Chapter 11. MRP and JIT

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1 Chapter 11 MRP and JIT (Material Resources Planning and Just In Time) MRP Even if MRP can be applied among several production environments, it has been chosen here as a preferential tool for the management of diversified production called job shop production. This method is based on master production planning (forecasts and confirmed orders) which is transposed in the operational objectives of this plan which are the Purchase orders for the components or raw materials and the work orders for the resources (men and machines). To compute this method, a lot of basic data is required: - the detailed bill of material of every product; - the furnisher s delay and production lead time for every product; - the routes (resource requirements). Time has been spent before reaching the sufficient computing capacities required to optimise a system with such a philosophy. The result is a noticeable improvement in productivity as the right component arrives at the right time on the right machine operated by the right human resources. Workshop managers do not have anymore to run and look after missing parts and purchasers don not have to follow and pay for urgent orders. Everybody can do his or her own job without stress and with real added value. MRP is a closed loop system. The scheduling (list of jobs and operations achieved within a time limit) is effectively applied after a test of availability. MRP I = first generation = availability of components MRP II = 2 nd generation = availability of components and resources.

2 The input of the system is the master production planning which is based on the forecasts which are transformed in successive steps of production which is called the master production schedule. This transformation is different either if the system only works on confirmed orders or for stock (order anticipation) or a mixed system. In the first case, starting from confirmed orders, usually a few months horizon is taken into account and is transformed into a master production schedule for a few weeks. In the second one, the production forecasts graph curve is smoother with stock which acts as buffers and the master production planning is transformed in a weekly master production schedule. In the third and last case, confirmed orders and forecasts are mixed. In example, if we want to determine the master production schedule in January, we have to take into account the confirmed orders for March and we know that we will have some more which can be estimated with the forecasts. The master production planning will be composed by confirmed orders and forecasts orders which will change their status in time. This will have an impact on the stock of some items as some will be dedicated for confirmed orders and others for forecast orders requiring confirmation. In this case, they could be used in urgent cases System implementation Different functions : - The master production planning must be set-up according to the order-book. Module Master Production Planning - The master production planning must be transformed into components and raw materials gross needs. Module Needs Calculation - Gross needs must be compared with the stock to determine what should be purchased or produced. Module Stock or Inventory Management. - Operations must be scheduled, either for purchase orders or work orders. Module MRP - Production schedule must be compared to the capacity available. Module Capacity or Work Centers Management - Work order must be sent followed. Module Workshop Management

3 Links between these functions Production Objectives Master Production Planning Needs Calculation Materials Scheduling If problem Capacity Scheduling NO Capacities YES Material Scheduling Execution Capacity Scheduling Execution If problem

4 Required data In a computised system, required data is organized into databases allowing automatic up-dates: if one characteristic changes, this modification will be automatically affect every required file. (1) The module master production planning is made of the order-book or the production forecasts and objectives. In example : A factory producing a range of products A, B, C, D requiring respectively 2, 4, 1 and 5 units of production capacity. The production planning can be translated into equivalent production units. January February March April This planning can be transformed in a production schedule for each items during March. Week 1 Week 2 Week 3 Week 4 A B C D Kinds of schedule for product A. Week 1 Week 2 Week 3 Week 4 A (1) A (2) A (3) April Needs Schedule (1) follows the needs (2) is composed of economic lots (i.e. : 60) (3) is following an economic period (i.e. : 3 weeks) Result: A master production schedule for A

5 (2) The module Needs calculation is linked to the bill of material, it means to the structure of every product. If product A is made 2 X and 1 Y and X is a 15 cm long milled piece made from a Gross bar of X. X A 2 1 Y A is a first level product X : first level component Gross X : second level component Gross X Every component must be identified in a unique way and according to its structure. The master production planning of A gives the gross needs for A, X, Y and Gross X. Then, by checking what is available or not in the stocks for every item, it will be possible to determine the net needs. (3) The module inventory or stock management is feed by : - a status giving the information if the item is purchased or manufactured - the stock level for every item - the purchase delay or the production lead time for every item - the different furnishers (with different delays) (4) The module MRP is feed by the need calculation and the purchase delay and production lead time. It can be illustrated as follows: T3 T2 T1 T0 Where : M1 M2 M3 M4 D Time T4 D = order delay T1 = lead time to assemble X and Y to make A T2 = lead time to mill Gross X to get X T3 = delay to get Gross X from the furnisher T4 = delay to get Y from the furnisher To = delay for transport and packaging

6 Starting from D, we can determine the latest moment to take action either to purchase the components or to launch the production up to final assembling. Another way would have be to start all operations as soon as possible and to determine the soonest moment when A can be available. By principle, the latest operation should take place before the expected dead line for distribution, if so there is a problem. In both cases, the output of this system is a list of time and actions either for purchasing or manufacturing. Up to now, we thought it was possible to schedule whenever we want a manufacturing or an assembling operation. In the case of MRP I the result was reached at that step. It was an infinite capacity scheduling. An improvement consisted in taking into account the fact that the capacity is limited (finite capacity scheduling). It means that if the module that estimates the gross requirements show us that it is time to mill pieces from X gross at M2, we have to check that one or several milling machines and one or more operators are available to do the job at M2. (5) The capacity scheduling module He is feed by : - the already planned load; - the maximum load available according to the timetable of each work or process centre; - the capacity required by each job in every work or process centre. Maximum capacity Time 100% 50% Load to schedule Histogram of the scheduled load In the above scheme, we notice that the load to be scheduled cannot be realized before week 3 (at least if we do not want to cut it)

7 (6) Execution of the load schedule and the material schedule Follow-up in the workshop Whatever the production systems or the operations management are, after the launching of the operations and the tasks (which is the last step of the scheduling), it is necessary to check the gaps between what has been planned and what has been realized effectively. It is in the workshop or at the shipyard that the information will be found regarding the execution of what has been scheduled. The most modern system consist in catching in the information system the number of the job, the number of the route, the number of the worker and the beginning and the end of this operation. It allows to check the matching with material planning status and consequently the delay, the lead-time and the costs. It is obvious that the observed gaps have an influence on the global delay of the analysed order and its cost, but also on other ulterior phases of the order or this particular operation itself. A delay in the manufacturing of a component in a system managed by a MRP will influence the starting date of the final assembling in example. Stocks follow-up As well as the execution status of the load planning, the material planning must be followed-up in order to ensure the necessary feed-back. So, the software must be run with a defined frequency to look at the consequences on the expected planning and the gaps in the workshop or in the stock. It will stop the team from doing nothing whilst waiting for a missing component. Such as during the simulation of the software, this component has been shown as an alarm and the assembling schedule cannot be made on time and why. Consequently, the manager will have few options : - delay in assembling, - find another way to buy or to manufacture the component, - change the schedule in order to avoid the delay (extra-hours). The simulation frequency to adjust the scheduling, the way the gaps are treated are the characteristics of the chosen software. It is evident that if you are not in the best situation wherein the gaps cannot be directly found in an integrated system, the principle which consist in evaluating the execution time in the workshop and taking into account the gaps to adapt the scheduling of the next operation is still worthwhile.

8 The reactivity of the system will not be as good, because the manager will be dealing with manual time consuming situation. Moreover, a manual system will not allow you to see all the consequences of a delay or a machine breakdown on everything that has been planned. We will often found ourselves in emergency situations: such as searching for pieces or dealing with all the operational changes with all the added costs that involves.. Example showing the material requirement planning technique. Gearbox Master planning Stock level Crammings Available : 16 units Order to be received : 20 units (week 3) Purchase delay : 5 weeks Economic purchase quantity : 20 units Bill of material Crammings x 2 Master production schedule for purchase Gross needs Available Order launch 20 Order reception 20 20

9 11.3 Evolution of operations management : From Taylor to World Class Manufacturing Introduction Ford and Taylor have given a lot to operations management in order to respond to an explosion of the needs in a world economy wherein demand was bigger than supply. Their growing productivity was sufficient to face demand which was continuously on the increase, in order to improve the average standard of living. The other side of the coin was for a lot of people, monotonous and repetitive task in which the global purpose was difficult to find. Charlie Chaplin in his film called Modern Times splendidly portrayed the excess of this scientific operations management. What were the characteristics of this kind of organisation? The words specialization and work division are those which characterize the contribution of Ford and Taylor in the best way. At that time, beginning of the 20 th century, only unqualified workforces were available. Factories had to train workers in a few simple repetitive tasks, leading to a production process based on a line design. Research and design, technical and administrative activities were centralized. Methods office was forwarding precise work orders. As the economic and social situation has changed, mainly from a system were what was produced was sold to a situation where it was not possible to sell what had been produced. The supply was bigger than demand. The power had changed from producer to customer. Competition has become tough, quality requirements as well Moreover, simple and repetitive tasks began to be automated. Technical progress had allowed this automation and the increase in labour costs has made it desirable and cost effective. Consequently, many parameters have converged : - automation - increase of flexibility constraints, costs on production quality - education level and so workers wishes

10 It leads to new kinds of organisations : Work enrichment Aggregation of coherent activities were implemented : instead of a big factory manufacturing a wide range of products, an accumulation of standalone profit centres or business units manufacturing each a defined range of products. It implied that some technical or management functions had to be decentralized. Notions of internal customers, customer-supplier relationships between teams located upstream and downstream appeared Total quality management (TQM) Quality is a competitive advantage. Quality is no more seen as only a function of quality control at the end of the line of production, but as a process which leads to enhancing all the factory departments: from the receipt of the raw materials and components, through the production steps and administrative procedures, delay respect, norms and specifications, afters sales service, documentation, etc. (Confer Chapter 13) Just in Time (JIT) JIT is an operations management philosophy which is based on delay reduction in every part of the production in order to reach the optimal results. These will be reached if the system gives to each operator, at every step of the process, every component or tool that it needs at the right time and place. The operational result is a reduction of the semi-finished products, inventories of raw materials or components and finished products and a shorter delays. This stock reduction allows financial economies on the invested capital and also on stock handling and stock management. To illustrate these results, just think about an automotive assembly-line. In the past, there were a stock of seats wherein seats were picked up according to the customer s order established two months earlier in the dealer s office.

11 Now, the car which is ordered by the dealer on the day X is entering the assembly-line on day X The bar code which identifies it, is read and the order for the required seat is send to the seat supplier which is located a few kilometres from the factory. This supplier has got a few hours to dressed the seat, to transport it and carry it close to the assembly-line where it should be assembled. There is only a limited stock of seats, but there is a continuous flow of trucks between the supplier and the automotive factory. We can imagine what the consequences are, if anything happens in such a scenario: a strike in the transport field can directly stop the factory activities, but also a few defective seats can disorganize the whole chain, as well as being in advance or too late in the assembling planning. So, the link with total quality management seems necessary, as well as inside the chain itself or externally in the supplier s organization. In the end, it is obvious that the suppliers cannot start such a partnership without a warranty of their production level. The reason why JIT is more than an operations management theory is because it includes different aspects such as lead-time reduction, total quality, supply chain integration from the suppliers up to the distributors. Consequently, the aim is to adjust the production time of the good as close as possible to the moment when the need appears. The outcomes are the increase of competitiveness and cost reduction : - the customers needs are more easily met due to the fact they have got the choice in a wider range of products within shorter period. - efficiency, flexibility and maximal productivity - enrichment of industrial work - waste reduction As we have seen, several conditions are required to develop such a concept, short production lead time, strict respect of the quantities, no stand-by or waste of time, no temporary stock between operations, equipment reliability, production quality and multiskilled human resources. Just in time will be possible only if we analyse the lay-out of the factory, if we adapt the tools, if the human resources are educated

12 As we have noticed, JIT is not an operations management method even if it is linked o a concept such as KANBAN. KANBAN is only a scheduling process based on the following concept. In a production sequence, jobs are launched during the phase X according to the needs of the next phase X+1 and so at the end according to the customer s orders or expeditions. This system, KANBAN, is performing for a continuous or regular production for which the lead time has been studied (it means that the an average constant rhythm has been defined and the load of the work centres has been balanced, and so the number of KANBAN cards between two work centres has been fixed). In such a situation, where there are few variations, wherein the short and long terms management functions are performed, KANBAN can achieve to regulate the system by itself. In other situations, KANBAN has to be combined with a long and middle terms planning device. Even if the process is led by the KANBAN inside the workshop, the quantity to be produced (number of cards) and the right time to produce is send by the planning software. Consequently, the system which is often combined with JIT is MRP WCM (World Class Manufacturing) The introduction of these 3 concepts (JIT, TQM and Work Enrichment) in the organisations is an essential cultural change to reach World Class Manufacturing (WCM). This cultural change requires above all the sensitisation and the education of the human resource, a reengineering of the lay-out and methods, an involvement of everybody without immediately requiring huge investments in new technologies. In example, to buy a software to manage the production such as an MRP an to believe that this will give directly an amelioration if you do not have a bill of materials, good sequences of operations, correct lead times, if you do not analyse added value operations and useless ones, if you do not squeeze the supplier s delay and the wastes levels, this will only change the costs. A few years after the introduction of JIT and TQM, the Japanese concept of KAIZEN or permanent progress appeared in Europe. This principle is that everybody must continually improve his regular job. The basic idea is that even if the conception of the product is of a good quality, the added value comes also during the production in the workshop and that many improvements can comes there.

13 Consequently, the people who are daily performing the production process are really the best ones to make proposals. It is possible for more complex situations to set-up quality circles or reflection groups. The management must be completely involved during this phase and evaluated on their ability to motivate people to improve the process or on the way they are leading a meeting group. Proposals have to be realized. To do so, decentralized means are needed : budget, technical means, sub-contracting, The OPT method Optimized Production Technology It is worth mentioning the OPT method even though it is rarely used. This Optimized Production Technology method consist in distinguish the critical resources (bottle neck) from non-critical ones and to schedule the critical flow with the highest priority. This philosophy can be summarized in 10 simple rules or in very complicated software composed of a planning module and a resources module. Rules are : 1) The bottle neck capacity is related to the system and not to its own capacity. The bottle neck capacity depends on the other resources. 2) Useful activity and utilization are not similar 3) 1 h more or less on the bottle neck is earned or lost for the whole system 4) 1 extra hour spent on a non-critical resource is useless 5) Bottle neck leads the production flow and the stock level inside 6) The transit batch does not have to be equal to the process batch 7) Batch size can be different and variable on critical and non-critical machines (bigger and smaller respectively) 8) Capacity and priority must be taken into account simultaneously 9) The aim is to balance the flow and not the capacity 10) Sum of individual performances is not equal to the system performance

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