OPERATIONS MANAGEMENT INTEGRATING MANUFACTURING AND SERVICES FIFTH EDITION Mark M. Davis Janelle Heineke Copyright ©2005, The McGraw-Hill Companies, Inc.

OPERATIONS MANAGEMENTOPERATIONS MANAGEMENTINTEGRATING MANUFACTURING AND SERVICESINTEGRATING MANUFACTURING AND SERVICES

FIFTH EDITIONFIFTH EDITION

Mark M. DavisMark M. DavisJanelle HeinekeJanelle HeinekeMark M. DavisMark M. Davis

Janelle HeinekeJanelle Heineke

Copyright ©2005, The McGraw-Hill Companies, Inc.Copyright ©2005, The McGraw-Hill Companies, Inc.

PowerPoint Presentation by PowerPoint Presentation by Charlie Cook, The University of West AlabamaCharlie Cook, The University of West Alabama

CHAPTER

PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie CookThe University of West AlabamaThe University of West Alabama

Copyright Copyright © © 2005 The McGraw-Hill Companies. All rights reserved.2005 The McGraw-Hill Companies. All rights reserved.

Inventory Systems forDependent Demand15

Copyright Copyright © © 2005 The McGraw-Hill Companies. All rights reserved. 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 15McGraw-Hill/Irwin 15––33

CHAPTER OBJECTIVES• Explain the changing role of materials requirements

planning (MRP) within a manufacturing organization.

• Discuss the role of MRP within an enterprise resource planning (ERP) system.

• Introduce the fundamental concepts and calculations that drive an MRP system.

• Define the elements that make up an MRP system.

• Demonstrate how MRP-related systems are applied in service operations.

• Recognize that MRP and JIT can be used together within an organization.


Managerial Issues

• Demand for components and services that are highly variable and dependent on the demand for the end product.

• Integrating materials requirements planning (MRP) into enterprise resource planning (ERP) systems to reduce inventory and lead times.

• The use of MRP to provide accurate information for shop-floor control of inventories, processes and due dates.


Master Production Schedule

• Master Production Schedule (MPS)– A time-phased production plan that specifies

how many of, and when to build, each end item.

• Material Requirements Planning– Determines the number of subassemblies,

components, and raw materials required and their build dates to complete a given number of end products by a specific date.


How MRP Integrates the Manufacturing Function

Exhibit 15.1


How ERP Integrates Organizational Functions

Exhibit 15.2


Integrating MRP and JIT into the Supply Chain

Exhibit 15.3


Master Production Schedule

• Time Fences– Periods of time with each period having some

specified level of opportunity for the customer to make changes.

– Frozen• Make no or only insignificant changes to products.

– Moderately firm• Allow some changes in specific products.

– Flexible• Allow almost any variation in products.


Master Production Schedule Time Fences

Exhibit 15.4


Material Requirements Planning (MRP) Systems

• Materials Requirements Planning System

– Creates requirements and schedules identifying the parts, components, and materials necessary to produce the end products specified in the MPS.

– Links inventory and scheduling systems.


Goals, Objectives, and Philosophy of MRP

• Inventory Control– Order the right part in the right quantity at the

right time.

• Assign Operating Priorities– Order with the right due date and keep the due

date valid.

• Capacity– Plan for a complete and accurate load.– Plan for an adequate time to view future load.


Inventory Management Under MRP

• Theme– Getting the right materials to the right place at

the right time.

• Objectives– Improve customer service.– Minimize inventory investment.– Maximize production operating efficiency.

• Philosophy– Expedite materials only if the overall

production schedule will be delayed.– De-expedite materials if schedule falls behind.


Benefits of an MRP System• More competitive pricing

• Lower selling price

• Lower inventory levels

• Improved customer service

• Faster response to market demands

• Increased flexibility to change the master schedule

• Reduced setup and tear-down costs

• Reduced idle time


Benefits of an MRP System (cont’d)• Gives advanced notice so managers can see the

planned schedule before the orders are actually released.

• Tells when to de-expedite as well as expedite as orders change.

• Delays/cancels orders or changes quantities as customers adjust their orders to market requirements.

• Advances or delays order due dates as required.

• Aids capacity planning by identifying bottlenecks.


Where MRP Can Be Used

• Industries with a job-shop environment in which a number of products are made in batches using the same production equipment.

• Companies involved in assembly operations and least valuable to those in fabrication.

• Firms with products that have a large number of levels in the product in terms of subassemblies and components.


Industry Applications and Expected Benefits

Exhibit 15.5


MRP System Structure

• Demand for Products– Available-to-promise: future production not

encumbered by an outstanding customer order.

– Demand for spare parts and supplies

• Bill of Material (BOM) File– A list of subassemblies, components, and raw

materials, and their respective quantities required to produce specific end items

• Also, called a product structure or product tree file

– Low level coding: placing identical items on the same level in the product hierarchy.


Overall View of the Inputs to a Standard Materials Requirements Planning Program and the Reports Generated by the Program

Exhibit 15.6


Product Structure Tree for Rolling Desk Chair

Exhibit 15.7


Subassemblies and Parts List for a Rolling Desk Chair in an Indented Format and in a Single-Level Format Exhibit 15.8


Product L Hierarchy in (A) Expanded to the Lowest Level of Each Item in (B)

Exhibit 15.9


MRP System Structure (cont’d)

• Inventory Records File

– Computerized record-keeping system for the inventory status of all subassemblies, components, and raw materials.

– Peg record file (also “where-used file”)

• Traces a material requirement upward in the product structure to identify its parent item.

– Inventory transaction file

• Shows changes that result from stock receipts and disbursements, scrap and obsolescence losses, wrong parts, and cancelled orders.


The Inventory Status Record for an Item in Inventory

Exhibit 15.10


MRP Computer Program

• Output Reports– Primary reports

• Planned orders• Order release notices• Changes in due dates• Cancellations or suspensions

of open orders• Inventory status data

– Secondary reports• Planning reports• Performance reports• Exceptions reports


Product Structure Tree for Product T

Exhibit 15.11

*Subassemblies or parts that have been previously ordered but are not scheduled for delivery until a future date (week three for subassembly U in this example).


Materials Requirements

Plan for Completing 100 units of Product T in

Period 8

Materials Requirements

Plan for Completing 100 units of Product T in

Period 8

Exhibit 15.12


The Environment of the Master Scheduler

Exhibit 15.13

Source: Romeyn C. Everdell and Woodrow W. Chamberlain, “Master Scheduling in a Multi-Plant Environment,” Proceedings of the American Production and Inventory Control Society (1980), p. 421. Reprinted with permission.


The Aggregate Plan and the Master Production Schedule for Mattresses

Exhibit 15.14


Master Scheduling

• To ensure good master scheduling, the master scheduler (a person) must– Include all demands from product sales,

warehouse replenishment, spares, and interplant requirements.

– Never lose sight of the aggregate plan.

– Be involved with customer order promising.

– Be visible to all levels of management.

– Objectively trade off manufacturing, marketing, and engineering conflicts.

– Identify and communicate all problems.


Capacity Requirements Planning (CRP)

• Capacity Requirements Planning (CRP)– The process through which capacity is computed

and how capacity constraints are addressed.• From the work-center view, if there is adequate capacity, the

priority becomes which job to do first.

• If there is insufficient capacity, however, the capacity leveling problem must be resolved by the master scheduler

– Backward and forward scheduling.

• Work Center– A functionally defined center where jobs routed

to it require the same type of work, on the same type of equipment.


Capacity Requirements Planning (CRP)

• Utilization

– A measure of the actual time that machines are used.

• Efficiency

– A measure of how well a machine is performing while it is being used; a comparison of actual performance to a defined standard output or an engineering design rate.


Workload for Work Center A

Exhibit 15.15


Scheduled Workload for Work Center A

Exhibit 15.16


Manufacturing Resource Planning (MRP II)

• MRP II– An advanced MRP system that takes into

consideration the equipment capacities and other resources associated with a manufacturing facility.

– A total, companywide system that allows everyone (buyers, marketing staff, production, accounting) to work with the same game plan and use the same numbers.

– A system with a simulation capability that allows a firm to plan and test alternative strategies.



• Sales and Operations Planning (S&OP)

– Extends MRP by aligning customer demand with both in-house and supplier resources.

– Outputs of the S&OP process include

• a revised sales plan

• a production plan

• inventory levels

• customer lead times or backlogs



• Options for Decoupling Supply from Demand

– Producing to order or to inventory

– Adjusting customer lead times or backlogs

– Changing capacity (e.g., working overtime or adding another shift)


Lot Sizing in MRP Systems

• Lot Sizing

– Lot sizes are the part quantities issued in the planned order receipt and the planned order release sections of an MRP schedule.

• Lot-Sizing Techniques

– Lot-for-lot

– Economic order quantity (EOQ)

– Least total costs

– Least unit cost


Lot-for-Lot Method of Determining Production Quantities

Exhibit 15.17


MRP in Services

• Point-of-sale (POS) terminals

– An the inventory management system (one or more cash registers) connected to a central computer located either on-site or at a remote location.

– The POS terminals are designed for single-item pricing, where a single key represents a specific item on the menu.

– For each item sold, the system automatically posts the price of an item and subtracts all of the items’ ingredients from the inventory records file.

OPERATIONS MANAGEMENT INTEGRATING MANUFACTURING AND SERVICES FIFTH EDITION Mark M. Davis Janelle Heineke Copyright ©2005, The McGraw-Hill Companies, Inc.

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