Production ConceptsProduction Concepts

Let’s assume we are a manufacturer of bicycles

What do we need to make a bicycle?

For example, to build this For example, to build this bicycle (an assembly), we bicycle (an assembly), we need:need:

Seat

For example, to build this For example, to build this bicycle (an assembly), we bicycle (an assembly), we need:need:

Seat Frame

For example, to build this For example, to build this bicycle (an assembly), we bicycle (an assembly), we need:need:

Seat Frame Handle Bars

For example, to build this For example, to build this bicycle (an assembly), we bicycle (an assembly), we need:need:

Seat Frame Handle Bars

Brakes

For example, to build this For example, to build this bicycle (an assembly), we bicycle (an assembly), we need:need:

Seat Frame Handle Bars

Wheels (2)

Brakes

For example, to build this For example, to build this bicycle (an assembly), we bicycle (an assembly), we need:need:

Seat Frame Handle Bars

Wheels (2)

Brakes

Tires (2)

For example, to build this For example, to build this bicycle (an assembly), we bicycle (an assembly), we need:need:

Seat Frame Handle Bars

Wheels (2)

Brakes

Tires (2)

Pedal Assembly

For example, to build this For example, to build this bicycle (an assembly), we bicycle (an assembly), we need:need:

Seat Frame Handle Bars

Wheels (2)

Brakes

Tires (2)

Pedal Assembly

Chain

For exampleFor example

Seat Frame Handle Bars

Wheels (2)

Brakes

Tires (2)

Pedal Assembly

Chain

Gear Assembly

Bills of MaterialsBills of Materialsbill of materials (BOM) - the

term used to describe the "parts list" of components needed to build another assembled item or part.

SO, my BOM for this SO, my BOM for this bicycle is:bicycle is:

Seat Frame Handle Bars

Wheels (2)

Brakes

Tires (2)

Pedal Assembly

Chain

Gear Assembly

SO, my BOM for this SO, my BOM for this bicycle is:bicycle is:

Seat Frame Handle Bars

Wheels (2)

Brakes

Tires (2)

Pedal Assembly

Chain

Gear Assembly

PART How Many

Bicycle 1

•Seat 1•Frame 1•Handle Bars 1•Brakes 2•Wheels2•Tires 2•Pedal Assembly1•Chain 1•Gear Assembly1

But, two of the parts in this But, two of the parts in this list are assemblies too:list are assemblies too:

Seat Frame Handle Bars

Wheels (2)

Brakes

Tires (2)

Pedal Assembly

Chain

Gear Assembly

So, I have actually created 3 bills of materials So, I have actually created 3 bills of materials (BOMs)(BOMs)

Part How Many

Bicycle 1

• Seat 1• Frame 1• Handle Bars 1• Brakes 2• Wheels 2• Tires 2• Pedal Assembly1• Chain

1• Gear Assembly 1

With this BOM, building 2 bicycles would With this BOM, building 2 bicycles would require:require:

Sub-assembly

Sub-assembly

With this BOM, building 1000 bicycles would With this BOM, building 1000 bicycles would require:require:

Now, consider the factory Now, consider the factory where we build the bicycleswhere we build the bicycles

Receiving Dock

Inventory Storeroom

General Assembly AreaShipping

Dock

Pedal Assembly

Area

Wheel Assembly

Area

RimsPedals

Seats

SpokesBrakes

Chains

Frames

Wheels

H.B.

Red denotes purchased inventory, Black denotes manufactured inventory

Purchased inventory is Purchased inventory is received at the receiving received at the receiving dock:dock:Receiving

DockInventory Storeroom

General Assembly AreaShipping

Dock

Pedal Assembly

Area

Wheel Assembly

Area

RimsPedals

Seats

SpokesBrakes

Chains

Frames

Wheels

H.B.

Red denotes purchased inventory, Black denotes manufactured inventory

Sub-assemblies need to be manufactured Sub-assemblies need to be manufactured before we begin manufacturing the bicyclebefore we begin manufacturing the bicycle

Receiving Dock

Inventory Storeroom

General Assembly AreaShipping

Dock

Pedal Assembly

Area

Wheel Assembly

Area

RimsPedals

Seats

SpokesBrakes

Chains

Frames

Wheels

H.B.

Red denotes purchased inventory, Black denotes manufactured inventory

Lead TimeLead TimeFor manufactured items, lead time is the period of time between the initiation of any process of production and the completion of that process.

For vendor supplied items, lead time is the period of time between placing the order and its receipt.

Let’s make a bicycle!Let’s make a bicycle!Let’s assume: ◦bicycle lead time = 7 days◦wheel assembly lead time = 4 days◦pedal assembly lead time = 6 days◦rim order lead time = 14 days◦spokes order lead time = 20 days

Need the bicycle by November 30

Here is the processHere is the process Shop order is placed for a bicycle to be finished by November 30. Since lead time for the bicycle is 7 days, we need to begin the

manufacturing process for the bicycle by November 23.

October (timeline) November 31 5 10 15 20 25 30

Bicycle

Here is the processHere is the process Shop order is placed for a bicycle to be finished by November 30. Since lead time for the bicycle is 7 days, we need to begin the

manufacturing process for the bicycle by November 23. Of course, all parts in the BOM need to be available as we start the

process.

October (timeline) November 31 5 10 15 20 25 30

Wheels Bicycle

Here is the processHere is the process Shop order is placed for a bicycle to be finished by November 30. Since lead time for the bicycle is 7 days, we need to begin the

manufacturing process for the bicycle by November 23. Of course, all parts in the BOM need to be available as we start the

process. To insure we have the wheels available on November 23, we need

to create a shop order for the wheels on Nov. 17 since its lead time is 6 days.

October (timeline) November 31 5 10 15 20 25 30

Wheels Bicycle

Here is the processHere is the process Shop order is placed for a bicycle to be finished by November 30. Since lead time for the bicycle is 7 days, we need to begin the

manufacturing process for the bicycle by November 23. Of course, all parts in the BOM need to be available as we start the

process. To insure we have the wheels available on November 23, we need

to create a shop order for the wheels on Nov. 17 since its lead time is 6 days.

To insure we have the pedal assembly available on November 23, we need to create a shop order for the assembly on Nov. 19 since it has a lead time of 4 days.

October (timeline) November 31 5 10 15 20 25 30

Wheels BicyclePed A

Here is the processHere is the process Shop order is placed for a bicycle to be finished by November 30. Since lead time for the bicycle is 7 days, we need to begin the

manufacturing process for the bicycle by November 23. Of course, all parts in the BOM need to be available as we start the

process. To insure we have the wheels available on November 23, we need

to create a shop order for the wheels on Nov. 17 since its lead time is 6 days.

To insure we have the pedal assembly available on November 23, we need to create a shop order for the assembly on Nov. 19 since it has a lead time of 4 days.

To insure we have the spokes before we build the wheel, we need to place an order with the vendor on Oct. 31 since it has a lead time of 20 days.

October (timeline) November 31 5 10 15 20 25 30

Ped ASpokes Wheels Bicycle

Here is the processHere is the process Shop order is placed for a bicycle to be finished by November 30. Since lead time for the bicycle is 7 days, we need to begin the

manufacturing process for the bicycle by November 23. Of course, all parts in the BOM need to be available as we start the

process. To insure we have the wheels available on November 23, we need to

create a shop order for the wheels on Nov. 17 since its lead time is 6 days.

To insure we have the pedal assembly available on November 23, we need to create a shop order for the assembly on Nov. 19 since it has a lead time of 4 days.

To insure we have the spokes before we build the wheel, we need to place an order with the vendor on Oct. 31 since it has a lead time of 20 days.

To insure we have the Rims before we build the wheel, we need to place an order with the vendor on Nov. 5 since it has a lead time of 14 days.

October (timeline) November 31 5 10 15 20 25 30

Ped ARimsSpokes Wheels Bicycle

Material Requirements PlanningMaterials Requirements Planning

(MRP) is a systematic production planning and inventory management system used to manage manufacturing processes by meeting these three objectives:◦Ensure materials and products are

available for production and delivery to customers.

◦Maintain the lowest possible level of inventory.

◦Plan manufacturing activities, delivery schedules and purchasing activities.

Here is the processHere is the process Shop order is placed for a bicycle to be finished by November 30. Since lead time for the bicycle is 7 days, we need to begin the

manufacturing process for the bicycle by November 23. Of course, all parts in the BOM need to be available as we start the

process. To insure we have the wheels available on November 23, we need to

create a shop order for the wheels on Nov. 17 since its lead time is 6 days.

To insure we have the pedal assembly available on November 23, we need to create a shop order for the assembly on Nov. 19 since it has a lead time of 4 days.

To insure we have the Rims before we build the wheel, we need to place an order with the vendor on Nov. 5 since it has a lead time of 14 days.

To insure we have the spokes before we build the wheel, we need to place an order with the vendor on Oct. 31 since it has a lead time of 20 days.

October (timeline) November 31 5 10 15 20 25 30

Ped ARimsSpokes Wheels Bicycle

So if you tell your MRP system that you need a bicycle produced by

November 30…

Here is the processHere is the process Shop order is placed for a bicycle to be finished by November 30. Since lead time for the bicycle is 7 days, we need to begin the

manufacturing process for the bicycle by November 23. Of course, all parts in the BOM need to be available as we start the

process. To insure we have the wheels available on November 23, we need to

create a shop order for the wheels on Nov. 17 since its lead time is 6 days.

To insure we have the pedal assembly available on November 23, we need to create a shop order for the assembly on Nov. 19 since it has a lead time of 4 days.

To insure we have the rims before we build the wheel, we need to place an order with the vendor on Nov. 5 since it has a lead time of 14 days.

To insure we have the spokes before we build the wheel, we need to place an order with the vendor on Oct. 31 since it has a lead time of 20 days.

October (timeline) November 31 5 10 15 20 25 30

Ped ARimsSpokes Wheels Bicycle

So if you tell your MRP system that you need a bicycle produced by

November 30…It will handle the remaining steps to produce that

bicycle.

Master Production ScheduleThe input to your MRP system is

the Master Production Schedule (MPS).

The MPS is the list of all shop orders for the company’s “end items.”

An “end item” is an item that my company sells that is NOT used in another assembly (for example, the bicycle is an end item.)

It can be quite complicated…Suppose I make two types of

bicycles, one blue and one green. PART How Many

BicycleB1

•Seat 1•FrameB1•Handle Bars 1•Brakes 2•Wheels2•Tires 2•Pedal Assembly1•Chain 1•Gear Assembly1

PART How Many

BicycleG1

•Seat 1•FrameG1•Handle Bars 1•Brakes 2•Wheels2•Tires 2•Pedal Assembly1•Chain 1•Gear Assembly1

Other complicationsWhat my company makes 150 different

types of bicycles?

Other complicationsWhat my company makes 150 different

types of bicycles?What if I’m a manufacturer of automobiles

that have 70-80 levels in their BOMs?

Other complicationsWhat my company makes 150 different

types of bicycles?What if I’m a manufacturer of automobiles

that have 70-80 levels in their BOMs?What about items that have customer

ordered options?

Other complicationsWhat my company makes 150 different

types of bicycles?What if I’m a manufacturer of automobiles

that have 70-80 levels in their BOMs?What about items that have customer

ordered options?What if there are other “end items” that are

not really “end items”? For example, spare parts….

Other complicationsWhat my company makes 150 different types

of bicycles?What if I’m a manufacturer of automobiles

that have 70-80 levels in their BOMs?What about items that have customer ordered

options?What if there are other “end items” that are

not really “end items”? For example, spare parts….

I’m ultimately dependent upon my suppliers for some of the purchased items that are crucial to my production schedule. Wouldn’t it be nice if I could work closely with them to manage our relationship to mutual benefit.?