Chapter 13 MRP and ERP 1 MRP Material

Chapter 13 MRP and ERP 1

MRP Material requirements planning (MRP): Computerbased information system (i. e. glorified database) for ordering and scheduling of dependent demand inventories It is a production planning process that starts from the demand for finished products and plans the production step by step of subassemblies and parts. 2

Independent and Dependent Demand Independent demand: Demand for final products. Dependent demand: Demand fort items that are subassemblies or component parts to be used in production of finished goods. Independent Demand A Dependent Demand C(2) B(4) D(2) E(1) D(3) F(2) Independent demand is uncertain. Dependent demand is certain. 3

Is Dependant Demand lumpier? Dep. Demand Stable demand Time Safety stock Time Amount on hand Indep. Demand The book claims that “the independent demand is continuous while the dependent demand is lumpy”. I do not believe in this statement. “Lumpy” demand Time 4

The dependent demand is not necessarily any lumpier than the independent demand • Example: Say shoe demand rate is 80 pairs per week at a retailer. The demand rate for shoe sole is 80 for left and 80 for the right pair. The demand rate for shoe laces is 160 per week. • Example continued: What is the demand rate for the shoe lace supplier? Still 160 per week. But if the orders for the laces are placed once a week, lace demand is lumpy. Lumpy dependent demand Order once in a week Smooth dependent demand Order twice Order 4 times 5

MRP Inputs MRP Processing MRP Outputs Changes Order releases Master schedule Planned-order schedules Primary reports Bill of materials Inventory records MRP computer programs Secondary reports Exception reports Planning reports Performancecontrol reports Inventory transaction 6

MRP Inputs: 1. MPS • Master Production Schedule: MPS – Time-phased plan specifying timing and quantity of production for each end item. – MPS comes from sales and marketing – MPS covers about 1 -3 months into the future • Must cover cumulative lead time Cumulative lead time: The sum of the lead times that sequential phases of a process require, from ordering of parts or raw materials to completion of final assembly. – From Now until Cumulative lead time plans are generally frozen • Sometimes MPS is capacity filtered; MPS is curtailed after taking the available capacity into account. 7

MRP inputs: 2. BOM Bill of materials (BOM): A listing of all of the raw materials, parts, subassemblies, and assemblies needed to produce one unit of a product. Product structure tree: Visual depiction of the requirements in a bill of materials, where all components are listed by levels. Most often people do not use the term product structure tree. Instead use BOM to mean the product structure tree. 8

Product Structure Tree Level 0 1 Chair Leg Assembly 2 Legs (4) Cross Bar(2) Seat Back Assembly Side Cross Back Rails (2) bar Supports (3) 9

Explosion Example • How many leg assemblies are needed for 1 chair? • How many Cross bars are needed for 5 chairs? • Computing how many parts are required per a final product is called BOM explosion. • MRP answers these questions by taking production lead times into account: Not only it tells how many, but also when. 10

Bill of Materials – Example 1 How many more of each component is needed to make 15 Xs if there are 5 of each already in stock? X B(2) D(3) E(4) E C E(2) F(2) X: 10, B: 15, C: 5, D: 40, E: 180, F: 5 11

Bill of Materials – Example 2 How many more of each component is needed to make 15 Xs if there are 8 of each already in stock? X B(2) D(3) E(4) E C E(2) F(2) X: 7, B: 6, C: 0, D: 10, E: 38, F: 0 12

Lead Times Assembly Subassembly Fabrication Procurement 1 2 3 4 5 6 7 8 9 10 13

Assembly Time Chart Procurement of raw material D Fabrication of part E Subassembly A Procurement of raw material F Procurement of part C Final assembly and inspection Procurement of part H Fabrication of part G Procurement of raw material I 1 2 3 Subassembly B 4 5 6 7 8 9 10 11 Days 14

MRP input: 3. Inventory levels • Beginning inventory on hand • Scheduled receipts – Pipeline inventory not received yet but it is in the process of coming to the inventory. We know when this will be available for use. 15

MPR Processing • Gross requirements – Total expected demand • Scheduled receipts – Open orders scheduled to arrive • Planned on hand – Expected inventory on hand at the beginning of each time period • Net requirements – Actual amount needed in each time period • Planned-order receipts – Quantity expected to received at the beginning of the period – Offset by lead time • Planned-order releases – Planned amount to order in each time period 16

MRP Processing • Gross requirements: (Forecasted)Demand period by period • Net requirements(t) =Gross requirements(t)-Projected inventory(t-1) -Scheduled receipt(t) • If Net requirement(t) > 0 set Planned order receipts(t)>=Net requirement(t) • Planned-order receipts is the production planned • Projected inventory(t) =Projected inventory(t-1)+Scheduled receipt(t) +Planned order receipts(t)-Gross requirements(t) • Planned order release(t-LT)=Planned-order receipts(t) 17

MRP example with LT=2 and 1 level Periods Gross requirements Scheduled receipts Projected on hand 0 10 Net requirements 1 6 2 2 11 3 3 7 0 6 0 0 0 2 7 Planned order receipts Planned order releases 2 Inputs Outputs 7 18

Figure 13 -8 19

Other Considerations • Safety Stock – Not much for items with dependent demand • Lot sizing – – Lot-for-lot ordering Economic order quantity Fixed-period ordering Part-period model 20

MRP example with Lot size=5, LT=2 and 1 level Periods Gross requirements Scheduled receipts 1 6 2 2 11 3 3 9 0 6 3 4 Net requirements 5 10 Planned order receipts 5 10 Projected on hand Planned order releases 0 10 5 Inputs Outputs 10 21

Figure 13 -9 22

MRP updates • Regenerative MRP – Do the planning from scratch – Time between regenerations is long – Ok for stable environments • Net Change MRP – Update the plan according to changes 23

MRP Outputs • Planned orders - schedule indicating the amount and timing of future orders. • Order releases - Authorization for the execution of planned orders. • Changes - revisions of due dates or order quantities, or cancellations of orders. • Performance-control reports • Planning reports • Exception reports 24

Capacity Planning Capacity requirements planning: The process of determining short-range capacity requirements. Load reports: Department or work center reports that compare known and expected future capacity requirements with projected capacity availability. Time fences: Series of time intervals during which order changes are allowed or restricted. 25

MRP Planning Develop a tentative master production schedule Use MRP to simulate material requirements Convert material requirements to resource requirements Revise tentative master production schedule No Is shop capacity adequate? Yes Firm up a portion of the MPS No Can capacity be changed to meet requirements Yes Change capacity 26

MRP in Services • Food catering service – End items are the catered food – Dependent demands are ingredients for each recipe, i. e. bill of materials • Taco Bell menu items • Hotel renovation – Activities and materials “exploded” into component parts 27

Benefits of MRP • Low levels of in-process inventories • Ability to track material requirements • Ability to evaluate capacity requirements • Means of allocating production time Eventually it is a database with limited decision making capability 28

Requirements of MRP • Computer and necessary software • Accurate and up-to-date inputs: – Master schedules – Bills of materials – Inventory records • Integrity of data 29

MRP II • Expanded MRP with and emphasis placed on integration – Financial planning – Marketing – Engineering – Purchasing – Manufacturing 30

MRP II Manufacturing Master production schedule Marketing Production plan MRP Rough-cut capacity planning Capacity planning Adjust production plan Yes Problems? No Requirements schedules No Problems? Adjust master schedule Market Demand Finance Yes 31

ERP • Enterprise resource planning (ERP): An expanded effort to integrate standardized record keeping that will permit information sharing throughout the organization • Strategic considerations – – High initial cost High cost to maintain Future upgrades Training • See ERP courses in the course catalog 32

Summary • MRP: – – – Dependent vs Independent demand Inputs (BOM), Processing, Outputs Benefits and requirements • Capacity planning • MRP-II and ERP 33

Practice Questions 1. The master production schedule states which end items are to be produced both when and how many. Answer: True Page: 577 2. Load reports show capacity requirements for departments or work centers which may be more or less than the capacity available in that work center. Answer: True Page: 593 3. MRP II permits the simultaneous planning of production, marketing, and financial resources to support a production plan. Answer: True Page: 592 34

Practice Questions • 1. The output of MRP is: • A) gross requirements • B) net requirements • C) a schedule of requirements for all parts and end items • D) inventory reorder points • E) economic order quantities and reorder points • Answer: C Page: 577 35

Practice Questions 2. The MRP input listing the assemblies, subassemblies, parts, and raw materials needed to produce one unit of finished product is the: • A) master production schedule • B) bill-of-materials • C) inventory-records • D) assembly-time chart • E) net-requirements chart • Answer: B Page: 578 36

Practice Questions • 3. Which one of the following most closely describes net material requirements? • A) gross requirements - amount on-hand scheduled receipts • B) gross requirements - planned receipts • C) gross requirements - order releases + amount on-hand • D) gross requirements - planned order releases • E) gross requirements - amount on-hand + planned order releases • Answer: A Page: 581 37

Practice Questions 4. In MRP, "scheduled receipts" are: • A) identical to "planned-order receipts" • B) identical to "planned-order releases" • C) open orders (that is, ordered before the first time bucket, but not delivered yet) • D) "net requirements" • E) available to promise inventory • Answer: C Page: 582 38

Practice Questions 5. Which is true of a net-change system? A) It is a batch-type system which is updated periodically. B) It is usually run at the beginning of each month. C) The basic production plan is modified to reflect changes as they occur. D) It is used to authorize the execution of planned orders. E) It indicates the amount and timing of future changes. • Answer: C Page: 588 39

Chapter 14 Just-In-Time Systems 40

JIT/Lean Production • Just-in-time: Repetitive production system in which processing and movement of materials and goods occur just as they are needed, usually in small batches • JIT is characteristic of lean production systems • JIT operates with very little “fat” 41

JIT Goals • Eliminate disruptions • Make system flexible by reduce setup and lead times • Eliminate waste, especially excess inventory 42

Sources of Waste • Overproduction • Waiting time • Unnecessary transportation • Processing waste • Inefficient work methods • Product defects 43

Big vs. Little JIT • Big JIT – broad focus – Vendor relations – Human relations – Technology management – Materials and inventory management • Little JIT – narrow focus – Scheduling materials – Scheduling services of production 44

JIT Building Blocks • 1. Product design • 2. Process design • 3. Personnel/organizational elements • 4. Manufacturing planning and control 45

1. Product Design • Standard parts • Modular design • Highly capable production systems 46

2. Process Design • Small lot sizes • Setup time reduction • Manufacturing cells • Limited work in process • Quality improvement • Production flexibility • Little inventory storage 47

Benefits of Small Lot Sizes Reduces inventory Less rework Less storage space Problems are more apparent Increases product flexibility Easier to balance operations 48

Production Flexibility • Reduce downtime by reducing changeover time • Use preventive maintenance to reduce breakdowns • Cross-train workers to help clear bottlenecks • Reserve capacity for important customers 49

3. Personnel/Organizational Elements • Workers as assets • Cross-trained workers • Continuous improvement • Cost accounting • Leadership/project management 50

4. Manufacturing Planning and Control • Level loading • Pull systems • Visual systems • Close vendor relationships • Reduced transaction processing • Preventive maintenance 51

Pull/Push Systems • Pull system: System for moving work where a workstation pulls output from the preceding station as needed. (e. g. Kanban) • Push system: System for moving work where output is pushed to the next station as it is completed 52

Kanban Production Control System • Kanban: Card or other device that communicates demand for work or materials from the preceding station • Kanban is the Japanese word meaning “signal” or “visible record” • Paperless production control system • Authority to pull, or produce comes from a downstream process. 53

Traditional Supplier Network Buyer Supplier Supplier Suppiler 54

Tiered Supplier Network Buyer First Tier Supplier Second Tier Supplier Third Tier Supplier Supplier 55

Summary JIT Goals and Building Blocks Ultimate A Goal balanced rapid flow Supporting Goals Reduce setup and lead times Eliminate waste Eliminate disruptions Make the system flexible Minimize inventories Product Design Process Design Personnel Elements Manufacturing Planning Building Blocks 56

Converting to a JIT System • Get top management commitment • Decide which parts need most effort • Obtain support of workers • Start by trying to reduce setup times • Gradually convert operations • Convert suppliers to JIT • Prepare for obstacles 57

Obstacles to Conversion • Management may not be committed • Workers/management may not be cooperative • Suppliers may resist 58

JIT in Service The basic goal of the demand flow technology in the service organization is to provide optimum response to the customer with the highest quality service and lowest possible cost. – – – Eliminate disruptions Make system flexible Reduce setup and lead times Eliminate waste Minimize WIP Simplify the process 59

JIT Purchasing • New challenges – Meeting manufacturing requirements – Changing from traditional thinking and practices – frequent on-time delivery of small quantities – Long term relationships with suppliers as partners • How about Exchange purchasing: Auctions? 60

JIT II • JIT II: the practice of allowing vendors to manage some aspects of buying their products or services for the buyer 61

Benefits of JIT Systems • Reduced inventory levels • High quality • Flexibility • Reduced lead times • Increased productivity 62

Benefits of JIT Systems (cont’d) • Increased equipment utilization • Reduced scrap and rework • Reduced space requirements • Pressure for good vendor relationships • Reduced need for indirect labor 63

Elements of JIT • • Smooth flow of work (the ultimate goal) Elimination of waste Continuous improvement Eliminating anything that does not add value • Simple systems that are easy to manage • Use of product layouts to minimize moving materials and parts • Quality at the source 64

Elements of JIT (cont’d) • • Poka-yoke – fail safe tools and methods Preventative maintenance Good housekeeping Set-up time reduction • Cross-trained employees • A pull system 65

Case Study based on a trip on Nov 19, 02 NUMMI 66

History/Products • Late 70’s oil crisis • GM closes Fremont, CA plant firing 6000 in 1982 • Toyota approaches GM to set up Toyota production system at a GM plant, United Auto Workers accepts the deal • GM and Toyota put together $400 M in 1984. GM owns the infrastructure, Toyota is the tenant. • Nummi = New United Motor Manufacturing, Inc is born in 1984 as the unique example of a Toyota – GM joint venture • Products: Toyota Corolla, Tacoma Trucks, Pontiac Vibe (Toyota bottom, GM top) and Toyota Voltz (Toyota bottom, GM top, sold in Japan) , GM Prism until 13/12/01 67

Workers • Nummi has about 4500 unionized workers • Workers are under two types: – Production, high school graduates – Maintenance • Workers work in teams of 4 -6 • Workers in a team rotate the tasks every 1 -3 hours • Team leader is responsible for the rotation. • Team leader withdraws parts from the inventory (every 12 hours) and provides the tools as necessary • Workers make $17 per hour 68

Capacity • Nummi has a cycle time of – 60 seconds for Corolla, 1 body – 82 seconds for Tacoma, 3 bodies (only cabin is produced at Nummi, the bottom and the back are bought from suppliers) • Nummi works in two shifts – I: 6: 00 -14: 30, II: 16: 30 -1: 00 – Each shift has 1 hour lunch/dinner break – Starting the first shift at 6: 00 workers avoid heavy morning traffic – Two hours between shifts I and II is to allow for overtime after the first shift when necessary 69

Work Flow • Stamping: Forming metal (side, back, front) panels with presses • Body & Weld: Putting panels together • Paint: Paint inspection is the current bottleneck – Primer body paint applied by robots (chemically hazardous task) – Door jambs painted manually • Plastics: Making bumpers, inside panels • Assembly: Putting in tires, engine, seats, bumpers, harnessing. Cars , trucks on 2 km , 0. 8 km conveyors • Cars contain Building manifest = BOM = Ingredients list at every step of these operations 70

Just in time • Kaizen: continuous improvement • Kanban: replenishment every 1 -2 hours • Jidoka: Assure 100% quality. Otherwise pull the Andon chord – 1000 times per shift – 9% of line stops are longer than 30 seconds – Line stops longer than an hour once every month • Muda: Waste to be eliminated • Genchi Genbutsu: Go to the source to learn and to solve the problems • This Japanese terminology is all over the boards in the plant 71

Creative Tool / Work Place Design • Die change at the stamping in 3 hours • Tilted storage bins for ease of access • Collapsing storage boxes when empty – To reduce the empty box storage requirements in trucks returning to suppliers, say in Indiana – These boxes save about $10 M annually – The worker who suggested the boxes earned several thousand points. 1 point = $1. • More info www. nummi. com 72