DSP - Planning the Management of Inventory

Session 1 - Inventory Policies

1.1 types and classification of inventory in manufacturing and service environments.

1.2 influence of aggregate-level inventory policies affecting and reflecting trade offs among customer service, production efficiency, and inventory obj.

1.3 adoption or selection of item inventory policies consistent with inventory investment goals.

1.1 types and classifications of inventories

1.1.1 Types of manufacturing inventory:

-Raw materials

-WIP

-FG and distribution inventories (product sold as a completed item.

-Maintenance, repair and operating supplies (MRO)

The first 3 are based on the flow of materials from suppliers through manufacturing and into the distribution system.

WIP:

high level in traditional intermittent job shop and batch.

lower level in lean JIT.

in production layouts (continuous flow and cellular) and methods facilitate a continuous one-piece flow of material from raw to Finished Product that is synchronized with customer demand or pull rate.

MRO supplies support general operations and maintenance.

Subclassifications of manufacturing inventory

Excess: product that exceeds the amount necessary to achieve the desired throughput rate at a constraint or to achieve the desired due date performance.

Inactive

Obsolete: is not used or sold at full Value because the products are no longer produced or supported. Disposing of the inventory means that its costs cannot be recovered through revenues, which means lost revenue and reduced profit. Obsolete parts are removed from inventory by engineering change orders.

Scrap: is outside of specifications and is not practical to rework. Scrap can be a result of the nature of the materials and manufacturing process. A scrap factor should be built into determining material requirements.

Distressed: product that are damaged or close to their expiration date and cannot be sold at full price

Hedge: is a form of inventory buildup to buffer vs some event that may not happen.

Buffer

Inventory buffers

Service inventory

Goods and services

Hard and perishable inventory: 2 types of hard goods are: a) Raw material transformation, such as restaurant meals, custom clothing,  and baked goods. b) Materials that are not transformed during the service transaction, such as goods bought from a retail store, automobile parts installed by an automotive repair shop, or replacement parts used in a surgical transplant operation.

Service inventory management and costs

1.2 aggregate inventory policies

The 2 types of inventory policies are:

-Aggregate-level policies are associated with the impact of inventory management on the overall financial performance of the company.

-Item-level policies are associated with materials and operations planning and execution.

1.2.1 Resolving sales and operational conflicts

a. Business strategy choices

In any manufacturing organization, different functions have different and following objs:

High customer service levels - high product variety and quality, and shorter lead times and production flexibility to respond to customer orders

Efficient plant operations - long production runs to minimize changeovers and reduce per-unit production costs; high raw material inventory levels at low costs.

Minimum inventory investment - low levels of inventory and high inventory turns (or turnover).

b. Priority and capacity planning choices

c. Resolving conflicts: in lean and theory of constraints, production approaches enable more than one objective to be achieved by increasing supply chain velocity through a number of methods, including:

-Eliminating wasteful movements and procedures in the production process and fostering a culture of employee empowerment.

-Ensuring a continuous flow of production from raw material to FP by buffering critically constrained resources to maintain full utilization.

-Establishing supplier relationships and supply management practices that synchronize delivery of raw materials to the point of use at time of production.

1.2.2 Inventory Valuation

MRO supplies are expenses and not assets!

Cost accumulation methods:

Project cost

Job order

Process costing

Cost of Goods Sold (Cost of Sales)

Types of inventory valuation (accounting methods)

Average cost

Standard cost

Actual cost

Transfer cost and price

FIFO: during an increasing costing period, FIFO tends to keep the total inventory value on the balance sheet close to the current market value and would charge the cost of goods sold at the older, lower, cost value. Do exercises!

LIFO: during an increasing costing period, LIFO tends to understate the total inventory value on the balance sheet and would charge the cost of goods sold at values close to the current market value. Do exercises!

1.2.3 Inventory performance metrics

Aggregate inventory metrics:

NB. High inventory turns and low days of supply are desirable because they indicate lower levels of inventory relative to sales per period (annual, monthly,...)

-Inventory turns: annual cost of goods sold / average inventory in dollars

-Days of supply = inventory on hand / average daily usage where average daily usage = annual sales / number of days in one year. Definition: It measures the relationship bw usage (sales) and inventory.

-Cash-to-cash cycle: days' supply of inventory + accounts receivable days - accounts payable days. Definition: It is the number of days bw paying for the raw materials and getting paid for the product.

Customer service metrics: operational and customer satisfaction metrics

1.3 item inventory policies

This section describes 2 important inventory policies and techniques in DSP in different production environment: lot sizing and safety stock.

1.3.1 lot sizing

1.3.1.1 Lot sizing decision factors

Order quantities constraints and modifiers:

-Order qty constraints provide upper (to control inventory investment costs) and lower (to prevent numerous orders for low-cost items) order qty limits.

-order qty modifiers enable necessary adjustments to quantities that might be outside the order constraints.

Order quantities in production and service environments

Costs associated with order-quantity decisions:

-inventory carrying cost (annual basis: opportunity costs + storage costs + risk costs). Usually expressed as a percentage of average inventory for a chosen period.

-ordering cost

1.3.1.2 Lot sizing techniques (Arnold cap. 10 - order quantities):

a. EOQ: based on 

-Demand relatively constant and known

-Item is produced or purchased in lots or batches, not continuously.

-Ordering and inventory carrying costs are constant and known

-Replenishment occurs all at once.

! EOQ formula:

Q units = radice quadrata di 2AS/ic

Q in $ = radice quadrata di 2AS/i

A = annual usage in units

S= ordering cost in $ per order (cost per order)

i= annual carrying cost rate as a decimal or a percentage

c= unit cost in $

Average inventory = Q/2

# of order placed per year = annual demand / order quantity = A / Q

Annual ordering cost = A/Q x S

Annual inventory carrying cost = Q / 2 x c x i

Total annual cost = annual ordering cost + annual carrying cost

b. Order n Periods supply: rather than ordering a fixed quantity, inventory management can order enough to satisfy future demand for a given period of time. The number of periods is calculated by POQ system/formula:

POQ uses the EOQ formula to calculate an economic time bw orders = EOQ / average weekly usage (1 year = 52 weeks).

!Planned order receipt calculation = sum of the net requirements over the POQ!

It is better for lumpy demand because it looks forward to see what is actually needed.

c. FOQ rules specify the number of units to be ordered each time an order is placed for an individual item or SKU. The disadvantage is that it doesn't minimize the costs involved.

d. L4L rule says:

to order exactly what is needed and when from suppliers and the factory. It is equal to the net requirement per period.

Order quantities change as requirements change.

No unused lot-size inventory is created.

Examples of the use of L4L are as follows:

-In planning and fulfilling time-phased requirements for dependent demand items, as in MRP, and for indipendent items in master production scheduling.

-when ordering components (A items) that are expensive to inventory.

-perishable items

-in lean/JIT environment, where inventory is considered waste.

1.3.1.3 Safety stock:

a. Meaning of customer service

b. safety stock methods:

-statistical (independent demand items):

From Arnold p.311 - Safety stock (SS) value can be derived from the sigma (std deviation). MAD can be converted into a std deviation/sigma.

SS is calculated by:

1.determining the sigma in physical units: calculate demand deviation (actual - forecast) for each period + square each deviation + sum each squared dev + divide the sum by the number of periods + square root the result of the division to get the sigma.

2.deciding on a customer level

3.using a safety factor table to locate the safety factor for the desired service level.

4.multiplying the sigma by the safety factor.

-time period safety stock = forecast monthly usage x safety stock time period

It is useful for items with frequent deliveries, such as daily to weekly. It provides a buffer vs delays in receipts.

-fixed safety stock: in case a new part is being phased in /a part is being phased out.

>in case a new part is being phased in: It is necessary for the planner to obtain adequate history on a new part before calculating a statistical SS. Until that time, the planner can establish a fixed SS high enough to provide the target service level.

>In case a part is being phased out: the planner should set the fixed SS to zero and manually check usage vs stock balances.

c. Approaches to Safety Stock

...

Session 2 - Inventory Planning

2.1 order review methods:

-Differentiate bw the "order point" and "periodic review" methods.

-Describe the best order review methods for dependent demand.

2.2 aggregate and disaggregate planning

2.3 impact of lean production concepts:

-Explain the logic of reducing work in process (WIP) to shorten production lead time.

-Description of 4 lean production tools that increase supply chain velocity

2.4 accuracy, handling, and storage:

-Apply ABC classification to cycle counting.

-Describe the advantages of the 3 major inventory location systems (fixed, random, zone).

2.1 order review methods (syn: ordering systems)

They help determine purchase order and work order schedules and quantities applicable to the types of inventory.

The methods are:

-Order point (syn: reorder point) - independent demand

-Periodic review - independent demand

-MRP - dependent demand

-Visual review - independent and dependent demand

-Kanban - dependent demand

2.1.1 Indipendent demand - Order point system @ Arnold p. 318

OP = DDLT + SS

When to use:

-Primarily for independent demand items (FG and MRO).

-For dependent demand items (raw materials) when demand is stable and continuous.

-Not for high value class A items because of inventory costs.

-For limiting lot sizes due to truckload and storage capacity at the receiving warehouse.

2.1.2 Independent demand - periodic review system (PRS) @ Arnold p.320

It is a form of Indipendent demand management in which inventory levels are reviewed and an order is placed at specific intervals. Order quantities may vary, but typically replace items consumed during the time period.

Formula

Q = T - I

T = D (R + L) + SS

I = inventory on hand

T = target (maximum) Inventory level

D = Demand per Unit of time

L = lead time duration

R = review period duration

PRS is advantageous in the following situations:

-Receiving deliveries of many different items from one source at one time is economical. E.g. Regional distribution center may order a truckload once a week from a central warehouse.

-tracking and posting transactions of many small issues from inventory is expensive. Supermarket and retailers are in this category.

-it is safe to assume that sufficient inventory has been ordered to last until the next review interval.

-items have a limited shelf life, such as farm produce, chemicals, and food products

-ordering costs are low; ordering once a week or month is not a cost issue. This occurs when many different items are ordered from one source.

- in retail settings stocked with many different items from a central warehouse location because it consolidates deliveries and reduces shipping and handling costs.

2.1.3 Vendor-Managed (VMI) and Consignment Inventory

Used to replenish both independent and dependent demand.

VMI differs from consignment in these respects:

-the customer shares visibility of its demand, such as promotions and point-of-sales rates, with the supplier through various information-sharing technologies.

-the customer's information is an input to the planning process used by the supplier, which assumes the entire role for planning and replenishment.

-often the supplier owns the goods until the customer uses them.

-ownership of the item is negotiable and depends on the business reqs and contractual agreements bw the two parties.

Consignment inventory occurs when a supplier provides a customer with inventory for use but retains ownership of the product until it is used or sold. The supplier or the customer periodically inventories the consigned product and the supplier bills the customer and replenishes the consigned inventory. Alternatively the customer pays periodically based on usage.

2.1.4 Dependent Demand - MRP

MRP calculates:

-the gross and net requirements for each component in the end item

-The planned order release and receipt dates considering available inventory balances. As purchases of raw materials and sub-assemblies and manufacture of components and sub-assemblies in the factory.

NB. In make to order environment the order for the end item can be directly scheduled by MRP as orders are received.

2.1.4 Service Requirement Planning

2.1.5 Visual Review also called min-max system (low value items)

It assumes that minimum and maximum levels have been established. When the minimum level is reached, inventory is replenished to the maximum level.

The minimum could be determined by the order point formula.

The maximum might be determined by shelf space or economic order considerations.

2.1.5 Kanban (pull system in lean/JIT environment vs work order in push system)

2.2 Aggregate and Disaggregate Planning

2.2.1 Manufacturing Planning and Control

It is the system used by manufacturing to recognize the demand for products, plan the resources required to produce them, and execute and control production.

It includes the following:

-Top-down planning approach in which planning and execution activities are formally related to the organization's strategic goals.

-Layered approach to planning:

>Business planning: long term planning in dollars.

>Sales and operations planning (output is production plan). Aggregate planning: medium- to long term planning at the product family level.

>Master scheduling (output is MPS). Disaggregate planning: short- to medium-term planning at the end item level. 

>Material requirement planning

>Capacity planning

-cross-functional coordination of different roles, such as manufacturing, marketing, finance, engineering, HR, distribution, quality, and materials management throughout the MPC process.

-closed loop system plans at all levels, including production activity control, continually adjusted to ensure consistency among them in response to internal and external events before, during, and after production.

2.2.2 MRP II for Service

-aggregate service planning and resource requirements planning

-master service scheduling

-RCCP: bills of capacity and bills of labor

-Service reqs planning (SRP) and CRP

-shop floor control

-Uncertainty of service lead times and resource requirements.

Conclusion from discussion of aggregate and disaggregate planning in service and manufacturing: planning and control at the disaggregate level, such as detailed scheduling and planning, need to be based on decisions and trade offs at the aggregate level. Tradeoffs may be among sales, operations, and finance with respect to customer service, costs of producing or delivering a good or service, and inventory.

2.2.3 Impact of Lean Production Concepts on inventory levels and implications for DSP.

Lean manufacturing main concept is the elimination of the waste: it is possible with the reduction of production lead time.

Long lead times (Michael George in Lean Six Sigma 2002):

-Cause high variation in LT

-Create extra costs of overtime, scrap, rework, and capital invested in inventory and equipment.

-Create hidden costs: manufacturing overhead caused by excessive plant size, expeditors, stockrooms, and personnel.

-reduce the rate of quality improvements

Principles to Shorter Production Lead Times:

-Put a maximum cap on the amount of WIP to predict lead time.

-Maintain supply chain velocity by maintaining an even flow of WIP, and ensuring that WIP is related to current demand.

-Release material into the line in amounts consistent with appropriate batch size to prevent excess WIP.

Implementing the 4 steps to reduce WIP and therefore LT:

1. Use a pull system:

-The factory produces only what the customer or distributor uses.

-Each workstation makes only enough to replenish what the next workstation is using.

-Each process replenishes only what the next process is using.

2. Determine the strategic (finished goods) buffer:

It needs to account for transportation time, safety stock, and seasonality and promotions.

It puts a cap on the amount of WIP in the system and enables you to start continuous improvement initiatives to reduce lead times through setup and batch size reduction.

3. Increase flexibility to deal with product line complexity: ability to change volumes and product mix quickly using flexible machinery, cross-trained employees, and quick changeovers.

4. Implement synchronous flow:

-The basic pull system is asynchronous because it has no timing associated with operations in the product routing.

Adopting a synchronous pull system, through the use of takt time to control the velocity of flow through the production process, will reduce overall lead time.

-this requires knowing and standardizing operation times, which will enable completion of an assembly produced at one workstation to trigger production of an assembly at the next workstation.

-it also assumes that through process improvements, organizations can implement batch sizes that are consistent with the desired rate of flow.

-the trigger can be recognized by MRP application sw, which can then release the assembly to the next station.

Lean Production Tools

5 principles of Lean:

-Value

-Value stream

-Flow

-Pull

-Perfection

4 Major Lean Improvement Tools:

-Value stream mapping

-Pull system

-Setup reduction

-Total productive maintenance

1. Value stream mapping is a technique used to visualize the flow of the value stream.

A value stream map is a graphical representation of the process steps from raw material to finished goods (or delivery of service to the customer). It is a multiple process levels. The upper portion of the map contains the information flow, the middle portion contains the material flow and the lower portion contains the process data and timeline.

Use of the value stream mapping technique can result in improved inventories, cycle times, and throughput.

2. Setup time reduction (important to increase operations velocity and throughput)

Steps to reduce setup time:

Step1: separate external and internal setup

Step2: convert internal setup to external.

Step3: streamline internal setup.

Step4: eliminate adjustment

3. Total Productive Maintenance (TPM) and downtime reduction

Implement the Employee empowerment from lean/JIT

Downtime Reduction is the most important objective of TPM. It has the following negative effects:

Causes delays in downstream operations

Reduces process speed

Requires more inventory buffers

Allows less room for unexpected machine problems

Affects quality because problematic machines can produce statistically out of control products.

2.3 Accuracy, Handling, and Storage

2.3.1 Inventory Accuracy

2.3.1.1 Inventory Record Accuracy: the 3 important types of information that must be accurate are:

-Part description or part number

-Qty

-Location

The accuracy of this information is critical to ensure the following:

-Accurate, effective priority planning system - Sales and operations planning, master scheduling, and MRP.

-High levels of customer service

-Effective and efficient operations

2.3.1.2 Verification of Inventory Accuracy

2.3.1.3 costs of inaccuracy

Lost sales

Excess production

Low productivity

Excessive expediting

High inventory levels

Shortages

Missed schedules

Late delivery

Excess freight costs

High levels of obsolescence

2.3.1.4 accuracy goals:

100 % inventory accuracy

100 % of the parts

100 % of the time

It is common practice to establish tolerances, such as + or - n %, for individual items based on various criteria. These criteria include the following:

-value of the item - tolerance for A items will be less than B and C items.

-critical nature of the item

-ability to stop production

-lead time

-difficulty of precise measurement

2.3.1.5 types of inventory accuracy methods

Cycle Count vs Periodic Inventory

-Periodic Inventories are performed at a recurring interval, such as the annual taking of physical inventory.

All items are counted in a short period, often requiring shutdown of operations and the use of many personnel with diverse experience (inexperienced people).

Results:

-No correction or detection do causes of errors

-Many mistakes in item identification

-Plant and warehouse shut down for inventory

-One-time improvement of record accuracy.

-cycle counting occurs continuously, as experienced and trained employees count a few items daily. The emphasis is on finding and fixing the root causes of errors as well as correcting the data.

Results:

-timely detection (root cause analysis) and correction of errors.

-fewer mistakes in item identification.

-minimal loss of production time

-systematic improvement of record accuracy

2.3.1.5.1 Cycle Counting

Objectives of a cycle accounting program are:

-Detect discrepancies bw physical and record balances

-Trace the causes of errors and correct them.

a. Sources of Problems:

Poor design of forms

Carelessness

Inaccurate supplier receipts

Inadequate storage space

Timing for cutoff of transactions

Untrained personnel

Poor document control

Items not identified properly

Lack of discipline/accountability

b. Triggers as criteria to follow in determining when and what to count:

ABC classification

When a reorder is indicated

When a replenishment lot is received

When the record indicates a zero balance.

When a record balance becomes negative.

After a set number of transactions.

Application of ABC Analysis and classification

Identify those items (approximately 20 %) that account for approximately 80% of the cost of goods as A, the next 15 % of items as B, and the bottom 5 % as C.

ABC Classification for APICS

Category A 10-20 % items 50-70% of total value

Category B      20 % items       20% of total value

Category C 60-70 % items 10-30% of total value

Procedure of the ABC inventory control classification:

1. Determine the annual usage for each item.

2. Multiply the annual usage of each item by its cost to get its total value

3. List the items according to their annual money usage.

4. Calculate the percent of the total value (value/total value x 100)

5. Calculate the percent of total qty (Annual usage/Total Annual Usage x 100)

6. Compute the cumulative percentage of items.

7. Examine the annual usage distribution and group the items into A, B, C groups based on percentage of annual usage.

Use of ABC classification:

-Cycle counting frequency: Counters should verify A items more frequently than B or C items.

-Customer service: order qty and safety stock levels are established depending on the economics and criticality of each item. From an accounting perspective, the focus is dollar accuracy. A items take longer to procure if there is an unplanned stockout.

-Engineering priorities: value engineering efforts are better spent on items with high cost or usage.

-Replenishment system: it might be more economical to control some C items with a simple two-bin system of replenishment and employing more sophisticated methods for A and B items.

-Investment decisions:

A items represent a larger investment in inventory.

More analysis is used when making decisions about order qty and safety stock for them.

The primary focus when considering how to improve inventory turns is always on A items first.

Cycle Count Program:

-Processes and Procedures

-Education and Training

-Accountability and Responsability

2.3.1.6 Storage and Location of Inventory Items

Bins

Bin Location Codes

Inventory Location System:

-Fixed Location System: each bin is designated to hold a particular item number. Bins are assigned based on physical dimension or other characteristics of the item.

-Random Location System: random location schemes, which are feasible when a computer is employed or when the quantity of items is minimal, never associate a bin with a specific item number. Instead, bins are assigned each time a shipment arrives.

-Zone Location System: a zone location scheme is a compromise. Some examples are:

>Materials that are deemed suitable for outdoor storage can always be assigned to a storage lot or yard, with random placement within that zone.

>zone assignments can be based on other physical characteristics as well, such as flammability, dimension, value (precious metals), risk of pilferage, or whether items are fast, medium or slow moving.

2.3.1.7 Identification, Tracking, and Handling of Inventory

-Automated Storage and Retrieval Systems

These systems generally use random location methods, although they may also use fixed methods in some applications.

AS/RS has 2 basic components: 1. Racking and 2. The storage and retrieval machine. The latter is often controlled by application sw that stocks, keeps and picks based on integration with systems for sales order, receiving and put away, and inventory mngmnt.

-Bar Coding and RFID Tagging

Bar coding facilitates timely and accurate input of data to a computer system, reducing errors.

-Pipeline Visibility

DSP - Planning Procurement and External Sources of Supply

Session 8 - Establishing Supplier Relationships

8.1 Factors determining Supply relationship

Mutual Business Value Principles:

a. Supply relationships can be divided into 2 general categories:

-Arm's length: lower value-added relationships

-Collaborative: higher value-added relationships

For higher value-added relationships, such as partnerships and alliances, additional principles are critical:

Openness: willingness to share information on topics such as a cost, processes, market analysis, and future products.

Trust: mutual respect and confidence in the reliability and integrity of the other party.

b. Supply relationships are based mainly on the following principles:

Compatibility of interests: volumes, pricing, market segments, quality expectations, growth, technological capability consistent with each firm, time to market for new products.

Mutual need: the degree to which firms need each other to further their goals.

8.1.1 Describe the cost that are avoided by deciding to buy rather than make a product.

8.1.2 Supplier capabilities to consider in a make-or-buy analysis.

In-House Manufacturing Capability

Supplier Capability

Cost analysis

International Procurement Implications/Issues

Purchasing Strategy

Analysis of Supply Risk and Profit Impact

It is useful framework for understanding and developing corporate purchasing strategies:

Strategic items: high impact on Profit and High Risk

Leverage Items: high impact on Profit and Low Supply Risk

Bottleneck Items: low impact on Profit and high Supply Risk

Noncritical items: low impact on Profit and low Supply Risk

Strategic Sourcing

Objectives:

Increase the reliability of sources, quality, and delivery of materials and services.

Reduce supply risks such as those 

Activities:

8.1.3 Explain why supplier partnerships are best suited to items w high supply risk and high impact on profit:

A supplier partnership is the establishment of a working relationship that requires both companies to make a long term commitment to the partnership. It is a typical pre-requisite to a successful supplier partnership.

8.1.4 Summarise the scope of strategic sourcing activities

8.1.5 Difference bw tactical buying and strategic sourcing:

Def. Tactical buying is a purchasing process focusing on products with stable, defined specs that are not critical to production, have no delivery issues, and deliveries are highly reliable.

8.2 Collaborative relationships

Strategic alliances and supplier partnership are high value-added relationships

8.2.1 - Strategic alliances involves two or more organizations that share information, participate in joint investments, and develop linked and common processes.

8.2.2 - 6 value propositions for supplier partnerships:

Product development

Operational integration and efficiencies

Quality Management

Investment risk

Flexibility

Market Access

8.3 supply alternatives and techniques

Difference bw sole, single and multiple sourcing:

Sole source: the supplier is the only source of supply as a result of having a unique technology, distribution arrangement, or government regulation.

Single sourcing: there is more than one source, and the company chooses to reduce the supplier base to a single supplier. Suppliers are generally more willing to enter into a long-term relationship if they are going to be the single supplier. They also will be more likely to make additional investments in tooling and technology in order to become more responsive to the customer.

Multiple sources: there is a desire to maintain a backup source or to meet differing local content requirements, or when a single supplier cannot supply the required volume.

Disadvantages of single sourcing in a Lean/JIT

Managed Inventories:

Consignment, or vendor-owned, inventory

Vendor-managed Inventory (VMI)

On-site Representation

Role of cross-functional teams in supplier relationships.

8.4 communicating with suppliers

Role of the planner/buyer in communicating with suppliers

8.4.1 Strategic Communication

8.4.2 Operational Communication (lean/JIT)

areas of operational communication bw supply chain partners:

Technology

Planner/buyer Approach

Technical and quality specs

Scheduling

Delivery

Engineering drawings/changes

Packaging

Transportation

Session 9 - Supplier Partnership

9.1 Product and process development

9.2 Purchasing

9.3 Supply Chain Acceleration

9.1 Product and process development

They are important value chain processes:

-Product development designs consistent with the firm's marketing strategy and what customers want.

-Process development uses product design specs to design processes for making good-quality products cost-effectively.

-Time-to-market is critical to developing an early advantage for new products during the introduction stage and growth stage of the product life cycle.

Traditional vs Concurrent Engineering

The traditional approach to product and process development has been a Serial approach:

-Different departments review and make inputs to the design process once management has approved the product proposal, and then pass it on.

-Conflicts bw departments

Concurrent engineering:

-the inputs of different functions are considered simultaneously.

Simultaneous input is made possible by a cross-functional team approach.

Supplier Involvement

There are two important advantages to involving suppliers in the concurrent engineering process early on:

Faster time-to-market

Ability to tap the supplier's expertise in product and process design.

9.2 Purchasing

Purchasing approaches:

Purchase order

Blanket PO

Lean/JIT purchasing system

Consignment inventory 

Vendor-managed inventory

Types of Contracts/Contract approaches to manage risk

Buy-back contracts

Revenue-sharing contracts

Pay-back contracts

Cost-sharing contracts

Pricing agreements

Capacity reservation contracts

Strategic sourcing to International procurement:

Cost and non-cost advantages

Supply chain management challenges

Importance of strategic sourcing

9.3 supply chain acceleration:

Total cost of ownership (TCO)

Partnership goals and benefits

Training

The role of engineering

Supplier relationship management

Delivery approaches

Supplier rating systems

TCO in purchasing decision:

-Acquisition costs: sale price of a product, service, or capital equipment.

-Usage costs: inventory carrying cost (+ opportunity cost), transformation from raw mat to FGs, scrap, return and/or disposal of packaging mat, training, installation, warranty.

-End-of-life Costs: obsolescence, disposal, other termination costs.

8 goals and benefits of supplier partnerships:

LT reduction

Inventory and stockout reduction

Better customer service

Better demand visibility and forecasting

Cost reductions

Elimination of redundant assets and processes

Customer and marketplace insight

New market penetration

Faster time to market

Damage and loss prevention

5 key areas of training to support supplier partnership goals:

-Product design

-Quality reqs

-Related technologies

-Delivery processes

-Accounting processes

Engineering's role in supplier partnership:

-Managing engineering changes

-Coordinating supplier design input

3 main functions of SRM systems:

SRM is a comprehensive approach to managing an enterprise's interactions with the organizations that supply goods and services to it. The goal of SRM is to streamline and make more effective the processes bw an enterprise and it's suppliers.

Delivery techniques that accelerate the supply chain:

a. Quick response:

It is a highly integrated point of sale-to factory-to store logistics system introduced as an apparel industry initiative in 1980.

Quick response relies on apparel suppliers' ability to see point-of-sale data at retail stores on a daily or even more frequent basis. 2 data items are of major importance:

-inventory levels of stockkeeping units, or individual items of apparel

-information on which SKUs are selling well and which are not.

The above factors allows the manufacturer to:

-Signal factories to replenish fast-moving items more quickly.

-Replace slow-selling items quickly with new models before the fashion season is over.

-Reduce FGs inventory levels (speed is a substitute for inventory).

b. Batch size

Smaller batch size are advantageous in Lean/JIT environments. Raw materials and work in process are generally not allowed to accumulate, and Frequency of delivery is determined to be economical from a cost standpoint.

c. Packaging

Insufficient packaging can lead to damage during shipping and handling

Excessively sized packaging can lead to additional costs, such as those associated with break-bulking, storage, material handling equipment requirements, and incompatibility from a size standpoint with efficient packing of shipping containers.

d. 3rd party logistics

The use of a third party by a supplier and a buyer to provide product delivery services. Such an arrangement has the advantages of ownership without the associated costs. The third party may also bring added expertise to the supply chain.

3PL is widely used by individual companies to manage delivery and other functions. 

3PL companies provide warehousing, material handling, and post-manufacturing services as well as transportation.

e. Lean/JIT triggers

A trigger is a physical alert or an electronic signaling system that notifies the supplier that the buffer is low and replenishment is required.

f. Cross-docking

Use of scheduled time slots for inbound and outbound conveyances

Minimum break-bulking

Heavy use of technology such as traffic controls, bar codes, and radio frequency id (RFID) tag systems.

g. Delivery to Point-of-use and point-of-fit

-"Delivery of point of use" is a lean/JIT practice in which components bypass the traditional shipping/receiving area and are delivered to the plant floor near to the operations.

-"Delivery to point of fit" is a refined version of point of use. Components are delivered to the point of installation just when they are needed.

Purpose of supplier rating:

It is important to establishing a rating system that monitors and measures performance while providing timely feedback to supply partners.

A performance measuring system should meet the following requirements:

-Influences behaviour in a positive manner

-Provides quantitative data

-Leads to process and performance improvement

-Uses metrics that meet the needs of the customer, such as these:

>On time delivery

>Process capability

>Product quality

>Performance to specifications

>Inventory turnover

-Helps eliminate root causes of problems

In summary, the rating system needs to:

-Enable continual improvement of service to the customer.

-Provide managers with data that enable them to identify problems and eliminate their root causes.

Rating System Example:

Certification level 

Product quality: zero defects / meets specs

Delivery performance: on time delivery and LT

Cost performance: return cost, pricing, freight, other

Cooperation: response time, quality of relations with partner

Quantity: accuracy / % delivered to order.

Lean/JIT-oriented rating system:

Delivery frequency per supplier

Lead time from receipt of order by supplier to delivery yo plant line side

On time delivery by supplier

Lot size by supplier

Trailer, tractor, and driver utilization

Space requirements for raw materials

Overall inventory in the supply chain

Raw material sleep time at plant trailer yard

Order fill rate by supplier

DSP - Planning Operations to support the priority Plan

Session 6 - Detailed Capacity Planning

6.1 Influences on detailed capacity planning:

6.1.1 Attributes (output):

- It is the most detailed level in the capacity planing process.

- It determines capacity requirements when material is planned first

-It determines Resource utilization when capacity is planned first

-It prepares the operating plan for execution

6.1.2 Major influences:

-Flexibility of capacity and scheduling

-Planning of material or capacity first

-Manufacturing environments

-Flexibility of capacity and scheduling
together with CRP method  it is to considered other methods for the detailed capacity planning based on the trade-off bw capacity and scheduling (or due date) flexibility:
a. flexibility of capacity = Infinite loading techniques, material-dominated scheduling, plan material first.
The scenario of "Flexibility of Capacity but not Scheduling" applies to make-to-order production in an intermittent (or job shop) environment, where the preferred detailed capacity planning method would be CRP.

b. flexibility of order due date = finite loading techniques, processor-dominated scheduling, plan capacity first.

The scenario of "Flexibility in Scheduling but not Capacity" applies to process flow manufacturing where process flow scheduling would be the capacity planning approach. It also might apply to high-volume repetitive production.

-Planning of material or capacity first
In the manufacturing planning and control system, detailed material planning and detailed capacity planning normally are called MRP and CRP. The system assumes that the material-oriented priority plan, consisting of due dates for quantities of material, must be validated by CRP to ensure resources are available to achieve the priority plan.

companies might need to plan capacity first. for instance, in a process flow or high volume repetitive assembly line environment, capacity is expensive and fixed. managers need to check production from the capacity plan to verify it is consistent with expected demand and inventory investment policy. the expected production from the capacity plan will drive the sales and operations or production plan, ultimately affecting the material requirements plan.

-Manufacturing environments

From High Variety and Low Volume to Low Variety and High Volume:

Project Manufacturing
One-of-a-kind production is used for large, often unique items or structures that require a custom design capability.

Project routings have networks of activities instead of simple operation sequences.

Appropriate scheduling techniques that may be used are, in order of sophistication, critical

path method, program evaluation and review technique, and critical chain method.

Detailed capacity planning typically involves allocating resources within project activities and across projects.

Intermittent Manufacturing-Job shop
Functional organization of a typical intermittent production plant or job shop
Production operations are designed to handle a wide range of product designs and are performed at fixed plant locations using general-purpose equipment
the bottleneck work center may vary based on product mix and volume
Detailed capacity planning in this environment must provide a basis for deploying workers, managing queues, and producing dispatch lists at the various work centers.
Bottleneck work centers must be identified and managed.
Detailed capacity planning, beginning with infinite loading, is the most applicable technique, this specific technique is called CRP.

Batch Production
Batch production is used for production of items with similar designs
Detailed capacity planning approach is similar to job shops
Lot sizing is an additional factor that determines bottleneck location

Repetitive Manufacturing (Mass production and mass customization)

Continuous Production
Line production with continuous material flow
Process flow scheduling
Localized use of lean
MRP/CRP, and other scheduling methods within the total process

Remanufacturing
Returns products to like-new condition
Most often is a job shop process
MRP/CRP is used to plan materials and equipment usage
Occurrence factor
RCCP Planning)

6.1.3 Capacity-related terminology and concepts:

- Capacity and load definitions and balance bw them:

CAPACITY—1) The capability of a system to perform its expected function; 2) The capability of a worker, machine, work center, plant, or organization to produce output per time period.

LOAD—The amount of planned work scheduled for and actual work released to a facility, work center, or operation for a specific span of time. (Note: Both released and planned components of load can be distinguished)

-Capacity planning and capacity mngmnt definitions:

CAPACITY PLANNING—The process of determining the amount of capacity required to produce in the future. (Note: This is achieved by comparing capacity and load repeatedly into the future)

CAPACITY MANAGEMENT—The function of establishing, measuring, monitoring, and adjusting limits or levels of capacity in order to execute all manufacturing schedules. (Note: Where capacity is flexible, the aim is to provide the required capacity in a timely and cost-effective manner)

- Capacity planning issue:
What capacities must be available in order to execute the master plan?

Where and when must we organize special shifts, overtime, reduced hours, or part-time work?

What jobs must be given to or taken from subcontractors, due to overload or underload?

When and where can adjustments be made to capacity or orders? For example, what shifts can be transferred from one shop, production line, office group, or team to another?

Can lead times and the number of orders in process be reduced?

- Capacity planning objectives (similar to those of materials planning):

High service level, short delivery times, high delivery reliability, and adaptation to customer requests

Low working capital

Efficient use of available capacity
Flexibility and adaptability of capacity to changing conditions
Minimizing fixed costs.

6.1.4 CRP

it must deal with work centers in time buckets of 1 week or less (very short horizon (< 90 days))

Major activities involved:

a. Determine capacity requirements

b. Simulate the scheduling of production as necessary based on priority plan due dates and qty

c. Create the load-capacity profile

d. Identify and resolve differences

e. Prepare the operating plan for execution

The above process (CRP) prepares the detailed operating plan for execution by production activity

control.

6.2 Information used in detailed capacity planning

6.2.1 Capacity-related data:

-Work center data

-Shop calendar

-Work cell

-Manufacturing order

-Operation

6.2.2 Lead Time concepts (2 types):

a. Lead time

b. Manufacturing lead time

elements of manufacturing lead time: Queue / set up time / run time / wait time / move time / order preparation lead time

-operation (set up + run) vs interoperation time (queue + wait + move)

6.2.3 Utilization (%) and Efficiency (%)

U = (hrs available - hrs down ) / hrs available x 100

Hours actually worked for a work center = U x available time = U x T

E = std hrs produced / actual hrs worked = actual units produced / std rate of expected production

T = Available time (capacity) = (# shifts) x (# hrs a day) x (# machines) x (# days a week)

Rated capacity (RC) = T x U x E = std hrs

Where std hrs = set up time + (run time x # pieces)

T = std hrs / U x E = RC / U x E

RC can be calculated from utilization, efficiency, and std hrs of work produced data maintained in production records.

RC is the expected output capability of a resource.

Demonstrated capacity (DC) = (average number of items) x (std hrs per item)

DC depends on the utilization and efficiency of a work center but these factors are not included in the calculation of DC as they are in the calculation of rated capacity.

6.2.4 load-related data and sources of load:

a. Load related data:

-Std time

-Routing data

b. Source of load: open orders - scheduled receipts / MRP-planned orders / rework / scrap / process yield / past due orders / eng-related downtime for testing / prototypes, sales samples / destructive tests / plant maintenance orders

NB. Load is planned differently in a repetitive environment. Instead of calculating the load with capacity planning techniques, managers use line balancing after considering the flexibility of capacity!

6.3 detailed capacity planning techniques

6.3.1 System design specs:

-Queue:

a. Primary goal is to compare the capacity of work centers with their planned load, distributed by time period.

NB. In a job shop environment, for utilization to approach 100%, queue time needs to be high!

b. Organizational and economic reasons for queues:

Organizational Queue = Cushion vs potential disturbances in the production process

Economic queue is intended to reduce production costs.

-Infinite and finite loading:

a. Infinite loading primary goal is to meet due dates with high flexibility in capacity. It is typical in MTO production in a job shop manufacturing process where priority is given to due dates, as when material is planned first.

CRP uses infinite loading in conjunction with backward scheduling of operations.

The lean/JIT Kanban system is a variation of the infinite loading technique (execution control by the Kanban system).

Work center load profile

Load leveling

b. Finite loading primary goal is to prevent overloads by changing order start and due dates. The schedule must be highly flexible for finite loading to work.

It is used if capacity is expensive, inflexible, specialized and/or heavily utilized.

The scheduling goal is to achieve high utilization of the resource.

It is appropriate in the process industry, which has a continuous-flow production environment.

The load profile for a finite scheduled productive resource is represented by a Gantt chart.

c. Simulation and modeling techniques

To evaluate capacity, planners must determine the time-phased load the material plan places on resources: the scheduling techniques determine the load on resources (work center).

In capacity planning, scheduling techniques are used in a simulation or modeling mode. During production activity control, the same techniques create actual production schedules.

First step in forward and backward scheduling is to build a Schedule of operations for a manufacturing order by calculating the manufacturing lead time as it follows:

-Calculate the Duration of all operations (set up and run time)

-Interoperation time (lead time for queue, wait, and move bw work centers found in the work center file)

-Forward and backward scheduling

>Forward begins with the order start date:

The scheduler calculates the earliest start date and the earliest due date for each operation.

>Backward responds to an order due date, which is the latest completion date for the order:

The scheduler calculates the latest due date and the latest start date for each operation, as well as the latest start date for the order:

-From finish date reduce operation + queue time to get arrival date

-From arrival date reduce move + wait time to get finish date previous operation

CRP most often uses backward scheduling.

>Central point scheduling combines forward and backward scheduling

Session 7 - Detailed Capacity Mngmnt

7.1 Capacity Requirements Planning (CRP)

7.1.1 introduction

7.1.2 Phases of the CRP process:

a. role of the simulation scheduling in determining work center load profiles

b. purpose of the work center load report

c. five actions that can be taken to redistribute load during CRP

d. when it is appropriate to change the MPS to resolve load-capacity imbalances.

7.1.1 introduction of CRP

Capacity management is:

- the function of establishing, measuring, monitoring, and adjusting limits of levels of capacity, in order to execute all manufacturing schedules (APICS)

- a business process that includes the following:

Capacity planning:

Capacity control:

CRP Characteristics and goals:

a. It has a proven track record in Job Shop and batch production.

b. "Plan material first" approach to capacity planning

c. Due dates are of high priority and not as flexible as capacity

d. Capacity is flexible and accomodates due date priorities

e. Capacity is infinite.

f. The capacity planning process validates the material plan.

g. The goal of the process is to achieve high levels of delivery reliability and adherence to MRP due dates.

7.1.2 CRP process steps:

a. Determine the load on resources over a period of time: UoM in hrs.

b. Using backward scheduling, simulate the scheduling of load at work centers by period, assuming infinite capacity: result is a period-by-period summary of load and capacity requirements for planned order releases at specific work centers (input to create next step).

c. Create work center load-capacity profiles on a period-by-period basis to compare load and available resources.

d. 5 actions to Resolve load-capacity imbalances in CRP: increase capacity, reduce load and capacity, increase load, redistribute load

e. Prepare the operating plan for execution

f. Revise the MPS if imbalances cannot be resolved.

Advantages and limitations of CRP

Resource contention and CRP

Secondary constraints and CRP

CRP integration issues:

- interactions with master scheduling

- interactions with execution and control of operations

7.2 Capacity management in Process Industry (continuous flow)

Process industries: the group of manufacturers that produce products by mixing, separating, forming, and/or by performing chemical reactions (APICS dic)

7.2.1 Key process industry characteristics: Divergent product structure def. / capacity first / continuous flow

Definitions:

-Divergent product structure: a single raw material can be transformed into a large number of different products in contrast with what happens in a job shop or batch production (for discrete products) environment where many raw materials are brought together in an assembly process to produce discrete products singly or in batches.

-Capacity First: process industries are more focused on planning capacity first. The efficiency and effectiveness of planning the use of capital-intensive capacity, including long runs and high utilization, is the key to adding value in process industries.

-Continous flow production: a production system in which the productive equipment is organised and sequenced according to the steps involved to produce the product (APICS dic).

7.2.2 Process flow scheduling (suitable for continuous production and capital-intensive repetitive production):

Applicable in these conditions:

>All the products have similar routings

>Production is often scheduled to meet forecast demands rather than customer orders; most process plants produce intermediate and/or finished goods for stock.

>Production is authorized by production schedules, not work orders.

Basic features:

>The system is based on the production process structure instead of a materials product structure (based on the BOM), as in job shop and batch production.

>the process structure consists of divisions, plants, process trains, and stages, and this structure drives planning and scheduling.

- Process train

>Production lines in plants

>IDEALLY a process train would be a one-stage process in which materials flow continuously from raw material stage to final product. Supports continuous flow within one stage.

>In REALITY, process trains are divided into stages consisting of one or more process units (pieces of equipment).

>Stages are decoupled (with intermediate inventory) from other stages.

>decoupling allows the stages to be scheduled as separate entities, with different lot sizes and production sequences, and to be run independently and more efficiently. Stage by stage scheduling.

>the formal process train representation:

Illustrates generalised definition of resources

Illustrates divergent product structure

Supports stage-by-stage scheduling

Supports continuous flow within a stage.

- 3 process flow scheduling Principles in Process industry:

1. Scheduling calculations are guided by the process structure

2. Stages are scheduled using either of these processes:

Processor-dominated scheduling:

Steps are:

a. Prepare a finite capacity schedule for the processor.

b. Calculate the resulting product or intermediate inventory projection to validate that it remains within the target minimum and maximum inventory levels.

c. Calculate a raw material supply schedule; check that supply is feasible for the required materials inventory.

Material-dominated scheduling:

Steps are:

a. Prepare a material schedule for the product that balances inventory policy and demand (requirements).

b. Check that the processor requirements can be accommodated in a finite schedule.

c. Calculate a raw material supply schedule and check that supply is feasible for the required materials.

Processor-dominated vs material-dominated scheduling:

Capacity is expensive vs materials are expensive

Stage is a bottleneck vs excess capacity exists

Setup costs are high vs setup costs are not significant

0 vs Stage consists of some job shop operations

3. The stages in the process train can be independently scheduled (w intermediate decoupling inventory) using 3 techniques:

a. Reverse flow scheduling: supports demand-based planning (material-dominated scheduling)

b. Forward flow scheduling: supports supply-constrained planning, such as the growing and harvest cycle in the food industry (processor-dominated scheduling)

c. Mixed flow scheduling: supports planning when stage 2 is the logical focus of attention for scheduling because of processing capacity or material supply constraints.

Remarks:

Stages can be scheduled differently within the same process train depending on order fulfilment strategy and processing constraints. Material and capacity are generally reconciled at each stage before the next stage is scheduled.

In process flow scheduling, process trains are scheduled using reverse-flow scheduling, forward scheduling, or mixed-flow scheduling. It means that an intermediate stage is scheduled first when the main bottleneck moves to a processor in that stage.

7.2.3 Three Other key concepts: batch processes / line production / packaging

7.3 Other capacity mngmnt approaches

7.3.1 Line balancing in repetitive man: balances the assignment of tasks to minimize workstations and idle time. It is most appropriate in repetitive man env that repeatedly produces the same discrete product or family of products.

7.3.2 Capacity mngmnt in service industries

Determining capacity: services need to choose their capacity measurement carefully when determine their capacity requirements.

Capacity management strategies:

Operation managers can increase or decrease service capacity by doing the following strategies:

-Changing the level of the workforce

-Cross-training employees

-Hiring part-time workers

-Increasing customer participation

-Renting equipment

-Expanding/renovating facilities

-Employing automation

-Extending service hours

-Better scheduling tools and practices

Capacity management

Resource planning, RCCP, and CRP are all used in aggregate and disaggregate level planning in service industries.

Role of the queue in service lead time.

7.3.3 performance measurements

a. Efficiency and Utilization: both are critical to the determination of available capacity, such as rated capacity (=TxExU)

b. Performance to schedule:

-It measures the readiness for and impact of reducing inventory buffers from the shop floor.

-To drive toward a low inventory environment, operations need to be able to reduce their reliance on decoupling.

-Must replace Efficiency as the crucial performance measure.

c. Zero defects:

-Time and capacity spent producing defects are waste; capacity is effectively reduced.

-Time wasted at bottlenecks is especially costly and needs to be avoided, as in theory of constraints.

d. Dollar days = value of a good x days until expected sale:

It treats inventory as a cost for management accounting purposes.

It encourages plants to write off obsolete inventory and highlights problem areas.

It is an incentive to use JIT purchasing.

It penalizes manufacturers for making items early.

It forces management to speed throughput, reduce lead times, and increase responsiveness to customer demand.

e. Stability of schedule:

The following actions could lead to more schedule stability:

-Good capacity management is reflected in a stable production schedule.

-Frequent changes disrupt shop floor coordination.

-Reducing LT lessens the opportunity for the schedule to be disrupted.

-Closer collaboration with marketing and sales, including holding product and sales managers partly accountable for dollar days.

DSP - Planning Operations to support the priority Plan

Session 5.2 - Project Management

APICS definition: The use of skills and knowledge in coordinating, organizing, planning, scheduling, directing, controlling, monitoring, and evaluation of prescribed activities to ensure that the stated objectives of a project, manufactured good, or service achieved.

a. Project planning (1st step once the project has management's approval to begin)

Project plan elements:

-Statement of work: describes the purpose, history, deliverables, and measurable success indicators for a project.

-WBS: hierarchical description of the project including Prj phases, deliverables, and work packages.

-Project schedule: Gantt charts, network diagrams and techniques, CPM, PERT)

-Responsibility matrix

-Resource requirements: resource loading and leveling, constrained resource scheduling, Critical Chain Method

-Budget: preliminary cost estimates / final cost estimates:

> Key cost components: labor, materials, equipment, vendor and/or consultant costs

b. Project Implementation Phase:

> forming the project team: goals and objectives of the project, stakeholders to be included, technical work required, expertise required to direct and perform the required work, availability of project personnel

> scheduling work

> managing team relationships

> maintaining the project schedule and budget:

The purpose of controls is to:

Complete the project on time and within budget

Track progress

Detect variances from the plan

Take corrective action when needed.

c. The closeout phase

Major tasks are:

-Documenting the project

-Conducting a post-implementation Audit

-Issuing a final report

-Closing operations

-Obtaining client approval

NB. Other Prj documents:

Milestone schedule: includes only high level schedule displaying important deliverables.

Scope statement: is limited to describing the products to be created by the project.

DSP - Planning Material Requirements to support the Master Schedule

Session 3 - Information Used in the Material Planning Process

Learning Objectives

3.1 Information Used in Material Planning

− Differentiate among planning factors, inventory status data, and historical demand and usage data.

− Explain the relative advantages of meaningful and non-meaningful item numbers.

− Describe at least five sources of requirements for the master production schedule (MPS).

− Explain the minimum length of the planning horizon for the MPS.

− Describe the role of the bill of material (BOM) in material planning.

3.2 Characteristics of the Material Planning Process

− Explain the differences in material planning approaches used in different production environments.

− Briefly describe the material requirements planning (MRP) model and its functions.

− Briefly describe the functions of key MRP planning process parameters.

− List at least five key performance characteristics of MRP.

3.1 Information Used in Material Planning

3.1.1 Inventory data: 1. planning factors, 2. inventory status data, and 3. historical demand and usage data

Inventory data are 3 different types of item data that are used in the scheduling of components for end items on the MPS.
Planning factors are:
-Lot size (order quantity)
-Lead time
-Safety stock
-Scrap

Inventory Status data:
-On-hand balance
-Allocations
-Scheduled receipts: when the item will arrive and how much

Historical demand and usage:
Historical demand and Month-to-date and year-to-date usage rates can be used to evaluate order policies and methods and improve planning decisions.

3.1.2 advantages of meaningful and non-meaningful item numbers
Item numbering
Meaningful and non-meaningful id

3.1.3 the MPS (or anticipated build schedule) and 5 sources of requirements for the master production schedule
-The MPS represents the products or end items that the company plans to produce over a planning horizon.

-The goals of the master scheduling are as follows:
Balance supply and demand as dictated by the production plan
Plan efficient use of company resources
Determine end-item priorities (due dates) shown in the MPS.

-Role of the master scheduler is to balance the 3 objectives of operations:
Customer service
Production efficiency
Inventory investment

-Master scheduling grid and time buckets: master scheduling usually is based on weekly buckets.

-rolling schedule: the MPS represents a rolling schedule.

MPS Formula (session 3-27):
Prj available balance (t=1) = PAB (t-1) + MPS qty - (max bw customer order and forecast during PTF and customer order during DTF)



3.1.4 MPS planning horizon should be at least as long as the cumulative lead time for the item being scheduled.

- Reconciliation of differences (Rough-cut Capacity Planning)
a. The time-phased resource requirements of the MPS must be compared with key available resources. This validation process is called RCCP.
If available capacity > required capacity/load => MPS can be achieved.
If available capacity <= required capacity/load => increasing capacity or reducing load is to be investigate. In other terms, explore options:
Schedule overtime
Add shifts and/or  extra workers
Route through alternative work centers
Subcontract
As a last resort only, reduce load by changing/revising the MPS.
b. Finally, the master scheduler needs to measure the capability of the MPS in terms of the following:

Resource usage - is the MPS within the material, or other constraints in each period?

Customer service levels - will due dates be met? Will delivery performance be acceptable?

Cost-effectiveness - is the plan economical? Will excess costs be incurred for overtime, subcontracting, expediting, or transportation?

3.1.5 engineering data: BOM, product structure and part interdependencies, lead time.


3.2 Characteristic of the Material Planning Process

3.2.1 Material Planning in different production environments:

a. Project and Engineer-to-Order Environment:

Demand is lumpy; product volume is low.
Projects often are unique, generally large, and of lengthy duration.

b. Process Flow Environment:

Demand is stable and continuous; volume is high and variety is medium to low.
Production usually is make-to-stock; it is scheduled to meet forecasted demand rather than customer orders.
All products have similar routings.
Products tend to be commodities, with exceptions in pharmaceuticals.
Plants are designed for a specific throughput and require specialized equipment.

Scheduling is characterized by the following:
- Production is authorized by production schedules; work orders are not issued.
- If forecasts are less than full capacity, plants slow down to match demand, or run to full capacity and then shut down temporarily.

c. Lean Environment (repetitive manufacturing):

demand is stable and continuous and volume is high
product variety is low and products are standard and not complex
process is repetitive
machinery and workers in the factory are flexible.

Scheduling is characterized by the following:
- Rate of production, or takt time, is determined by rate of demand. Compliance with takt time is a productivity measure.
- Production scheduling employs a technique called "heijunka" to level production
throughout the production process to match the rate of end-item sales.
- Work cell operations start in response to kanban signals rather than work orders.
- Manufacturing lead times are short.

d. MRP Environments

demand is discontinuous or lumpy and not stable and continuous.
Two types of production environments have this characteristic in common:
Low-volume, high-variety make-to-order job shop or batch production environments
Medium-to-high volume, low-to-high variety assemble-to-order repetitive flow environments

3.2.2 MRP Model

Principal Functions of MRP
input:
planning factors
inventory data
master production schedule
BOMs

output:
planned order releases for purchased items
planned order releases for manufactured items
exception reports and action messages

MRP Functions:
It plans and controls the firm’s inventories, establishing what, how much, and when to order.
It plans and controls orders released to the factory floor and suppliers in order to meet the right due dates and keeps due dates valid.
It provides accurate planned order loading for use by capacity requirements planning and constraint management

3.2.3 Planning Process Parameters
Planning horizon
Time buckets
Replanning frequency

Time Fences: nervousness refers to instability when changes in higher-level records cause significant changes in lower-level schedules or orders. Devices such as time fences, which restrict changes, introduce stability into the master schedule.

3.2.4 Performance Characteristics of MRP
Manufacturing orders released on time
Purchase orders released on time
Downtime due to shortages
Excess inventory
Number of changes to purchase orders
Orders released to manufacturing without material shortages
Due dates of orders met
Action messages trends

Education and Training

Session 4 - MRP Mechanics: The Basics

Learning Objectives

4.1 Introduction
− Identify the major inputs to the material requirements planning (MRP) system.
− Describe the concept of a rolling schedule.
− Describe the need for and use of low-level codes.

4.2 MRP Calculation of Gross and Net Requirements
− Perform the explosion process for a material requirements plan.
− Perform the netting process for converting gross to net requirements.
− Create planned order receipts and releases.


4.1 introduction
4.1.1 inputs to MRP system
MRP obj and functions
Summary of Inputs:
a. Planning factors:
− Lot size
− Lead time
− Safety stock
− Scrap and yield

b. Inventory status data:
− On-hand balance
− Allocations: is a classification of quantities of items that have been assigned to specific orders, but not released.
− Scheduled receipts: is a purchase order or shop order that has been released. 


c. Bills of material (BOMs)
d. Master production schedule (MPS)

4.1.2 Rolling schedule concept

4.1.3 the need for and use of low-level codes
-Low-level coding
-Assigning codes
-Significance of low-level codes

4.2 MRP calculation of Gross and Net Requirements
-Gross and net requirements and planned orders
-Sources of gross requirements from MPS and Service Parts Demand and interplant requirements
-Net requirements and planned orders for items low-level code 0:
Preliminary PAB (t) = PAB (t-1) - allocation + scheduled receipts - gross requirements
PAB (adjusted for safety stock) = Preliminary PAB - safety stock = net requirement If < 0
If < 0 => create planned order receipt per lot size policy.
Final PAB (t) = preliminary PAB (t) + planned order receipt quantity

Definitions:
-the "planned order" is an anticipated order to cover anticipated future needs. It is not an actual released order.
-"Allocations" are components on hand but not available because allocated to specific planned orders but not yet physically removed from inventory.
-"Scheduled receipts" are for planned orders scheduled before week week1 and are due during the planning horizon.

- Gross Requirements calculation for item level code 1 starting from level code 0 and using BOM
- Net requirements and planned orders for items level code 1 using netting process from level code 1 item gross requirements.

Summary of MRP Process Logic
-The netting process is used to determine planned orders.
-MRP explosion sequence and process:
a. Calculate gross requirements for level 0 end item assemblies based on MPS and service parts schedule.
b. Calculate net requirements based on gross requirements, and create planned order receipts and releases.
c. Post planned order release data for level 0 end items to corresponding gross requirements periods of level 1 components, adjust (explode) for quantities per parent item, and repeat netting and creation of planned order receipts and releases as at level 0.
d. Repeat this process through the lowest level component codes.

- Netting (gross to net) process
a. Apply gross requirements and allocations vs on-hand balances, scheduled receipts, and safety stock.
b. If a net requirement exists, create a planned order receipt based on lot-size policy.
c. Determine a planned order release date by offsetting for lead time.

!Session 5 - using MRP Outputs and Managing Projects!
5.1 maintaining the material plan
5.2 project management

5.1 Maintaining the Material Plan
Maintain order priorities:
a. Factors affecting the material plan
b. Maintain valid priorities
MRP sw generates exception reports that suggest actions to maintain valid priorities:
Release planned orders
Expedite order
Delay an order or scheduled receipt
Cancel a planned order or scheduled receipt
-net change MRP (explosion and netting reqs only for parts or items affected by the change).
-full regeneration MRP (all planned orders are removed and MPS is fully exploded down to establish valid priorities).
c. Pegging: is the capability to identify, for a given item, the sources of its gross requirements.
unexpected events can cause components of an end item to arrive late. To assess and address the impact of such events, planners must be able to trace the gross reqs for an affected item to its immediate parent and upward to its parent in the MPS.
The planner can then use bottom-up planning to evaluate and implement alternative solutions such as:
-compressing LT
-cutting order qty
-substituting material
-changing the MPS

d. Single-level vs Full Pegging
e. Where-used list
f. Firm planned orders: describes an order that is frozen in quantity and time.
g. What-if Analysis and simulation
h. Revision of planning parameters:
- lead time
- lot size
- safety stock and safety lead time
- scrap factor : planned order release = planned order receipt / (1 - scrap factor)
- Kanban quantity and cycle time (related to material planning in lean/JIT)
i. Closing the MRP loop
- MRP role
- relationship to Master scheduling / capacity planning / engineering / inventory mngmnt / purchasing and production / marketing and sales
l. Integration of Lean/JIT and ERP/MRP
- pull vs push systems
- advantages and disadvantages of lean/JIT
- repurposing ERP

Session 5.1 - using MRP Outputs

5.1 Maintaining the Material Plan

Maintain order priorities:

a. Factors affecting the material plan

b. Maintain valid priorities

MRP sw generates exception reports that suggest actions to maintain valid priorities:

Release planned orders

Expedite order

Delay an order or scheduled receipt

Cancel a planned order or scheduled receipt

-net change MRP (explosion and netting reqs only for parts or items affected by the change).

-full regeneration MRP (all planned orders are removed and MPS is fully exploded down to establish valid priorities).

c. Pegging: is the capability to identify, for a given item, the sources of its gross requirements.

unexpected events can cause components of an end item to arrive late. To assess and address the impact of such events, planners must be able to trace the gross reqs for an affected item to its immediate parent and upward to its parent in the MPS.

The planner can then use bottom-up planning to evaluate and implement alternative solutions such as:

-compressing LT

-cutting order qty

-substituting material

-changing the MPS

d. Single-level vs Full Pegging

e. Where-used list

f. Firm planned orders: describes an order that is frozen in quantity and time.

g. What-if Analysis and simulation

h. Revision of planning parameters:

- lead time

- lot size

- safety stock and safety lead time

- scrap factor : planned order release = planned order receipt / (1 - scrap factor)

- Kanban quantity and cycle time (related to material planning in lean/JIT)

i. Closing the MRP loop

- MRP role

- relationship to Master scheduling / capacity planning / engineering / inventory mngmnt / purchasing and production / marketing and sales

l. Integration of Lean/JIT and ERP/MRP

- pull vs push systems

- advantages and disadvantages of lean/JIT

- repurposing ERP

Lean Six Sigma: Concetto generale

Il Lean Six Sigma è una metodologia che combina due idee: applicare principi di snellimento dei processi e usare dati statistici per eseguire analisi precise e dettagliate sulle performance dei processi.


Si dirige al soddisfacimento di esigenze tra cui l’eliminazione di inefficienze, la crescita delle performance dei processi in termini di costi e qualità, la diffusione di una cultura del miglioramento continuo, la creazione di un canale “istituzionale” e di facile trasmissione all’interno delle diverse aree dell’azienda per condividere decisioni di investimento/cambiamento, lavalorizzazione di risorse umane di valore.