptofacustomer'sorder.Theenditemfinishedproductis
generallyacombinationofstandardcomponentsandcustom
designedcomponentsthatmeettheuniqueneedsofaspecific
customer.Whereoptionsoraccessoriesareprestockedpriorto
customerorders,thetermassembletoorderisfrequentlyused."
PushStrategy(theCompanypushesitsproductstothemarkets)
MakeToStockMTS:
Finishedproductmadepriortoorder
"MaketoStockAproductionenvironmentwhereenditemproducts
areusuallyfinishedbeforereceiptofacustomerorder.Customer
ordersaregenerallyfilledfromfinishedgoodsinventories,and
productionordersareusedtoreplenishfinishedgoodsinventories"
OperationDecisionMaking
ManufacturingStrategyandLeadTime
2/37
9/1/2015
1.3TheSupplyChainConcept
ThesupplychainsystemcontainsthreeBasicElements:
Supply,
Production
Distribution
Supplychainincludesallactivitiesandprocessestosupplyaproductorservicetoa
finalcustomer.
Anynumberofcompaniescanbelinkedinthesupplychain.Sometimescalledthe
ValueChain.
Thetotalchaincanhaveanynumberofsupplier/customerrelationships.
Thechainincludesintermediariessuchaswholesalers,warehouses,andretailers
Productorservicesusuallyflowfromsuppliertocustomeranddesignanddemand
informationusuallyflowfromcustomertosupplier
TraditionalSC
Traditionally,managementfocusedoninternaloperatingissues,constraintsand
parameters.Supplierswereconsideredadversaries.
Conflictsintraditionalsystemsoftenappearbecausedifferingdepartments
maximizedepartmentalobjectiveswithoutconsideringtheimpacttootherpartsofthe
system.
GrowthofSCconcept
ThefirstmajorchangeevolvedthroughtheexplosivegrowthofJustinTime(JIT)
concepts.Supplierswereviewedaspartners
Thegrowthofthesupplychainconceptcontinuestobeinfluencedby
Theexplosivegrowthincomputercapability,
Softwareapplications(EnterpriseResourcePlanning)andtheabilitytolink
companieselectronically(Internet),
Growthinglobalcompetition,
GrowthinTechnologyleadstodramaticreductioninproductlifecyclesand
theresultingdesignflexibilityandabilitytoeffectivelycommunicatechanges
tosuppliersanddistributors.
ThecurrentSCconcept
Emphasiswasontrustintherelationship,i.e.eliminationofreceivinginspection,
reductioninadministrativepaperworkreplacedwiththeexchangeofelectronicdata,
mutualanalysisofcostreductionsandsharedbenefits,andsharedproductdesign.
ToresultanOptimalPerformance,thesupplychainofactivities,fromrawmaterial
tofinalcustomer,shouldbemanagedasanextensionofthepartnership.Thisimplies
threecriticalissues:flowofmaterials,flowofinformationelectronicallyandfund
transfers.Morerecently,thenewtrendistomanagetherecovery,recyclingand
reuseofmaterial.
TheneedforSCIntegration:
Tomanageasupplychain,trytoefficientlyplanmaterialandinformationflows
tomaximizecostefficiency,effectiveness,delivery,andflexibility.
Thisrequiressystemsintegrationandreevaluatingperformancemeasures.To
maximizeprofit,setobjectivesthatprovidebettercustomerservice,lowest
productioncosts,lowestinventoryinvestment,andlowestdistributioncost.
3/37
9/1/2015
Stresstheneedtosupplycustomerswithwhattheywantwhentheywantitand
tokeepinventoriesataminimum
1.4WhatIsMaterialsManagement?
Theproblemistobalanceconflictingobjectivestominimizethetotalofallthecosts
involved(maximizetheuseofthefirmsresources)andmaximizecustomerconsistent
withthegoalsoftheorganization.
ThisrequiressometypeofIntegratedMaterialsManagementorLogistics
Organizationresponsibleforsupply,productionanddistribution.Thenamewearegiving
thisfunctionisMaterialsManagement.
Reducingcostcontributesdirectlytoprofit.Increasingsalesincreasesdirectcosts
oflaborandmaterialssoprofitdoesnotincreasedirectly.
ManufacturingPlanningandControlMPC
isresponsiblefortheplanningandcontroloftheflowofmaterialsthroughthe
manufacturingprocessandtheprimary
MPCactivitiesare:
a.
ProductionPlanningincludes:
Forecasting,
MasterplanningMPS
MaterialRequirementsPlanningMRP
CapacityPlanning
b.
Implementationandcontrol(ProductionActivityControl)
PAC
c.
Inventorymanagement
Providebufferagainstthedifferencesindemandratesand
productionrates
ThereareFiveBasicInputstothemanufacturingplanningandcontrol
systemMPC:
ProductDescription(engineeringdrawings,specificationsand
billofmaterialBOM),
Processspecifications,
Standardtimeneededtoperformoperations,
Availablefacilities,and
QuantitiesRequired(independentdemand).
PhysicalSupply/Distribution
Includesallactivitiesinvolvedintransportinggoods,fromthesuppliertothe
beginningoftheproductionprocess,andfromtheendoftheproductionprocess
tothecustomer,including:
Transportation,
distributioninventory,
warehousing,
packaging,
materialshandling,and
orderentry.
MaterialManagementObjectives
Maximizeserviceandminimizecost.Theobjectiveistobeabletodeliverwhat
customerswant,whenandwheretheywantit,anddosoatminimumcost.
Toachievethisobjective,materialsmanagementmustmaketradeoffsbetweenthe
levelofcustomerserviceandthecostofprovidingthatservice.
Asarule,costsriseastheservicelevelincreases,andmaterialsmanagementmust
findthatcombinationofinputstomaximizeserviceandminimizecost.
MaterialManagementcandomuchtoimproveacompany'sprofit
P/LStatement
4/37
9/1/2015
P/LAftera10%reductioninmaterialsand5%indirectlabor
60%increaseinprofit
Togetthesameincreasebyincreasingsales
Profit=Sales(DirectMaterial+DirectLabor+200,000)
160,000=Sales0.5Sales0.2Sales200,000
360,000=0.3Sales
Sales=360000/0.3=$1,200,000
DirectMaterial=1,200,000x0.5=$600,000
DirectLabor=1,200,000x0.2=$240,000
2.ProductionPlanningSystem
2.1Introduction
Agoodplanningsystemmustanswerfourquestionsofpriorityandcapacity:
Whatarewegoingtomake?
Whatdoesittaketomakeit?
5/37
9/1/2015
Whatdowehave?
Whatdoweneed?
Priority
Asestablishedbythemarketplace,relatestowhatproductsareneeded,howmanyare
needed,andwhentheyareneeded.
Capacity
isthecapabilityofmanufacturingtoproducegoodsandservices(deliverables).It
dependsoncompanyresourcesandtheavailabilityofmaterialfromsuppliers.
2.2ManufacturingPlanningandControlSystem
TheFivemajorlevelsinthemanufacturingplanningandcontrolsystemare:
1.
StrategicBusinessPlan
2.
ProductionPlan(salesandoperationsplan)SOP
3.
MasterProductionScheduleMPS
4.
MaterialRequirementsPlanMRP
5.
PurchasingandProductionActivityControlPAC
Eachlevelvariesin
Purpose
Timespan(planninghorizon)
Levelofdetail
Planningcycle(Frequency).
Ateachlevel,threequestionsmustbeanswered:
Whataretheprioritieshowmuchofwhatistobeproducedandwhen?
Whatistheavailablecapacitywhatresourcesdowehave?
Howcandifferencesbetweenprioritiesandcapacityberesolved?
StrategicBusinessPlan
Itisseniormanagementsstatementofthebroaddirectionofthefirm,majorgoalsand
objectivesthecompanyexpectstoachieveoverthenexttwototenyearsormore.
Itisbasedonlongrangeforecastsandprovidesaframeworkthatsetsthegoalsand
objectivesforfurtherplanningbymarketing,finance,engineeringand
production/operations.Thelevelofdetailisnothigh.
Itisconcernedwithgeneralmarketandproductionrequirements.Itisoftenstatedin
dollarsratherthanunits.
ProductionPlan(PP)
Giventheobjectivessetbythestrategicbusinessplan,productionmanagementis
concernedwiththefollowing:
Thequantitiesofeachproductgrouporfamilythatmustbeproducedin
eachperiod,
Thedesiredinventorylevels,
Theresourcesofequipment,labor,andmaterialneededineachperiod
Theavailabilityoftheresourcesneeded.
Foreffectiveplanning,theremustbeabalancebetweenpriorityandcapacity.
Theplanninghorizonisusuallysixto18monthsandisreviewedperhapseach
monthorquarter.
MasterProductionSchedule(MPS)
MPSbreaksdowntheproductionplantoshow,foreachperiod,thequantityof
eachenditemtobemade.
InputstotheMPSare
Theproductionplan,
theforecastforindividualenditems,
salesorders,
inventories,and
existingcapacity.
ThelevelofdetailfortheMPSishigherthanfortheproductionplan.
Theplanninghorizonusuallyextendsfromthreeto18monthsbutprimarily
dependsonthepurchasingandmanufacturingleadtimes.
Masterschedulingdescribestheprocessofdevelopingamasterproductionschedule
Thetermmasterproductionscheduleistheendresultoftheprocess.
Plansarereviewedandchangedweeklyormonthly.
6/37
9/1/2015
MaterialRequirementsPlan(MRP)
MRPisaplanfortheproductionandpurchaseofthecomponentsand/orservices
usedinmakingtheitemsintheMPS.
TheMRPestablisheswhenthecomponentsandservicesareneededtomakeeach
enditem.
Thelevelofdetailishigh.
TheplanninghorizonissimilartoMPS,extendingfrom3to18months.
PurchasingandProductionActivityControl(PAC)
PACrepresentstheimplementationandcontrolphase(executionphase).
Purchasingisresponsibleforestablishingandcontrollingtheflowofrawmaterialsinto
thefactory.
PACisresponsibleforplanningandcontrollingtheflowofworkthroughthefactory.
Theplanninghorizonisveryshort
Thelevelofdetailishigh.
CapacityManagement
Ateachlevelinthemanufacturingplanningandcontrolsystem,thepriorityplan
mustbetestedagainsttheavailableresourcesandcapacityofthemanufacturing
system.
Thebasicprocessisoneofcalculatingthecapacityneededtomanufacturethepriority
planandoffindingmethodstomakethatcapacityavailable.
Ifthecapacitycannotbemadeavailablewhenneededthentheplansmustbe
changed.
2.3SalesandOperationsPlanning(SOP)
SOPisaprocessforcontinuallyrevisingthestrategicbusinessplanandcoordinating
plansofthevariousdepartments.
SOPisacrossfunctionalbusinessplanthatinvolvessalesandmarketing,product
development,operations,andseniormanagement.
Operationsrepresentssupply,marketingrepresentsdemand.
TheSOPistheforuminwhichtheproductionplanisdevelopedandadynamicprocess
inwhichthecompanyplansareupdatedonaregularbasis,atleastmonthly.
SOPhaseveralbenefits:
MeansofupdatingStrategicbusinessplan
Meansofmanagingchangeratherthanreactingtochange
Ensurethatvariousdepartmentplansarerealistic,coordinatedandsupportthe
businessplan
7/37
9/1/2015
Bettermanagementofproduction,inventoryandbacklog
2.4ManufacturingResourcePlanning(MRPII)
MRPIIisamastergameplanforalldepartmentsinthecompanyandworksfromthetop
downwithfeedbackfromthebottomup
Thisfullyintegratedplanningandcontrolsystemiscalledamanufacturingresource
planning,orMRPII,system.
ThephraseMRPIIisusedtodistinguishthemanufacturingresourceplan(MRPII)
fromthematerialsrequirementplan(MRP).
2.5EnterpriseResourcePlanning(ERP)
EnterpriseResourcePlanning(ERP)isanaccountingorientedinformationsystemfor
identifyingandplanningtheenterprisewideresourcesneededtomake,ship,and
accountforcustomerorders.
ERPencompassesthetotalcompanyandMRPIIismanufacturing.
2.6MakingtheProductionPlan
Basedonthemarketplanandavailableresources,theproductionplansetsthelimitsor
levelsofmanufacturingactivityforsometimeinthefuture.
Theproductionplansetsthegenerallevelsofproductionandinventoriesoverthe
planninghorizon.
Itsprimepurposeistoestablishproductionratesthatwillaccomplishtheobjectiveofthe
strategicbusinessplan,includinginventorylevels,backlogs(unfilledcustomerorders),
marketdemand,customerservice,lowcostplantoperation,laborrelations,andsoon.
Theplanmustextendfarenoughinthefuturetoplanforthelabor,equipment,facilities,
andmaterialneededtoaccomplishit.
EstablishingProductGroups
Forplanningpurposes,acommonunitorsmallnumberofproductgroupsbasedon
similarityofmanufacturingprocessesiswhatisneeded.
Manufacturingisconcernedmorewiththedemandforthespecifickindsofcapacity
neededtomaketheproductsthanwiththedemandfortheproduct.
Capacityistheabilitytoproducegoodsandservices.
Itmeanshavingtheresourcesavailabletosatisfydemand.
Capacitycanbeexpressedasthetimeavailableorasthenumberofunitsordollars
producedinagivenperiod.
Thedemandforgoodsmustbetranslatedintothedemandforcapacity.
Thisrequiresidentifyingproductgroups,orfamilies,ofindividualproductsbasedon
thesimilarityofmanufacturingprocess.
Usuallythefollowingcanbevariedtoadjustcapacity:
Peoplecanbehiredandlaidoff,overtimeandshorttimecanbeworked,and
shiftscanbeaddedorremoved.
Inventorycanbebuiltupinslackperiodsandsoldorconsumedduringhigh
demand.
Workcanbesubcontractedorextraequipmentleased.
Manufacturingmanagementisresponsiblefordeterminingtheleastcostalternative
consistentwiththegoalsandobjectivesofthebusiness.
BasicStrategies
Threeorfourbasicstrategiescanbeusedindevelopingaproductionplan:
Chase(demandmatching)strategyproducingtheamountdemandedatany
giventimeInventorylevelsremainstablewhileproductionvariestomeet
demand.
8/37
9/1/2015
Productionlevelingcontinuallyproducinganamountequaltothe
averagedemand.Companiescalculatetheirtotaldemandoverthetime
spanoftheplanand,ontheaverage,produceenoughtomeetit.
Productionlevelingmeansthecompanywilluseitsresourcesatalevel
rateandproducethesameamounteachdayitisoperating.The
advantageisthatitresultsinasmoothlevelofoperationthatavoidsthe
costsofchangingproductionlevels.Thedisadvantageisthatinventory
buildupduringperiodsoflowdemand
Subcontractingmeansproducingatthelevelofminimumdemandand
meetinganyadditionaldemandthroughsubcontracting.Costs
associatedwithexcesscapacityareavoided,andbecauseproductionis
leveled,therearenocostsassociatedwithchangingproductionlevels.
Themaindisadvantageisthatthecostofpurchasingmaybegreater
thaniftheitemweremadeintheplant
Hybridstrategyisacombinationoftheotherthreestrategies.
Productionmanagementisresponsibleforfindingthecombinationof
strategiesthatminimizesthesumofallcostsinvolved,providingthe
levelofservicerequired,andmeetingtheobjectivesofthefinanceand
marketingplans.
Theobjectiveindevelopingaproductionplanistominimizethecostsofcarrying
inventory,changingproductionlevels,andstockingout(notsupplyingthecustomer
whatiswantedwhenitiswanted).Theinformationneededtomakeaproductionplan
isasfollows:forecastbyperiodfortheplanninghorizon,openinginventory,desired
endinginventory,andanypastduecustomerorders(backorders).
DevelopingaMaketoStockProductionPlan
Productsaremadeandputintoinventorybeforeanorderisreceived.Saleand
deliveryaremadefrominventory.
Maketostockwhen
demandisfairlyconstantandpredictable,
therearefewproductoptions,
deliverytimesdemandedbythemarketplacearemuchshorterthanthetime
neededtomaketheproduct,and
producthasalongshelflife.
Levelproductionplan
Thegeneralprocedurefordevelopingaplanforlevelproductionistotaltheforecast
demandfortheplanninghorizon,determinetheopeninginventoryandthedesired
endinginventory,
calculatethetotalproductionrequired
(TotalProduction=totalforecast+backorders+endinginventoryopening
inventory),calculatetheproductionrequiredeachperiodbydividingthetotal
productionbythenumberofperiods,andcalculatetheendinginventoryfor
eachperiod.
9/37
9/1/2015
ExampleonLevelproductionplan
OpeningInventory=100
RequiredEndInventory=80
EqualNumberofworkingdays/month
NoBackorders
Forecastasinthetablebelow
Inventorycarryingcost=$5perunit
Required
Productionperperiod
EndingInventoryperperiod
TotalCarryingcost
Answer
TotalProductionRequired=600+80100=580Unit
Production/period=580/5=116Unit/month
EndingInventoryaftereachperiod=OpeningInventory+Production
Demand
EndingInventoryafterthefirstperiod=100+116110=106Unit
EndingInventoryafterthesecondperiod=106+116120=102Unit
TotalCarryingcost=(106+102+88+84+80)x5=$2300
1.Level
Period
Forecast
Production
EndingInventory
InventCarryingCost
100
1
110
116
106
530
2
120
116
102
510
3
130
116
88
440
4
120
116
84
420
5
120
116
80
400
Total
600
580
460
2300
5
120
120
0
80
400
0
400
Total
600
580
60
400
2000
1200
3200
Chasestrategy
ExampleonChaseproductionplan
OpeningInventory=100
RequiredEndInventory=80
Productionlevelintheperiodbeforethefirstperiod=100
Costofchangingproductionlevel=$20perunit
2.Chase
Period
Demand
Production
100
ChangeinProduction
EndingInventory
100
InventCarryingCost
ChangeinProductionCost
TotalCost
1
110
90
10
80
400
200
600
2
120
120
30
80
400
600
1000
3
130
130
10
80
400
200
600
4
120
120
10
80
400
200
600
Therequiredproductionataperiod=Demand(Inventorytheperiod
beforerequiredInventorythisperiod)
Therequiredproductioninthefirstperiod=100(10080)=90Unit
DevelopingaMaketoOrderProductionPlan
Waituntilanorderisreceivedfromacustomerbeforestartingtomakethegoods.
Maketoorderenvironmenthasbacklogofunfilledcustomerordersinsteadofan
inventoryoffinishedgoods.
Thebacklogwillbefordeliveryinthefutureanddoesnotrepresentordersthatarelate
orpastdue.
Firmsmaketoorderwhen:
goodsareproducedtocustomerspecification,
thecustomeriswillingtowaitwhiletheorderisbeingmade,
theproductisexpensivetomakeandtostore,and
severalproductoptionsareoffered.
Assembletoorder
Whereseveralproductoptionsexistandwherethecustomerisnotwillingtowaituntil
theproductismade,manufacturersproduceandstockstandardcomponentparts.
Whenanorderisreceived,theyassemblethecomponentpartsfrominventory.
Sincethecomponentsarestocked,thefirmneedsonlytimetoassemblebefore
10/37
9/1/2015
deliveringtheproduct.
Assembletoorderisasubsetofmaketoorder.
Tomakeaproductionplan,onewillneed
aforecastbyperiodfortheplanninghorizon,
anopeningbacklogofcustomerordersand
desiredendingbacklog.
Todevelopalevelproductionplan,
totalforecastdemandfortheplanninghorizon,
determinetheopeningbacklogandthedesiredendingbacklog,
Calculatetotalproductionrequired
Totalproduction=totalforecast+openingbacklogendingbacklog),
calculatetheproductionrequiredeachperiod,and
spreadtheexistingbacklogovertheplanninghorizonaccordingtodue
dateperperiod.
Example
OpeningBacklog=100
ExpectedDemand=100perWeek
RequiredEndingBacklog=80
Answer
Totalproduction=Totalforecast+OpeningbacklogEndingbacklog)
TotalProductionRequired=500+10080=520
Weeklyproduction=520/5=104
Projectedbacklog=Oldbacklog+ForecastProduction
Projectedbacklogweek1=100+100104=96
Projectedbacklogweek1=96+100104=92
MakeToOrder
Period
Forecast
PlannedProduction
ProjectedBacklog
100
1
100
104
96
2
100
104
92
3
100
104
88
4
100
104
84
5
100
104
80
Total
500
520
440
ResourcePlanning
Oncethepreliminaryproductionplanisestablished,itmustbecomparedtothe
existingresourcesofthecompany.
Ifenoughcapacitytomeettheproductionplancannotbemadeavailable,theplan
mustbechanged.
Resourcebillshowsthequantityofcriticalresources(materials,labor,andbottleneck
operations)neededtomakeoneaverageunitoftheproductgroup.
3.MasterScheduling
a.Introduction
MasterproductionscheduleMPSisthenextstepinMPCthemanufacturingplanning
andcontrolprocess
MPSisameansofCommunication,aLinkorContractbetweenMarketingand
Manufacturing.
TheMPSreportincludesanATPAvailabletoPromisefiguretoenablerealistic,
achievabledeliverypromisestobemadetocustomers.
Itisaplanofwhatistobeproducedandwhen
Itisanagreeduponplanbetweenmarketingandmanufacturing.
TheMPSisaPriorityPlanforManufacturing.
Itisnotmeanttoberigid.Itisthebasistomakechangesthatareconsistent
withthedemandsofthemarketplaceandthecapacityofmanufacturing.
ItbreaksdownthePPintotheRequirementsforIndividualEndItems,ineach
family,bydateandquantity.
11/37
9/1/2015
ThesumofallFamilyMPSitemsmustequaltheagreedSOPSalesandOperations
PlanforthatFamilyovereachplanningperiod(normallyamonthor4weekperiod).
MPSapplicationusuallydependsonproductionenvironment(MTS,ATO,andMTO)
TheMPSdrivestheMaterialRequirementsPlanMRP
ItemsplannedattheMPSlevelareexplodedbyMRPtoproducethedetailmaterialand
capacityrequirements.
Asascheduleofitemstobebuilt,theMPSandBOMBillsOfMaterialdeterminewhat
componentsareneededfrommanufacturingandpurchasing.
b.Definitions
TheMPSisalineonthemasterschedulegrid(MPSMatrix)thatreflectsthe
anticipatedbuildscheduleforthoseitemsassignedtothemasterscheduler.
Themasterschedulermaintainsthisschedule,andinturn,itbecomesasetof
planningnumbersthatdrivesMRPMaterialRequirementsPlanning.
Itrepresentswhatthecompanyplanstoproduceexpressedinspecific
configurations,quantities,anddates.
TheMPSisnotasalesitemforecastthatrepresentsastatementofdemand.
TheMPSmusttakeintoaccounttheforecast,theproductionplan,andother
importantconsiderationssuchasbacklog,availabilityofmaterial,availabilityof
capacity,andmanagementpoliciesandgoals.(APICS)
c.MPSObjectives
MPSObjectiveistoBalancetheDemand(Priorities)setbythemarketplacewiththe
availabilityofmaterials,labor,andequipment(Capacity)ofmanufacturing.
TheObjectiveindevelopinganMPSare:
toMaintainthedesiredlevelofCustomerServiceby
maintainingfinishedgoodsInventoryLevelsor
bySchedulingtomeetcustomerdeliveryrequirements,
tomakethebestuseofmaterial,labor,andequipment,and
tomaintaininventoryinvestmentattherequiredlevels.
Constraintstheplanmustbewithinthecapacityofmanufacturing,andbewithinthe
guidelinesoftheproductionplan.
d.PurposeofMPS
DevelopmentofMasterProductionSchedule(MPS)
Projectsinventory/backloglevels
Drivesdetailedscheduling&planning
Orderpromising
Assistsinassigningjobprioritiesonfacilityfloor
e.InputsforMPS
TheInformationNeededtodevelopanMPSisprovidedby:
TheProductionPlanPP,
Forecastsforindividualenditems,
ActualOrdersreceivedfromcustomersandforstockreplenishment,
InventoryLevelsforindividualenditems,and
CapacityRestraints
InventoryLevelandTargets(forMTS)
BacklogLevelsandTargets(forATO)
TimeFencepolicies
Interplantandintraplantorders
Servicepartsordersandforecasts
DistributionRequirements
PlanningBillsOfMaterialsBOM
Actualproductionandsupplylevels
f.Outputs
MasterProductionScheduleMPS
ProjectInventorylevelsPAB(forMTS)
ProjectedBackloglevels(forATO)
12/37
9/1/2015
FutureavailabilityofproductsATP
Informationforpromisingfuturecustomerorders
RelationshiptoProductionPlan
Seeexamplesonpages46through49.
ThethreestepsinpreparinganMPSaretodevelopapreliminaryMPS,tocheckthe
preliminaryMPSagainstavailablecapacity,andtoresolvedifferencesbetweenthe
preliminaryMPSandcapacityavailability(roughcutcapacityplanning).(seeexampleon
page50)
Roughcutcapacityplanningcheckswhethercriticalresources(bottleneckoperations,
labor,andcriticalmaterials)areavailabletosupportthepreliminarymasterproduction
schedules.Theprocessissimilartoresourcerequirementsplanningusedinthe
productionplanningprocess,exceptwenowworkwithaproductandnotafamilyor
products.Theresourcebillisforasingleproduct(figure3.2).
Ifavailablecapacityisgreaterthantherequiredcapacity,theMPSisworkable.Ifnot,
methodsofincreasingcapacityhavetobeinvestigated(overtime,additionalworkers,
routingthroughalternateworkcenters,orsubcontracting).Ifnot,revisetheMPS.
MPSisjudgedbythreecriteria:resourceuse,customerservice,andcost.Doesitmake
thebestuseofresources?Willduedatesbemetandwilldeliveryperformancebe
acceptable?Istheplaneconomical,orwillexcesscostsbeincurredforovertime,
subcontracting,expediting,ortransportation?
TheMPSshouldrepresentasefficientlyaspossiblewhatmanufacturingwillmake.Iftoo
manyitemsareincluded,itwillleadtodifficultiesinforecastingandmanagingtheMPS.
Ineachofthemanufacturingenvironmentsmaketostock,maketoorder,and
assembletoordermasterschedulingshouldtakeplacewherethesmallestnumberof
productoptionsexists(seefigure3.3).
Thelaststep,assemblytocustomerorder,isgenerallyplannedusingafinalassembly
schedule.Itisusedwhentherearemanyoptionsanddifficulttoforecastwhich
combinationthecustomerswillwant.
Theplanninghorizonisthetimespanwhichcoversaperiodatleastequaltothetime
requiredtoaccomplishtheplan(seefigure3.5).Theplanninghorizonisusuallylonger
becausethelongerthehorizon,thegreaterthevisibilityandthebettermanagements
abilitytoavoidfutureproblemsortotakeadvantageofspecialcircumstances.Asa
minimum,theplanninghorizonforafinalassemblyschedulemustincludetimeto
assembleacustomersorder.Itdoesnotneedtoincludethetimenecessaryto
manufacturethecomponents.Thattimewillbeincludedintheplanninghorizonofthe
MPS.
ProductionPlanning,MasterScheduling,andSales
Theproductionplanreconcilestotalforecastdemandwithavailableresources.
TheMPSisbuiltfromforecastsandactualdemandsforindividualenditems.It
reconcilesdemandwiththeproductionplanandwithavailableresourcestoproducea
planthatmanufacturingcanfulfill.TheMPSisaplanforwhatproductioncanandwilldo.
Inamaketostockenvironment,customerordersaresatisfiedfrominventory.However,
inmaketoorderorassembletoorderenvironments,demandissatisfiedfromproductive
capacity.Salesanddistributionneedtoknowwhatisavailabletosatisfycustomer
demand.Asordersarereceived,theyconsumetheavailableinventoryorcapacity.Any
partoftheplanthatisnotconsumedbyactualcustomerordersisavailabletopromiseto
customers.
Availabletopromise(ATP)isthatportionofafirmsinventoryandplannedproduction
thatisnotalreadycommittedandisavailabletothecustomer(seeexampleson57,58&
59).TheATPiscalculatedbyaddingscheduledreceiptstothebeginninginventoryand
subtractingactualordersscheduledbeforethenextscheduledreceipt.
Ascheduledreceiptisanorderthathasbeenissuedeithertomanufacturingortoa
supplier.Ifcustomerordersaregreaterthanthescheduledreceipts,thentheprevious
ATPisreducedbytheamountneeded.
Projectedavailablebalance(PAB)iscalculatedbasedonthelargerofactualcustomer
ordersandtheforecast.ThePABiscalculatedinoneoftwoways,dependingonwhether
theperiodisbeforeorafterthedemandtimefence.Forperiodsbeforethedemandtime
fence:
PAB=priorperiodPABoronhandbalance+MPScustomerorders
Forperiodsafterthedemandtimefence,forecastwillinfluencethePABsoitis
calculatedusingthegreateroftheforecastorcustomerorders.
PAB=priorperiodPAB+MPSgreaterofcustomerordersorforecast
Thedemandtimefenceisthenumberofperiods,beginningwithperiod1,inwhich
changesarenotexceptedduetoexcessivecostcausedbyscheduledisruption.
Theplanninghorizonmustbeatleastaslongasthecumulativeleadtimefortheproduct
structure.Thecostofmakingachangeincreasesandthecompanysflexibility
decreasesasproductiongetsclosertothedeliverytime.Faroffchangescanbemade
withminimalcostordisruptiontomanufacturing,butthenearertodeliverydate,themore
disruptiveandcostlychangeswillbe.
ChangestotheMPSwilloccurduetocustomerordercancellationorchange,changing
capacity,supplierproblems,andexcessiveprocessscrap.
Changestoproductionschedulescanresultincostincreasesduetorerouting,
rescheduling,extrasetups,expediting,andbuildupofWIPinventorydecreased
13/37
9/1/2015
customerserviceandlossofcredibilityfortheMPSandtheplanningprocess.Changes
totheMPSmustbemanagedanddecisionsmadewithfullknowledgeofthecosts
involved.
Frozenzonecapacityandmaterialsarecommittedtospecificorders,changesresult
inexcessivecosts,andsoseniormanagementapprovalisrequiredtomakechanges.
Theextentofthefrozenzoneisdefinedbythedemandtimefence.
Slushyzonecapacityandmaterialsarecommittedtolessextent.Salesand
manufacturingnegotiatechanges.Theextentoftheslushyzoneisdefinedbythe
planningtimefence.
LiquidzoneAnychangecanbemadetotheMPSaslongasitiswithinthelimitsset
bytheproductionplan.
4.MaterialRequirementsPlanning
Introduction
Materialrequirementsplanning(MRP)establishesaschedule(priorityplan)showing
thecomponentsrequiredateachleveloftheassemblyand,basedonleadtimes,
calculatesthetimewhenthesecomponentswillbeneeded.
Thetwotypesofdemandareindependentanddependent.Independentdemandisnot
relatedtothedemandforanyotherproduct.Masterproductionscheduleitemsare
independentdemanditems.Sinceindependentdemandisnotrelatedtothedemandfor
anyotherassemblyorproduct,itmustbeforecast.Dependentdemandisdirectlyrelated
tothedemandforhigherlevelassembliesorproductsandcanbecalculated.MRPis
designedtodothiscalculation.
Anitemcanhavebothdependentandindependentdemand.Aserviceorreplacement
partmayhaveboth.
Dependencycanbebothhorizontalandverticalasillustratedinfigure4.1,ProductTree.
Plannersareconcernedwithhorizontaldependencywhenapartisdelayedorthereisa
shortageandotherpartswillhavetoberescheduled.
Materialrequirementsplanninghastwomajorobjectives:determinerequirementsand
keepprioritiescurrent.Thematerialrequirementsplansobjectiveistodetermine
componentsareneededtomeetthemasterproductionscheduleand,basedonlead
time,tocalculatetheperiodswhenthecomponentsmustbeavailable.Itmustdetermine
whattoorder,howmuchtoorder,whentoorder,andwhentoscheduledelivery.The
demandfor,andsupplyof,componentschangedaily.Itmustbeabletoaddanddelete,
expedite,delay,andchangeorders
Themasterproductionscheduledrivesthematerialrequirementsplan.TheMRPisa
priorityplanforthecomponentsneededtomaketheproductsintheMPS.Theplanis
validonlyifcapacityisavailablewhenneededtomakethecomponents,andtheplan
mustbecheckedagainstavailablecapacity.Materialrequirementsplanningdrives,oris
inputto,productionactivitycontrol(PAC)andpurchasing.MRPplansthereleaseand
receiptdatesfororders.PACandpurchasingmustplanandcontroltheperformanceof
theorderstomeettheduedates.
ThethreeinputstotheMRPsystemarethemasterproductionschedule,theinventory
recordsandthebillsofmaterial.Therearetwokindsofinventoryrecordsneeded.The
firstiscalledplanningfactorsandincludesinformationsuchasorderquantities,lead
times,safetystock,andscrapwhichdonotchangefrequently.Thesecondkindof
informationnecessaryisonthestatusofeachitem:howmuchisavailable,howmuchis
allocated,andhowmuchisavailableforfuturedemand.Thesearemaintainedinan
inventoryrecordfileoritemmasterfile.
BillsofMaterial
Thebillofmaterialisalistingofallthesubassemblies,intermediates,partsandraw
materialsthatgointomakingtheparentassemblyshowingthequantitiesofeach
requiredtomakeanassembly.Itdoesnotshowthestepsorprocessusedtomakethe
parentorthecomponents(routing).Thebillofmaterialshowsallthepartsrequiredto
makeoneoftheitems.Eachpartoritemhasonlyonepartnumberandthepartnumber
isuniquetothatpart.Apartisdefinedbyitsform,fitorfunction.
ProductTreeseefigure4.4
SingleandMultilevelbillsseefigures4.4&4.5.Oneconventionusedwithmultilevel
billsofmaterialisthatthelastitemsonthetreeareallpurchaseditems.Eachlevelin
thebillofmaterialisassignedanumberstartingwithzeroatthetopandworkingdown.
Anassemblyisconsideredaparent,andtheitemsthatcompriseitarecalledits
components.
Amultiplebillisusedwhencompaniesusuallymakemorethanoneproduct,andthe
samecomponentsareoftenusedinseveralproducts.
Asinglelevelbillofmaterialcontainsonlytheparentanditsimmediatecomponents.
Thecomputerstoresinformationdescribingtheproductstructureasasinglelevelbill.A
seriesofsinglelevelbillsisneededtocompletelydefineaproduct.Thesecanbe
chainedtogethertoformamultilevel,orindented,bill.Thereareseveraladvantagesto
usingsinglelevelbillsincludingthefollowing:duplicationofrecordsisavoided,the
numberofrecordsand,incomputersystems,thefilesizeisreducedbyavoiding
duplicationorrecords,andmaintainingbillsofmaterialissimplified.
Inanindentedbillofmaterial,thecomponentsoftheparenttablearelistedflushleftand
theircomponentsareindented(seefigure4.8).
14/37
9/1/2015
SummarizedpartslistisaBOMlistingallthepartsneededtomakeonecomplete
assembly(seefigure4.3).
Planningbillsareanartificialgroupingofcomponentsforplanningpurposes.Theyare
usedtosimplifyforecasting,masterproductionscheduling,andmaterialrequirements
planning.Theydonotrepresentbuildableproductsbutanaverageproduct(seefigure
4.9).
Alistingofalltheparentsinwhichacomponentisusediscalledawhereusedreport.
Whereusedreportsgivetheparentsforacomponentwhereasthebillgivesthe
componentsforaparent.Apeggingreportissimilartoawhereusedreport.Thepegging
reportshowsonlythoseparentsforwhomthereisanexistingrequirement.
Thebillofmaterialisoneofthemostwidelyuseddocumentsinamanufacturing
company.Someofthoseusesare:productdefinition,engineeringchangecontrol,
serviceparts,planning,orderentry,manufacturingandcosting.Maintainingbillsof
materialandtheiraccuracyisextremelyimportant.
MaterialRequirementsPlanningProcess
Leadtimeisthespanoftimeneededtoperformaprocess.Inmanufacturingitincludes
timefororderpreparation,queuing,processing,moving,receiving,andinspecting.
Explodingistheprocessofmultiplyingtherequirementsbytheusagequantityand
recordingtheappropriaterequirementsthroughouttheproducttree.
Offsettingistheprocessofplacingtheexplodedrequirementsintheirproperperiods
basedonleadtime.
Plannedorderisasuggestedorderquantity,releasedate,andduedatecreatedbythe
planningsystemslogicwhenitencountersnetrequirementsinprocessingMRP.
Plannedorderreceiptisthequantityplannedtobereceivedatafuturedateasaresult
ofaplannedorderrelease.Plannedorderreceiptsdifferfromscheduledreceiptsin
thattheyhavenotbeenreleased.
Plannedorderreleaseisderivedfromplannedorderreceiptsbytakingtheplanned
receiptquantityandoffsettingbytheappropriateleadtime.
Netrequirements=grossrequirementsavailableinventory
Theplannedorderreleaseoftheparentbecomesthegrossrequirementofthe
component.
Plannedorderreleasesarejustplannedtheyhavenotbeenreleased.Itisthe
responsibilityoftheplannertoreleaseplannedorders.Releasinganordermeansthat
authorizationisgiventopurchasingtobuythenecessarymaterialortomanufacturingto
makethecomponent.Whentheauthorizationtopurchaseormanufactureis
released,theplannedorderreceiptiscanceled,andascheduledreceiptiscreated
initsplace.Scheduledreceiptsareordersplacedonmanufacturingoronavendorand
representacommitmenttomakeorbuy.Whenamanufacturingorderisreleasedthe
computerwillallocatetherequiredquantitiesofaparentscomponentstothatorder.This
doesnotmeanthecomponentsarewithdrawnfrominventorybutthattheprojected
availablequantityisreduced.Theallocatedquantityofcomponentsisstillininventory
buttheyarenotavailableforotherorders.
ScheduledreceiptsontheMRPrecordareopenordersonfactoryoravendorandare
theresponsibilityofpurchasingandorproductionactivitycontrol.Whenthegoodsare
receivedintoinventoryandavailableforuse,theorderisclosedout,andthescheduled
receiptdisappearstobecomepartoftheonhandinventory.
Thecalculationfornetrequirementscannowbemodifiedtoincludescheduledreceipts.
Netrequirements=grossrequirementsscheduledreceiptsavailableinventory
Reviewandunderstandfigure4.15andthesixpointslistedonpages90&91.
TheMRPpriorityplanmustbecheckedagainstavailablecapacity.AttheMRPplanning
level,theprocessiscalledcapacityrequirementsplanning(CRP).Ifthecapacityis
available,theplancanproceed.Ifnot,eithercapacityhastobemadeavailableorthe
priorityplanschanged.
Acomponentmayresideonmorethanonelevelinabillofmaterial.Ifthisisthecase,it
isnecessarytomakesurethatallgrossrequirementsforthatcomponenthavebeen
recordedbeforenettingtakesplace.Theprocessofcollectingthegrossrequirements
andnettingcanbesimplifiedbyusinglowlevelcodes.Thelowlevelcodeisthelowest
levelonwhichapartresidesinallbillsofmaterial.Lowlevelcodesaredeterminedby
startingatthelowestlevelofabillofmaterialand,workingup,recordingthelevelagainst
thepart.Reviewexample4.17andtheprocedureforcalculatingthenetrequirementson
pages92&93.Thelowlevelcodesareusedtodeterminewhenapartiseligiblefor
nettingandexploding.Inthisway,eachpartisnettedandexplodedonlyonce.Thesame
procedureusedforasinglebillofmaterialcanbeusedwhenmultipleproductsarebeing
manufactured.Allbillsmustbenettedandexplodedlevelbylevelaswasdonefora
singlebill.
Scrapisusuallystatedasascrapallowance
IndepthMRPExplanation(Seealsohttp://www.me.umist.ac.uk/mrp/index.htm)
MRPExploding,nettingandoffsetting
ThefollowinginformationcomesfromBasicsofSupplyChainManagementby
LarryFrendenallofClemsonUniversity.IthelpstobeginwiththeBOMto
understandtheconnectionithaswithMRPplanningAbillofmaterials
(BOM)highestitemistheenditemthatisscheduledbytheMPS.Thisenditem
isalwaysplacedatthetopoftheBOMinwhatisdesignatedaslevel0.The
BOMisbasicallythelistofingredientstomanufacturetheenditem.Itisreadin
15/37
9/1/2015
descendingorderbeginningwithlevel0.Tomake1A,weneed2Bsand1C(
noticethenumbersgiveninthebracketsnexttotheletterinsidethecircle).As
wereaddowntheBOMweoftenusetheterminologyofparentchild.IntheBOM
anitemwhichiscomposedofoneormorecomponentsisreferredtoastheparent
ofthosecomponents.Thecomponentsare,ofcourse,referredtoasthechildren.
InthisBOMbothBandCarechildrenarechildrenoftheA.Bisitselfaparentof
DandEwhoareitschildren.Tomake1B,weneedtohave1Dand2Es.Finally
,tomakeeachEweneedtohave3Fs.C,DandFdonothaveanychildrenin
thisBOM,becausetheyarepurchasedoutsideofthefirm.Thatdoesnotmean
thattheyaresimpleparts.Forexample,Ccouldbeamastercylinderforabrake
assemblythatwepurchasefromsomeoneelse.
MRPLogic
MRPplanningstartswiththeenditemasgivenintheMPS,anddetermineswhen
thatitemmustbestartedtobecompletedontime.Thatdateisthenusedtoas
theorderduedateforthenextlevelintheBOM.Thelogicworksbackwardsuntil
itreachestheendoftheBOM.ThisisillustratedwithaGanttchartinFigure2.
TheGanttchartshowsthatbeforeonestepintheprocesscanbegin,othersteps
needtobedonecompletely.Forexample,beforeAcanbegin,bothBandC
havetobecompletedandwaitingintheshop.TheGanttchartalsoshowsthatfor
Atobecompletedontime,Fhastobeinstockandreadynow,becausethereis
notimeleftintheschedulefordelays.
TheconstructionofthematerialsrequirementsplanisillustratedinFigure3for
enditemA.Notethe100ofitemAarerequiredinperiod5andthereisnoneon
handrightnowandnoneisscheduledtobereceived,sotheProjectedOnHand
inperiod1is0.SincethereisnoGrossRequirementsforAuntilperiod5,the
ProjectedOnHandstaysat0untilthen,whenitbecomesanegative100or
(100).TohaveenoughAinperiod5,weneedtohaveaPlannedOrderReceiptfor
Ainperiod5.SinceitemAhasa1weekleadtimethismeansthatweneedto
haveaPlannedOrderReleaseinperiod4.So,weschedule100tobereleasedin
period4.
AsshowninFigure4,thisMRPexplosioncontinuesdownthroughtheBOMuntil
itreleasesandquantityneededforeachitemintheBOMarecalculated.Itisvery
importanttonotethattheMRPexplosionishierarchical.Thismeansthat
everythingonlevel1iscalculatedbeforeanythingiscalculatedforlevel2.etc.So
,inFigure4thegrossrequirementsforBandCarecalculatedbeforethe
requirementsforlowerlevelitemssuchasD.Since2BsareneededforeachA,
thereisagrossrequirementfor200Binperiod4.Followingthelogicdescribedfor
A,thisresultsinagrossrequirementfor200Binperiod3.Inasimilarmannerwe
calculatethegrossrequirementforCinperiod4,whichis100,sinceweonly
need1CforeachA.ThegrossrequirementforDisbasedontheplannedorder
releaseofitsparentB.So,thegrossrequirementforDinperiod3is200.Since
thereare100Dinstock,theplannedorderreleaseforDisjust100inperiod2.
InasimilarmannerwecalculatethegrossrequirementsforitemE,basedonthe
plannedorderreleasesofitsparentB.Ehadascheduledreceiptof100inperiod
2,whichwassubtractedfromthegrossrequirementsof200inperiod3.This
combinedwiththeplannedreceiptof100inperiod3combinedtogiveaplanned
onhandof0itemsofEininventoryinperiod3.AsshownintheBOM,Eisthe
parentofF,soEsplannedorderreleasebecomesthegrossrequirementsofF.F
hasagrossrequirementof300inperiod2,since3FarerequiredforeveryE.
Since200Fareonhandand100morewillbereceivedinperiod2,thereisnonet
requirementforFinperiod2.
UsingtheMaterialRequirementsPlan
Thebasicresponsibilitiesofaplannerareto:
(1)Launch(release)orderstopurchasingormanufacturing.
(2)Rescheduleduedatesofopen(existing)ordersasrequired.
(3)Reconcileerrorsandtrytofindtheircause.
(4)Solvecriticalmaterialshortagesbyexpeditingorreplanning.
(5)Coordinatewithotherplanners,masterproductionschedulers,productionactivity
control,andpurchasingtoresolveproblems.
Thematerialplannerworkswiththreetypesoforders:planned,released,andfirm.
Plannedordersareautomaticallyscheduledandcontrolledbythecomputer.Asgross
requirements,projectedavailableinventory,andscheduledreceiptschange,the
computerrecalculatesthetimingandquantitiesofplannedorderreleases.TheMRP
programrecommendstotheplannerthereleaseofanorderwhentheorderentersthe
actionbucketbutdoesnotreleasetheorder.
Releasing,orlaunching,aplannedorderistheresponsibilityoftheplanner.When
released,theorderbecomesanopenordertothefactoryortopurchasingandappearson
theMRPrecordasascheduledreceipt.Itisthenunderthecontroloftheplanner,who
mayexpedite,delay,orevencanceltheorder.
ThecomputerbasedMRPsystemautomaticallyrecalculatesplannedordersasthegross
requirementschange.Attimes,theplannermayprefertoholdaplannedorderfirm
againstchangesinquantityandtimerdespitewhatthecomputercalculates.Thismight
benecessarybecauseoffutureavailabilityormaterialorcapacityorspecialdemandson
thesystem.Theplannercantellthecomputerthattheorderisnottobechangedunless
theplanneradvisesthecomputertodoso.Theorderisfirmedorfrozenagainstthe
logicofthecomputer.Onemethodofreducingsystemnervousnessisfirmplanned
orders.
MRPdoesprintactionorexceptionmessagessuggestingthattheplannershouldact
16/37
9/1/2015
andwhatkindofactionmightbeappropriate.Transactionmessagesmeanthatthe
MRPsoftwaremustbetoldofallactionstakenthatwillinfluencetheMRPrecords,such
asreceivingorders,releasingorders,etc.
Plannersreceivefeedbackfrommanysourcesandmustevaluatethisfeedbackandtake
correctiveactionifnecessary.
Priorityreferstomaintainingthecorrectduedatesbyconstantlyevaluatingthetruedue
dateneedforreleasedordersand,ifnecessary,expeditingordeexpediting.
5.CapacityManagement
Introduction
Withouttheresourcestoachievethepriorityplan,theplanwillbeunworkable.Capacity
managementisconcernedwithsupplyingthenecessaryresources.
DefinitionofCapacity
Capacityistheamountofworkthatcanbedoneinaspecifiedtimeperiod.Itisthe
capabilityofaworker,machine,workcenter,plan,ororganizationtoproduceoutputper
periodoftime.Capacityisarateofdoingwork,notthequantityofworkdone.
Capacityavailableisthecapacityofasystemorresourcetoproduceaquantityof
outputinagiventimeperiod.Capacityrequiredisthecapacityofasystemorresource
neededtoproduceadesiredoutputinagiventimeperiod.Loadistheamountofreleased
andplannedworkassignedtoafacilityforaparticulartimerperiod.Itisthesumofallthe
requiredcapacities(seefigure5.1).
Capacitymanagementisresponsiblefordeterminingthecapacityneededtoachievethe
priorityplansaswellasproviding,monitoring,andcontrollingthatcapacitysothepriority
plancanbemet.Itisthefunctionofestablishing,measuring,monitoring,andadjusting
limitsorlevelsofcapacityinordertoexecuteallmanufacturingschedules.Capacity
planningistheprocessofdeterminingtheresourcesrequiredtomeetthepriorityplan
andthemethodsneededtomakethatcapacityavailable.Capacitycontrolistheprocess
ofmonitoringproductionoutput,comparingitwithcapacityplans,andtakingcorrective
actionwhenneeded.
CapacityPlanning
Capacityplanninginvolvescalculatingthecapacityneededtoachievethepriorityplan
andfindingwaysofmakingthatcapacityavailable.Priorityplansareusuallystatedin
somestandardunitofoutput.Ifthereisnocommonunit,capacitymustbestatedasthe
hoursavailable.Thepriorityplanmustthenbetranslatedintohoursofworkrequiredand
comparedtothehoursavailable.Theprocessofcapacityplanningisasfollows:
a.
Determinethecapacityavailableateachworkcenterineachtimeperiod.
b.
Determinetheloadateachworkcenterineachtimeperiod.
Translatethepriorityplanintohoursofworkrequiredateachwork
centerineachtimeperiod.
Sumupthecapacitiesrequiredforeachitemoneachworkcenterto
determinetheloadoneachworkcenterineachtimeperiod.
c.
Resolvedifferencesbetweenavailablecapacityandrequiredcapacity.If
possible,availablecapacityshouldbeadjustedtomatchtheload.
Otherwise,thepriorityplansmustbechangedtomatchtheavailable
capacity.
Resourceplanninginvolveslongrangecapacityresourcerequirementsandisdirectly
linkedtoproductionplanning.Resourceplanninginvolveschangesinmanpower,capital
equipment,productdesign,orotherfacilitiesthattakealongtimetoacquireand
eliminate.
Roughcutcapacityplanningtakescapacityplanningtothenextlevelofdetail.The
masterproductionscheduleistheprimaryinformationsource.Thepurposeofroughcut
capacityplanningistocheckthefeasibilityoftheMPS,providewarningsofany
bottlenecks,ensureutilizationofworkcenters,andadvisevendorsofcapacity
requirements.
Figure5.2showstherelationshipbetweenthedifferentlevelsofpriorityplanningand
capacityplanning.
CapacityRequirementsPlanning(CRP)
Itistheprocessofdeterminingindetailtheamountoflaborandmachineresources
neededtoachievetherequiredproduction.PlannedordersfromtheMRPandopenshop
orders(scheduledreceipts)areconvertedintodemandfortimeineachworkcenterin
eachtimeperiod.Thisprocesstakesintoconsiderationtheleadtimesforoperationsand
offsetstheoperationsatworkcentersaccordingly.
TheinputsneededforaCRPareopenshoporders,plannedorderreleases,routings,
timestandards,leadtimes,andworkcentercapacitiescontainedinthecomputerfiles.
17/37
9/1/2015
Aroutingisthepaththatworkfollowsfromworkcentertoworkcenterasitiscompleted.
Aroutingfileshouldexistforeverycomponentmanufacturedandcontainsthe
operationstobeperformed,thesequenceofoperations,theworkcenterstobeused,the
possiblealternateworkcenters,thetoolingneededateachoperation,andstandardtimes
(setupandruntimes)perpiece.
Aworkcenterfilecontainsinformationonthecapacityandmove,wait,andqueuetimes
associatedwiththecenter.Themovetimeisthetimenormallytakentomovematerial
fromoneworkstationtoanother.Thewaittimeisthetimeajobisataworkcenterafter
completionandbeforebeingmoved.Thequeuetimeisthetimeajobwaitsatawork
centerbeforebeinghandled.Leadtimeisthesumofqueue,setup,run,wait,andmove
times.
Anotherpieceofinformationneededisthenumberofworkingdaysavailable.Understand
shopcalendarinfigure5.4.
CapacityRequired(Load)
Determiningthecapacityrequiredisatwostepprocess.First,determinethetime
neededforeachorderateachworkcenterthen,sumupthecapacityrequiredfor
individualorderstoobtaintheload.Thetimeneededforeachorderisthesumofthe
setuptimeandtheruntime.Theruntimeisequaltotheruntimeperpiecemultipliedby
thenumberofpiecesintheorder(seeexamplespage127&128).
Theloadonaworkcenteristhesumoftherequiredtimesforalltheplannedandactual
orderstoberunontheworkcenterinaspecifiedperiod.Thestepsincalculatingloadare
asfollows(seeexamplepage129):
a.
Determinethestandardhoursofoperationtimeforeachplannedandreleased
orderforeachworkcenterbytimeperiod.
b.
Addallthestandardhourstogetherforeachworkcenterineachperiod.Theresult
isthetotalrequiredcapacity(load)onthatworkcenterforeachtimerperiodofthe
plan.
Theworkcenterloadreportshowsfuturecapacityrequirementsbasedonreleasedand
plannedordersforeachtimeperiodoftheplan.Thetermovercapacitymeansthatthe
workcenterisoverloadedandthetermundercapacitymeanstheworkcenterisunder
loaded(seefigures5.5&5.6).
SchedulingOrders
Schedulingisdefinedasatimetableforplannedoccurrences.Backschedulingisthe
processofstartingwiththeduedateand,usingtheleadtimes,workingbacktofindthe
startdateforeachoperation.Theprocessisasfollows(seeexamplepage131&figures
5.8&5.9):
a.
b.
Foreachworkorder,calculatethecapacityrequired(time)ateachworkcenter.\
Startingwiththeduedate,schedulebacktogetthecompletionandstartdatesfor
eachoperation.
MakingthePlan
Comparetheloadtotheavailablecapacitytoseeifthereareimbalancesandifso,to
findpossiblesolutions.Therearetwowaysofbalancingcapacityavailableandload:alter
theload,orchangethecapacityavailable.Alteringtheloadmeansshiftingordersahead
orbacksotheloadisleveled.Intheshortrun,capacitycanbeadjusted.Someways
thatthismaybedonearescheduleovertimeorundertime,adjustthelevelofthe
workforcebyhiringorlayingoffworkers,shiftworkforcefromunderloadedtooverloaded
workcenters,usealternateroutingstoshiftsomeloadtoanotherworkcenter,and
subcontractworkwhenmorecapacityisneededorbringinpreviouslysubcontracted
worktoincreaserequiredcapacity.
6.ProductionActivityControl
Introduction
Productionactivitycontrol(PAC)isresponsibleforexecutingthemasterproduction
scheduleandthematerialrequirementsplan.Atthesametime,itmustmakegooduse
oflaborandmachines,minimizeworkinprocessinventory,andmaintaincustomer
service.
ThematerialrequirementsplanauthorizesPAC:toreleaseworkorderstotheshopfor
manufacturing,totakecontrolofworkordersandmakesuretheyarecompletedontime,
toberesponsiblefortheimmediatedetailedplanningoftheflowofordersthrough
manufacturing,andtomanagedaytodayactivityandprovidethenecessarysupport.
TheactivitiesofthePACsystemcanbeclassifiedintoplanning,implementation,and
controlfunctions.
Theflowofworkthrougheachworkcentermustbeplanned.PACmustensurethatthe
requiredresourcesareavailabletomanufacturethecomponentsasneededanddevelop
aloadprofileforeachworkcentertoensurethetimelycompletionofordersbythe
scheduleddate.
Nextweimplementtheplan.PACwillgathertheinformationneededbytheshopfloorto
maketheproductandreleaseorderstotheshopfloorasauthorizedbythematerial
requirementsplan(dispatching).
18/37
9/1/2015
Monitortheprocessanddeterminethenecessarycorrectiveaction.PACwillrankthe
shopordersindesiredprioritysequencebyworkcenterandestablishadispatchlist,
trackactualperformancetoplanandtakecorrectiveactionbyreplanning,rescheduling,
oradjustingcapacitytomeetdelivery.
Understandthecharacteristicsanddifferencesbetweenflow,intermittentandproject
manufacturing(seepages143and144).
DataRequirements
Toplantheprocessingofmaterialsthroughmanufacturing,PACmusthavethefollowing
information:Whatandhowmuchtoproduce.Whenpartsareneededsothecompletion
datecanbemet.Whatoperationsarerequiredtomaketheproductandhowlongthe
operationswilltake.Whattheavailablecapacitiesofthevariousworkcentersare.
PACmusthavedata,usuallystoredindatabases,todrivetheinformationsystems.
Thesedatabasefilesareoftwotypes,planningandcontrol.
Thefourplanningfilesneededaretheitemmasterfile,productstructurefile(billof
materialfile),routingfileandworkcenterfile.Theitemmasterfilecontainsallofthe
pertinentdatarelatedtoeachpartnumber.TheproductstructureorBOMfilecontains
singlelevelBOMslistingcomponentsandquantitiesneededtoassembleaparent.It
formsabasisforapicklist.Aroutingexistsforeachpartnumberandconsistsofa
seriesofoperationsandinstructionsrequiredtomaketheitem.Theworkcentermaster
filecollectsrelevantdataonaworkcenter.
Thetwocontrolfilesaretheshopordermasterfileandtheshoporderdetailfile.
Eachactivemanufacturingorderhasarecordintheshopordermasterfiletomonitor
productionperformanceforeachshoporder.Theshoporderdetailfilecontainsthe
performancerecordforeachoperation.
OrderPreparation
Onceauthorizationtoprocessanorderhasbeenreceived,PACisresponsiblefor
planningandpreparingitsreleasetotheshopfloor.Theordershouldbereviewedtobe
surethatthenecessaryresourcesareavailable.Materialandcapacityavailabilitymust
bechecked.Checkingcapacityavailabilityisatwostepprocess.First,theordermust
bescheduledtoseewhenthecapacityisneeded,andsecond,theloadonworkcenters
mustbecheckedinthatperiod
Scheduling
Theobjectiveofschedulingistomeetdeliverydatesandtomakethebestuseof
manufacturingresources.Itinvolvesestablishingstartandfinishdatesforeachoperation
requiredtocompleteanitem.Todevelopareliableschedule,theplannermusthave
informationonrouting,requiredandavailablecapacity,competingjobs,and
manufacturingleadtimesateachworkcenterinvolved.
Manufacturingleadtimeisthetimenormallyrequiredtoproduceaniteminatypicallot
quantityandconsistsoffiveelements(seepages148&149andfigure6.3).Thelargest
ofthefiveelementsisqueuetime.PACisresponsibleformanagingthequeueby
regulatingtheflowofworkintoandoutofworkcenters.PACmustmanageboththeinput
oforderstotheproductionprocessandtheavailablecapacitytocontrolqueueandwork
inprocess.
Cycletime(throughputtime)isthelengthoftimefromwhenmaterialentersa
productionfacilityoroperationuntilitexits.
Forwardschedulingassumesthatmaterialprocurementandoperationschedulingfora
componentstartwhentheorderisreceived,whatevertheduedate,andthatoperations
arescheduledforwardfromthisdate.Theresultiscompletionbeforetheduedate,which
usuallyresultsinabuildupofinventory(seefigures6.4&6.6).
Backwardscheduling(figures6.4&6.6)schedulesthelastoperationontheroutingfirst
andisscheduledforcompletionattheduedate.Previousoperationsarescheduledback
fromthelastoperation.
Infiniteloadingassumesinfinitecapacitywillbeavailable(figures6.4&6.5).
Finiteloadingassumesthereisadefinedlimittoavailablecapacityatanyworkstation
(figures6.6&6.7).
Inoperationoverlapping,thenextoperationisallowedtobeginbeforetheentirelotis
completedonthepreviousoperation.Thisreducesthetotalmanufacturingleadtimes
becausethesecondoperationstartsbeforethefirstoperationfinishesallthepartsinthe
order.Increasedcostsarepossiblefrommovecostsandtheimpactofqueueandlead
timeforotherorders.
Operationsplittingistheprocessofsplittingordersintotwoormorelotsandrun
simultaneouslyontwoormoremachines.
LoadLeveling
Theloadprofileforaworkcenterisconstructedbycalculatingthestandardhoursof
operationforeachorderineachtimeperiodandaddingthemtogetherbytimeperiod
(figure6.10).
SchedulingBottlenecks
Bottlenecksareoverloadedworkstationswheretherequiredcapacityisgreaterthanthe
19/37
9/1/2015
availablecapacity.Itisafacility,function,department,orresourcewhosecapacityis
equaltoorlessthanthedemandplaceduponit.
Throughputisthetotalvolumeofproductionpassingthroughafacility.Bottlenecks
controlthethroughputofallproducts.
Sincebottleneckscontrolthroughput,pleasereviewtheprinciplesonpage156andhow
tomanagebottlenecksonpage157.
TheoryofConstraintsandDrumBufferRope
ThefundamentalconceptbehindTheoryofConstraints,developedbyEliyahuM.
Goldratt,isthateveryoperationproducingaproductorserviceisaseriesoflinked
processes.Eachprocesshasaspecificcapacitytoproducethegivendefinedoutputfor
theoperation,andthatinvirtuallyeverycase,thereisoneprocessthatlimitsor
constrains(bottleneck)thethroughputfromtheentireoperation.Focusonbalancingthe
flowthroughtheshop.Thetimelostatanoconstraintisamirage,andtransferbatches
donothavetobethesamesizeasprocessbatches.
Onceconstrainthasbeenidentified,thereisafivestepprocessthatisrecommendedto
helpimprovetheperformanceoftheoperation.Thefivestepsare:(1)identifythe
constraint,(2)exploittheconstraint,(3)subordinateeverythingtotheconstraint,(4)
elevatetheconstraint,(5)oncetheconstraintisaconstraintnolonger,findthenewone
andrepeatthesteps.
TheschedulingsystemforTheoryofConstraintsisdescribedasDrumBufferRope.
Thedrumofthesystemreferstothedrumbeatorpaceofproduction.Itrepresentsthe
masterschedulefortheoperation,whichisfocusedaroundthepaceofthroughputas
definedbytheconstraint.Sinceitissoimportantthattheconstraintneverbestarved
forneededinventory,atimebufferisoftenestablishedinfrontoftheconstraint.Itis
calledatimebufferbecauseitrepresentstheamountoftimethattheinventoryinthe
bufferprotectstheconstraintfromdisruption.Theanalogyisthattheropepulls
productiontotheconstraintfornecessaryprocessing.Theprimaryfocusofthe
schedulingsystemisoneffectivemanagementoftheorganizationsconstraintto
throughputandsales.
Ordersthatdonothaveallofthenecessaryresources,tooling,material,andcapacity,
shouldnotbereleasedbecausetheyonlycauseexcessworkinprocessinventoryand
mayinterruptworkonordersthatcanbecompleted(seefigure6.11).
Ashoppacketaccompaniesashoporderreleasetomanufacturing.Thispacketmay
includetheshoporder,engineeringdrawings,billsofmaterial,routingsheets,materials
issueticketsorpicklist,toolrequisitions,jobticketsforeachoperationtobeperformed,
andmoveticketsthatauthorizemovementofworkbetweenoperations.
Onceworkordershavebeenissuedtomanufacturing,theirprogresshastobecontrolled.
Tocontrolprogress,performancehastobemeasuredandcomparedtowhatisplanned.
Ifwhatisactuallyhappening(whatismeasured)variessignificantlyfromwhatwas
planned,eithertheplanshavetobechangedorcorrectiveactionmustbetakentobring
performancebacktoplan.
PACmustbalancetheflowofworktoandfromdifferentworkcenters.Thisistoensure
queue,workinprocess,andleadtimesarecontrolled.Theinput/outputcontrolsystem
isdesignedtobalancetheinputrateinhourswiththeoutputrate.Theinputrateis
controlledbythereleaseoforderstotheshopfloor.Theoutputrateiscontrolledby
increasingordecreasingthecapacityofaworkcenter(seefigure6.12).
Tocontrolinputandoutput,aplanmustbedevisedalongwithamethodforcomparing
whatactuallyoccursagainstwhatwasplanned.Thisinformationisshownonan
input/outputreport(seefigure6.13).Cumulativevarianceisthedifferencebetween
thetotalplannedforagivenperiodandtheactualtotalforthatperiod(Cumulative
variance=previouscumulativevariance+actualplanned).Plannedandactual
inputsmonitortheflowofworkcomingtotheworkcenter.Plannedandactualoutputs
monitortheperformanceoftheworkcenter.Plannedandactualbacklogsmonitorthe
queueandleadtimeperformance.
Operationsequencingisatechniqueforshorttermplanningofactualjobstoberunin
eachworkcenterbasedoncapacityandpriorities.Controlofprioritiesisexercised
throughdispatching.Dispatchingisthefunctionofselectingandsequencingavailable
jobstoberunatindividualworkcenters.Thedispatchlististheinstrumentofpriority
control.Itsalistingbyoperationofallthejobsavailabletoberunataworkcenterwith
thejoblistedinprioritysequence.
Therankingofjobsforthedispatchlistiscreatedthroughtheapplicationofpriorityrules.
Somecommonlyusedrulesare:(1)firstcome,firstserved(FCFS),(2)earliestjobdue
date(EDD),(3)earliestoperationduedate(ODD),(4)shortestprocesstime(SPT),and
(5)criticalratio(CR=(duedatepresentdate)/leadtimeremaining)(seedefinitionson
page166andexamplesonpages166&167).
7.Purchasing
Introduction
Purchasingistheprocessofbuying.Obtainingtherightmaterial,intherightquantities,
withtherightdelivery(timeandplace),fromtherightsource,andattherightpriceareall
purchasingfunctions.
Manufacturingplanningandcontrol(MPC)mustdecidewhentoorderwhichrawmaterials
sothatmarketplacedemandscanbesatisfied.Purchasingisthenresponsibleforplacing
theordersandforensuringthatthegoodsarriveontime.Purchasinghasthemajority
responsibilityforlocatingsuitablesourcesofsupplyandfornegotiatingprices.
20/37
9/1/2015
Ontheaverage,manufacturingfirmsspendabout50%ofeachsalesdollarinthe
purchaseofrawmaterials,components,andsupplies.Thisgivesthepurchasingfunction
tremendouspotentialtoincreaseprofitsthroughthenegotiationofbetterpricingor
servicesfromsuppliers(seeexamplepage177).
Theobjectivesofpurchasingcanbedividedintofourcategories:(1)Obtaininggoodsand
servicesoftherequiredquantityandquality.(2)Obtaininggoodsandservicesatthe
lowesttotalcost,notprice.(3)Ensuringthebestpossibleserviceandpromptdelivery
bythesupplier.(4)Developingandmaintaininggoodsupplierrelationsanddeveloping
potentialsuppliers.
Tosatisfytheseobjectives,certainbasicfunctionsmustbeperformed:(1)Determining
purchasingspecificationsrightquality,quantity,anddelivery(timeandplace).(2)
Selectingsupplier(rightsource).(3)Negotiatingtermsandconditionsofpurchase(right
totalcost).(4)Issuingandadministrationofpurchaseorders.
Thepurchasingcycleconsistsofthefollowingsteps:(1)Receivingandanalyzing
purchaserequisitions.(2)Findingpotentialsuppliersandselectingtherightsupplier.(3)
Determiningtherightprice.(4)Issuingthepurchaseorders.(5)Followinguptoassure
deliverydatesaremet.(6)Receivingandacceptinggoods.(7)Approvingsuppliers
invoiceforpayment.(Seeexplanationsofeachsteponpages178,179&180.)
EstablishingSpecifications
Threebroadcategoriesmustbeconsideredwhenspecificationsarebeingdeveloped:(1)
QuantityrequirementsMarketdemandfirstdeterminesthequantitiesneeded,butthe
challengeistosatisfythefunctionalneedsatabetterprice.(2)PricerequirementsThe
pricespecificationrepresentstheeconomicvaluethatthebuyerputsontheitem(i.e.the
amounttheindividualiswillingtopay).(3)FunctionalrequirementsAreconcernedwith
theendapplicationoftheitemandwhattheitemisexpectedtodo.Functional
specificationsareintimatelytiedtothequalityofaproductorservice.
Anitemhastherequiredqualityifitsatisfiestheneedsoftheuser.Therearefour
phasestoprovidingusersatisfaction:(1)Qualityandproductplanning.(2)Qualityand
productdesign.(3)Qualityandmanufacturing.(4)Qualityanduse.
Functionalspecificationsultimatelyaretheonesthatdrivetheothers.Iftheproductdoes
notperformadequatelyfortheprice,itwillnotsell.
FunctionalSpecificationDescription
Functionalspecificationcanbedescribedinthefollowingwaysorbyacombinationof
them:(1)Bybrand.(2)Byspecificationofphysicalandchemicalcharacteristics,material
andmethodofmanufacture,andperformance.(3)Byengineeringdrawings.(4)
Miscellaneous.(Seepages182,183&184forexplanation.)
Twomajorsourcesofspecifications:(1)Buyerspecificationsareusuallyexpensive
andtimeconsumingtodevelop.Useonlywhenthereisnotsuitablespecification
availableorunlessthevolumeofworkmakesiteconomicaltodoso.(2)Standard
specificationshavebeendevelopedbygovernmentalandnongovernmentalagencies.
SelectingSuppliers
Agoodsupplierisonethathasthetechnologytomaketheproducttotherequired
quality,hasthecapacitytomakethequantitiesneeded,andcanrunthebusinesswell
enoughtomakeaprofitandstillsellaproductcompetitively.
Threetypesofsourcing:sole,multiple,andsingle.Solesourcingimpliesthatonlyone
supplierisavailable.Multiplesourcingistheuseofmorethanonesupplierforanitem.
Singlesourcingisaplanneddecisionbytheorganizationtoselectonesupplierforan
itemwhenseveralsourcesareavailable.Itisintendedtoproducealongterm
partnership.
Factorsinselectingsuppliers:technicalability,manufacturingcapability,reliability,after
salesservice,supplierlocation,othersoftconsiderationsandprice.
Somefactorsinevaluatingpotentialsuppliersarequantitativeandotherfactorsare
qualitative.
PriceDetermination
Priceshaveanupperlimit,determinedbythemarketplace,andwhatbuyersarewilling
topayisbasedontheirperceptionofdemand,supply,andtheirneeds.Thelowerlimitis
setbythesellerandisdeterminedbythecostsofmanufacturingandsellingtheproduct
andprofitexpectation.
Fixedcostsarecostsincurrednomatterthevolumeofsales.Variablecostsarethose
directlyassociatedwiththeamountproducedorsold.Breakevenpointiswhenthe
revenueequalstotalcostandprofitiszero.Whenthevolumeislessthanthebreakeven
point,alossinincurredwhenthevolumeisgreater,aprofitisrealized(seefigure7.2).
Throughnegotiation,thebuyerandsellertrytoresolveconditionsofpurchasetothe
mutualbenefitofbothparties.Oneimportantfactorintheapproachtonegotiationisthe
typeofproduct:commodities,standardproducts,itemsofsmallvalueandmadetoorder
items.
ImpactofMaterialRequirementsPlanningonPurchasing
Purchasingcanbeseparatedintotwotypesofactivities:procurement,andsupplier
schedulingandfollowup.Procurementincludesthefunctionsofestablishing
specifications,selectingsuppliers,pricedetermination,andnegotiation.Supplier
21/37
9/1/2015
schedulingandfollowupisconcernedwiththereleaseoforderstosuppliers,working
withsupplierstoscheduledelivery,andfollowup.Thegoalsofsupplierschedulingare
thesameasthoseofproductionandactivitycontrol:toexecutethemasterproduction
scheduleandthematerialrequirementsplan,ensuregooduseofresources,minimize
workinprocessinventory,andtomaintainthedesiredlevelofcustomerservice.
Planner/Buyerconcept(seepages191&192).
UsuallyaMRPsystemgeneratesfrequentordersforrelativelysmallquantities.Itis
costlyandinefficienttoissueanewpurchaseorderforeveryweeklyrequirement.The
alternativeistodevelopalongtermcontractwithasupplierandtoauthorizereleases
againstthecontract.OftenthesupplierisgivenacopyoftheMRPsotheyareawareof
futuredemands.Thebuyerthenissuesareleaseagainsttheschedule.Contractbuying
assuresthesuppliersagivenamountofbusinessandcommitsthemtoallocatingthat
amountoftheircapacitytothecustomer.
Electronicdatainterchange(EDI)enablescustomersandsupplierstoelectronically
exchangetransactioninformationsuchaspurchaseorders,invoices,andMRP
information.
Internet,intranetandextranet(page193).
8.Forecasting
Introduction
Forecastingisapreludetoplanning,anestimateofwhatconditionswillexistoversome
futureperiod.
DemandManagement
Theprimepurposeofanorganizationistoservethecustomer.Marketingfocuseson
meetingcustomerneeds,butoperations,throughmaterialsmanagement,mustprovide
theresources.Thecoordinationofplansbythesetwopartiesisdemandmanagement.
Demandmanagementisthefunctionofrecognizingandmanagingalldemandsfor
products,includingforecasting,orderprocessing,makingdeliverypromises(availableto
promise),andinterfacingbetweenmanufacturingplanningandcontrolandthe
marketplace.
DemandForecasting
Forecastsaremadeforthestrategicbusinessplan,theproductionplan,andthemaster
productionschedule.
CharacteristicsofDemand
Thedifferencebetweendemandandsalesisthatsalesimplieswhatisactuallysold
whereasdemandshowstheneedfortheitem.Sometimesdemandcannotbesatisfied,
andsaleswillbelessthandemand.
Thepatternshowsthatactualdemandvariesfromperiodtoperiod.Thefourreasonsfor
thisaretrend,seasonality,randomvariation,andcycle(seepage198&199).
Theshapeofdemandpatternsforsomeproductsorserviceschangeovertime,others
donot.Thosethatretainthesamegeneralshapearecalledstableandthosethatdonot
arecalleddynamic.Themorestablethedemand,theeasieritistoforecast.
PrinciplesofForecasting
Forecastshavefourmajorcharacteristicsorprinciples:(1)Forecastsareusuallywrong.
Errorsareinevitableandmustbeexpected.(2)Everyforecastshouldincludean
estimateoferror.(3)Forecastsaremoreaccurateforfamiliesorgroups.(4)Forecasts
aremoreaccuratefornearertimeperiods.Anythingthatcanbedonetoreducelead
timewillimproveforecastaccuracy.
ForecastingTechniques
Forecastshavefourmajorcharacteristicsorprinciples:(1)Forecastsareusuallywrong.
Errorsareinevitableandmustbeexpected.(2)Everyforecastshouldincludean
estimateoferror.(3)Forecastsaremoreaccurateforfamiliesorgroups.(4)Forecasts
aremoreaccuratefornearertimeperiods.Anythingthatcanbedonetoreducelead
timewillimproveforecastaccuracy.
SomeImportantIntrinsicTechniques
Usuallymethodsthataverageouthistoryarebetterbecausetheydampenoutsome
effectsofrandomvariation.Itisbesttoforecasttheaveragedemandratherthansecond
guesswhattheeffectofrandomfluctuationwillbe.Aforecastofaveragedemandshould
bemade,andtheestimateoferrorappliedtoit.
Seemovingaveragepages204&205.Thepointisthatamovingaveragealwayslagsa
trend,andthemoreperiodsincludedintheaverage,thegreaterthelagwillbe.Onthe
22/37
9/1/2015
otherhand,ifthereisnotrendbutactualdemandfluctuatesconsiderablyduetorandom
variation,amovingaveragebasedonafewperiodsreactstothefluctuationratherthan
forecaststheaverage.Movingaveragesarebestusedforforecastingproductswith
stabledemandwhenthereislittletrendorseasonality.
Acommonforecastingtechnique,calledexponentialsmoothing,givesthesameresults
asamovingaveragebutwithouttheneedtoretainasmuchdataandwitheasier
calculations.Theforecastcanbebasedontheprioroldcalculatedforecastandthenew
data(seepages206&207).
Theweightgiventothelatestactualdemandiscalledasmoothingconstantandis
representedbytheGreekletteralpha().Itisalwaysexpressedasadecimalfrom0to
1.0.Theformulais:Newforecast=()(latestdemand)+(1)(previousforecast).
Seasonality
Manyproductshaveaseasonalorperiodicdemandpattern.Theseasonalindexisan
estimateofhowmuchthedemandduringtheseasonwillbeaboveorbelowtheaverage
demandfortheproduct.
SeasonalIndex=PeriodAverageDemand/AverageDemandforallPeriods
Theaveragedemandforallperiodsisavaluethataveragesoutseasonality.Thisis
calledthedeseasonalizeddemand.SeasonalIndex=PeriodAverageDemand/
DeseasonalizedDemand
TrackingtheForecast
Trackingtheforecastistheprocessofcomparingactualdemandwiththeforecast.
Forecasterroristhedifferencebetweenactualandforecastdemand.Errorcanoccurin
twoways:biasandrandomvariation.Biasexistswhenthecumulativeactualdemand
variesfromthecumulativeforecast.Biasisasystematicerrorinwhichtheactual
demandisconsistentlyaboveorbelowtheforecastdemand.
Forecasterrormustbemeasuredbeforeitcanbeusedtorevisetheforecastortohelpin
planning.Onewaytomeasurethevariabilityistocalculatethetotalerrorignoringthe
plusandminussignsandtaketheaverage.Thisiscalledmeanabsolutedeviation
(MAD):meanimpliesanaverage,absolutemeanswithoutreferencetoplusandminus,
anddeviationreferstotheerror(readnormaldistributionandusesofMADonpages216
&217):
MAD=SumofAbsoluteDeviations/NumberofObservations
9.InventoryFundamentals
Introduction
Allbusinessesandinstitutionsrequireinventories.Asinventoriesareused,theirvalueis
convertedintocash,whichimprovescashflowandreturnoninvestment.Thereisacost
forcarryinginventories,whichincreasesoperatingcostsanddecreasesprofits.
Aggregateinventorymanagementinvolves:flowandkindsofinventoryneeded,supply
anddemandpatterns,functionsthatinventoriesperform,objectivesofinventory
managementandcostsassociatedwithinventories.Inventoryisnotonlymanagedatthe
aggregatelevelbutalsoattheitemlevel.Decisionrulesaboutinventoryinclude:(1)
whichindividualinventoryitemsaremostimportant,(2)howindividualitemsaretobe
controlled,(3)howmuchtoorderatonetime,and(4)whentoplaceanorder.
InventoryandtheFlowofMaterial
Oneoftenusedinventoryclassificationisrelatedtotheflowofmaterialsinto,through,
andoutofamanufacturingorganization.Rawmaterialsarepurchaseditemsreceived
whichhavenotenteredtheproductionprocess.Workinprocess(WIP)israwmaterials
thathaveenteredthemanufacturingprocessandarebeingworkedonorwaitingtobe
workedon.Finishedgoodsarethefinishedproductsoftheproductionprocessthatare
readytobesoldascompleteditems.Distributioninventoriesarefinishedgoods
locatedinthedistributionsystem.Maintenance,repair,andoperationalsupplies
(MRO)areitemsusedinproductionthatdonotbecomepartoftheproduct.
FunctionsofInventories
Inbatchmanufacturing,thebasicpurposeofinventoriesistodecouplesupplyand
demand.Inventoryservesasabufferbetween:supplyanddemand,customerdemand
andfinishedgoods,finishedgoodsandcomponentavailability,requirementsforan
operationandtheoutputfromtheprecedingoperation,andpartsandmaterialstobegin
productionandthesuppliersofmaterials.
Anticipationinventoriesarebuiltupinanticipationoffuturedemand.Safetystockis
heldtocoverrandomunpredictablefluctuationsinsupplyanddemandorleadtime.Its
purposeistopreventdisruptionsinmanufacturingordeliveriestocustomers.Safety
stockisalsocalledbufferstockorreservestock.Itemspurchasedormanufacturedin
quantitiesgreaterthanneededimmediatelycreatelotsizeinventories,sometimes
calledcyclestock.Itistheportionofinventorythatdepletesgraduallyascustomers
23/37
9/1/2015
orderscomeinandisreplenishedcyclicallywhensuppliersordersarereceived.
Transportationinventoriesexistbecauseofthetimeneededtomovegoodsfromone
locationtoanothersuchasfromplanttoadistributioncenteroracustomer.Theyare
sometimescalledpipelineormovementinventories.Hedgeinventoryispurchasedto
minimizethemarketfluctuationsofrawmaterialstradedontheworldwidemarket.MRO
itemsareusedtosupportgeneraloperationsandmaintenance,butwhichdonotbecome
directlypartofaproduct.
ObjectivesofInventoryManagement
Afirmwishingtomaximizeprofitwillhaveatleastthefollowingobjectives:maximum
customerservice,lowcostplantoperation,andminimuminventoryinvestment.
Inventorieshelptomaximizecustomerservicebyprotectingagainstuncertainty.If
inventoryiscarried,therehastobeabenefitthatexceedsthecostsofcarryingthat
inventory.Someoneoncesaidthattheonlygoodreasonforcarryinginventorybeyond
currentneedsisifitcostslesstocarryitthannot.
Inventorieshelpmakeamanufacturingoperationmoreproductiveinfourways:(1)
Inventoriesallowoperationswithdifferentratesofproductionofoperateseparatelyand
moreeconomically.(2)Bylevelingproduction,manufacturingcancontinuallyproducean
amountequaltotheaveragedemand.(3)Inventoriesallowmanufacturingtorunlonger
productionruns.(4)Inventoriesallowmanufacturingtopurchaseinlargerquantities,
whichresultsinlowerorderingcostsperunitandquantitydiscounts(seepages233thru
235).
Costsusedforinventorymanagementdecisions:itemcost(landedprice),carrying
costs,orderingcosts,stockoutcosts,andcapacityassociatedcosts(pages236
238).
FinancialStatementsandInventory
Anassetissomethingthathasvalueandisexpectedtobenefitthefutureoperationof
thebusiness.Liabilitiesareobligationsoramountsowedbyacompany.Owners
equityisthedifferencebetweenassetsandliabilities.Theaccountingequation:
Assets=liabilities+Ownersequity
Thebalancesheetisusuallyshownwiththeassetsontheleftsideandliabilitiesand
ownersequityontherightside.Capitalistheamountofmoneytheownershave
investedinthecompany.Retainedearningsareincreasedbytherevenueacompany
makesanddecreasedbytheexpensesincurred.
Income(profit)Theprimarypurposeofabusinessistoincreasetheownersequityby
makingaprofit.
Income=revenueexpenses
Revenuecomesfromthesaleofgoodsorservicesandoftenismadeasapromiseto
payatalaterdate,calledanaccountreceivable.
Expensesarethecostsincurredintheprocessofmakingrevenue,usuallycategorized
intocostofgoodssoldandgeneralandadministrativeexpenses.Costofgoodssold
arethecostsincurredtomaketheproduct.Generalandadministrativeexpenses
includeallothercostsinrunningabusiness.
IncomeStatement(seepage241andtheexample)
Wheninventoryispurchasedasrawmaterial,itisrecordedasanasset.Whenitenters
production,itisrecordedasworkinprocessinventory(WIP)and,asitisprocessed,its
valueincreasesbytheamountofdirectlaborappliedtoitandtheoverheadattributedto
itsprocessing.Thematerialissaidtoabsorboverhead.Whenthegoodsarereadyfor
sale,theydonotbecomerevenueuntiltheyaresold.
Businessesdevelopfinancialstatementsshowingthecashflowsintoandoutofthe
business.Anyshortfallofcashmustbeprovidedfor,perhapsbyborrowing.Thistypeof
analysisiscalledcashflowanalysis.
Fromafinancialpointofview,inventoryisanassetandrepresentsmoneythatistiedup
andcannotbeusedforotherpurposes.Inventoryhasacarryingcostthecostsof
capital,storage,andrisk.Twomeasuresthatquantifyinventoryinvestmentandrelateto
salesaretheinventoryturnsratioanddaysofsupply(Examplesonpages243&244):
Inventory=annualcostofgoodssold/averageinventoryindollars
Daysofsupply=inventoryonhand/averagedailyusage
Controlofinventoryisexercisedbycontrollingindividualitemscalledstockkeepingunits
(SKUs).ABCinventoryclassificationsystemanswerswhichitemsareimportantand
howtheyarecontrolled.Classifyingitemsaccordingtotheirimportancecanbebasedon
annualdollarusage.TheABCprincipleisbasedonParetoslaw.AitemsAbout20%
oftheitemsaccountforabout80%ofthedollarusage.BitemsAbout20%ofthe
itemsaccountforabout15%ofthedollarusage.Thebalance(50%)are5%ofthedollar
usage.
SeestepsinmakinganABCanalysisonpage245andtheexampleonpages246and
247.
UsingtheABCapproach,therearetwogeneralrulestofollow:(1)Haveplentyoflow
valueitems.(2)Usethemoneyandcontroleffortsavedtoreducetheinventoryofhigh
valueitems.
a.
b.
c.
items:highpriorityandtightcontrol
items:mediumpriorityandnormalcontrols
items:lowestpriorityandsimplestcontrols
24/37
9/1/2015
10.OrderQuantities
Introduction
Managementmustestablishdecisionrulestoanswer:Howmuchshouldbeorderedat
onetimeandwhenshouldanorderbeplaced?
Controlisexercisedthroughindividualitemsinaparticularinventorycalledstock
keepingunits(SKUs).
Alotorbatchisdefinedasaquantityproducedtogetherandsharingthesame
productioncostsandspecifications.
Thefollowingarecommondecisionrulesfordeterminingwhatlotsizetoorderatone
time:(1)TheLotforlotrulesaystoorderexactlywhatisneeded.Theorderquantity
changeswheneverrequirementschange.Sinceitemsareorderedonlyasneeded,this
systemcreatesnounusuallotsizeinventory.Becauseofthis,itisthebestmethodfor
planningAitemsandisalsousedinajustintimeenvironment.(2)Fixedorder
quantityrulesspecifythenumberofunitstobeorderedeachtimeanorderisplacedfor
anindividualitemorSKU.Theadvantagetothisruleisthatitiseasilyunderstood.The
disadvantageisthatitdoesnotminimizethecostsinvolved.Avariationonthefixed
orderquantitysystemistheminmaxsystem.Inthissystem,anorderisplacedwhen
thequantityavailablefallsbelowtheorderpoint.Thequantityorderedisthedifference
betweentheactualquantityavailableatthetimeoforderandthemaximum.(3)Inthe
periodorderquantitysystem,ratherthanorderingafixedquantity,weorderenoughto
satisfyfuturedemandforagivenperiodoftime.
EconomicOrderQuantity(EOQ)
Thecostoforderingandthecostofcarryinginventorybothdependonthequantity
ordered.Theorderingdecisionruleswillminimizethesumofthesetwocosts.Thebest
knownsystemistheeconomicorderquantity(EOQ).Theassumptionsonwhichthe
EOQisbasedare:(1)Demandisrelativelyconstantandisknown.(2)Theitemis
producedorpurchasedinlotsorbatchesandnotcontinuously.(3)Orderpreparation
costsandinventorycarryingcostsareconstantandknown.(4)Replacementoccursall
atonce.TherearemanysituationswheretheassumptionsarenotvalidandtheEOQ
conceptisofnouse.
Averagelotsizeinventory=orderquantity/2
Numberofordersperyear=annualdemand/orderquantity
Therelevantcostsareannualcostofplacingordersandannualcostofcarrying
inventory.Astheorderquantityincreases,theaverageinventoryandannualcostof
carryinginventoryincrease,butthenumberofordersperyearandtheorderingcost
decrease.Thetrickistofindtheparticularorderquantityinwhichthetotalcostof
carryinginventoryandthecostoforderingwillbeaminimum.
A=annualusageinunits,S=orderingcostindollarsperorder,i=annualcarryingcost
rateasadecimalofapercentage,c=unitcostindollars,Q=orderquantityinunits
Annualorderingcost=numberofordersxcostsperorder=(A/Q)xS
Annualcarryingcost=averageinventoryxcostofcarryingoneunitforone
year
=averageinventoryxunitcostxcarryingcost=(Q/2)xcxI
Totalannualcosts=annualorderingcosts+annualcarryingcosts
=(A/Q)xS+(Q/2)xcxI
Ideally,thetotalcostwillbeaminimum.Foranysituationinwhichtheannual
demand(A),thecostofordering(S),andthecostofcarryinginventory(i)are
given,thetotalcostwilldependupontheorderquantity(Q).(Seepages257
through261,exampleproblemsonpages258and259andfigures10.1,2&3.
Importantfacts:(1)Thereisanorderquantityinwhichthesumoftheorderingcostsand
carryingcostsisaminimum.(2)ThisEOQoccurswhenthecostororderingequalsthe
costofcarrying.(3)Thetotalcostvarieslittleforawiderangeoflotsizesaboutthe
EOQ.Itisusuallydifficulttodetermineaccuratelythecostofcarryinginventoryandcost
ofordering.SincethetotalcostisrelativelyflataroundtheEOQ,itisnotcriticaltohave
exactvalues.Goodapproximationsaresufficient.Partsareoftenorderedinconvenient
packagessuchaspalletloads,cases,ordozens,anditisadequatetopicktheclosest
packagequantitytotheEOQ.
TheprevioussectionshowedthattheEOQoccurredatanorderquantityinwhichthe
orderingcostsequalthecarryingcosts.Ifthesetwocostsareequal,thefollowing
formulacanbederived:
EOQ=squarerootof(2AS/ic)
TheEOQwillincreaseastheannualdemand(A)andthecostofordering(S)increase,
anditwilldecreaseasthecostofcarryinginventory(i)andtheunitcost(c)increase.
Theannualdemand(A)isaconditionofthemarketplaceandisbeyondthecontrolof
manufacturing.Thecostofcarryinginventory(i)isdeterminedbytheproductitselfand
thecostofmoneytothecompanyandisbeyondthecontrolofmanufacturing.Theunit
cost(c)iseitherthepurchasecostoftheSKUorthecostofmanufacturingtheitem.
Bothcostsshouldbeaslowaspossible.Astheunitcostdecreases,theEOQ
25/37
9/1/2015
increases.Thecostofordering(S)iseitherthecostofplacingapurchaseorderorthe
costofplacingamanufacturingorder.Anythingthatcanbedonetoreducethesecosts
reducestheEOQ.Justintimemanufacturingemphasizesreductionofsetuptime.
VariationsoftheEOQModel
TheEOQcanbecalculatedinmonetaryunitsratherthanphysicalunits.ThesameEOQ
formulagivenintheprecedingcanbeused,buttheannualusagechangesfromunitsto
dollars.A=annualusageindollars,S=orderingcostsindollars.EOQ=squarerootof
(2AS/i)(Seeexampleonpage263.)
QuantityDiscounts
Suppliersoftengiveadiscountonordersoveracertainsize.Thiscanbedonebecause
largerordersreducethesupplierscoststogetlargerorders,theyarewillingtooffer
volumediscounts.Thebuyermustdecidewhethertoacceptthediscount,andindoing
so,mustconsidertherelevantcosts:purchase,orderingandcarryingcosts.(See
exampleonpages263&264.)
PeriodOrderQuantity(POQ)
Theeconomicorderquantityattemptstominimizethetotalcostoforderingandcarrying
inventoryandisbasedontheassumptionthatdemandisuniform.Oftendemandisnot
uniform,particularlyinmaterialrequirementsplanning,andusingtheEOQdoesnot
produceaminimumcost.Theperiodorderquantitylotsizeruleisbasedonthesame
theoryastheeconomicorderquantity.ItusestheEOQformulatocalculateaneconomic
timebetweenorders.ThisiscalculatedbydividingtheEOQbythedemandrate.This
producesatimeintervalforwhichordersareplaced.Insteadoforderingthesame
quantity(EOQ),ordersareplacedtosatisfyrequirementsforthecalculatedtimeinterval.
Thenumberofordersplacedinayearisthesameasforaneconomicorderquantity,but
theamountorderedeachtimevaries.Thus,theorderingcostisthesamebut,because
theorderquantitiesaredeterminedbytheactualdemand,thecarryingcostisreduced.
Thecalculationisapproximate.Precisionisnotimportant.(Seeexamplesonpages267
&268.)
Periodorderquantity=EOQ/averageweeklyusage
PracticalconsiderationswhenusingtheEOQ:LumpydemandTheEOQassumethat
demandandreplenishmentoccursallatonce.Whenthisisnottrue,theEOQwillnot
producethebestresults.Itisbettertousetheperiodorderquantity.Anticipation
inventoryItisbettertoplanabuildupofinventorybasedoncapacityandfuture
demand.MinimumorderThisminimummaybebasedonthetotalorderratherthanon
individualitems.TransportationinventoryAfullloadcostslesspertontoshipthana
partload.Thisissimilartothepricebreakgivenbysuppliersforlargerquantities.
MultiplesSometimes,ordersizeisconstrainedbypackagesize.
11.IndependentDemandOrderingSystems
Introduction
Ifstockisnotreorderedsoonenough,therewillbeastockoutandapotentiallossin
customerservice.Stockorderedearlierthanneededwillcreateextrainventory.The
problemthenishowtobalancethecostsofcarryingextrainventoryagainstthecostsof
astockout.
Threebasicreordersystemsusedtodeterminewhentoorderare(firsttwoarefor
independentdemandandthethirdisfordependentdemanditems):
a.
OrderpointsystemWhenthequantityofanitemonhandininventory
fallstoapredeterminedlevel,calledanorderpoint,anorderisplacedfora
precalculatedquantitybasedoneconomicorderquantityconcepts.Using
thissystem,anordermustbeplacedwhenthereisenoughstockonhand
tosatisfydemandfromthetimetheorderisplaceduntilthenewstock
arrives.Ifitisnecessarytoprovidesomeprotectionagainststockout,
safetystockcanbeadded.Theitemisorderedwhenthequantityonhand
fallstoalevelequaltothedemandduringtheleadtimeplusthesafety
stock.Notethatthedemandduringtheleadtimeisimportant.OP=DDLT
+SS(seepages277&278)
b.
PeriodicreviewsystemUsingtheperiodicreviewsystem,thequantity
onhandofaparticularitemisdeterminedatspecified,fixedtimeintervals,
andanorderisplaced.Thequantityonhandplusthequantityorderedmust
equalthesumofthedemandduringtheleadtimeplusthedemandduring
thereviewperiodplusthesafetystock(targetlevelormaximumlevel
inventory).
T=D(R+L)+SS
c.
Materialrequirementsplanningpreviouslyreviewedinchapter4.
DeterminingSafetyStock
26/37
9/1/2015
Safetystockisintendedtoprotectagainstuncertaintyinsupplyanddemand.Uncertainty
mayoccurintwoways:quantityuncertaintyandtiminguncertainty.Quantityuncertainty
occurswhentheamountofsupplyordemandvaries.Timinguncertaintyoccurswhenthe
timeofreceiptofsupplyordemanddiffersfromthatexpected.
Therearetwowaystoprotectagainstuncertainty:safetystockorsafetyleadtime(see
page279)
Thepatternofdemanddistributionabouttheaveragewilldifferfordifferentproductsand
markets.Somemethodisneededtodescribethedistributionitsshape,center,and
spread.Asmoothnaturalcurveshowspredictability.
Themostcommonpredictablepatternisanormalcurve.Thenormaldistributionhas
mostofthevaluesclusterednearacentralpointwithprogressivelyfewerresults
occurringawayfromthecenter.Itissymmetricalaboutthiscentralpointinthatit
spreadsoutevenlyonbothsides.
Theaverageormeanvalueisatthehighpointofthecurve.Itisthecentraltendencyof
thedistribution.(Seeformulaonpage282andexampleonpage282&283.)
Thevariation,ordispersion,ofactualdemandsabouttheaveragereferstohowclosely
theindividualvaluesclusteraroundthemeanoraverage.
Thestandarddeviationisastatisticalvaluethatmeasureshowcloselytheindividual
valuesclusterabouttheaverage.(Seestandarddeviationcalculationonpage283and
exampleonpage284.)
Theactualdemandwillbewithin+/1,2&3sigmaoftheforecastaverage
approximately68%,98%&99.88%ofthetimerespectively.(Seepage284.)
Onepropertyofthenormalcurveisthatitissymmetricalabouttheaverage.Thismeans
thathalfthetimetheactualdemandislessthantheaverageandhalfthetimeitis
greater.Safetystocksareneededtocoveronlythoseperiodsinwhichthedemand
duringtheleadtimeisgreaterthattheaverage.
Servicelevelisastatementofthepercentageoftimethereisnostockout.
DeterminingWhentheOrderPointisReached
Inthetwobinsystem,aquantityofanitemequaltotheorderpointquantityissetaside
andnottoucheduntilallthemainstockisusedup.Whenthisstockneedstobeused,
theproductioncontrolorpurchasingdepartmentisnotifiedandareplenishmentorderis
placed.ThetwobinsystemisasimplewayofkeepingcontrolofCitems.Becausethey
areoflowvalue,itisbesttospendtheminimumamountoftimeandmoneycontrolling
them.Whenitisoutofstock,aCitembecomesanAitem.
Aperpetualinventoryrecordisacontinualaccountofinventorytransactionsasthey
occur.Atanyinstant,itholdsanuptodaterecordoftransactions.Ataminimum,it
containsthebalanceonhand,butitmayalsocontainthequantityonorderbutnot
received,thequantityallocatedbutnotissued,andtheavailablebalance.
Seepage291forthedifferencebetweenpermanentandvariableinformationinthe
inventoryrecord.
DistributionInventory
Distributioninventoryincludesallthefinishedgoodsheldanywhereinthedistribution
system.Theobjectivesofdistributioninventorymanagementaretoprovidetherequired
levelofcustomerservice,tominimizethecostsoftransportationandhandling,andtobe
abletointeractwiththefactorytominimizeschedulingproblems.Thedistributionsystem
isthefactoryscustomer,andthewaythedistributionsysteminterfaceswiththefactory
hasasignificanteffectontheefficiencyoffactoryoperations.Althoughthedemandfrom
customersmayberelativelyuniform,thedemandoncentralsupplyisnot,becauseitis
dependentonwhenthedistributioncentersplacereplenishmentorders.Inturn,the
demandonthefactorydependsonwhencentralsupplyplacesorders.
Distributioninventorymanagementsystemscanbeclassifiedintodecentralized,
centralized,anddistributionrequirementsplanning
a.
Inadecentralizedsystem,eachdistributioncenterfirstdetermineswhatit
needsandwhen,andthenplacesordersoncentralsupply.Theadvantage
ofthedecentralizedsystemisthateachcentercanoperateonitsownand
thusreducecommunicationandcoordinationexpense.Thedisadvantageis
thelackofcoordinationandtheeffectthismayhaveoninventories,
customerservice,andfactoryschedules.
b.
Inacentralizedsystem,allforecastingandorderdecisionsaremade
centrally.Stockispushedoutintothesystemfromcentralsupply.
Distributioncentershavenosayaboutwhattheyreceive.Differentordering
systemscanbeused,butgenerallyanattemptismadetoreplacethe
stockthathasbeensoldandtoprovideforspecialsituationssuchas
seasonalityorsalespromotions.Thesesystemsattempttobalancethe
availableinventorywiththeneedsofeachdistributioncenter.The
advantageofthesesystemsisthecoordinationbetweenfactory,central
supply,anddistributioncenterneeds.Thedisadvantageistheinabilityto
reacttolocaldemand,thusloweringthelevelofservice.
c.
Distributionrequirementsplanningisasystemthatforecastswhenthe
variousdemandswillbemadebythesystemoncentralsupply.Thisgives
centralsupplyandthefactorytheopportunitytoplanforthegoodsthatwill
actuallybeneededandwhen.Itisablebothtorespondtocustomer
demandandcoordinateplanningandcontrol.Thesystemtranslatesthe
logicofmaterialrequirementsplanningtothedistributionsystem.Planned
orderreleasesfromthevariousdistributioncentersbecometheinputtothe
materialplanofcentralsupply.Theplannedorderreleasesfromcentral
27/37
9/1/2015
supplybecometheforecastofdemandforthefactorymasterproduction
schedule.(Seeexampleonpages297&298.
12.PhysicalInventoryandWarehouseManagement
WarehousingManagement
Inafactory,storesinwarehousesperformthesamefunctionsaswarehousesand
containrawmaterials,workinprocessinventory,finishedgoods,supplies,andpossibly
repairparts.Theobjectiveofawarehouseistominimizecostandmaximizecustomer
service.
Thecostsofoperatingawarehousecanbebrokendownintocapitalandoperatingcosts.
Capitalcostsarethoseofspaceandmaterialshandlingequipment.Themajoroperating
costislabor,andthemeasureoflaborproductivityisthenumberofunitsthatanoperator
canmoveinaday.
Theefficientoperationofthewarehousedependsuponhowwelltheprocessingactivities
areperformed.Theseactivitiesincludereceivegoods,identifythegoods,dispatch
goodstostorage,holdgoods,pickgoods,marshaltheshipment,dispatchthe
shipment,andoperateaninformationsystem(seepage309).
Tomaximizeproductivityandminimizecost,warehousemanagementmustworkto
maximizespaceutilizationandtouselaborandequipmenteffectively.Theeffectiveuse
ofwarehousesisinfluencedbycubeutilizationandaccessibility,stocklocation,
orderpickingandassembly,andpackaging(seepages310through315).
PhysicalControlandSecurity
Whatisneededisasystemthatmakesitdifficultforpeopletomakemistakesorbe
dishonest.Severalelementsthathelpareagoodpartnumberingsystem,asimple,well
documentedtransactionsystem,itemidentification,quantifyverification,transaction
recording,andphysicallyexecutethetransaction.
Inventorymustbekeptinasafe,secureplacewithlimitedgeneralaccess.
InventoryRecordAccuracy
Theusefulnessofinventoryrecordisdirectlyrelatedtoitsaccuracy.Basedonthe
inventoryrecord,acompanydeterminesnetrequirementsforanitem,releasesorders
basedonmaterialavailability,andperformsinventoryanalysis.Iftherecordsarenot
accurate,therewillbeshortagesofmaterial,disruptedschedules,latedeliveries,lost
sales,lowproductivity,andexcessinventory.
Threepiecesofinformationmustbeaccurate:partdescription/number,quantity,and
location.Accurateinventoryrecordsenablefirmstooperateaneffectivematerials
managementsystem,maintainsatisfactorycustomerservice,operateeffectivelyand
efficiently,andanalyzeinventory.Inaccurateinventoryrecordswillresultinlostsales,
shortagesanddisruptedschedules,excessinventory,lowproductivity,poordelivery
performance,andexcessiveexpediting.Poorinventoryrecordaccuracycanbecaused
bymanythings,buttheyallresultfrompoorrecordkeepingsystemsandpoorlytrained
personnel.
Toleranceistheamountofpermissiblevariationbetweenaninventoryrecordanda
physicalcount.Tolerancesaresetonindividualitemsbasedonvalue,criticalnatureof
theitem,availability,leadtime,abilitytostopproduction,safetyproblems,orthe
difficultyofgettingprecisemeasurements
Therearetwobasicmethodsofcheckingtheaccuracyofinventoryrecords:periodic
countsofallitemsandcycliccountsofspecifieditems.Itisimportanttoauditrecord
accuracy,butitismoreimportanttoauditthesystemtofindthecausesofrecord
inaccuracyandeliminatethem.Cyclecountingdoesthisperiodicauditstendnotto.The
primarypurposeofaperiodicinventoryistosatisfythefinancialauditorsthatthe
inventoryrecordsrepresentthevalueoftheinventory(seepage321).Cyclecountingis
asystemofcountinginventorycontinuallythroughouttheyear.Physicalinventorycounts
arescheduledsothateachitemiscountedonapredeterminedschedule.
Thenumberoftimesanitemiscountedinayeariscalleditscountfrequency.Foran
item,thecountfrequencyshouldincreaseasthevalueoftheitemandnumberof
transactionsincrease.ThreecommonmethodstodeterminefrequencyaretheABC
method,zonemethod,andlocationauditmethod(seepages322and323).
Cyclecountscanbescheduledatregularintervalsoronspecialoccasions.Some
selectioncriteriaforwhentocountare:whenanorderisplaced,whenanorderis
received,whentheinventoryrecordreacheszero,whenaspecifiednumberof
transactionshaveoccurred,orwhenanerroroccurs.
13.PhysicalDistribution
Introduction
Physicaldistributionisthemovementofmaterialsfromtheproducertotheconsumer.
Thismovementofmaterialsisdividedintotwofunctions:Physicalsupplyisthe
movementandstorageofgoodsfromsupplierstomanufacturing.Physicaldistribution
28/37
9/1/2015
isthemovementandstorageoffinishedgoodsfromtheendofproductiontothe
customer.Theparticularpathinwhichthegoodsmovethroughdistributioncenters,
wholesalers,andretailersiscalledthechannelofdistribution.
Achannelofdistributionisoneormorecompaniesorindividualswhoparticipateinthe
flowofgoodsand/orservicesfromtheproducertothefinaluserorconsumer.The
transactionchannelisconcernedwiththetransferofownership.Itsfunctionisto
negotiate,sell,andcontract.Thedistributionchannelisconcernedwiththetransferor
deliveryofthegoodsorservices.
Toextendmarketsrequiresawellrundistributionsystem.Distributionaddsplacevalue
andtimevaluebyplacinggoodsinmarketswheretheyareavailabletotheconsumerat
thetimetheconsumerwantsthem.Thespecificwayinwhichmaterialsmovedepends
uponmanyfactors,someofwhicharethechannelsofdistributionthatthefirmisusing,
thetypesofmarketsserved,thecharacteristicsoftheproduct,andthetypeof
transportationavailabletomovethematerial.
PhysicalControlandSecurity
Theobjectiveofdistributionmanagementistodesignandoperateadistributionsystem
thatattainstherequiredlevelofcustomerserviceanddoessoatleastcost.Toreach
thisobjective,allactivitiesinvolvedinthemovementandstorageofgoodsmustbe
organizedintoanintegratedsystem.
Inadistributionsystem,sixinterrelatedactivitiesaffectcustomerserviceandcostof
providingit:Transportation,Distributioninventory,Warehouses(distributioncenters),
Materialshandling,ProtectivepackagingandOrderprocessingandcommunication(See
pages332and333).
Theobjectiveofdistributionmanagementistoprovidetherequiredlevelofcustomer
serviceattheleasttotalsystemcost.Managementmusttreatthesystemasawhole
andunderstandtherelationshipsamongtheactivities.
Seeexampleproblemonpage333andthecosttradeoffandtotalcostprinciples
discussedonpage334.
Interfaces
Themarketingmixismadeupofproduct,promotion,price,andplace,andthelatteris
createdbyphysicaldistribution.Marketingisresponsiblefortransferringownership.
Physicaldistributionisresponsibleforgivingthecustomerpossessionofthegoodsand
doessobyoperatingdistributioncenters,transportationsystems,inventories,andorder
processingsystems.Physicaldistributioncontributestocreatingdemand.Prompt
delivery,productavailability,andaccurateorderfillingareimportantcompetitivetoolsin
promotingafirmsproducts.Thedistributionsystemisacost,soitsefficiencyand
effectivenessinfluencethecompanysabilitytopricecompetitively.Alloftheseaffect
companyprofits.
Physicalsupplyestablishestheflowofmaterialintotheproductionprocess.Theservice
levelmustusuallybeveryhighbecausethecostofinterruptedproductionschedules
causedbyrawmaterialshortageisusuallyenormous.Costandavailabilityor
transportationforrawmaterialstothefactoryandthemovementoffinishedgoodstothe
marketplaceareimportantfactorsinfactorysiteselection.Unlessafirmisdelivering
finishedgoodsdirectlytoacustomer,demandonthefactoryiscreatedbythe
distributioncenterordersandnotdirectlybythefinalcustomer.Thiscanhavesevere
implicationsonthedemandpatternandtheefficiencyatthefactory.
Transportation
Thecarriersoftransportationcanbedividedintofivebasicmodes:Rail,Road(including
trucks,buses,andautomobiles),Air,Water(includingoceangoing,inland,andcoastal
ships),andPipeline.Eachmodehasdifferentcostandservicecharacteristics(see
pages335through338).
Toprovidetransportationservice,anycarrier,whatevermode,musthavecertainbasic
physicalelements,ways,terminals,andvehicles.Waysarethepathsoverwhichthe
carrieroperates.Terminalsareplaceswherecarriersloadandunloadgoodstoandfrom
vehiclesandmakeconnectionsbetweenlocalpickupanddeliveryserviceandlinehaul
service.Vehiclesofvarioustypesareusedinallmodesexceptpipelines.Theyserveas
carryingandpowerunitstomovethegoodsovertheways(seepage336).
Carriersarelegallyclassifiedaspublic(forhire)orprivate(notforhire).Inthelatter,
individualsorfirmsownorleasetheirvehiclesandusethemtomovetheirowngoods.
Publictransport,ontheotherhand,isinthebusinessofhaulingforothersforpay.All
modesoftransporthavepublicandforhirecarriers.Forhirecarriersaresubjectto
economicregulationbyfederal,state,ormunicipalgovernments.Economicregulation
hascenteredonthreeareas:regulationofrates,controlofroutesandservicelevels,and
controlofmarketentryandexit.Privatecarriersarenotsubjecttoeconomicregulation
but,likepubliccarriers,areregulatedinsuchmattersaspublicsafety,licensefees,and
taxes.Aforhirecarriermaycarrygoodsforthepublicasacommoncarrierorunder
contracttoaspecifiedshipperasacontractcarrier.(seepages338and339).
TransportationCostElements
Thefourbasiccostelementsintransportationarelinehaul,pickupanddelivery,terminal
handling,andbillingandcollecting.SeeLineHaulCostsdiscussionandexampleon
pages340and341.Theotherthreeareonpages342and343.Thetotalcostof
transportationconsistsoflinehaul,pickupanddelivery,terminalhandling,andbillingand
collectingcosts.Toreduceshippingcosts,decreaselinehaulcostsbyincreasingthe
weightshipped,decreasepickupanddeliverycostbyreducingthenumberofpickups,
decreaseterminalhandlingcostsbydecreasingthenumberofparcelsbyconsolidating
29/37
9/1/2015
shipments,anddecreasebillingandcollectingcostsbyconsolidatingshipments.
Thefatechargedbyacarrierwillalsovarywiththecommodityshippedandwilldepend
uponthevalue,density,perishability,andpackaging(seepages343and344).
Warehousing
Theservicefunctionswarehousesperformcanbeclassifiedintotwokinds:(1)The
generalwarehousewheregoodsarestoredforlongperiodsandwheretheprime
purposeistoprotectgoodsuntiltheyareneeded.(2)Thedistributionwarehousehasa
dynamicpurposeofmovementandmixing.Theemphasisisonmovementandhandling
ratherthanstorage.Thesizeofthewarehouseisnotsomuchitsphysicalsizeasitis
thethroughput,orvolumeoftraffichandled.Itemsshouldbewarehousedonlyifthereis
anoffsettingbenefitgainedfromstoringthem.
Warehousesservethreeimportantroles:transportationconsolidation,productmixing,
andservice(seepages345and346).
Anydistributionsystemshouldtrytoprovidethehighestservicelevel(thenumberof
ordersdeliveredinaspecifiedtime)atthelowestpossiblecost.Seeexampleproblemon
page347.
Themarketboundaryisthelinebetweentwoormoresupplysourceswherethelaid
downcostisthesame.Laiddowncost(LDC)isthedeliveredcostofaproducttoa
particulargeographicpoint.Seetheformulasandexamplesonpages348and349.
Packaging
Thebasicroleofpackaginginanyindustrialorganizationistocarrythegoodssafely
throughadistributionsystemtothecustomer.Thepackagemustdothefollowing:
identifytheproduct,containandprotecttheproductandcontributetophysicaldistribution
efficiency.Thereareusuallyatleastthreelevelsofpackagingrequiredinadistribution
system,primarypackage,shippingcontainer,andunitload.
Unitizationistheconsolidationofseveralunitsintolargeunits,calledunitloads,so
thereislesshandling.Aunitloadisaloadmadeupofanumberofitems,orbulky
material,arrangedorconstrainedsothemasscanbepickedupormovedasasingleunit
toolargeformanualhandling.Themostcommonunitloadisthepallet.Togetthe
highestcubeutilizationinthecapacityofpallets,trucksorothervehicles,and
warehouses,thereshouldbesomerelationshipbetweenthedimensionsoftheproduct,
theprimarypackage,theshippingcartons,thepallet,thetruck,andthewarehouse
space.
14.ProductsandProcesses
Introduction
Theeffectandefficiencyofoperationsmanagement,JustinTimemanufacturing,and
totalqualitymanagementalldependonthewayproductsaredesignedandtheprocesses
selected.Thewayproductsaredesigneddeterminestheprocessesthatareavailableto
makethem.Theproductdesignandtheprocessdeterminethequalityandcostofthe
product.Qualityandcostdeterminetheprofitabilityofthecompany.
NeedforNewProducts
Productshavealimitedlifespan.Aproductpassesthroughseveralstages,knownas
theproductlifecycle(seefigure14.1andreviewphasesonpage361).
ProductDevelopmentPrinciples
Therearetwoconflictingfactorstobeconsideredinestablishingtherangeofproductsto
supply.Iftheproductlineistoonarrow,customersmaybelost.Iftheproductlineistoo
wide,customersmaybesatisfied,butoperatingcostswillincreasebecauseofthelack
ofspecialization.Abalancecanbeobtainedwithgoodprogramsofproductsimplification,
productstandardization,andproductspecialization(seepages362through364).
Simplificationistheprocessofmakingsomethingeasiertodoormake.Theemphasis
istoremoveunnecessaryproductsandvariations.
Inproductdesign,astandardisacarefullyestablishedspecificationcoveringthe
productsmaterial,configuration,measurements,andsoon.Thus,allproductsmadetoa
givenspecificationwillbealikeandinterchangeable.Ifthedesignsofassembliesare
standardizationsovariousmodelsorproductsareassembledinthesameway,then
massproductionispossible.Modularizationusesstandardizedpartsforflexibilityand
variety.Bystandardizingoncomponentparts,amanufacturercanmakeavarietyof
finishedgoods.
Specializationisaconcentrationofeffortinaparticularareaoroccupation.Inproduct
specialization,afirmmayproduceandmarketonlyoneoralimitedrangeofsimilar
products.Thisleadstoprocessandlaborspecialization,whichincreasesproductivity
anddecreasescosts.Specializationissometimescalledfocusandcanbebasedeither
onproductandmarketoronprocess.
Productandmarketfocuscanbebasedoncharacteristicssuchascustomergrouping
(servingsimilarcustomers),demandcharacteristics(volume),ordegreeof
customization.Processfocusisbasedonthesimilarityofprocess.
30/37
9/1/2015
Focusedfactoriesspecializeinanarrowproductmixforanichemarketandarethought
toproducemoreeffectivelyandeconomicallythanmorecomplexfactories.Repetition
andconcentrationinoneareaallowstheworkforceandmanagementtogainthe
advantagesofspecialization.Specializationhasthedisadvantageofinflexibility.
Reducingpartvarietywillcreatesavingsinrawmaterial,workinprocess,andfinished
goodsinventory.Itwillallowlongerproductionruns,improvequalitybecausethereare
fewerparts,andimproveopportunitiesforautomationandmechanization.Sucha
programcontributessignificantlytoreducingcost.
ProductSpecificationandDesign
Productsmustbedesignedtobefunctionalandcapableoflowcostprocessing.
Functionalmeanstheproductwillbedesignedtoperformasspecifiedinthe
marketplace.Theproductmustbedesignedsoitcanbemadeatleastcost.Usually,
manydifferentdesignswillsatisfyfunctionalandappearancespecifications.Thejobthen
istopickthedesignthatwillminimizemanufacturingcost.Poordesigncanaddcostto
processing.
Todesignproductsforlowcostmanufacturerequiresclosecoordinationbetweenproduct
designandprocessdesign,whichiscalledsimultaneousengineering.Many
organizationsuseateamwithrepresentativesfromproductdesign,processdesign,
qualityassurance,productionplanningandinventorycontrol,purchasing,marketing,field
service,andothers,toconcurrentlydevelopthedesignfortheproductandtheprocess.
Severaladvantagestothisapproacharethereductionintimetomarket,reductionin
cost,improvedquality,andlowertotalsystemcost.
ProcessDesign
Operationsmanagementisresponsibleforproducingtheproductsandservicesthe
customerwants,whenwanted,withtherequiredquality,atminimumcostandmaximum
effectivenessandproductivity.Processesarethemeansbywhichoperations
managementreachesthoseobjectives.Aprocessisamethodofdoingsomething,
generallyinvolvinganumberofstepsoroperations.Processdesignisthedeveloping
anddesigningofthesteps.Figure14.3illustratesthehierarchyofprocesses,nesting.
Smallprocessesarelinkedtoformalargerprocess.
FactorsInfluencingProcessDesign
Fivebasicfactorsmustbeconsideredwhendesigningaprocess:(1)Productdesign
andqualitylevelTheproductsdesigndeterminesthebasicprocessesneededto
converttherawmaterialsandcomponentsintothefinishedproduct.Thedesiredquality
levelaffectstheprocessdesign,becausetheprocessmustbecapableofachievingthat
qualitylevelanddoingitrepeatedly.(2)DemandpatternsandflexibilityneededIf
thereisavariationindemandforaproduct,theprocessandpersonnelmustbeflexible
enoughtorespondtothesechangesquickly.(3)Quantity/capacityconsiderations
Bothproductandprocessdesigndependonthequantityneeded.(4)Customer
involvementProcessdesignwilldependonwhichmanufacturingstrategyischosen,
engineertoorder,maketoorder,assembletoorder,andmaketostock.(5)Makeorbuy
decisionAmanufacturerhasthealternativeofmakingpartsinhouseorofbuying
themfromanoutsidesupplier.Adecisionhastobemadeaboutwhichitemstomake
andwhichtobuy.Seereasonsonpage369
ProcessingEquipment
Generalpurposemachinerycanbeusedforavarietyofoperationsorcanworkona
varietyofproductswithinitsmachineclassification.Usuallylesscostly,moreflexible,
slower,andlowerquality.Specialpurposemachineryisdesignedtoperformspecific
operationsononeworkpieceorasmallnumberofsimilarworkpieces.Usuallymore
costly,lessflexible,producepartsmorequicklywithhigherquality.
ProcessSystems
Basedonmaterialflow,processescanbeorganizedinthreeways:Flow,Intermittent,
andProject(fixedposition).Readpages370through372andunderstandthedifferences.
Lookfordefinitionsofflowprocessing,repetitiveandcontinuousmanufacturing,
intermittentmanufacturing,andProject,orfixedpositionmanufacturing.
SelectingtheProcess
Generally,thelargerthevolume(quantity)tobeproduced,thegreatertheopportunityto
usespecialpurposeprocesses.Themorespecialpurposeanoperation,thefasteritwill
produce.Capitalcostsarecalledfixedcostsandtheproduction,orrun,costsarecalled
variablecosts.SeetheformulasforTotalCostandUnitCostonpage373andreviewthe
exampleproblem.
Costequalizationpoint(CEP)isthevolumeforwhichthetotalcost(andunitcost)of
usingonemethodisthesameasanother.IfthevolumeislessthantheCEP,the
methodwiththelowerfixedcostwillcostless.IfthevolumeisgreaterthentheCEP,the
methodwiththegreaterfixedcostwillcostless.ReviewconceptandexamplesforCEP
onpages374,375and376.
ContinuousProcessImprovement(CPI)
31/37
9/1/2015
Continuousprocessimprovementisalowcostmethodofdesigningorimprovingwork
methodstomaximizeproductivity.Theaimistoincreaseproductivitybybetteruseof
existingresources.Continuousprocessimprovementisconcernedwithremovingwork
content,notwithspendingmoneyonbetterandfastermachines.PeterDruckerhassaid
efficiencyisdoingthingsrighteffectivenessisdoingtherightthings.CPIaimstodo
therightthingsandtodothemefficiently.Everyoneintheworkforcemustbegiventhe
opportunitytoimprovetheprocessestheyworkwith.
TheCPIsystemisbasedonthescientificmethodandthesixstepsareasfollows:(1)
Selecttheprocesstobestudied.(2)Recordtheexistingmethodtocollectthenecessary
datainausefulform.(3)Analyzetherecordeddatatogeneratealternativeimproved
methods.(4)Evaluatethealternativetodevelopthebestmethodofdoingthework.(5)
Installthemethodasstandardpracticebytrainingtheoperator.(6)Maintainthenew
method.
Seepages376throughpage388.Keypointsare:
a.
b.
Theimportantfeatureinobservationisaquestioningattitude.
c.
Paretoanalysiscanbeusedtoselectproblemswiththegreatesteconomic
impact.Itseparatesthevitalfewfromthetrivialmany.
d.
Causeandeffectdiagram(sometimescalledafishboneoranIshikawa
diagram)
e.
Properlydefiningtheprocess.Recordinghelpsusconsiderallelementsof
theprobleminalogicalsequenceandmakessurewedoconsiderallthe
stepsintheprocess.Therecordofthepresentmethodalsoprovidesthe
basisforboththecriticalexaminationandthedevelopmentofanimproved
method.
Inselectingjobsoroperationsformethodimprovement,therearetwomajor
considerations:economicandhuman.
f.
Operationsprocesschartandprocessflowdiagram
g.
Findingtherootcauseaskwhat,why,when,how,whereandwho.Askthe
whyquestionfivetimes.
h.
Whendevelopingpossiblesolutions,eliminate,combine,rearrangethe
sequence,andsimplify.
Understandjobdesign,jobenlargement,jobenrichment,andjobrotationonpages387
and388.
15.JustinTimeManufacturing
JustInTimePhilosophy
JustinTimemanufacturingistheeliminationofallwasteandcontinuousimprovement
ofproductivity.Wastemeansanythingotherthantheminimumamountofequipment,
parts,space,material,andworkerstimeabsolutelynecessarytoaddvaluetothe
product.Thelongtermresultofeliminatingwasteisacostefficient,qualityoriented,
fastresponseorganizationthatisresponsivetocustomerneeds.Suchanorganization
hasahugecompetitiveadvantageinthemarketplace.
Valuesatisfiestheactualandperceivedneedsofthecustomeranddoesitatapricethe
customercanaffordandconsidersreasonable.Anotherwordforthisisquality.Qualityis
meetingandexceedingcustomersexpectations.
Addingvaluetoaproductdoesnotmeanaddingcost.Usersarenotconcernedwiththe
manufacturerscostbutonlywiththepricetheymustpayandthevaluetheyreceive.
Manyactivitiesincreasecostwithoutaddingvalueand,asmuchaspossible,these
activitiesshouldbeeliminated.
Waste
Anythingintheproductcyclethatdoesnotaddvaluetotheproductiswaste.Waste
makingstartswiththepoliciessetbymanagementinrespondingtotheneedsofthe
marketplace.Managementisresponsibleforestablishingpoliciesforthemarket
segmentsthecompanywishestoserveandfordecidinghowbroadorspecializedthe
productlineistobe.Thegreaterthediversityofproducts,themorecomplexthe
manufacturingprocessbecomes,andthemoredifficultitistoplanandcontrol.
Standardizationreducestheplanningandcontroleffortneeded,thenumberofitems
required,andtheinventorythathastobecarried.Theidealproductisonethatmeetsor
exceedscustomerexpectations,makesthebestuseofmaterial,andcanbe
manufacturedwithaminimumofwaste.Aswellassatisfyingthecustomer,theproducts
designdeterminesboththebasicmanufacturingprocessesthathavetobeusedandthe
costandqualityoftheproduct.Theproductshouldbedesignedsoitcanbemadebythe
mostproductiveprocesswiththesmallestnumberofoperations,motions,andpartsand
includesallofthefeaturesthatareimportanttothecustomer.
Toyotaidentifiedsevenimportantsourcesofwasteinmanufacturing.Thefirstfourrelate
tothedesignofthemanufacturingsystemandthelastthreetotheoperationsand
managementofthesystem:1)theprocess2)methods3)movement4)productdefects
5)waitingtime6)overproduction7)inventory(seeexplanationsonpage399&400).To
remaincompetitive,amanufacturingorganizationmustproducebetterproductsatlower
costwhilerespondingquicklytothemarketplace.
JustInTimeEnvironment
32/37
9/1/2015
Groupproductstogetherintoproductfamilies.Productswillbeinthesamefamilyifthey
usecommonworkfloworrouting,materials,tooling,setupprocedures,andcycletimes.
Workstationscanthenbesetupinminiatureflowlinesorworkcells.Theworkcenters
requiredtomakethisfamilycanbelaidoutaccordingtothestepstomakethatfamily.
Partscannowpassonebyone,orinverysmalllots,fromoneworkstationtothenext
(cellularmanufacturing).Workcellspermithighvariety,lowvolumemanufacturingtobe
repetitive.
Processflexibilityisdesirablesothecompanycanreactswiftlytochangesinthevolume
andmixoftheirproducts.Toachievethis,operatorsandmachinerymustbeflexible.See
machineflexibility,quickchangeover,andoperatorflexibilityonpages402,403and404.
TotalQualityManagement(TQM)Qualityisimportantfortworeasons.Ifqualityisnot
presentinwhatissuppliedtothecustomerandtheproductisdefective,thecustomer
willbedissatisfied.Ifaprocessproducesscrap,itcreatesdisruptedschedulesthatdelay
supplyingthecustomer,increasesthecostoftheproduct.Manufacturingmustensure
thattheprocessiscapableofproducingtherequiredqualityconsistentlyandwithas
closetozerodefectsaspossible.Thebenefitsofagoodqualityprogramarelessscrap,
lessrework,lessinventory,betterontimeproduction,timelydeliveries,andmore
satisfiedcustomers.
Ultimately,theuseristhecompanyscustomer,buttheuserisalsothenextoperationin
theprocess.Qualityatanyoneworkcentershouldmeetorexceedtheexpectationsof
thenextstepintheprocess.Qualityatthesourcemeansdoingitrightthefirsttime
and,ifsomethingdoesgowrong,stoppingtheprocessandfixingit.
Totalproductivemaintenanceispreventivemaintenancepluscontinuingeffortsto
adapt,modify,andrefineequipmenttoincreaseflexibility,reducematerialhandling,and
promotecontinuousflow.
Severalconditionsareneededtoachieveuninterruptedflowofmaterials:uniformplant
loading,apullsystem,validschedules,andlinearity.Uniformplantloadingmeansthat
theworkdoneateachworkstationshouldtakeaboutthesametime.Inrepetitive
manufacturingthisiscalledbalancingtheline,whichmeansthatthetimetakento
performtasksateachworkstationonthelineisthesameorverynearlyso.Theresult
willbenobottlenecksandnobuildupofworkinprocessinventory.
Thepullsystemstartsattheendofthelineandpullsproductfromthepreceding
operationasneeded.Theprecedingoperationdoesnotproduceanythingunlessasignal
issentfromthefollowingoperationtodoso.Thesystemforsignalingdemanddepends
onthephysicallayoutandconditionsintheplant.Themostwellknownsystemisthe
Kanbansystem.Thedetailsvary,butitisbasicallyatwobin,fixedorderquantity,order
pointsystem(seepage406).
Thereshouldbeavalidschedule.Theschedulesetstheflowofmaterialscominginto
thefactoryandtheflowofworkthroughmanufacturing.Tomaintainanevenflow,the
schedulemustbelevel.Inotherwords,thesameamountshouldbeproducedeachday.
Mixedmodelschedulingmeansthatsomeofeverythingismadeeachdayinthe
proportionstomeetdemand.Ifdemandshiftsbetweenmodels,theassemblylinecan
responddaily.
TheemphasisinJITisonachievingtheplannomore,noless.Theconceptiscalled
linearityandisusuallyreachedbyschedulingtolessthanfullcapacity.
ContinuousProcessImprovementwasdiscussedinchapter14.
Seepages408and409foranexplanationofsupplierpartnerships.
AsuccessfulJITenvironmentcanbeachievedonlywiththecooperationand
involvementofeveryoneintheorganization(totalemployeeinvolvement).Operators
musttakeresponsibilityforimprovingprocesses,controllingequipment,correcting
deviations,andbecomingvehiclesforcontinuousimprovement.Employeesmustbe
flexibleinthetaskstheydo.InaJITenvironment,moreemphasisisplacedonthe
leadershiprole.Managersandsupervisorsmustbecomecoachesandtrainers,develop
thecapabilityofemployees,andprovidecoordinationandleadershipforimprovements.
ManufacturingPlanningandControlinaJITEnvironment
ThemajoreffectthatJIThasonforecastingisshortenedleadtime.Ifleadtimesare
shortenoughthatproductionratescanbematchedtosalesrates,forecastingforthe
masterproductionschedulebecomeslessimportant.
TheJITsystememphasizesrelationshipswithsuppliers.Onepurposeofproduction
planningistoarrangeforlongleadtimepurchases.TheJITprocesshasthepotentialfor
reducingthoseleadtimes.
ImpactofJITonmasterschedulingseepages412and413.
ImpactofJITonmaterialrequirementsplanningseepage413.
ImpactofJIToncapacitymanagementseepage413.
ImpactofJIToninventorymanagementseepage414.
MRPisapushsystem,meaningthatthematerialneedsarecalculatedaheadoftime
andpushedouttotheproductionsystemsasaproductionorder.Thepullsystem
underlyingconceptisnottopreplanandgenerateschedules,buttoreacttothefinal
customerorderandproduceonlywhatisneededtosatisfydemandandthemonlywhen
itisneeded.
Ifitisapurchaseditem,themajoreffortistoworkwithsupplierstoreducethecostand
timeofpurchaseorderanddelivery.
HowKanbansystemswork?Seepages418through422.
WhichtoChooseMRP(ERP),Kanban,orTheoryofConstraints?
33/37
9/1/2015
BecauseoftheforwardlookingnatureofMRP,itcanbeveryeffectiveinanenvironment
withagreatdealofvariabilityanduncertainty.MRPsmajordisadvantageisthatitis
highlydatadependent,bothaccurateandtimely.
JITandKanbanworkbestinahighlystableandpredictableenvironment.Theyarenot
aseffectiveinhighlyvolatileenvironments.
TheoryofConstraints(TOC)worksbestwhentheconstraintcanbeidentifiedandwillbe
aconstraintlongenoughtobemanagedeffectively.TOCisnotaseffectiveinaless
stableenvironmentwheretheconstraintchangesandnoteasilyidentified.
HybridsystemslikeKanbanandMRParesuccessfulwhenMRPisusedforadvanced
planningandKanbanisusedasanexecutionsystem.JITandTOCcanbeusetogether
whereTOCprioritizestheareasofimprovementbasedonknowingtheconstraintsand
theJITcontinuousimprovementeffortsfollowthatlead.
16.TotalQualityManagement
WhatisQuality?
Qualitymeansusersatisfaction:thatgoodsorservicessatisfytheneedsand
expectationsoftheuser.Toachievequalityaccordingtothisdefinition,wemust
considerqualityandproductpolicy,productdesign,manufacturing,andfinaluseofthe
product.
Productplanninginvolvesdecisionsabouttheproductsandservicesthatafirmwill
market.Thebasicqualitylevelofaproductisthusspecifiedbymanagementaccording
toitsunderstandingofthewantsandneedsofthemarketsegment.Aproductorservice
isacombinationoftangibleandintangiblecharacteristicsthatacompanyhopesthe
customerwillacceptandbewillingtopayapricefor.
Afirmsstudiesofthemarketplaceshouldyieldageneralspecificationoftheproduct,
outliningtheexpectedperformance,appearance,price,andvolume.Productdesigners
mustthenbuildintotheproductthequalityleveldescribedinthegeneralspecification.
Qualityinmanufacturingmeansthat,ataminimum,allproductionmustbewithin
specificationlimitsandthelessvariationfromthenominalthebetterthequality.
Totheuser,qualitydependsonanexpectationofhowtheproductshouldperform.This
issometimesexpressedasfitnessforuse.Customersdonotcarewhyaproductis
defective,buttheycareifitisdefective.
Qualityhasanumberofdimensions:
Performanceimpliesthattheproductorserviceisreadyforthecustomers
useatthetimeofsale.Thephrasefitnessforusethattheproductdoes
whatitissupposedtodoisoftenusedtodescribethis.Threedimensions
toperformanceareimportant:reliability,durability,andmaintainability.
Reliabilitymeansconsistencyofperformance.Durabilityreferstotheability
ofaproducttocontinuetofunctionevenwhensubjectedtohardwearand
frequentuse.Maintainabilityreferstobeingabletoreturnaproductto
operatingconditionafterithasfailed.
Featuressecondarycharacteristicslittleextras.
Conformancemeansmeetingestablishedstandardsorspecifications.
Warrantyisanorganizationspublicpromisetobackupitsproductswitha
guaranteeofcustomersatisfaction.
Serviceisanintangiblegenerallymadeupofanumberofthingssuchas
availability,speedofservice,courtesy,andcompetenceofpersonnel.
Aestheticsmeanspleasingtothesensesi.e.finishorappearanceofa
product.
Perceivedqualityisbasedonthepremisethattotalcustomersatisfaction
isbasedonthecompleteexperiencewithanorganization,notjustthe
product.
Priceiswhatcustomerspayforvalueinwhattheybuy.Valueisthesum
ofthebenefitsthecustomerreceivesandcanbemorethantheproduct
itself.
TotalQualityManagement(TQM)
TQMisbasedontheparticipationofallmembersofanorganizationinimproving
processes,products,services,andtheculturetheyworkin.TheobjectiveofTQMisto
provideaqualityproducttocustomersatalowerprice.Byincreasingqualityand
decreasingprice,profitandgrowthwillincrease,whichwillincreasejobsecurityand
employment.
ThesixbasicconceptsinTQMare(furtherexplanationsarefoundonpages431through
434):
Acommittedandinvolvedmanagement.TQMisacontinuousprocessthat
mustbecomepartoftheorganizationsculture.
Focusonthecustomer.Thismeanslisteningtothecustomersogoodsand
servicesmeetcustomerneedsatalowcost.Itmeansimprovingdesign
andprocessestoreducedefectsandcost.
Involvementofthetotalworkforce.Totalqualitymanagementisthe
responsibilityofeveryoneintheorganization.
34/37
9/1/2015
Continuousprocessimprovement(coveredinchapter14).Processescan
andmustbeimprovedtoreducecostandincreasequality.
Supplierpartneringratherthanadversarialrelationship.
Performancemeasurestomeasuretheresults.
QualityCostConcepts
Qualitycostsfallintotwobroadcategories:thecostoffailuretocontrolqualityandthe
costofcontrollingquality.
Thecostsoffailingtocontrolqualityarethecostsofproducingmaterialthatdoesnot
meetspecificationsandtheycanbebrokendowninto:
Internalfailurecostsarethecostsofcorrectingproblemsthatoccurwhile
thegoodsarestillintheproductionfacility.
Externalfailurecostsarethecostsofcorrectingproblemsaftergoodsor
serviceshavebeendeliveredtothecustomer.
Thecostsofcontrollingqualitycanbebrokendowninto:
Preventioncostsarethecostsofavoidingtroublebydoingthejobright
thefirsttime.
Appraisalcostsarethecostsassociatedwithcheckingandauditing
quality.
Investmentinpreventionwillimproveproductivitybyreducingthecostoffailureand
appraisal.Investinginpreventionwillincreasetotalcostsintheshortrun,butinthelong
runpreventionwilleliminatethecausesoffailureandreducetotalqualitycosts.
VariationasaWayofLife
Variabilityexistsineverything.
Inanymanufacturingprocess,wecanexpecttofindacertainamountofchance
variationthatisinherentintheprocess.Thecausesofthechancevariationarebroken
intosixcategories:people,machine,material,method,environment,andmeasurement.
Thereisnowaytoalterchancevariationexcepttochangetheprocess.Iftheprocess
producestoomanydefects,thenitmustbechanged.
Assignablevariationhasaspecificreasonforthesecausesofvariation.
Aslongasonlychancevariationexists,thesystemissaidtobeinstatisticalcontrol.If
thereisanassignablecauseforvariation,theprocessisnotincontrol.Theobjectiveof
statisticalprocesscontrolistodetectthepresenceofassignablecausesofvariation.
SPC,then,hastwoobjectives:
Tohelpselectprocessescapableofproducingtherequiredqualitywith
minimumdefects.
Tomonitoraprocesstobesureitcontinuestoproducetherequiredquality
andnoassignablecauseforvariationexists.
Theoutputofeveryprocesshasauniquepatternthatcanbedescribedbyitsshape,
center,andspread.Thebellshapedcurveiscalledanormalcurveandiscommonly
encounteredinmanufacturingprocessesthatarerunningundercontrolledconditions.The
centerofthedistributioncanbecalculatedasoutlinedonpage438.Toevaluatea
process,wemustknownotonlywhatthecenteris,butalsosomethingaboutthespread
orvariation.Thiscanbemeasuredusingeitheroftwomethods,rangeorstandard
deviation,andcanbecalculatedasoutlinedonpage438and439.
ProcessCapability
Tolerancesarethelimitsofdeviationfromperfectionandareestablishedbytheproduct
designengineerstomeetaparticulardesignfunction.Instatisticalprocesscontrol,the
lowerspecificationlimit(LSL)istheminimumacceptablelevelofoutput.Similarly,the
upperspecificationlimit(USL)isdefinedasthemaximumacceptablelevelofoutput.
BoththeUSLandLSLarerelatedtotheproductspecificationandareindependentofany
process.
Besidesspread,thereisanotherwayaprocesscanproducedefects.Ifthereisashiftin
themean(average),defectswillbeproduced.Insummary:
Thecapabilityoftheprocessisnotrelatedtotheproductspecification
tolerance.
Aprocessmustbeselectedthatcanmeetthespecifications.
Processescanproducedefectsintwoways,byhavingtoobigaspread
(sigma)orbyashiftinthemean(average).
Seepages441,442and443.
ProcessControl
Processcontrolattemptstopreventtheproductionofexcessivedefectsbyshowing
whentheprobabilityishighthereisanassignablecauseforvariation.
35/37
9/1/2015
SeeControlcharts,XbarandRchartsandcontrollimitsonpages444,445,and446.
SampleInspection
Statisticalprocesscontrolmonitorstheprocessanddetectswhentheprocessgoesout
ofcontrol,thusminimizingtheproductionofdefectiveparts.Traditionalinspection
inspectsthebatchofpartsaftertheyaremade,andonthebasisoftheinspection,
acceptsorrejectsthebatch.100%inspectionmeanstestingeveryunitinthelot.In
casesinwhichthecostoffailureisexceptionallyhigh,100%inspectionisvital.
Acceptancesamplingconsistsoftakingasampleofabatchofproductandusingitto
estimatetheoverallqualityofthebatch.
Therearefourreasonsforusingsampleinspection:
Testingtheproductisdestructive.
Thereisnotenoughtimetogive100%inspectiontoabatchofproduct.
Itistooexpensivetotesttheentirebatch.
Humanerrorisestimatedtobeashighas3%whenperforminglongterm
repetitivetesting.
Theuseofstatisticalsamplingdependsonthefollowingconditions:
Allitemsmustbeproducedundersimilaroridenticalconditions.
Arandomsampleofthelotmustbetaken.
Thelottobesampledshouldbeahomogeneousmixture.
Thebatchestobeinspectedshouldbelarge.
Samplingplansaredesignedtoprovidesomeassuranceofthequalityofgoodswhile
takingcostsintoconsideration.Lotsaredefinedasgoodiftheycontainnomorethana
specifiedlevelofdefects,calledtheacceptablequalitylevel(AQL).Aplanisdesigned
tohaveaminimumallowablenumberorpercentdefectiveinthesampleinorderto
acceptthelot.Abovethislevelofdefects,thelotwillberejected.
Theprobabilityofacceptingabadlotiscalledtheconsumersrisk.Theprobabilityof
rejectingagoodlotiscalledtheproducersrisk.Theobjectiveistobalancethe
consumersriskandtheproducersriskagainstthecostofthesamplingplan.
ISO9000
TheInternationalOrganizationforStandardization(ISO)developedaseriesoffive
standardsforqualitysystemsthathavebecomeuniversallyacceptedandarequirement
fordoingbusiness.Thestandardsareintendedtopreventnonconformitiesduringall
stagesofbusinessfunctions.Athirdparty,calledaregistrar,assessestheadequacyof
thesuppliersqualitysystem.Insimpleterms,thestandardsrequirethesuppliertosay
whatitisdoingtoensurequality,dowhatitsays,andproveithasdonesoby
documentation.
ISO9000consistsoffivestandardsandexplainsthebasicqualityconcepts,defineskey
terms,andprovidesguidelinesforselecting,using,andmodifyingISO9001,9002,and
9003.ISO9004providesguidanceinimplementingaqualitysystem.ISO9001provides
amodelforqualityassuranceindesign,production,installationandservicing.ISO9002
providesamodelforqualityassuranceinproductionandinstallation.ISO9003provides
amodelforqualityassuranceinfinalinspection.SeetheISOelementslistedisTable
16.1onpages451and452.
Benchmarking
Benchmarkingisasystematicmethodbywhichorganizationscancomparetheir
performanceinaparticularprocesstothatofabestinclassorganization.Bench
markinglooksoutwardtowhatcompetitorsandexcellentperformersoutsidetheindustry
aredoing.
Thestepsinbenchmarkingare:
Selecttheprocesstobenchmark.
Identifyanorganizationthatisbestinclassinperformingtheprocessyou
wanttostudy.
Studythebenchmarkedorganization.
Analyzethedate.Whatarethedifferencesbetweenyourprocessandthe
benchmarkorganization?Therearetwoaspectstothis.Oneiscomparing
theprocessesandtheotherismeasuringtheperformanceofthose
processesaccordingtosomestandard.Themeasurementofperformance
requiressomeunitofmeasure,referredtoasthemetrics.
JIT,TQM,andMRPII
TheTQMconceptsarecompatiblewiththeuseofJITandMRPIIpractices.
36/37
9/1/2015
37/37

Introduction Material Management

Transféré par

Informations du document

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Introduction Material Management

Transféré par

Droits d'auteur :

Formats disponibles

9/1/2015

Vous aimerez peut-être aussi