Antti Salonen KPP227 - HT KPP227 Antti Salonen

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1 Antti Salonen KPP227 - HT

2 Short-term planning 2

3 Inventory Control Systems Independent demand Items for which demand is influenced by market conditions and is not related to the inventory decisions for any other item held in stock or produced. Dependent demand Items required as components or inputs to a service or product. Dependent demand exhibits a pattern very different from that of independent demand and must be managed with different techniques. 3

4 Independent vs dependent demand 4

5 Push vs. Pull Production 5

6 Push/Pull methods in material flow Push Firms (such as job shops) producing products in low volumes with low repeatability in the production process tend to use push methods such as Material Requirements Planning (MRP). Pull Firms that tend to have highly repetitive manufacturing processes and well defined material flow use push systems, such as Just In Time (JIT) systems, since it allows closer control of inventory and production at the workstations. 6

7 Disaggregating the aggregate plan To put the production plan into operation, the aggregated units (e.g. product families) must be broken down into actual products that will be produced => Master Production Schedule (MPS) Aggregate Plan Lawn Mower Jan Feb Mar Master Production Schedule Model 1 - push Model 2 - self prop. Model 3 - riding Jan Feb Mar

8 Lead times The planning horizon must cover the cumulative lead times: Assembly Subassembly Fabrication Procurement 8

9 MRP explosion An MRP system translates the MPS and other sources of demand into requirements for all subassemblies, components and raw material needed to produce the parent items. Input Master Production Schedule Bill of material (BOM) Inventory Records Output MRP for all parts 9

10 MPS An MPS gives details on how many end items that will be produced within specified periods of time. It disaggregates the aggregate production plan into specific product schedules. An aggregate plan for a family of chairs is disaggregated into the weekly MPS for each specific chair type. Time periods (called time buckets) are usually weeks although hours, days or even months may be used. MPS Aggregate plan 10

11 Step 1: Calculate projected on-hand inventories Projected on-hand inventory at end of this week On-hand MPS quantity = inventory at + due at start end of last week of this week Projected requirements this week where: Projected requirements = max(forecast, Customer orders booked) 55 chairs Inventory = currently + in stock MPS quantity (0 for week 1) 38 chairs already promised for delivery in week 1 = 17 chairs 11

12 Step 2: Determine the timing and size of MPS quantities l The goal is to maintain a nonnegative projected onhand inventory balance l As shortages are detected, MPS quantities should be scheduled to cover them Inventory = 17 chairs in inventory at the end of week 1 + MPS quantity of 150 chairs Forecast of 30 chairs = 137 chairs 12

13 EXAMPLE 1 MPS 13

14 Step 1: Calculate projected on-hand inventories Projected on-hand inventory at end of this week On-hand MPS quantity = inventory at + due at start end of last week of this week Projected requirements this week where: Projected requirements = max(forecast, Customer orders booked) 55 chairs Inventory = currently + in stock MPS quantity (0 for week 1) 38 chairs already promised for delivery in week 1 = 17 chairs 14

15 Step 2: Determine the timing and size of MPS quantities l The goal is to maintain a nonnegative projected onhand inventory balance l As shortages are detected, MPS quantities should be scheduled to cover them Inventory = 17 chairs in inventory at the end of week 1 + MPS quantity of 150 chairs Forecast of 30 chairs = 137 chairs Item: Ladder-back chair Order Policy: 150 units Lead Time: 1 week Quantity on Hand: 55 April May Forecast Customer orders booked Projected on-hand inventory MPS quantity MPS start Explanation: The time needed to assemble 150 chairs is 1 week. The assembly department must start assembling chairs in week 1 to have them ready by week 2. Explanation: On-hand inventory balance = = 137. The MPS quantity is needed to avoid a shortage of = 13 chairs in week 2. 15

16 16

17 Freezing the MPS MPS is the basis for all end items. Changes to the MPS can be costly so firms freeze or disallow changes. Freezing can be accomplished by specifying: Demand Time Fence No. of periods during which few (if any) changes can be made to the MPS. Planning Time Fence Covers a longer period than the demand time fence (allows for some changes). 17

18 Bill Of Material (BOM) A record of all components of an end item, the parent-component relationships, and the usage quantities derived from engineering and process designs. A BOM specifies usage quantity or no. of units of components needed to make one unit of its immediate parent. 18

19 Components BOM Back slats Seat cushion A Ladder-back chair Parent Leg supports Seat-frame boards B (1) Ladder-back subassembly C (1) Seat subassembly D (2) Front legs E (4) Leg supports Back legs Front legs A Ladder-back chair F (2) Back legs G (4) Back slats H (1) Seat frame J (4) Seat-frame boards I (1) Seat cushion 19

20 BOM: Inventory Items End item Final product sold to customer (classified as finished goods) Intermediate item has at least one parent and one component (classified as WIP) Subassembly Assembled from more than one component (classified as WIP) Purchased Item Comes from supplier, hence, has no component (classified as raw material) 20

21 EXAMPLE 2 BOM Demand and planning time fences 21

22 a. If there is no existing inventory, how many units of G, E, and D must be purchased to produce five units of end item A? b. Use the lead time shown next to each component to determine the demand time fence at the lead time required for final assembly and the planning time fence at the cumulative lead time required to make the earliest purchase comitment. 22

23 a. If there is no existing inventory, how many units of G, E, and D must be purchased to produce five units of end item A? b. Use the lead time shown next to each component to determine the demand time fence at the lead time required for final assembly and the planning time fence at the cumulative lead time required to make the earliest purchase comitment. Solution: a) G = 1*1*1*5 = 5 E = 2*3*5 = 30 D = 1*3*5 + 1*1*5 = 20 Solution: b) Demand time fence = 1 week (required for final assembly of B & C) Planning time fence = 9 weeks (determined by the longest time path (E+B+A = ) 23

24 Inventory Records Like the MPS, inventory records divide the future into time periods called time buckets, which indicates an items lot size, lead time, safety stock requirements and various time-phased data including: Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 24

25 EXAMPLE 3 Inventory Records 25

26 MPS A Ladder-back chair BOM B (1) Ladder-back subassembly C (1) Seat subassembly D (2) Front legs E (4) Leg supports Back slats Seat cushion F (2) Back legs G (4) Back slats H (1) Seat frame I (1) Seat cushion J (4) Seat-frame boards Back legs Front legs Leg supports A Ladder-back chair Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases Seat-frame boards? Projected on-hand inventory balance at end of week t Scheduled Inventory on or planned = hand at end of + receipts in week t 1 week t Gross requirements in week t 26

27 Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases Planning for the receipt of new orders will keep the projected on-hand balance from dropping below zero! Projected on-hand inventory balance at end of week t Scheduled Inventory on or planned = hand at end of + receipts in week t 1 week t Gross requirements in week t 27

28 Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases A planned order release indicates when an order for a specified quantity of an item is to be issued. 28

29 Planning Factors Lead time o For purchased items o For in-house manufacturing Lot-sizing rules Determines the timing and size of order quantity. o Fixed order quantity (FOQ) o Periodic order quantity (POQ) POQ lot size to arrive in week t Total gross requirements = for P week, including week t Projected on-hand inventory balance at end of week t 1 o Lot for Lot (L4L) L4L lot size to arrive in week t Gross requirements = for week t Projected on-hand inventory balance at end of week t 1 29

30 EXAMPLE 4 Lot sizing rules 30

31 ack slats Seat cushion g supports Seat-frame boards A Ladder-back chair The first order using P = 3 is (POQ lot size) Gross requirements = for weeks 4, 5, and 6 Inventory at end of week 3 (POQ lot size) = ( ) 117 = 153 units 31

32 ack slats Seat cushion g supports Seat-frame boards A Ladder-back chair (L4L lot size) Gross requirements = in week 4 Inventory balance at end of week 3 (L4L lot size) = = 3 units 32

33 Resulting MRP for seat subassembly C(1) Seat subassembly H(1) Seat frame I(1) Seat cushion Back slats Seat cushion J(4) Seat-frame boards Leg supports Seat-frame boards Back Front legs legs A Ladder-back chair 33

34 EXAMPLE 5 MRP explosion 34

35 35

36 Solution 36

37 37

38 Problem to solve Shutters Frames (2) Wood sections (4) 38

39 Solution 1. L4L 39

40 Solution Week number Quantity Shutters Gross requirements: LT = 1 week Scheduled receipts: 1. L4L Projected on hand: Lor size = L4L Net requirements: Planned order receipts: The master schedule asks for 100 shutters to be ready for delivery, and no shutters are projected to be on hand at the start of week 4, so the net requirements are also 100 shutters. Therefore planned receipts for week 4 equal 100 shutters. Beccause shutter assembly requires 1 week, this means a planned oreder release at the start of week 3. Using the same logic, 150 shutters must be assembled during week 7 in order to be available for delivery at the start of week 8. The planned order release of 100 shutters at the start of week 3 means that 200 frames (gross requirements) must be available at that time. Because none are expected to be on hand, this generates net requirements of 200 frames and necessitates planned receipts of 200 frames by the start of week 3. With a 2 week lead-time, this means that the firm must order 200 frames at the start of week 1. Similarly, the planned order release of 150 shutters at week 7 generates gross and net requirements of 300 frames for week 7 as well as planned receipts for that time. The 2 week lead time means that the firm must order frames at the start of week 5. The planned order release of 100 shutters at the start of week 3 also generates gross requirements of 400 wood sections at that time. However, because 70 wood sections are expected to be on hand, net requirements are = 330. This means a planned receipt of 330 by the start of week 3. Since fabrication time is 1 week, the fabrication must start (planned order release) at the beginning of week 2. Similarly, the planned order release of 150 shutter in week 7 generates gross requirements of 600 wood sections at that point. Because no on hand inventory of wood sections is projected, net requirements are also 600, and planned order receipt is 600 units. Again, the 1 week lead time means 600 sections are scheduled for fabrication at the start of week 6. Planned order releases: x2 x2 Frames Gross requirements: LT = 2 weeks Scheduled receipts: Projected on hand: Lot size = 320 Net requirements: Planned order receipts: Planned order releases: x4 x4 Wood sections Gross requirements: LT = 1week Scheduled receipts: 70 Projected on hand: Lot size = 70 Net requirements: Planned order receipts: Planned order releases:

41 Solution Week number Quantity Shutters Gross requirements: LT = 1 week Scheduled receipts: 2. FOQ Projected on hand: Lor size = L4L Net requirements: Planned order receipts: Planned order releases: x2 x2 Under lot-size ordering, the only difference is the possibility that planned receipts will exceed net requirements. The excess is recorded as projected inventory in the following period. For example, in the figure, the order size for frames is 320 units, Net requirements for week 3 are 200; thus, there is an excess of = 120 units, which become projected inventory in the next week. Similarly, net frame requirements of 180 units are 140 less than the 320 order size; again, the excess becomes projected inventory in week 8. The same thing happens with wood sections; an excess of planned receipts in weeks 3 and 7 is added to projected inventory in weeks 4 and 8. Note that the order size must be in multiples of the lot size; for week 3 it is 5 times 70, and for week 7 it is 9 times 70. Frames Gross requirements: LT = 2 weeks Scheduled receipts: Projected on hand: Lot size = 320 Net requirements: Planned order receipts: Planned order releases: x4 x4 Wood sections Gross requirements: LT = 1week Scheduled receipts: 70 Projected on hand: Lot size = 70 Net requirements: Planned order receipts: Planned order releases:

42 Benefits of MRP Enables business to reduce inventory levels utilize labor and facilities better improve customer service 42

43 Capacity requirements Capacity Requirement Planning (CRP) Matches the MRP plan with the plant s production capacity Calculates work load according to work required to complete the scheduled receipts already in the shop and to complete planned order releases not yet released. Date: Week: 32 Plant 01 Dept. 03: Lathe station Capacity: 320 hours/week Labor requirements for all planned orders Represents backlog of work visible on shop floor Week Planned hours Actual hours Total hours Production demand exceeds weekly capacity! 43

44 Capacity requirements Input-Output control (IOC) Workstation: Rough Mill Week 32 Tolerance: ±25 hours Week ending Cumulative deviations between -25 hours and + 25 hours are allowed Inputs: Planned Actual Cumulative deviation Outputs: Planned Actual Cumulative deviation Cumulative deviation exceeds lower tolerance limit, indicating actual hours of output have fallen too far below planned hours of output and some action is required. 44

45 Capacity requirements Production smoothing Workload Workload Available Available Capacity 2 6a 6b 10 Capacity Week Week 45

46 Resource planning Material Requirement Planning (MRP) Manufacturing Resource Planning (MRP II) A system that ties the basic MRP to the companies financial system. Enterprise Resource Planning (ERP) A system that has additional capabilities for quality management Databases to access the information systems of other companies (e.g. suppliers) 46

47 Push/Pull methods in material flow Push Firms (such as job shops) producing products in low volumes with low repeatability in the production process tend to use push methods such as Material Requirements Planning (MRP). Pull Firms that tend to have highly repetitive manufacturing processes and well defined material flow use push systems, such as Just In Time (JIT) systems, since it allows closer control of inventory and production at the workstations. 47

48 Just In Time (JIT) A JIT system is a material flow system which focuses on reducing inefficiency and unproductive time in the production process to continuously improve the process and quality of the product or service. A pull system, like JIT, allows for closer control of inventory and production at the workstations. However, for most manufacturing environments, implementing a pure JIT system is simply not feasible. JIT works well when Suppliers are located close to plant and reliable Demand does not vary Setup costs are low When inventory drops to a certain level a signal is sent to the preceding stages of production that more input is needed (Kanban) 48

49 JIT - Lean Characteristics of JIT/Lean Production Consistently high quality Small lot sizes Short setup times Uniform workstation loads Standardized components and work methods Close supplier ties Flexible work force Product focus Automated production Preventive maintenance Continuous Improvements! 49

50 JIT vs. classical scheduling The lot sizes for JIT are a lot smaller than for classical scheduling, striving for one piece flow. 50

51 Uniform plant loading To meet demand and keep inventories low, a level schedule is developed so that the same mix of products is made every day in small quantities. 51

52 Kanban 52

53 Relevant book chapters Chapter: Planning sufficient resources Chapter: Designing and managing processes : The Kanban system. 53

54 Questions? Next lecture on Tuesday Supervision Q/A 54

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