operation management · 2017. 12. 30. · operation management operation management semester – 8...

Operation Management

OPERATION MANAGEMENT

SEMESTER – 8

Subject Code 10ME81 IA Marks 25

Number of Lecture

Hours/Week

04

Exam Marks

100

Total Number of Lecture

Hours

52

Exam Hours

03

Course objectives:

One of the most critical areas for success in any business enterprise is how Production and

Operations are managed. In the ‘Productions and Operations Management’ course an attempt

will be made to integrate the courses studied by the students like statistics, economics,

finance, organizational behavior and strategy into a consolidated production and operation

related decisions Teach

ing

Hours UNIT - 1

Production and Operations Management: Introduction, Functions within business

organizations, the operation management function, Classification of production

systems, Productivity, factors affecting productivity, contemporary

issues and development

UNIT - 2

Decision Making: The decision process, characteristics of operations

decisions, use of models, decision making environments, graphical linear

programming, analysis and trade-offs.

06

Hours

06

Hours

UNIT - 3

Forecasting: Steps in forecasting process, approaches to forecasting,

forecasts based on judgment and opinion, analysis of time series data,

accuracy and control of forecasts, choosing a forecasting technique, elements of a

good forecast,

07

Hours

UNIT - 4

Capacity & Location Planning: Importance of capacity decisions, defining

and measuring capacity, determinants of effective capacity, determining

capacity requirement, developing capacity alternatives, evaluating

alternatives, Need for location decisions, nature of locations decisions,

general procedure for making locations decisions, evaluating locations

decisions, facilities layout - need for layout decisions, types of processing.

UNIT - 5

Aggregate Planning & Master Scheduling: Aggregate planning - Nature and

scope of aggregate planning, strategies of aggregate planning, techniques for

aggregate planning - graphical and charting techniques, mathematical techniques.

The master production schedule, Master scheduling process, Master scheduling

methods.

10

Hours

08

Hours

UNIT - 6

Inventory Management: Types of Inventories, independent and dependent demand,

reasons for holding inventory, objectives of inventory control, requirements for

effective inventory management - information, cost, priority system. Inventory

control and economic-order-quantity models.

06

Hours

UNIT - 7

Material Requirement Planning (MRP): Dependent versus independent

demand, an overview of MRP - MRP inputs and outputs, MRP processing, An

overview of MRP-II and ERP capacity requirement planning, benefits and

limitations of MRP.

UNIT - 8

Purchasing and Supply Chain Management (SCM): Introduction, Importance

of purchasing and SCM, The procurement process, Concept of tenders,

Approaches to SCM, Vendor development, Measures of purchasing and SCM,

Make or buy decision, Types of buying, E-procurement.

07

Hours

06

Hours

Course outcomes:

After studying this course, students will be able to:

• Define ‘operations’ and ‘operations management’

• Identify the roles and responsibilities of operations managers in different organizational

contexts

• Apply the ‘transformation model’ to identify the inputs, transformation processes and

outputs of an organization

• Identify operational and administrative processes

• Describe the boundaries of an operations system, and recognize its interfaces with other

functional areas within the organization and with its external environment.

Question paper pattern:

The question paper will have eight questions. Each full Question

consisting of 20 marks. There w i l l be 4 full q u e s t i o n s from

each part A and Part B covering all the topics.

The students wi l l have to answer 5 full questions, selecting

minimum of 2 questions from each part.

Text Books:

1. Production and Operations Management, William J Stevenson, 9th Ed., Tata McGraw

Hill.

2. Operations Management-Theory and Practice, B Mahadevan, Pearson Education, 2007.

Reference Books:

1. Operations Management for Competitive Advantage, R.B.Chase, N.J.Aquilino, F.

Roberts Jacob; McGraw Hill Companies Inc., Ninth Edition.

2. Operations Management for Competitive Advantage, R.B.Chase, N.J.Aquilino, F. Roberts Jacob;

McGraw Hill Companies Inc., Ninth Edition.

3. Production & Operations Management, Everett E.Adams, Ronald J.Ebert, Prentice Hall of India

Publications, Fourth Edition.

Unit-1 Production and Operation Management

Objective:

• Operation Management is to forecast, to plan, to organize, to command, to coordinate

and control activities of others

• Coordination of all resources through the process of planning, organising, directing

and controlling

• Utilizes resources, influences human action and facilitates changes in order to

accomplish an organization's goals

Structure:

• Meaning - nature and characteristics of Operation Management

• Classification of production systems,

• Productivity, factors affecting productivity

• Contemporary issues and development

Important questions:

• What do you mean by the term Operation management?

• What is the concept of Operation management?

• What are factors affecting productivity?

• What are development areas for Operation Management?

Course outcomes:



• Identify the roles and responsibilities of operations managers in different

organizational contexts

• Apply the ‘transformation model’ to identify the inputs, transformation processes

and outputs of an organization


• Describe the boundaries of an operations system, and recognize its interfaces with

other functional areas within the organization and with its external environment

Introduction to Operations Management

Operations Management

Create operational systems.

Manage (plan, organize, staff, direct and control) the activities relating

to the production of goods and/or services with maximum efficiency

(at the lowest cost) and effectiveness (in the eyes of the customer).

Improve those processes continuously to create competitive

advantage.

The Operations System

The operations system transforms inputs into desired goods and services.

Operations Management ~ The Context

Operations Management

Types of Conversions

Physical

Chemical

Locational

Educational

Entertained

Competitive Priorities for the Operational Function

Price or Cost

Quality Short Run: Conformance, Design

Long Run: Continuous Improvement Thru the Learning

Organization Flexibility Product Mix: make various

Time - Dependability

Speed of Delivery

(Lead Time)

Speed to Market (New Product Development Time)

Service Delivering a comprehensive solution – products &

augmenting services – to the customer’s needs

Theory of Slack Ropes

Interfunctional Strategies

Where does price fit in this scenario?

Process Choice, Design, & Analysis

Operational Design components

People… following

Process and Procedures… applying

Technologies and Resources

Drivers of design choice

Characteristics of the Product

Characteristics of Demand

Competitive Priorities driven by corporate strategic

analysis No one best way to deliver a product.

Process-Product Matrix

Significant Developments

Division of Labor

Standardized Parts

Scientific Management

Time and Motion Study

Efficiency Improvement

Wage Incentives

Assembly Lines

Motivation and Behavioral Issues

Operations Research

Computers and Information Technology

– Computer Aided Design (CAD)

– Computer Aided Manufacture (CAM)

– Computer Integrated Manufacture (CIM) Flexible Manufacturing

Systems (FMS)

Cellular Manufacturing JIT, Lean Manufacturing

Total Quality Management, Six Sigma

Mass Customization

The management of systems or processes that create goods and/or provide

services.

Value-Added: The difference between the cost of inputs and the value or price of

outputs.

Production of Goods vs Delivery of Services

Production of goods results in a tangible output.

Government (federal, state, local).

Wholesale/retail (clothing, food, appliances, stationery, toys, etc.).

Financial services (banking, stock brokerages, insurance, etc.).

Health care (doctors, dentists, hospitals, etc.).

Personal services (laundry, dry cleaning, hair/beauty, gardening, etc.).

Business services (data processing, e-business, delivery, employment

agencies, etc.). Education (schools, colleges, etc.)

Differences Between Goods & Service

Degree of customer contact.

Uniformity of input.

Labor content of jobs.

Uniformity of output.

Measurement of productivity.

Production and delivery.

Quality assurance.

Amount of inventory.

Evaluation of work.

Ability to patent design.

Unit-2 Decision Making

Objective:

• To bring certainty in future events

• To provide specific direction

• To bring economy in managerial operations

• To attain predetermined goals

Structure:

• Decision making

• The decision process

• Characteristics of operations decisions,

• Use of models, decision making environments


• What is decision making process?

• What are the types of tradeoffs?

• Importance of decision making in management?

• Types of models used to solve decision making?

Course outcomes:



• Identify the roles and responsibilities of operations managers in

different organizational contexts

• Apply the ‘transformation model’ to identify the inputs,

transformation processes and outputs of an organization

https://www.google.co.in/search?noj=1&q=what+is+planning+process&sa=X&ved=0ahUKEwjzupSY2f3TAhWJtI8KHbgSB8sQ1QIIrgEoAA

https://www.google.co.in/search?noj=1&q=importance+of+planning+in+management&sa=X&ved=0ahUKEwjzupSY2f3TAhWJtI8KHbgSB8sQ1QIIsgEoBA

https://www.google.co.in/search?noj=1&q=types+of+planning&sa=X&ved=0ahUKEwjzupSY2f3TAhWJtI8KHbgSB8sQ1QIIswEoBQ

CHAPTER 2

Operations Management models Decision making

Operations Management and Decision Making

Models

Quantitative Approaches

Analysis of Trade-Offs

Systems Approach

Establishing Priorities (Pareto phenomenon)

Ethics

The Historical Evolution of OM

The Industrial Revolution

Craft production

Scientific Management

Mass production

Interchangeable parts

Division of labor

The Human Relations Movement

Theory X and Theory Y

Theory Z

Trends in Business

The Internet, e-commerce, and e-business.

Management of technology.

Globalization.

Management of supply

chains. Outsourcing.

Agility.

Ethical behavior.

Operations strategy.

Working with fewer resources.

Revenue management.

Process analysis and improvement, and quality improvement.

Increased regulation and product liability issues.

Lean production

Competitiveness

• Identifying consumer wants and/or needs is a basic input in an

organization’s decision making process, and central to competitiveness.

• Pricing is usually a key factor in consumer buying decisions.

• Advertising and promotion are ways organizations can inform potential

customers about features of their products or services, and attract buyers.

• Product and service design

• Cost

• Location

• Quality

• Quick response

• Flexibility

Why Some Organizations Fail

Putting too much emphasis on short-term financial performance at the

expense of research and development.

Failing to take advantage of strengths and opportunities, and/or failing

to recognize competitive threats.

Neglecting operations strategy.

Strategy

Mission: Live a good life.

Goal: Successful career, good income.

Strategy: Obtain a college education.

Tactics: Select a college and a major; decide how to finance college.

Operations: Register, buy books, take courses, study.

Low cost. Outsource operations to third-world countries that have low labor

costs.

Scale-based strategies. Use capital-intensive methods to achieve high output

volume and low unit costs

Specialization. Focus on narrow product lines or limited service to achieve

higher quality.

Flexible operations. Focus on quick response and/or customization.

High quality. Focus on achieving higher quality than competitors.

Service. Focus on various aspects of service (e.g., helpful, courteous,

reliable, etc.).

Economic conditions. These include the general health and direction of the

economy, inflation and deflation, interest rates, tax laws, and tariffs.

Political conditions. These include favorable or unfavorable attitudes toward

business, political stability or instability, and wars.

Legal environment. This includes antitrust laws, government regulations, trade

restrictions, minimum wage laws, product liability laws and recent court

experience, labor laws, and patents.

Technology. This can include the rate at which product innovations are occurring,

current and future process technology (equipment, materials handling), and design

technology.

Competition. This includes the number and strength of competitors, the basis of

competition (price, quality, special features), and the ease of market entry.

Markets. This includes size, location, brand loyalties, ease of entry, potential for

growth, long-term stability, and demographics.

Human resources. These include the skills and abilities of managers and workers;

special talents (creativity, designing, problem solving); loyalty to the organization;

expertise; dedication; and experience.

Facilities and equipment. Capacities, location, age, and cost to maintain or replace

can have a significant impact on operations.

Financial resources. Cash flow, access to additional funding, existing debt burden,

and cost of capital are important considerations.

Customers. Loyalty, existing relationships, and understanding of wants and needs

are important.

Products and services. These include existing products and services, and the

potential for new products and service

Technology. This includes existing technology, the ability to integrate new technology,

and the probable impact of technology on current and future operations.

Suppliers. Supplier relationships, dependability of suppliers, quality, flexibility, and

service are typical considerations.

Other. Other factors include patents, labor relations, company or product

image, distribution channels, relationships with distributors, maintenance

of facilities and equipment, access to resources, and access to markets.

Operations Strategy

Strategic OM Decision Areas

Productivity

Chapter 3

MPS, RCCP, MRP, CRP, & ERP

Manufacturing Resource Planning

Core MRP

Aggregate Versus Detailed Forecasts (Review)

Use aggregate forecasts for planning medium-range overall production

levels.

High long-range forecast accuracy Detail not needed for planning long-

range resource use (labor, inventory, etc.)

Use detailed forecasts for initial detailed short-range Master Production

Schedule (MPS) Detailed forecasts reasonably accurate for this time frame

Need product-specific detail for MPS

Unit-5: Aggregate Planning & Master Scheduling

Objective:

▪ Achieving financial goals by reducing overall variable cost

▪ Maximum utilization of the available production facility

▪ Provide customer delight by matching demand and reducing wait time for

customers

▪ Reduce investment in inventory stocking

▪ Able to meet scheduling goals there by creating a happy and satisfied work

force

Structure:

• Nature and scope of aggregate planning,

• strategies of aggregate planning, techniques for aggregate planning

• graphical and charting techniques, mathematical techniques

• Master scheduling process, Master scheduling methods


• What is the purpose of an aggregate plan?

• What is the chase strategy in business?

• What is the master scheduling?

• What are material requirements planning?

Course outcomes: After studying this course, students will be able to:




Master Production Schedule

From The Aggregate Plan To The MPS

• Suppose that Export TVs, Inc. has the following production plan for

the next six months:

Month J F M A M J

TVS 12000 12000 15000 15000 15000 18000

• If they make three models, the MPS for January might look like:

MPS 1-Jan 8-Jan 15-Jan 22-Jan

31” 2000 1000 0 1000

33” 1000 1000 0 2000

36” 0 1000 3000 0

Planning Horizon

The Master Production Schedule

An MPS starts with a forecast and a beginning inventory balance.

Period 1 2 3 4 5 6

Product X

Forecast 5 10 8 5 6 8

Projected Available Balance 20

Net Requirements

MPS

Planned Order Release

Period 1 2 3 4 5 6

Product Y

Forecast 7 2 10 13 5 5


Net Requirements

MPS


• Inventory is projected forward until a shortage, or “net requirement,”

occurs

Period 1 2 3 4 5 6

Product X

Forecast 5 10 8 5 6 8

Projected Available Balance 20 15 5

Net Requirements 3

MPS


Period 1 2 3 4 5 6

Product Y

Forecast 7 2 10 13 5 5


Net Requirements

MPS


• Production is scheduled to be completed (the MPS is a planned finish

time) to cover the shortfall

Period 1 2 3 4 5 6

Product X

Forecast 5 10 8 5 6 8

Projected Available Balance 20 15 5 5

Net Requirements 3

MPS 8


Period 1 2 3 4 5 6

Product Y

Forecast 7 2 10 13 5 5


Net Requirements

MPS

• A planned start time – the “planned order release” is determined

based on lead time (here it is one period)

Period 1 2 3 4 5 6

Product X

Forecast 5 10 8 5 6 8


Net Requirements 3

MPS 8

Planned Order Release 8

Period 1 2 3 4 5 6

Product Y

Forecast 7 2 10 13 5 5


Net Requirements

MPS


• The process continues until the product is scheduled

Period 1 2 3 4 5 6

Product X

Forecast 5 10 8 5 6 8

Projected Available Balance 20 15 5 5 0 8 0

Net Requirements 3 6

MPS 8 14

Planned Order Release 8 14

Period 1 2 3 4 5 6

Product Y

Forecast 7 2 10 13 5 5


Net Requirements

MPS


• The other product is scheduled the same way

Period 1 2 3 4 5 6

Product X

Forecast 5 10 8 5 6 8



MPS 8 14


Period 1 2 3 4 5 6

Product Y

Forecast 7 2 10 13 5 5



MPS 20 10


• To check the feasibility of the MPS, we need to check the

capacity requirements

Period 1 2 3 4 5 6

Product X

Forecast 5 10 8 5 6 8



MPS 8 14


Period 1 2 3 4 5 6

Product Y

Forecast 7 2 10 13 5 5



MPS 20 10


THE "ROUGH-CUT" ROUTING

Product Workcenter CLH/Setup DLH/Unit

X W1 10 1.00

W2 0 0.70

Y W1 5 0.75


X W1 10 1.00

W2 0 0.70

Y W1 5 0.75

Period 1 2 3 4 5 6

Product X-planned Order Release 0 8 0 14 0 0

Product Y-planned Order Release 0 20 0 10 0 0

Period

Workcentre Part 1 2 3 4 5 6

W1 X 0 18 0 24 0 0

Y 0 20 0 12.5 0 0

Total 0 38 0 36.5 0 0

W2 X 0 5.6 0 9.8 0 0

Total 0 43.6 0 46.3 0 0

Unit-4: Material Requirement Planning

Objective:

• Primary objective is to ensure that material and components are

available for production, and final products are ready for dispatch.

• MRP is not only to maintain minimum inventory but also ensure right

quantity of material is available at the right time to produce right

quantity of final products.

• Another primary objective is to ensure planning of all manufacturing

processes,

• The scheduling of different job works as to minimize or remove any

kind of idle time for machine and workers

Structure:

• Dependent versus independent demand,

• an overview of MRP - MRP inputs and outputs,

• MRP processing, An overview of MRP-II and ERP

• capacity requirement planning,

• benefits and limitations of MRP.


• What is material requirements planning?

• What is material resource planning?

• What do you mean by material planning?

• What is MRP software?



• Identify the roles and responsibilities of operations managers in

different organizational contexts

• Apply the ‘transformation model’ to identify the inputs, transformation

processes and outputs of an organization


Chapter 4- Material Requirements Planning

Master Schedule

o Master schedule: One of three primary inputs in MRP; states which

end items are to be produced, when these are needed, and in what

quantities. o 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.

Bill-of-Materials

• Bill of materials: One of the three primary inputs of MRP; 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.

• BOM's show how parts are combined to create product

Representation may be graphical or “indented text”

Low-level Coding

Determines order of MRP calculations

• Each BOM level is assigned a number

• Products are at level 0

• Each part is assigned the number of the lowest level at

which it appears in any BOM

• Calculate plans for level 0 first, then level 1, etc. . . .

X Y LEVEL 0

A B (2) A LEVEL 1

A LEVEL 2

Inventory Records

Inventory Records: One of the three primary inputs of MRP; includes information

on the status of each item by time period

Accuracy: is extremely important in that accuracy will determine the success of

the production runs.

Vertical Linkage Of MRP Records

• Objective: find material plans [planned order releases] for all parts

• Data requirements

MPS

BOMs

Inventory records file

• Gross requirements are ultimately derived from MPS

– But in calculations, the gross requirements for a part depend only on the

planned order releases of the parent parts

MRP Processing

Gross requirements (demand)

Schedule receipts (open orders)

Projected on hand

Net requirements

Planned-order receipt

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.

The MRP Record

Objective is to determine future purchasing or production schedule for

component part Gross Requirements – demand for part

Scheduled Receipts – planned completion times for batches of

parts which have been already ordered

Period 1 2 3 4 5 6

Gross Requirements 10 0 30 10 20 25

Scheduled Receipts 30


Net Requirements 0 0 0

Planned Order Receipts 0 0 0

Planned Order Release 0 0 0

Planned Order Receipt – planned completion times for batches of parts which

have not yet been ordered Planned Order Release– planned start times for

batches of parts which have not yet been ordered

Period 1 2 3 4 5 6




Net Requirements 0 0 0 5 0 20

Planned Order Receipts 0 0 0 30 0 30

Planned Order Release 0 30 0 0 0 0

• During Period 1:

– 10 units are disbursed

Period 2 3 4 5 6 7







– The scheduled receipt is completed

Period 2 3 4 5 6 7


Scheduled Receipts





– The planned order release is released

Period 2 3 4 5 6 7







MRP Example

–Start with MPS for products X and Y

Product X: LT=1

Period 1 2 3 4 5 6

Master Production Schedule 8 14


Product Y: LT=1

Period 1 2 3 4 5 6



Planned order releases for X serve as basis for gross requirements for part B

Product X: LT=1

Period 1 2 3 4 5 6



Part B: LT=1; EOQ=25

Period 1 2 3 4 5 6


Part B’s record is then completed


Period 1 2 3 4 5 6


Scheduled Receipts




Planned Order Releases 0 0 0 0 0 0

Part A’s gross requirements depend on planned order releases for X, Y, and B

Product X: LT=1

Period 1 2 3 4 5 6


Product Y: LT=1

Period 1 2 3 4 5 6



Period 1 2 3 4 5 6


Part A: LT=1; EOQ=40

Period 1 2 3 4 5 6


Part A’s record is then completed

Part A: LT=1; EOQ=40

Period 1 2 3 4 5 6






Planned Order Releases 0 0 40 0 0 0

MRP Planning

Benefits of MRP

Low levels of in-process inventories

Ability to track material requirements

Ability to evaluate capacity requirements

Means of allocating production time

Requirements of MRP

Computer and necessary software

Accurate and up-to-date

Master schedules

Bills of materials

Inventory records

MRP II

Expanded MRP with and emphasis placed on integration Financial planning

Marketing

Engineering

Purchasing

Manufacturing

Unit-4 Capacity & Location Planning

Objective:

• Determined the amount of capacity

• Employee and facility requirements

• Produce and maintain a Capacity Plan, assessing the impact of

changes

• Plan performance of services and resources.

• Contribute to meeting service levels by managing the capacity and

performance of services and resources

Structure:

• Determinants of effective capacity,

• Determining capacity requirement, developing capacity

alternatives,

• Evaluating alternatives, Need for location decisions,

• Nature of locations decisions


• What is meant by capacity in operations management?

• What is the capacity of a system?

• What is the meaning of aggregate planning?

• What is the meaning of capacity management?





• Apply the ‘transformation model’ to identify the inputs, transformation

processes and outputs of an organization

Capacity Requirements 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.


• Should be used as a final check on the MPS More accurate than RCCP May

be too expensive for routine "what-if" analysis

• Determine incremental run times and setup times for each part in each

workcenter

• Apply incremental run times and setup times from (1) to planned

order releases to determine capacity requirements per period for each

workcenter

The Routing

The routing for a product or part lists

• Where it is processed

• Resources needed

−Per batch or per setup

−Per unit after workcenter is setup

Product Workcenter Operation # CLH/Setup DLH/Unit

X W1 10 10 1.0

W2 20 0 0.50

Y W1 10 5 0.75

B W2 10 0 0.20


The routing is applied to the planned order releases to obtain the capacity plan

Product Workcenter Operation # CLH/Setup DLH/Unit

X W1 10 10 1.0

W2 20 0 0.50

Y W1 10 5 0.75

B W2 10 0 0.20

Period 1 2 3 4 5 6

Planned Order Release -Product X 0 8 0 14 0 0

Planned Order Release -Product Y 0 20 0 10 0 0

Planned Order Release – Part B 0 0 25 0 0 0

W1 Capacity Required – Product X 0 18 0 24 0 0

W1 Capacity Required – Product Y 0 20 0 12.5 0 0

W1 Capacity Required 0 38 0 36.5 0 0

W2 Capacity Required – Product X 0 4 0 7 0 0

W2 Capacity Required – Part B 0 0 5 0 0 0

W2 Capacity Required 0 4 5 7 0 0

Total Capacity Required 0 42 5 43.5 0 0

Other Considerations

Safety Stock

Lot sizing

• Lot-for-lot ordering

• Economic order quantity

• Fixed-period ordering

• Part-period model

Enterprise Resource Planning

Enterprise resource planning (ERP): An expanded effort to integrate

standardized recordkeeping that will permit information sharing throughout

the organization

Enterprise resource planning

Kanban

Where did this come from and what is it?

Japanese word for “signal” or page 700

Team Exercises

THE ROUGH-CUT PLAN

The routing is applied to the planned order releases to obtain the capacity plan


X W1 10 1.0

W2 0 0.70

Y W1 5 0.75

Period 1 2 3 4 5 6

Product X-planned Order Release 0 15 0 46 0 0

Product Y-planned Order Release 0 0 37 0 15 0

Period

Workcentre Part 1 2 3 4 5 6

W1 X

Y

Total

W2 X

Total

The MRP Record

Complete the following MRP Record and indicate in the record that the next

order has been released but not received.

Economic Order Quantity = ???

Period 1 2 3 4 5 6


Scheduled Receipts


Net Requirements

Planned Order Receipts

Planned Order Releases

MRP Exercise

Product X: LT = 3

Product Y: LT = 3

Part A: LT = 1; EOQ = 40

Part B: LT = 1; EOQ = 25

Master Production Schedule

Period 1 2 3 4 5 6

Product X 0 10 5

Product Y 0 30 10

Part A 70

Part B 40

Beginning

Balance

CRP Exercise

Using your answers form the MRP Exercise determine the CRP using the

figures below.

Part Workcenter Operation # DLH/Setup DLH/Unit

X W1 10 10 1.00

W2 20 0 0.50

Y W1 10 5 0.75

B W2 10 0 0.20

Period 1 2 3 4 5 6

Planned Order Release -Product X

Planned Order Release -Product Y

Planned Order Release – Part B

W1 Capacity Required – Product X

W1 Capacity Required – Product Y

W1 Capacity Required

W2 Capacity Required – Product X

W2 Capacity Required – Part B

W2 Capacity Required

Total Capacity Required

Further concepts in MRP, ERP and DRP

Overview

• Global Company Profile: Wheeled Coach

• Dependent Demand

• Dependent Inventory Model Requirements Master Production

Schedule Bills of Material Accurate Inventory Records Purchase

Orders Outstanding Lead Times for Components

• MRP Structure

• MRP Management MRP Dynamics MRP and JIT

• Lot-Sizing Techniques

• Extensions of MRP Material Requirements Planning II (MRP

II) Closed-Loop MRP

Capacity Planning

• MRP In Services Distribution

Resource Planning (DRP)

• Enterprise Resource Planning

(ERP) oAdvantages and

Disadvantages of ERP Systems

ERP in the Service Sector

• MRP Structure

• MRP Management oMRP

Dynamics oMRP and JIT

• Lot-Sizing Techniques

• Extensions of MRP oMaterial

Requirements Planning II (MRP

II) Closed-Loop MRP Capacity

Planning

• MRP In Services Distribution

Resource Planning (DRP)

• Enterprise Resource Planning

(ERP) Advantages and



Learning Objectives

When you complete this chapter you should be able to:

1. Develop a product structure

2. Build a gross requirements plan

3. Build a net requirements plan

4. Determine lot sizes for lot-for-lot, EOQ, and PPB

5. Describe MRP II

6. Describe closed-loop MRP

7. Describe ERP

Wheeled Coach

• Largest manufacturer of ambulances in the world

• International competitor

• 12 major ambulance designs o18,000 different inventory items

6,000 manufactured parts 12,000 purchased parts

• Four Key Tasks Material plan must meet both the requirements of

the master schedule and the capabilities of the production facility

Plan must be executed as designed Minimize inventory

investment Maintain excellent record integrity

Benefits of MRP

1. Better response to customer orders

2. Faster response to market changes

3. Improved utilization of facilities and labor

4. Reduced inventory levels

Dependent Demand

1. The demand for one item is related to the demand for another item

2. Given a quantity for the end item, the demand for all parts and

components can be calculated

3. In general, used whenever a schedule can be established for an item

4. MRP is the common technique

Effective use of dependent demand inventory models requires the following

1. Master production schedule

2. Specifications or bill of material

3. Inventory availability

4. Purchase orders outstanding

5. Lead times

Master Production Schedule (MPS)

• Specifies what is to be made and when

• Must be in accordance with the aggregate production plan

• Inputs from financial plans, customer demand, engineering, supplier

performance

• As the process moves from planning to execution, each step must be

tested for feasibility

• The MPS is the result of the production planning process

• MPS is established in terms of specific products

• Schedule must be followed for a reasonable length of time

• The MPS is quite often fixed or frozen in the near term part of the plan

• The MPS is a rolling schedule

• The MPS is a statement of what is to be produced, not a forecast

of demand

The Planning Process

Aggregate Production Plan

Unit-5: Aggregate Planning & Master Scheduling

Objective:

▪ Achieving financial goals by reducing overall variable cost

▪ Maximum utilization of the available production facility

▪ Provide customer delight by matching demand and reducing

wait time for customers

▪ Reduce investment in inventory stocking

▪ Able to meet scheduling goals there by creating a happy and

satisfied work force

Structure:

• Nature and scope of aggregate planning,

• strategies of aggregate planning, techniques for aggregate

planning

• graphical and charting techniques, mathematical techniques

• Master scheduling process, Master scheduling methods


• What is the purpose of an aggregate plan?

• What is the chase strategy in business?

• What is the master scheduling?

• What are material requirements planning?

Master Production Schedule (MPS)

Can be expressed in any of the following terms:

• A customer order in a job shop (make-to-order) company

• Modules in a repetitive (assemble-to-order or forecast) company

• An end item in a continuous (stock-to-forecast) company

Focus for Different Process Strategies

MPS Example

For Nancy’s Specialty Foods

Bills of Material

• List of components, ingredients, and materials needed to make product

• Provides product structure Items above given level are called parents Items

below given level are called children

Bills of Material Example

Bills of Material

• Modular Bills oModules are not final products but components that can be

assembled into multiple end items Can significantly simplify planning and

scheduling

• Planning Bills (Pseudo Bills) Created to assign an artificial parent to the BOM

Used to group subassemblies to reduce the number of items planned and

scheduled

o Used to create standard “kits” for production

• Phantom Bills Describe subassemblies that exist only temporarily Are part

of another assembly and never go into inventory

• Low-Level Coding

o Item is coded at the lowest level

at which it occurs oBOMs are

processed one level at a time

Accurate Records

• Accurate inventory records are absolutely required for MRP (or any

dependent demand system) to operate correctly

• Generally MRP systems require 99% accuracy

• Outstanding purchase orders must accurately reflect quantities and

scheduled receipts

Time-Phased Product Structure

MRP Structure

Determining Gross Requirements

• Starts with a production schedule for the end item – 50 units of Item

A in week 8

• Using the lead time for the item, determine the week in which the

order should be released – a 1 week lead time means the order for 50

units should be released in week 7

• This step is often called “lead time offset” or “time phasing”

• From the BOM, every Item A requires 2 Item Bs – 100 Item Bs are

required in week 7 to satisfy the order release for Item A

• The lead time for the Item B is 2 weeks – release an order for 100 units

of Item B in week 5

• The timing and quantity for component requirements are

determined by the order release of the parent(s)

• The process continues through the entire BOM one level at a time

– often called “explosion”

• By processing the BOM by level, items with multiple parents are only

processed once, saving time and resources and reducing confusion

• Low-level coding ensures that each item appears at only one level in

the BOM

Gross Requirements Plan

Net Requirements Plants

Determining Net Requirements

• Starts with a production schedule for the end item – 50 units of Item A

in week 8

• Because there are 10 Item As on hand, only 40 are actually required –

(net requirement) = (gross requirement - on- hand inventory)

• The planned order receipt for Item A in week 8 is 40 units – 40 = 50 -10

• Following the lead time offset procedure, the planned order release for

Item A is now 40 units in week 7

• The gross requirement for Item B is now 80 units in week 7

• There are 15 units of Item B on hand, so the net requirement is 65 units

in week 7

• A planned order receipt of 65 units in week 7 generates a

planned order release of 65 units in week 5

• A planned order receipt of 65 units in week 7 generates a

planned order release of 65 units in week 5

• The on-hand inventory record for Item B is updated to reflect the use of

the 15 items in inventory and shows no on-hand inventory in week 8

• This is referred to as the Gross-to-Net calculation and is the third basic

function of the MRP process

Net Requirements Plan

The logic of net requirements

Gross Requirements Schedule

MRP Planning Sheet

Safety Stock

• BOMs, inventory records, purchase and production quantities may not

be perfect

• Consideration of safety stock may be prudent

• Should be minimized and ultimately eliminated

• Typically built into projected on-hand inventory

MRP Management

• MRP is a dynamic system

• Facilitates replanning when changes occur

• System nervousness can result from too many changes

• Time fences put limits on replanning

• Pegging links each item to its parent allowing effective analysis of

changes

MRP and JIT

• MRP is a planning system that does not do detailed scheduling

• MRP requires fixed lead times which might actually vary with batch

size

• JIT excels at rapidly moving small batches of material through the

system

Finite Capacity Scheduling

• MRP systems do not consider capacity during normal planning cycles

• Finite capacity scheduling (FCS) recognizes actual capacity limits

• By merging MRP and FCS, a finite schedule is created with feasible

capacities which facilitates rapid material movement

Small Bucket Approach

1. MRP “buckets” are reduced to daily or hourly oThe most common

planning period (time bucket) for MRP systems is weekly

2. Planned receipts are used internally to sequence production

3. Inventory is moved through the plant on a JIT basis

4. Completed products are moved to finished goods inventory which

reduces required quantities for subsequent planned orders

5. Back flushing based on the BOM is used to deduct inventory that was

used in production

Balanced Flow

• Used in repetitive operations

• MRP plans are executed using JIT techniques based on “pull”

principles

• Flows are carefully balanced with small lot sizes

Supermarket

• Items used by many products are held in a common area often called a

supermarket

• Items are withdrawn as needed

• Inventory is maintained using JIT systems and procedures

• Common items are not planned by the MRP system

Lot-Sizing Techniques

• Lot-for-lot techniques order just what is required for production based

on net requirements May not always be feasible If setup costs are high,

lot-for-lot can be expensive

• Economic order quantity (EOQ)EOQ expects a known constant

demand and MRP systems often deal with unknown and variable

demand

• Part Period Balancing (PPB) looks at future orders to determine most

economic lot size

• The Wagner-Whitin algorithm is a complex dynamic programming

technique Assumes a finite time horizon Effective, but computationally

burdensome

Lot-for-Lot Example

1 2 3 4 5 6 7 8 9 10

Gross requirements 35 30 40 0 10 40 30 0 30 55

Scheduled receipts

Projected on hand 35 35 0 0 0 0 0 0 0 0 0

Net requirements 0 30 40 0 10 40 30 0 30 55

Planned order receipts 30 40 10 40 30 30 55

Planned order releases 30 40 10 40 30 30 55

Holding cost = $1/week; Setup cost = $100;

Lead time = 1 week

No on-hand inventory is carried through the system

Total holding cost = $0

There are seven setups for this item in this plan

Total setup cost = 7 x $100 = $700

EOQ Lot Size Example

1 2 3 4 5 6 7 8 9 10


Scheduled receipts



Planned order receipts 73 73 73 73

Planned order releases 73 73 73 73

Holding cost = $1/week; Setup cost = $100; Lead

time = 1 week Average weekly gross requirements =

27; EOQ = 73 units

Annual demand = 1,404

Total cost = setup cost + holding cost

Total cost = (1,404/73) x $100 + (73/2) x ($1 x 52 weeks)

Total cost = $3,798

Cost for 10 weeks = $3,798 x (10 weeks/52 weeks) = $730

PPB Example

1 2 3 4 5 6 7 8 9 10


Scheduled receipts

Projected on hand 35

Net requirements

Planned order receipts

Planned order releases

Holding cost = $1/week; Setup cost = $100; Lead time = 1 week EPP = 100 units

PPB Example

1 2 3 4 5 6 7 8 9 10


Scheduled receipts



Planned order receipts 80 100 55

Planned order releases 80 100 55

Holding cost = $1/week; Setup cost = $100; Lead time = 1 week EPP = 100 units

Lot-Sizing Summary

For these three examples

Wagner-Whitin would have yielded a plan with a total cost of $455

• In theory, lot sizes should be recomputed whenever there is a lot size or

order quantity change

• In practice, this results in system nervousness and instability

• Lot-for-lot should be used when low-cost JIT can be achieved

• Lot sizes can be modified to allow for scrap, process constraints, and

purchase lots

• Use lot-sizing with care as it can cause considerable distortion of

requirements at lower levels of the BOM

• When setup costs are significant and demand is reasonably smooth,

PPB, Wagner-Whitin, or EOQ should give reasonable results

Extensions of MRP

• Closed-Loop MRP oMRP system provides input to the

capacity plan, MPS, and production planning process

• Capacity Planning oMRP system generates a load report

which details capacity requirements oThis is used to drive

the capacity planning process oChanges pass back through

the MRP system for rescheduling

Material Requirements Planning II

• Once an MRP system is in place, inventory data can be augmented by

other useful information oLabor hours oMaterial costs oCapital costs

oVirtually any resource

• System is generally called MRP II or Material Resource Planning

Closed-Loop MRP System

Resource Requirements Profile

It is also possible to split lots 6 and 11 and move them earlier in the schedule.

This would avoid any potential problems with late orders but would increase

inventory holding cost.

Smoothing Tactics

1. Overlapping Sends part of the work to following operations

before the entire lot is complete Reduces lead time

2. Operations splitting Sends the lot to two different machines for

the same operation Shorter throughput time but increased

setup costs

3. Order or lot splitting Breaking up the order into smaller lots

and running part ahead of schedule

MRP in Services

• Some services or service items are directly linked to demand for

other services

• These can be treated as dependent demand services or items

Restaurants

Hospitals

Hotels

Smoothing Tactics

(a) Product Structure Tree

MRP in Services

(b) Bill of Materials

Part Description Quantity Unit of Unit cost

Number Measure

10001 Veal picante 1 Serving —

20002 Cooked linguini 1 Serving —

20003 Prepared veal 1 Serving —

and sauce

20004 Spinach 0.1 Bag 0.94

30004 Uncooked linguini 0.5 Pound —

30005 Veal 1 Serving 2.15

30006 Sauce 1 Serving 0.80

(c) Bill of Labor for Veal Picante

Work Center Operation Labor Type Labor Hours

Setup Time Run Time

1 Assemble dish Chef .0069 .0041

2 Cook linguini Helper one .0005 .0022

3 Cook veal & sauce Assistant Chef .0125 .0500

Distribution Resource Planning (DRP)

Using dependent demand techniques through the

supply chain Expected demand or sales

forecasts become gross requirements

Minimum levels of inventory to meet customer service levels

Accurate lead times

Definition of the distribution structure

Enterprise Resource Planning (ERP)

• An extension of the MRP system to tie in customers and

suppliers

1. Allows automation and integration of many business processes

2. Shares common data bases and business practices

3. Produces information in real time

• Coordinates business from supplier evaluation to customer invoicing

• ERP modules include

1. Basic MRP

2. Finance

3. Human resources

4. Supply chain management (SCM)

5. Customer relationship management (CRM)

ERP and MRP

Enterprise Resource Planning (ERP)

• ERP can be highly customized to meet specific business requirements

• Enterprise application integration software (EAI) allows ERP systems

to be integrated with oWarehouse management oLogistics oElectronic

catalogs oQuality management

• ERP systems have the potential to

• Reduce transaction costs

• Increase the speed and accuracy of information

• Facilitates a strategic emphasis on JIT systems and integration

Advantages of ERP Systems

1. Provides integration of the supply chain, production, and

administration

2. Creates commonality of databases

3. Can incorporate improved best processes

4. Increases communication and collaboration between business units

and sites

5. Has an off-the-shelf software database

6. May provide a strategic advantage


1. Is very expensive to purchase and even more so to customize

2. Implementation may require major changes in the company and its

processes

3. Is so complex that many companies cannot adjust to it

4. Involves an ongoing, possibly never completed, process for

implementation

5. Expertise is limited with ongoing staffing problems

SAP’s ERP Modules


ERP systems have been developed for health care,

government, retail stores, hotels, and financial services

Also called efficient consumer response (ECR) systems

Objective is to tie sales to buying, inventory, logistics,

and production

Unit-5: Capacity & Location Planning

Objective:

• Determined the amount of capacity

• Employee and facility requirements

• Produce and maintain a Capacity Plan, assessing the

impact of changes

• Plan performance of services and resources.

• Contribute to meeting service levels by managing

the capacity and performance of services and

resources

Structure:

• Determinants of effective capacity,

• Determining capacity requirement, developing

capacity alternatives,

• Evaluating alternatives, Need for location decisions,

• Nature of locations decisions


• What is meant by capacity in operations management?

• What is the capacity of a system?

• What is the meaning of aggregate planning?

• What is the meaning of capacity management?

Course outcomes:



• Identify the roles and responsibilities of operations

managers in different organizational contexts

• Apply the ‘transformation model’ to identify the inputs,

transformation processes and outputs of an organization

Chapter 5-

Overview of Capacity Planning

Overview

Production-Planning Hierarchy

Aggregate Planning

Master Production Scheduling

Types of Production-Planning and Control Systems

Wrap-Up: What World-Class Companies Do

Production Planning Hierarchy

Production Planning: Units of Measure

Capacity Planning, Aggregate Planning, Master Schedule, and Short-Term

Scheduling

Relationships Between OM Element

Why Aggregate Planning Is Necessary

• Fully load facilities and minimize overloading and underloading

• Make sure enough capacity available to satisfy expected demand

• Plan for the orderly and systematic change of production capacity to meet the

peaks and valleys of expected customer demand

• Get the most output for the amount of resources available

Inputs

A forecast of aggregate demand covering the selected planning horizon (6-18

months)

The alternative means available to adjust short- to medium-term capacity, to

what extent each alternative could impact capacity and the related costs

The current status of the system in terms of workforce level, inventory level and

production rate

Outputs

A production plan: aggregate decisions for each period in the planning horizon

about Projected costs if the production plan was implemented

Medium-Term Capacity Adjustments

Workforce level

Hire or layoff full-time workers

Hire or layoff part-time workers

Hire or layoff contract workers

Utilization of the work force

Overtime

Idle time (undertime)

Reduce hours worked

Inventory level

Finished goods inventory

Backorders/lost sales

Subcontract

Comparison of Aggregate Planning Methods

Method

Advantages

Limitations

Graphical • Simple, easy to use and understand • Many solutions; solution need not

be optimal

Linear Provides optimal solution • Mathematical functions must be

Programming ••

Popular in many industries

linear, and deterministic -- not

• Sensitivity & dual analysis provide useful

necessarily a realistic assumption

•

information

Sensitivity & dual analysis provide

•

useful information Constraints

readily added

Linear •• Provide optimal solution Incorporates some non-standard

Decision Handle non-deterministic demand costs

Rules •• Skilled personal required

• Quadratic model not always

realistic

• Values of variables are

unconstrained

• Feasible solution is optimal if it

exists - not guaranteed

Management •• Simple, easy to use and understand •• Solution need not be optimal

Coefficients Attempts to duplicate manager’s decision- • Assumes past decisions are good

Model •

making process

Built on individual’s invalidate

Simplest, least disruptive, easiest to model

implement

Simulation • Places no restrictions on mathematical •• No optimal solution guaranteed

structure or cost functions Can Often a long, costly, process

• test many relationships

Pure Strategies for the Informal Approach

Matching Demand

Level Capacity

Buffering with inventory

Buffering with backlog

Buffering with overtime or subcontracting

Matching Demand Strategy

Capacity (Production) in each time period is varied to exactly match the

forecasted aggregate demand in that time period

Capacity is varied by changing the workforce level

Finished-goods inventories are minimal

Labor and materials costs tend to be high due to the frequent changes

Developing and Evaluating the Matching Production Plan

Production rate is dictated by the forecasted aggregate demand

Convert the forecasted aggregate demand into the required workforce level

using production time information

The primary costs of this strategy are the costs of changing workforce levels

from period to period, i.e., hirings and layoffs

Level Capacity Strategy

Capacity (production rate) is held level (constant) over the planning horizon The

difference between the constant production rate and the demand rate is

made up (buffered) by inventory, backlog, overtime, part-time labor and/or

subcontracting

Developing and Evaluating the Level Production Plan

Assume that the amount produced each period is constant, no hirings or layoffs

The gap between the amount planned to be produced and the forecasted demand

is filled with either inventory or backorders, i.e., no overtime, no idle time, no

subcontracting

The primary costs of this strategy are inventory carrying and backlogging costs

Period-ending inventories or backlogs are determined using the inventory

balance equation:

Aggregate Planning Example

A small manufacturing company with 200 employees produces umbrellas. The

company produces the following three product lines: 1) the Executive Line, 2) the

Durable Line and 3) the Compact line, as shown in the below

Aggregate Planning Example: Demand for Executive Umbrellas

10000 10000

8000

8000

7000

5500

6000

6000

4500

4000

2000

0

Jan

Feb

Mar

Apr

May

Jun

Number of working days:

Jan: 22

Feb: 19

Mar: 21

Apr: 21

May: 22

Jun: 20

Aggregate Planning Example: Cost Information for Executive Umbrellas

Materials

$5.00

/unit

Holding costs $1.00 /unit/month

Marginal cost of stockout $1.25 /unit/month

Hiring & training cost $200.00 /worker

Layoff costs $250.00 /worker

Labor hours required 0.15 hrs/unit

Straight time labor cost $8.00 /hr

Beginning inventory 250 units

Productive hours 7.25 hrs/worker/day

Paid straight hours

8

hrs/day

Beginning # of workers

7

workers

Aggregate Planning Example:

Determining Straight Labor Costs and Output for Executive Umbrellas

Aggregate Planning Example - Chase Strategy for Executive Umbrellas

• Objective: Adjust workforce level so as to

eliminate the need to carry inventory

from period to period

• 4,500 units is the demand in January (any

combination of firm orders and forecast

• 250 is the starting inventory position

• 4,250 = 4,500 – 250

• 3.997 = 4,250 / 1,063.33

• 7 = workforce level at the beginning of

January

• 3 = 7 – 4 = workers fired

• 4 = workforce level at end of January

81

Chase Strategy

Jan

Feb

Mar

Apr

May

Jun

Demand

4,500

5,500

7,000

10,000

8,000

6,000

Beginning inventory

250

0

0

0

0

0

Net requirements

4,250

5,500

7,000

10,000

8,000

6,000

Beginning # of workers

7

4

6

7

10

8

Required workers

4

6

7

10

8

6

Workforce adjustment

-3

2

1

3

-2

-1

Production quantity

4,250

5,500

7,000

10,000

8,000

6,000

Ending inventory 0 0 0 0 0 0

Unit-6: Purchasing and Supply Chain Management

Objective:

• Solving supplier’s problems and beyond his level.

• Customer service performance improvement.

• Reduction of pre & post production inventory.

• Minimizing variance by means of activities like standardization, variety

reduction, etc.

• Minimum total cost of operation & procurement.

Structure:

• Importance of purchasing and SCM,

• The procurement process, Concept of tenders, Approaches to SCM

• Vendor development, Measures of purchasing and SCM,

• Make or buy decision, Types of buying, E-procurement.


• What is the definition of supply chain management?

• What is global supply chain management?

• What is the goal of the supply chain?

• What is the importance of supply chain management?

Course outcomes:





• Apply the ‘transformation model’ to identify the inputs, transformation processes

and outputs of an organization

Chapter - 6: Purchasing And Supply Chain Management

The recent globalization of businesses has resulted in highly demanding customers. This

has created intense pressure on companies to meet and exceed customers’ expectations

more effectively and efficiently than their competitors, and still remain profitable to

survive and grow. We know that profit is a sales price minus cost. If companies believe

that the sales price of their product/service is broadly determined by the customers (or

market), then the only option to make profit is to reduce costs. However, the key

ingredients of cost such as labour, material, etc are roughly comparable among all the

competitors aiming for a market. Hence, the excess cost that sabotages the prospects of a

company amidst competitors is due to the production method employed.

The Two Types of Production Systems:

1. Push production system –The system is based on sales forecasts. It relies upon batch

production and holds finished goods inventory to respond to customers’ needs. This

system consumes a lot of space, involves high costs of overheads and wastes, and

invites risks of obsolescence.

• Demand forecasts are prepared using past data and available information about the

future, and a multi-period schedule of sales forecast/plan is prepared. These

forecasts are compared with finished goods inventory available and a Master

Production Schedule (MPS) is developed. An MPS, and the outputs of MRP and

CRP, provide the basis for detailed schedules for all work-stations (to procure raw

materials or make items).

• Each work-station produces as per MPS. Queues and in-process/finished goods

inventory are a part of the system. MPS pushes forward the product through

subsequent stages of manufacture and assembly regardless of sales. Hence the

name PUSH system

• A lot of planning is required in a push system to coordinate production of a large

number of parts (say, as in an automobile). Traditionally, large inventories of parts

are maintained at all these stages to safeguard against the lapses in coordination

(Just In Case system)

• This approach involves guessing customer demand, duration for completing the

job, etc.

which, if goes wrong, results in excess or shortage of inventory. If the quality of

forecasts is good, Push system produces just right quantities of products at right

time

2. Pull production system - produces and moves one piece at a time, with production

volume, pace and mix derived from customer demand. This system aims for total

elimination of different wastes, and full utilization of material, labour and equipment,

thus leading to lower production cost. This system is popular as Toyota Production

System (TPS)

• Pull system works opposite to that of Push system. In Push system, the MPS

pushes the product down the production line (regardless of sales). In Pull system,

the customer demand pulls the product from upstream production line

• It is an attempt to move the discrete units of solid products through the production

line in much the same way as liquid/gas flows in a continuous process industry,

although it is an ideal. The objective here is to achieve a flow of one-piece at a

time from one process to the next, that too when the next process asks for it (Just-

In-Time concept). In effect, the batch quantity to be one. This system effectively

facilitates the journey towards the ultimate goals of a production system namely,

zero waste, lowest possible cost, shortest lead time and defect-free production

• This is what the Toyota Production System (TPS) has demonstrated to the world.

The system was earlier referred to as JIT system. Of late, together with many more

improvements, it is known as Lean system

Toyota Production System:

The primary goal of TPS house is the Simultaneous achievement of Highest quality

(perfection..!), Lowest cost and Shortest lead time. All issues relating to Quality, Cost

and Lead time are addressed through two powerful weapons namely JIT and Jidoka. They

are also called as two pillars of TPS House.

• JIT consists of three main parts. They are known as JIT purchasing, JIT

manufacturing and JIT delivery. The aim of JIT is to produce and deliver finished

goods just in time to be sold, subassemblies just in time to be assembled into

finished goods, fabricated parts just in time to go into final assemblies, and

purchase materials just in time to be transformed into fabricated parts.

Each company has its own level of JIT, which also undergoes improvement over time

(monthly, weekly, daily or even hourly). Tighter JIT system spawns plenty of benefits

to the company. JIT approach creates a pull system, and kanban (signboard, card, chit,

e-signal, message, etc.) constitutes an essential element in maintaining this pull

system.

• Jidoka or Autonomation (Intelligent Automation) aims to prevent defective items

being passed onto next workstation. Humans make mistakes. But machines can be

designed to eliminate many of them.Devices namely Poka yoke (fool-proofing) are

mounted on machines for automatic shut-off and to notify the supervisor when either

the machine has completed its task or something abnormal (breakdown, defect

production, tool ware-out,etc.) has happened in the production process. With this

system, in a single worker can supervise as many as 20-30 machines simultaneously.

These devices are used both in component production as well as in automated

assembly lines.

• In manual assembly (the most common mode) lines, every worker has the right

(and also obligation) to stop the production line when a problem is identified or even

suspected at his workstation. This helps fixing the problem at the source before a

defective is produced. Visual controls aid Jidoka (Target v/s actual production,

Yellow light to call for help, and Red light for line stop)

Foundation of TPS House is built with Heijunka, Standardization of components and

work methods, and Kaizen.

• Heijunka - Consistency in volume, variety and sequence of items produced in a

given time period (say, daily). In other words, a leveled production schedule for a

mix of products so that each product is available in some quantity all the time

• Standardization of components and methods - Use of value analysis, method study

and work measurement help to arrive at best design of products and work

procedures which are standardized, so that every workers’ job is done in a

consistent and repeatable manner, and in tune with takt time

• Kaizen implies Continuous improvement effort. Everyone in the company

constantly strives to improve the system through his/her effort to eliminate Muri

(anything excess than necessary), Muda (any type of waste) and Mura (any

unevenness).Muda (non-value added) exists everywhere and the customer is not

willing to pay for it. Kaizen aims to eliminate all types of wastes (eg. transport,

inventory, motion, waiting, overproduction, over processing and defects, etc.).

This calls for questioning all the assumptions behind the present way of

processing and striving to perfect them

Stability - The Philosophy (the Guiding principles) that has provided the much needed

stability to TPS is two pronged.

• Continuous improvement: (i) Being aware of the challenges to realize long-term

vision (ii) Kaizen through constant innovations and (iii) Going to the workplace

(Genchi Genbutsu) to see the facts for oneself and make right decisions and create

consensus

• Respect for people: (i) taking responsibility for other people in reaching

their objectives, and to build mutual trust (ii) Develop individuals through team

approach to problem solving

How Pull method of material flow works?

The concepts of JIT and Jidoka developed during 1930s got dismantled due to WW-II.

Demand for goods in Japan’s post-war economy were low and the concept of economies

of scale through mass production (as was in the case of Ford Motors) had little relevance.

Following the WW-II, Taiichi Ohno, the then Ex-VP of Toyota revived, refined and

rigorously implemented the concepts of JIT and Jidoka. Ohno, having visited the

American supermarkets, observed that shelves are refilled as items are withdrawn

(pulled) by customers. He realized that production scheduling can be better, if done in the

way as the shelves are refilled in the supermarket, especially when overproduction was

not desirable. Thus the concept of Pull came into being in production areas. In a pull

system, a very small amount of inventory buffer is maintained between any two work

stations for lead time usage at successor work station, or to cushion against any irregular

supply. The worker at the next work station goes back to the previous station and takes

only that many parts which he needs for then. The worker at the previous station now

produces the exact number of parts for replenishing those that were taken away the next

station’s worker. Thus the previous station’s worker produced almost Just-In-Time when

the part was needed by the next workstation. If the output is not taken, the previous

station’s worker simply stops producing. He does not produce unnecessarily, i.e, neither

over- nor under-production. Necessary quantity’ is not defined by the MPS, but by shop-

floor demands.

Conceptually, customer is linked to assembly to fabrication to suppliers with series of

pull loops. As pull signals flow in one direction, product flows in the opposite direction.

Each operation that uses pull within the company becomes customer and supplier

respectively to its previous and next operations.

PUSH system PULL System

Production: Approximate Production: Accurate and Precise

Anticipated Usages Actual Usages

Large lots production Small lot production

High inventories Low inventories

Lot of waste, a lesser concern Elimination of waste, a serious concern

Management by firefight Management by sight

Poor communication Better communication

To work with smaller buffer inventories, the manufacturing system must be very

responsive and flexible, demand for end-products should be stabilized, concern to quality

should be utmost, and suppliers’ responsiveness is a must. Japanese (to be specific,

Toyota) discovered that if they wanted to make their manufacturing system responsive,

they needed to cut lot sizes (relating to both production and procurement)

Small Lot Size

But cutting lot sizes call for frequent change-over of setups (or orders) and result in

higher set-up (or ordering) costs. This conflict between carrying and set-up (or ordering)

costs is resolved by classical Economic lot size (or EOQ) approach by the Western

industry.Before Japanese (especially, Toyota) questioned, the set-up time (or ordering

cost) was taken for granted as unalterable. They strived very hard to drive down the

change-over (or purchase order) costs- We will discuss how Japanese did it later. This

enabled a significant reduction in lot sizes, and set the JIT into motion.

When lot size drops all the way to one-piece-at-a-time (however, any reduction in lot size

would be helpful) the scrap and quality improvements are maximum. If a worker makes

only one part and passes it to the next worker immediately, the first worker soon hears if

the part does not fit in any of the next stations. Thus defects are discovered quickly and

their sources can be attacked before the next part is produced. Greater quality and less

scrap or rework saves material, rework-labour and time, etc. improving productivity. If

parts are made and moved in large lots, by the time the next workstation finds a defective,

several defectives could already be present in the lot. Hence less quality and more scrap.

The first worker who quickly learns about the effect of his workmanship will naturally

become motivated to improve. Worker’s awareness of defect causation is heightened.

This awareness of problems and their causes aid the workers, supervisors, engineers to

generate ideas for:

• Controlling defects

• Improving JIT delivery performance (say, handling delays)

• Cutting setup time which helps reduction in lot size further

Often, even when lot size is reduced drastically, still some buffer inventory is maintained

between workstations to cushion the irregularities in the part-feeder processes. Japanese

do not accept the buffer principle as they think buffer inventory hides all flow- and

quality-related problems. Instead of adding it at the point of irregularities, they

deliberately remove it to expose the work force to consequences. In response, workers

and supervisors rally to root out the causes of irregularity at its source so that it won’t

recur. Each time the cause of irregularity is corrected, the Japanese production managers

remove some more buffer stock. Workers are never allowed to settle into a comfortable

pattern. Rather the pattern becomes one of continually perfecting the production process.

Reduction in buffer, greater awareness of problem areas and correction lead to smoother

output rates.

The way MURI, MUDA and MURA (very popular in Japan for their significance and

symbolic brevity) are attacked can be seen in the above JIT cause-effect chain. MURI:

Means Excess (Eg. Producing in large lot -EOQ- when it can be reduced to one-piece).

MUDA: Means Waste (Eg. Production of even one defective item is a waste, let alone %

defectives).MURA: Means Unevenness (Eg. Buffer stock implies unevenness in

production flow is accepted. The rational approach is to reduce buffer and expose the

systems to variability, and then deal with it)

Quick Setups:

Several processes defy production in small lots. Large setups can be as long as a day or

more. Hence, companies are reluctant to change setup before they produce the part in a

big lot from the setup made. On the other hand, having several dedicated lines for each

part may be expensive. Hence, engineers at Toyota worked to simplify and quicken the

die changing process. Shigeo Shingo, a consultant hired by Ohno was able to reduce the

setup time of a 1000-ton press from 6 hours to 3 minutes using the concept of SMED

Seven steps to SMED

1. Observe the current method of changeover

2. Separate the INTERNAL and EXTERNAL activities: Internal activities are those that

can only be performed when the process is stopped, while External activities can be

done when the operation is on. For example, fetch tools for next operation before the

machine stops, setup of fixture, centering dies

3. Convert (where possible) Internal activities into External ones : Eg. pre-heating of dies

4. Streamline the remaining internal activities - Simplifying/ eliminating adjustments,

coding settings, standardizing tools and materials, using quick locating and clamping

devices, guides/rails to move heavy dies, simplified tools, etc. Shigeo Shingo rightly

observed that it's only the last turn of a bolt that tightens it - the rest is just movement.

Apply motion and time study principles

5. Streamline the External activities, so that they are of a similar scale to the Internal ones

- properly organizing work place, locating items near to the point of use, keeping

machines, tools and dies in good condition

6. Document the new procedure and actions so that they are repeatable. Videotaping the

process of setup with each improvement

7. Do it all again: Train the operators, add more people if needed. Practice and perfect.

For each iteration of the above process, a 45% improvement in set-up times should be

expected, so it may take several iterations to be less than ten minute time

The aim is for Single digit setup time (less than 10 minutes), and then One-touch setup.

This can be done through better planning, process redesign, and product redesign.

To achieve smooth flow in lean system, many fundamental elements such as small lots,

flexible resources (people, machinery, layout), high quality, Jidoka, kanban, standardized

components and work methods, automated production must be in place.

Further to sustain the pull created in lean system, elements such as leveled production,

kaizen, close supplier ties, lean culture are needed

Flexible resources:

Flexible resources allow the system to more readily adapt to unanticipated changes in

demand.Flexibility comes from Cellular layouts, Flexible machinery, and Multifunctional

workers. Equipment and routines are organized to enable each operator to simultaneously

handle multiple machines. Use of limit switches, jigs and fixtures, special tools, fool-

proof devices, quickly changeable tools and dies, etc. with the machines enabled each

worker in Toyota to handle as many as 17 machines (on an average of 5-10 machines)

Cellular Layout:The concept was pioneered by an US engineer in 1920s. But Ohno’s

inspired application not only improved flexibility but also greatly improved system

effectiveness. A cell is a group of dissimilar machines arranged to process a family of

parts with similar processing requirements. Work is moved within the cell ideally one

unit at a time from one process to the next by a worker as he or she walks around the cell

in a prescribed path. Cell layouts are usually L or U shaped resembling a mini assembly

line. Cellular layouts, especially U-shaped cells, are commonly used in lean

manufacturing environments to create workplace efficiency and flexibility. These layouts

ensure the shortest part movement distance, allow for sharing of work, provide a

foundation for one piece flow, and reduce the amount of floor space required. The teams

in cells are motivated and highly productive. The cycle time in a cell is determined by the

time the worker takes to complete his path through the cell attending to various machines

. Hence, regardless of the variety of parts being produced in a cell the operator cycle time

remains constant (as worker’s path remains the same). The operator cycle time is to be

synchronized with takt time (Takt time is the rate at which the production should take

place, which of course is matched with the rate of customer demand).Changes in takt

time (or production volume) can be affected by adding or subtracting the workers in the

cell or modifying their paths in the cell

Due to similarity of parts produced in a cell, setup changeover requirements are less, and

hence lot sizes that move downstream can be reduced

Flexible machinery: GPMs (rather than commercially available SPMs) are used with

necessary modification to suit the requirement. Often firms use their own tool makers to

build the needed machines. Such machines may be special purpose, light weight, easily

movable and low cost too. Eg. Small presses. The machines built in-house may also be fit

with necessary fixtures and dies so that there are no settings or adjustments

Multifunctional Workforce: Pull system runs only the parts that are needed, thus freeing a

good amount of time for constructive activities that will make the job and working

conditions better. The shut down time is be spent on activities such as Preventive

maintenance, Quality improvements, House-keeping, Training, and Continuous

improvement.Job allotment to operators changes frequently (may be every week); so

every operator is required to master multiple jobs. The flexibility available with resources

facilitates the Pull system.

Consistent High Quality:

High quality is a must for lean systems to operate, because there is no extra inventory to

buffer against defectives. The system neither has any scope nor provide any room for

scrap or rework.Smaller lot - Increases awareness and early detection of quality

problems. Unquality can be quickly detected when a worker inspects the first and last

pieces of a smaller batch, or makes a piece and uses it too for further operation. The

source of problems can be traced and remedied before producing many defectives.

Philosophy - Do it Right at the First time, and Every time

Visual Control:Quality problems are made visible. Visible instruction for workers and

machine action and a direct feedback on the results of that action. Examples of visual

control include: kanban, tool boards, andons; process control charts, standard operation

sheets; machines and stock points painted in different colours; clearly marked material

handling routes; demonstration and instructional stands near machines; display of quality

performance and awards; and on-going quality improvement projects.

Jidoka (Work/Line Stop): Jidoka is one of the two pillars of the Toyota Production

System along with just-in-time. Jidoka is enabling machines and authorizing operators to

stop work or production line when they detect or suspect any abnormality in the work

centre or system. This enables operations to build-in quality at each process and to

separate men and machines for more efficient work. Ohno believed that ‘Never passing-

on’ a defective part to the next station is the key for ‘zero defects’. For this to happen: (i)

All equipment are fitted with fool-proofing devices called poka-yoke and (ii) workers (i.e

champions of quality) are assigned this responsibility and are given the appropriate

authority (Jidoka). Whenever there is abnormality in the functioning of an equipment

such as tool ware, chip clog, etc resulting in unquality product production, the poka yoke

senses it and stops the equipment. It can also stop production when the required quantity

is produced. Flash lights (called Andons) are located at each work station and on Andon

boards that could be viewed from anywhere in the plant. Andon boards display (LED) the

daily target, actual achievement, serial numbers of work stations (yellow and red rows),

etc. Whenever, a worker encounters a problem or even suspects one, he acts

(pressing a button/pulling a cord/thread, etc) which cause his workstation’s number to

flash on andon boards. Green light for normal operation, Yellow for calling help and Red

for line stoppage. A flashing andon quickly summons supervisor, maintenance people,

engineers and even co-workers to solve the problem at its root-level.Jidoka is sometimes

called autonomation, meaning “automation with human intelligence” . In fact, the

production system is scheduled for less than its capacity to allow for such stoppages. All

Jidoka drills are recorded and solutions for these problems are deliberated during the time

remaining after production

Kanban:

The use of kanbans enable exercising

greater control over the pull process

in the shop floor. Kanban means

‘Card’ (signaling card). A kanban is

attached to container that moves

back and forth between the source

and destination stations. There is

exactly one kanban per container. Containers for each specific part are standardized, and

they are always filled with the same (ideally, small) quantity. Kanban card contains

information such as

Card number, Part number, Part name, Brief description of the part, Container type and

Capacity, Preceding (where it comes from) and Succeeding stations (where it goes to),

etc.

If the kanban is to move between supplier and customer companies, then additional

information such as supplier code, supplier name, number of trips/day, dock where the

goods are to be delivered, Group code, Route detail, etc, is indicated. The information on

kanban does not change. Kanban does not make the schedule of production. They only

authorize the production or withdrawal of goods. Most sophisticated is Dual kanban

system:

Production kanban: authorizes production of goods (container quantity) and

Withdrawal kanban: authorizes withdrawal of movement of container full of goods

No parts are made unless

there is a production

kanban to authorize

production. If no

production kanban are in

the “in box” at a work

center, the process remains

idle, and workers

perform other assigned

activities. This rule enforces the “pull” nature of

the process control. When the processes are closely and tightly linked other types of

kanbans such as Kanban square area, Kanban rack, a

flashing light, electronic or verbal message are used. Signal Kanbans are used when

inventory between the processes is still necessary.

Supplier kanban: The supplier brings the ordered material directly to the point of use and

then picks up the empty container with kanban (if any) to fill and return later. If there are

more suppliers and large number of kanbans, then kanban mailbox can also be used. The

number of kanbans required to control production of an item can be calculated by:

No. of kanbans = (Ave. demand during lead time + safety stock)/ Container size

Problem 1. Masaru fills, caps and labels syrup bottles. He is to process an average of 160

bottles per hour through his cell. Every container attached with a kanban holds 10 bottles.

It takes 30 minutes to receive new bottles from the previous cell. The factory uses a safety

stock factor of 10%. How many kanbans should circulate between these cells Solution: N

= [(160 x 0.5) + 8] / 10 = 8.8 Kanbans

Having 8 containers would result in lesser inventory at the cell and exposes problems in

the cell, thus forcing the cell to improve its processes.

Standardized Components and Work methods:

Use of standardized component parts and methods of operation are encouraged. They

reduce the non-value adding design elements and process elements to a minimum, and

improve the consistency and efficiency in operations. The applications of value analysis

and work-study techniques are widely seen in this effort.

Standardized Work: The Toyota Production System organizes all jobs around human

motion and creates an efficient production sequence without any "Muda." Work

organized in such a way is called standardized work. It consists of three elements:

1. Takt-Time

2. Working Sequence and

3. Standard In-Process Stock

Standardized work will define the most efficient methods to produce product using

available equipment, people and materials. It depicts the key process points, operator

procedures, production sequence, safety issues, and quality checks.

Automated Production:

Effective lean production systems use both manual and automated processes - the task is

to determine the appropriate type of automation. The process industries are ultimate in

efficiency and productivity due to the: (i) continuous flow of products (gases, liquids,

paint, pallets, powder, petrochemicals, steel, etc) in the system; (ii) high degree of 95

automation managed by a network of computers and (iii) minimum human

inconsistencies.

The output in nonprocess industries is discrete units which (unlike the stuff that flows)

can be produced, prioritized, inspected, counted, stored, etc. The production and

assembly system are generally labour intensive, often forced to use buffer inventory

between stations, and subject to human inconsistencies, all contributing to its lesser

efficiency.It is the intention of lean management approach to make discrete unit

production (not only assembly stage but also all fabrication and subassembly stages) into

a continuous flow production system, i.e., much like continuous processing in process

industry. This, often requires the discrete unit production shops to move stage-by-stage

through various plant configurations (before becoming continuous flow/repetitive

production system.) These stages are (stages may also be skipped):

• Job-shop fabrication

• Dedicated production line

• Physically merged production processes

• Mixed-model processing

• Automated production lines

Automated dedicated assembly lines may be common (eg. automobile body welding).

But, automated mixed model assembly line, automated subassembly and fabrication

shops/cells are not. Japanese extensively use psuedo-robots (less flexible-pick and place

type) that aid a lot when the buffer between the work stations is being reduced.

When all efficiency improvement aid are provided to the worker, but he still is unable to

cope with problems, best option is to automate a part of his work.However, mixed model

production calls for flexible robots which can be programmed to change parameters

depending upon the next model.CAD/CAM compress planning lead time so that the

product quickly gets ready for manufacture. Robots and automated machine tools quickly

make consistently good quality products, with no buffer or waste thus compressing

manufacturing lead time. Automatic quality control (poka yoke) is an aid towards JIT

system

Uniform Workstation Loads (heijunka):

The flow of production created by pull system, kanban, small lots of high quality, flexible

resources and jidoka can be maintained only if the production is relatively steady. Hence,

there is a need to smoothen the production requirement at the final assembly. Otherwise,

kanbans of some parts will circulate very quickly at some times and very slowly at others.

Variations of ± 10% is can be absorbed.

How to reduce variability?

1. More accurate forecasts to guard against unexpected demand

• Sales division (eg. Toyota) conducts a survey twice a year

• Monthly production schedules are developed 2 months in advance

• Review plans 1 month in advance and again 10 days in advance

• Daily production are finalized 4 days in advance (Freeze windows) of actual

production(by then orders from dealers are firm)

• Changes in model mix can be communicated to the assembly line just the previous

evening. Kanbans will take care this change in the rest of the system

2. Level the demand across planning horizon:

• Demand is divided into small increments of time and spread out as evenly as

possible so that same amount of each item is produced each day and

• The item production is mixed throughout the day in very small quantities. Produce

roughly the same mix of products each day, using a repeating sequence

• Daily production is arranged in the same ratio as monthly demand and jobs are

distributed as evenly as possible across a day’s schedule

• At least some quantity of every item is produced daily and some quantity is

always available to meet variation in demand. Meet demand fluctuations through

end item inventory rather than through fluctuations in production level

Problem 2. SMS automobile company makes cars, SUVs and vans on a single assembly

line. December’s forecast is for 220 vehicles. SUVs sell at twice the rate of cars and

thrice that of vans. Assuming 20 working days in the month, how should the vehicles be

produced to have smoother production?

Solution:

Daily breakdown = 220/20 = 11 vehicles

Daily sequence (batched): S S S S S S C C C

V V Daily sequence (Mixed): S C S V S C S

V S C S

Continuous Improvement (Kaizen):

Kaizen – Change for the Better or Continuous improvement. It is associated with, among

others:

- Improve quality of product/service

- Eliminating waste (Muda)

- Improving process efficiency and effectiveness

- Improving morale of employees

Quality is everybody’s responsibility, not just of QC dept. Every employee at every level

participates and contributes ideas to improve the processes and environment. Workers

voluntarily spot quality problems, stop operation if needed, trace the source of unquality,

get together to analyze processes and generate ideas for improvement and adjust their

working routines(Upward communication). Kaizen can be better achieved by finding root

causes of problems. To find root cause of a problem – Ask WHYs until the underlying

cause is identified

Anticipate/identify the problem, analyze the root causes, develop alternative solutions,

choose the best one, measure the work content, standardize the method and monitor

adherence to it. The knowledge of industrial engineering (method study, work

measurement, value analysis, Quality management tools, etc) is very helpful in bringing

about kaizen. Conceptually kaizen focuses on small but continuous improvements. Easy

to implement, Not a big change for people to resist, People enjoy the implementation as it

is their ideas. Kaizen relies on the human resource rather than capital investments.

Continuous improvement process will make sure the system is always getting updated

Close Supplier Ties :

Lean Supplying :Suppliers’ support is essential for the success of lean. Suppliers need to

be not just reliable, but synchronized with their customers requirement too. Strong long-

term working relationships with a select group of suppliers located close-by to the

customer would enable delivering in smaller quantities several times a

day. 98

1. Long-term supply contracts (typically 3-5years or life of the product): Suppliers

are chosen based on their ability to meet delivery schedules with high quality and

reasonable cost, and willingness to adapt to customer’s requirement

2. Synchronized production: With longer-term contracts suppliers can focus on fewer

customers. Guaranteed steady demand allows supplier’ production system to

synchronize with that of customer. Customer may also provide engineering and

quality management help

3. Supplier certification: Several stages - Supplier’s products, production facilities,

quality systems, logistic resources are examined by the customer. Statistics of each

shipment are checked. After about 6 months of no problems, the supplier is

certified. Only then the goods from the supplier is considered for exemption from

incoming quality inspection. However, any cost of line stop/product recall due to

defective supply may also be recovered from supplier

4. Mixed loads and frequent deliveries: Smaller quantities of variety of goods from

several suppliers makeup a truck load and are delivered directly at the point of use

in customer’s plant, several times a day. Several suppliers share local warehouses.

Precise delivery schedules are drawn and adhered to

5. Standardized, sequenced delivery: Using standardized containers, and exchanging

filled ones with empty ones speeds up the delivery. If deliveries are made directly

to the assembly line, they are sequenced in the order of assembly

6. Locating in close proximity to the customer: For frequent deliveries, the suppliers

need to be closer to the customer. If the distance prohibits daily delivery, suppliers

may establish small warehouses near to the customer, which they may also share

with other suppliers. These warehouses can also serve as load switching points for

JIT deliveries to different customers

7. Close relationships b/w buyers and suppliers' QC people. Suppliers helped to meet

quality requirement

Suppliers with stringent quality standards could forego incoming inspection and goods

could be delivered right at the assembly line even without being counted, inspected,

tagged or stacked. Suppliers encouraged to package in exact quantities. No overage or

underage is acceptable. Suppliers who try to meet the increasing demands of lean 99

customer without being themselves would have to overrun with inventory, very high

production and distribution costs. Suppliers are encouraged to reduce their production lot

sizes

Lean Purchasing: Japanese JIT buyers rely more on performance specifications and less

on design specifications, giving more room for supplier to innovate. Delay due to spec-

clarification is avoided. Japanese JIT purchase agreements involve minimum paper work,

and may specify (in addition to price and specifications) an overall quantity to be

delivered during a period of several months. Purchase agreement specifies that delivery is

to be made either as per the long-term production schedule or release of kanban (which

may be directly from work centre to supplier). Quantities to be delivered may vary from

delivery to delivery, but fixed for whole contract term

Preventive Maintenance and TPM:

Machines need maintenance. Maintenance is undertaken,

(i) when a machine breaks down (Breakdown maintenance): Breakdown can be very

expensive due to lost production, idle workers and supervisors, damaged tools and

products, missed deadlines, accidents, etc. Often, cost of up-keeping a broken down

machine is much higher than preventing the breakdown.

(ii) at predetermined times to prevent equipment from breaking down (Preventive

maintenance): The history of failures of a machine (type, frequency, time b/w failures,

repair time, cost, etc) can be used to mathematically workout a preventive

maintenance schedule. PM includes keeping records on each machine’s usage, careful

analysis to determine the frequency and schedule of PM, case reports after PM, etc.

But in spite of the PM, breakdown cannot fully prevented. Hence, what Lean system

needs is Total Productive Maintenance (TPM).

TPM is a combination of preventive maintenance and TQC (worker empowerment, zero

defects, QC tools, etc). TPM requires management to take a broader and strategic view of

maintenance activities. Workers take daily care of their machines and the work

environment. They clean, oil and grease their machines, adjust the settings, do minor

repair, collect and interpret the maintenance and operating data, etc.

As a part of TPM, 5–S approach is also widely used.

The S Goal Eliminate or Correct

SEIRI (Sort) Keep only what you Unwanted tools, inventory, supplies,

need parts, fixtures, displays, items blocking

aisles, stacked in corners, etc

SEITON (Set A place for Non-availability of an item when needed,

in order) everything and unsafe environment, pre-positioning tools

everything in its

place

SEISO (Shine Cleaning and looking Floors, walls, stairs, equipment, tool

for ways to keep clean trays, display boards, tools and materials

and organized

SEIKETSU Maintaining and Unavailable information, check-lists,

(Standardize monitoring the first standards, prescribed limits

three

S’s

SHISUKE Sticking to the rules Number of workers without 5-S training,

(Sustain) inability to locate anything within 30

seconds, Number of 5-S inspections not

performed

The Benefits of Lean Production:

Lean provides a wide range of benefits such as:

• Reduced inventory

• Improved quality

• Lower costs

• Reduced space requirements

• Shorter lead times

• Increased productivity

• Greater flexibility

• Better relations with suppliers

Simplified scheduling and controlling activities

• Increased capacity

• Better use of human resources

• More product variety

Limitations of Lean:

• Not appropriate for all types of organizations

• Companies with high variability of demand (takt time breaks down), large variety

of lowvolume products (too many kanbans) or custom-engineered products (no

kanbans) find serious deficiencies in this approach.

• Lean gets derailed when unexpected changes in demand or supply occur (eg. Fire,

strike, natural calamities, etc. at supplier’s place)

• Hence, companies should assess risk and uncertainty in their businesses and adapt

lean practices accordingly

operation management · 2017. 12. 30. · operation management operation management semester – 8...

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