Lean Systems
1Logistics and Supply Chain ManagementLecturers: Ho Trung Thao ([email protected])
1Chapter 4 - Control Material2Lecture 6: Controlling Material Flow2
Aims of the ChapterAt the end of the lesson, you will have acquired sufficient knowledge to: DESCRIBE the distinctive approach of Material Requirements Planning (MRP) USE MRP to timetable orders and deliveries DISCUSS the benefits and disadvantages of MRP EXTEND the MRP approach along the supply chain DESCRIBE the principles of Just-In-Time (JIT) operations DESIGN kanban systems for controlling JIT DISCUSS the benefits and disadvantages of JIT EXTEND JIT along the supply chain for efficient consumer response33Chapter 4 - Control MaterialMATERIAL REQUIREMENTS PLANNING (MRP)IntroductionDependent and Independent DemandThe MRP approachBenefits of MRPDisadvantages of MRP
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4Chapter 4 - Control MaterialIntroductionPlanning logistics based on resource requirement planning has drawbacks. It is fairly rigid and can be slow to react to changing conditions. If a customer urgently wants a delivery, we cannot tell them to wait until we fit them in to the next planning cycle. Essentially planners take forecasts of demand for logistics, and then plan the supply to meet this. The problem is that forecasts are often wrong.A way of getting around these problems is to match the supply of logistics to actual demand.55MRP assists a company in the detailed planning of its production.Chapter 4 - Control MaterialDependent and Independent Demand The conventional approach to planning assumes that overall demand for a product is made up of individual demands from many separate customers.
Many situations where demands are not independent.
When a manufacturer uses a number of components to make a product, the demands for all components are clearly related, since they all depend on the production plan for the final product. This gives dependent demand.66Chapter 4 - Control MaterialDependent and Independent Demand (cont.)The characteristic approach of Material Requirements Planning (MRP) is that it explodes a master schedule to plan the deliveries of related materials.
Material requirements planning uses the master schedule, along with other relevant information, to plan the supply of materials. It is used for dependent demand.77The job of the Materials Requirement Planner is to makes sure needed parts and materials are available at the right time and place within the company..
Chapter 4 - Control MaterialThe MRP approach (1 of 12)MRP uses a lot of information about schedules, products and materials. This comes from three main sources:Bill of materials, listing the materials needed for every product.Master schedule, giving the number of every product to be made in every periodInventory records, showing the materials available.88Chapter 4 - Control MaterialProduction Planning HierarchyFirm orders from knowncustomersForecast of demand from random customersAggregate Product PlanMaster Production Schedule (MPS)Material RequirementsPlanning (MRP)Engineering design changesBill of Materials (BOM) fileInventory transactionsInventory records fileReports1111The MRP system starts with the MPS or Master Production Schedule. This is the forecast for the sales of the end item over the planning horizon. The data sources for determining the MPS include: Firm customer ordersForecasts of future demand by itemSafety stock requirementsSeasonal variationsInternal orders from other parts of the organization.Aggregate Production Plan and MPSMonthsJanuaryFebruaryAggregate Production Plan1,2001,100(shows total quantity of cars)Weeks12345678Master Production Schedule(showsspecific type and quantity of car to be produced)2-door car (coupe)1001001001004-door car (sedan)500500450450
The MRP approach (2 of 12)Bill of materials
A bill of materials is an ordered list of all the parts needed to make a particular product. Example: a company makes tables from a top and four legs. Then each top is made from a wood kit and hardware; the wood kit has four oak planks, side panels, and so on.1111The product structure tree is called the bill of materials (BOM)
Chapter 4 - Control MaterialThe MRP approach (3 of 12)
Bill of materials (cont.)12
12BOM indicates how many units of an item are needed to make one unit of a parentIn our example, B(4) means that four units of B are needed to make one unit of A
Chapter 4 - Control MaterialBill of Material (cont.)Table10Legs 40Top 10Wood kits 50Hardware 50Oak planks 40Pine siding40Drawer pack2013The MRP approach (4 of 12)Suppose a master schedule shows that the company plans to make 10 tables in February. It obviously needs 10 tops and 40 legs ready for assembly at the beginning of February. These are the gross requirements.
The company needs 40 table legs by the beginning of February, but if it already has 8 in stock and an order of 10 that is due to arrive in January, the net requirement is for 40 8 10 = 22.14The MRP approach (5 of 12)Net requirements = gross requirements current stock stock on order14Chapter 4 - Control MaterialMRP procedure
15The MRP approach (6 of 12)15Chapter 4 - Control MaterialMRP procedure (cont.)Step 1: Use the master schedule to find the gross requirements of level 0 items.Step 2: Subtract any stock on hand and orders arriving to give the net requirements for level 0 items. Then schedule production, with starting times to meet these net requirements.Step 3: Take the next level. Use the bill of materials to translate the net requirements from the last level into gross requirements for this level.Step 4: Take each material in turn and: subtract the stock on hand and scheduled deliveries to find the materials needed use the lead time and any other relevant information to give the size and timing of these orders. Then if there are more levels of materials, go back to step 3.Step 5: Finalize the timetable, adding any specific adjustments.
16The MRP approach (7 of 12)16Chapter 4 - Control MaterialExample Semple-Brown assemble kitchen tables using bought-in parts of four legs and a top. These have lead times of two and three weeks respectively, and assembly takes a week. The company receive orders for 20 tables to be delivered in week 5 of a planning period and 40 tables in week 7. It has current stocks of 2 complete tables, 40 legs and 22 tops. When should it order parts?17The MRP approach (8 of 12)17Chapter 4 - Control MaterialExample solution (1 of 4)The orders give the following production schedule for finished tables shown as the gross requirements for level 0 items. Subtracting the current stock of finished tables gives the net requirements18The MRP approach (9 of 12)Level 0 kitchen tablesWeek1234567Gross Requirement2040Opening Stock22222Net Requirements1840Start Assembly1840Scheduled Completion184018Chapter 4 - Control MaterialExample solution (2 of 4)The scheduled completion shows the number of units that become available in a week, which is the number started the lead time earlier.Find gross requirementsFor level 1 items which are legs and tops. In week 4 there is a net requirement of 18 tables, which translates into a gross requirement of 18 4 = 72 legs and 18 1 = 18 tops.So we can find the gross requirements for level 1 materials as:legs: 18 4 = 72 in week 4, and 40 4 = 160 in week 6tops: 18 in week 4, and 40 in week 6.19The MRP approach (10 of 12)19Chapter 4 - Control MaterialExample solution (3 of 4)Subtracting the stock on hand from these gross requirements gives the net requirements. To make sure the parts arrive on time, they must be ordered the lead time in advance which is 2 weeks for legs and 3 weeks for tops.20The MRP approach (11 of 12)Level 1 legsWeek1234567Gross Requirement72160Opening Stock40404040Net Requirements32160Place order32160Scheduled deliveries3216020Chapter 4 - Control MaterialExample solution (4 of 4)21The MRP approach (12 of 12)Level 1 topsWeek1234567Gross Requirement1840Opening Stock2222222244Net Requirements36Place order36Scheduled deliveries36There are no more of levels material, so we can finalize the time tables of events as Week 2: order 32 legs Week 3: order 36 tops Week 4: order 160 legs and assemble 18 tables Week 6: assemble 40 tables21Chapter 4 - Control Material22Level 0 kitchen tablesWeek1234567Gross Requirement2040Opening Stock22222Net Requirements1840Start Assembly1840Scheduled Completion1840Level 1 legsWeek1234567Gross Requirement72160Opening Stock40404040Net Requirements32160Place order32160Scheduled deliveries32160Level 1 topsWeek1234567Gross Requirement1840Opening Stock2222222244Net Requirements36Place order36Scheduled deliveries3622Chapter 4 - Control MaterialBenefits of MRPBenefits that come from this direct link include:
lower stock levels, with savings in capital, space, warehousing, and so on higher stock turnover better customer service with no delays caused by shortages of materials more reliable and faster delivery times less time spent on expediting and emergency orders MRP schedules can be used for planning other logistics activities.2323Chapter 4 - Control MaterialBenefits of MRPLow levels of in-process inventoriesAbility to track material requirementsAbility to evaluate capacity requirementsMeans of allocating production timeDisadvantages of MRPSome general disadvantages of MRP include:
reduced flexibility to deal with changes needs a lot of detailed and reliable information systems can become very complex the order sizes suggested by MRP can be inefficient MRP may not recognize capacity and other constraints can be expensive and time consuming to implement2525Chapter 4 - Control MaterialPRINCIPLES OF JUST-IN-TIME JUST-IN-TIME (JIT) systems organize materials to arrive just as they are needed.
By coordinating supply and demand, they eliminate stocks of raw materials and work in progress.26
26Chapter 4 - Control MaterialPrinciples and Definitions JITs view of stock: Stocks are held to cover short-term mismatches between supply and demand. These stocks serve no useful purpose they only exist because poor co-ordination does not match the supply of materials to the demand. As long as stocks are held, there are no obvious problems and no incentive for managers to improve the flow of materials. Then operations continue to be poorly managed, with problems hidden by stocks. The real answer is to improve operations, find the reasons for differences between supply and demand, and then take whatever action is needed to overcome the differences.2727Chapter 4 - Control MaterialCh 15 - 22 2000 by Prentice-Hall IncRussell/Taylor Oper Mgt 3/eInventory Hides ProblemsPoor QualityUnreliableSupplierMachineBreakdownInefficientLayoutBadDesignLengthySetups
Ch 15 - 23 2000 by Prentice-Hall IncRussell/Taylor Oper Mgt 3/eLower Levels of Inventory to Expose ProblemsPoor QualityUnreliableSupplierMachineBreakdownInefficientLayoutBadDesignLengthySetups
Minimizing Waste: JIT Production Management philosophy Pull system though the plantWHAT IT IS
Employee participation Industrial engineering/basics Continuing improvement Total quality control Small lot sizesWHAT IT REQUIRES Attacks waste Exposes problems and bottlenecks Achieves streamlined productionWHAT IT DOES Stable environmentWHAT IT ASSUMES13Stock levels with different types of control31
31Chapter 4 - Control MaterialWider Effects of JIT Stocks: As we have seen, organizations hold stocks to cover short-term differences between supply and demand. JIT assumes that these stocks actually hide problems. Organizations should find the reasons for differences between supply and demand, and then take whatever action is needed to remove them.
Quality: Organizations have defined some arbitrary level of acceptable quality, such as, we will accept one defect in a hundred units. JIT recognizes that all defects have costs, and it is better to find the cause and make sure that no defects are produced (supporting the view of total quality management).
Suppliers: JIT relies totally on its suppliers so it supports the view of customers and suppliers working closely together in long-term partnerships pursuing common objectives.3232Chapter 4 - Control MaterialWider Effects of JIT Batch size: Operations often use large batch sizes, as they reduce set-up costs and disruptions. But if demand is low, the products made in large batches sit in stock for a long time. JIT looks for ways of reducing the batch size so that it more closely matches demand.
Lead times: Long lead times encourage high stocks, as they have to cover uncertainty until the next delivery. JIT aims for small, frequent deliveries with short lead times.
Reliability: JIT is based on continuous, uninterrupted production, so all operations must be reliable. If, say, equipment breaks down, managers must find the reasons and make sure it does not happen again.3333Chapter 4 - Control MaterialWider Effects of JIT Employees: Some organizations still have a friction between managers and workers. JIT argues that this is a meaningless distinction, as the welfare of everyone depends on the success of the organization. All employees should be treated fairly and equitably.JIT is not just a way of minimizing stocks. By coordinating all activities, it increases efficiency and eliminates waste.34Key Elements in JITOne problem with JIT is that it only works well in certain types of organization. The most successful users of JIT are large-scale assembly plants, which make virtually identical products in a continuous process. Every time there are changes to a process, or it switches from making one product to making another, there are delays, disruptions and costs. JIT says that these changes waste resources and should be eliminated. In other words, JIT needs a stable environment where a process makes large numbers of a standard product, at a fixed rate, for a long time. This stable environment can reduce costs by using specialized automation. Then JIT works best with high volume, mass production.3535Chapter 4 - Control MaterialKey Elements in JIT The level of production must allow a smooth and continuous flow of products through the process. Each part of the process should be fully utilized, so the process is likely to be a well-balanced assembly line.
Deliveries of materials are made directly to the assembly line at just the time they are needed. Suppliers must be able to adapt to this kind of operation. It would be impractical to bring each individual unit from suppliers, so the next best thing is to use very small batches.
If small batches are used, reorder costs must be reduced as much as possible or the frequent deliveries will be too expensive.36Key Elements in JIT As there are no stocks to give safety cover, any defects in materials would disrupt production. Suppliers must, therefore, be totally reliable and provide materials that are free from defects.
If something goes wrong, people working on the process must be able to find the cause, take the action needed to correct the fault, and make sure that it does not happen again. This needs a skilled and flexible workforce that is committed to the success of the organization.3737Chapter 4 - Control MaterialACHIEVING JUST-IN-TIME OPERATIONS Push and pull systems
Kanbans
Benefits and disadvantages of JIT
3838Chapter 4 - Control MaterialPush and Pull SystemsThe success of JIT is not solely based on its idea of organizing activities at just the time they are needed, but on its description of how to achieve this. It works by pulling materials through the process.
When one operation finishes work on a unit, it passes a message back to the preceding operation to say that it needs another unit to work on. The preceding operation only passes materials forward when it gets this request. 3939Chapter 4 - Control MaterialKanbans ( )JIT needs some way of organizing the flow of materials that are pulled through the process.
The simplest system moves materials between two stages in containers. When a second stage needs some materials, it simply passes the empty container back to the previous stage as a signal to fill it
4040Definition: A kanban is a sign-board or card in Japanese and is the name of the flow control system developed by Toyota.
Chapter 4 - Control MaterialKanbans ( ) KANBANS are cards that control the flow of materials through JIT operations.
They arrange the pull of materials through a process.
There are several ways of using kanbans. The most common system uses two distinct types of card, a production kanban and a conveyance kanban.Production Kanban: signals the need to produce more parts Conveyance Kanban (also called a Move" or a Withdrawal kanban): signals the need to withdraw parts from one work center and deliver them to the next work center
4141Chapter 4 - Control MaterialSingle-Card Kanban SystemReceiving postKanban card for product 1Kanban card for product 2Fabrication cellO1O2O3O2Storage areaEmpty containersFull containersAssembly line 1Assembly line 242Single-Card Kanban SystemStorage areaEmpty containersFull containersReceiving postKanban card for product 1Kanban card for product 2Fabrication cellO1O2O3O2Assembly line 1Assembly line 243Single-Card Kanban SystemStorage areaEmpty containersFull containersReceiving postKanban card for product 1Kanban card for product 2Fabrication cellO1O2O3O2Assembly line 1Assembly line 244Single-Card Kanban SystemStorage areaEmpty containersFull containersReceiving postKanban card for product 1Kanban card for product 2Fabrication cellO1O2O3O2Assembly line 1Assembly line 245Single-Card Kanban SystemStorage areaEmpty containersFull containersReceiving postKanban card for product 1Kanban card for product 2Fabrication cellO1O2O3O2Assembly line 1Assembly line 246Single-Card Kanban SystemStorage areaEmpty containersFull containersReceiving postKanban card for product 1Kanban card for product 2Fabrication cellO1O2O3O2Assembly line 1Assembly line 2Figure 8.4 Single-Card Kanban System47Single-Card Kanban SystemStorage areaEmpty containersFull containersReceiving postKanban card for product 1Kanban card for product 2Fabrication cellO1O2O3O2Assembly line 1Assembly line 248
Kanban CardsConveyance Kanban CardPart number to produce: M471-36 Part description: Valve Housing
Lot size needed: 40 Container type: RED Crate
Card number: 2 of 5 Retrieval storage location: NW53D
From work center: 22 To work center: 35
Kanban CardsProduction Kanban CardPart number to produce: M471-36 Part description: Valve Housing
Lot size needed: 40 Container type: RED crate
Card number: 4 of 5 Completed storage location: NW53D
From work center: 22 To work center: 35
Materials required:Material no. 744BStorage location: NW48CPart no. B238-5Storage location: NW47BThe Main Features of Kanban Systems: A message is passed backwards to the preceding workstation to start production, and it only makes enough to fill a container. Standard containers are used which hold a specific amount. This amount is usually quite small, and is typically 10% of a days needs. The size of each container is the smallest reasonable batch that can be made, and there are usually only one or two full containers at any point. A specific number of containers and kanbans is used. The stock of work in progress is controlled by the size of containers and the number of kanbans. Materials can only be moved in containers, and containers can only be moved when they have a kanban attached. This gives a rigid means of controlling the amount of materials produced and time they are moved. While it is simple to administer, this system makes sure that stocks of work in progress cannot accumulate.5454Chapter 4 - Control MaterialBenefits and Disadvantages of JIT lower stocks of raw materials and work in progress shorter lead times shorter time needed to make a product higher productivity higher equipment capacity and utilization simplified planning and scheduling
5555Chapter 4 - Control MaterialBenefits of JIT less paperwork improved quality of materials and products less scrap and wastage better morale and participation of the workforce better relations with suppliers emphasis on solving problems in the process.5656Chapter 4 - Control MaterialDisadvantages of JIT high risks of introducing completely new systems and operations initial investment and cost of implementation long time needed to get significant improvements reliance on perfect quality of materials from suppliers inability of suppliers to adapt to JIT methods need for stable production when demand is highly variable or seasonal reduced flexibility to meet specific, or changing, customer demands difficulty of reducing set-up times and associated costs lack of commitment within the organization lack of co-operation and trust between employees problems linking JIT to other information systems, such as accounts need to change layout of facilities increased stress in workforce inability of some people to accept devolved responsibilities.5757Chapter 4 - Control MaterialEXTENDING JIT ALONG THE SUPPLY CHAINJIT forces suppliers to change the way they work, with fast deliveries, perfect quality, small batches, and complete reliability. The easiest way for them to meet these requirements is to adopt JIT methods themselves.Then second tier suppliers adopt JIT to support first tier suppliers, and so on. This ensures that the whole supply chain is working together with the same aims and principles. This extension of JIT along the supply chain is known as efficient consumer response (ECR).EFFICIENT CONSUMER RESPONSE pulls materials through tiers of organizations in the supply chain.5858Chapter 4 - Control MaterialEFFICIENT CONSUMER RESPONSE - ERC59With JIT this came with kanbans; with ECR it came with EDI.For a start ECR, full EDI including purchase orders, invoices, planning information, point-of-sales, data, fund transfer, and so on are sent to suppliers and signals the need for more materials using an electronic kanbans.The following list includes some key stages for an organization implementing ECR:design a logistics strategy based on responsive replenishmentunderstand the principles of ECR and how this will affect operationsdefine the aims of ECR for the organization and measures of performance from partnershipswith organizations that can match the organization's aimsintroduce comprehensive EDI with suppliers and customersbuild flow through logistics, where materials are moved as efficiently as possiblebenchmark other operations and continue to improve.Just-in-timePull scheduling JIT is the classic pull system. The basic mechanism is that production at one level only happens when initiated by a request at the higher level. That is, units are pulled through the system by request.
Push scheduling MRP is the classic push system. The MRP system computes production schedules for all levels based on forecasts of sales of end items. Once produced, subassemblies are pushed to next level whether needed or not.
supplierbuyerPush: traditional wayPull: Just-in-time
