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QualityControl and Improvement
Chapter 9
9-2
Chapter 9 Outline
• Design of Quality Control Systems• Process Quality Control• Attribute Control• Variables Control• Using Control Charts• Continuous Improvement• Six Sigma• Quality Control in Industry
9-3
Design of Quality Control Systems
• Break down production process into subprocesses and “internal customers.”
• Identify “Critical points” where inspection or measurement should take place
• Four steps in designing QC systems.
9-4
Steps in Designing QC Systems
Identify critical points• Incoming materials & services• Work in process• Finished product or service
Decide on the type of measurement • variable • attribute
Decide on the amount of inspection to be used. Decide who should do the inspection
Types Of Measurement
• Attribute measurement–Product characteristic evaluated with a discrete choice:
• Good/bad, yes/no
• Variable measurement–Product characteristic that can be measured on a continuous scale:
• Length, size, weight, height, time, velocity
9-6
When the Inspector Finds a Defect…
1. Containment: Keep the defective items from getting to the customer
2. Correction: Find the cause of the defect and correct it.
3. Prevention: Prevent the cause from happening again.
4. Continuously improve the system.
9-7
When the Inspector Finds a Defect e.g. Strap on backpack comes loose
Containment: pull the bad backpacks from the line.
Correction: sewing machine misaligned; fix it.
Prevention: why was it misaligned? Find out and change system to prevent it happening again.
Continuously monitor and improve system.
9-8
Process Quality Control
• Basic assumptions (tenets) of Process Quality Control:– Every process has random variation in it.– Production processes are not usually found in a state of
control.
• “State of Control”; what does it mean?– Unnecessary variation is eliminated.– Remaining variation is because of random causes.
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Process Quality Control
• Assignable (special) causes– Can be identified and corrected
• Common causes– Occur randomly– Cannot be changed unless process is redesigned
9-10
Process Control Chart (Figure 9.1)
x
y
Time
Upper control limit (UCL)
Center line (CL)
Lower control limit (LCL)
Average + 3 standard deviations
Quality measurement
average
Average - 3 standard deviations
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Qua
lity
Me a
sure
men
t
UCL
LCL
CL
1 2 3 4 5 6Sample
Quality Control Chart (Figure 9.2)
Stop the process; look for assignable cause
Stop the process; look for assignable cause
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Attributes & Variables
• Attributes are counts, such as the number (or proportion) of defects in a sample.
• Variables are measures (mean & range or standard deviation) of critical characteristics in a sample.
9-13
Formulas for SPC (3 Sigma)
• p-Chart
• x-Bar Chart
• R-Chart
(1 )3 p ppn
RDLCL 3 RDUCL 4
RAx 2
9-14
Issues in Using Control Charts• Sample Size
– large enough to detect defectives– defect rate has time dimension
• How often to sample?– Depends upon cost
• Control limits vs. product specifications– Is the process capable of producing to specs?– Are the specifications appropriate?
9-15
Continuous Improvement
• Aim of continuous improvement is to reduce the variability of the product or process
• Techniques for continuous improvement– Pareto analysis– Cause-and-effect (fish-bone) diagrams– Process capability charts
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Pareto AnalysisTable 9.2
Defect Items# of
DefectivesPrecent
DefectiveCumulative Percentage
Loose connections 193 46.8% 46.8%Cracked connectors 131 31.8% 78.6%Fitting burrs 47 11.4% 90.0%Improper torque 25 6.1% 96.1%O-rings missing 16 3.9% 100.0%Total 412 100.0%
Note: 40 percent of the items cause 78.6 percent of the defects
9-17
Pareto Diagram (Figure 9.3)
0
50
100
150
200
250
Looseconnections
Crackedconnectors
Fitting burrs Improper torque O-rings missing
# of
Def
ectiv
es
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
Perc
enta
ge
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Cause-and-effect (Fish-bone, Ishikawa) diagram (Figure 9.4)
Looseconnections
W orkers
M ateria lconnectors
Inspection Tools
ContentNuts
K nowledgeFatigue
Training
Hose
Size
Surface defect
SizeSm allLarge
Judgment
Measurem entM easuring
tools Errors
Inspector
Experience
Tra ining
W earAdjustm ent
Torque
Air pressure
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Process Capability Index Examples (Figure 9.5)fr
eque
ncy
process measure process measure
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Computation of Cpk (Figure 9.6)fr
eque
ncy
process measure process measure
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Six-Sigma Quality• Pioneered by Motorola in 1988 (Juran claims credit for the
idea).• 3.4 defects per million• Sample size rules become unusable• Most process are 4 sigma, e.g. payroll, prescriptions, baggage
handling, journal vouchers, restaurant bills.• Airline fatalities are 6.4 sigma• IRS tax advice is less than 2 sigma• Criticism: accepts 3.4 defects/million. Is not zero defects.
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Six Sigma Quality
• Process Improvement steps of Six Sigma (DMAIC):
1. Define2. Measure3. Analyze4. Improve5. Control
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Quality Control in Industry
• 75% use process control charts.• More use of variable (x-bar and R) charts than
attribute (p) charts.• “The Seven Tools of Quality Control” (see
Figure 9.7)• Quality control in the service industry
(SERVQUAL)
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Summary
• Design of Quality Control Systems• Process Quality Control• Attribute Control• Variables Control• Using Control Charts• Continuous Improvement• Six Sigma• Quality Control in Industry
9-25
End of Chapter Nine
Supply Chain Management
Chapter 10
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Chapter 10 Outline• Definitions and Terminology• System Interactions• Coordination in Supply Chain• Measuring Supply Chain Performance• Supply Chain Strategies• Structural Improvement• Improvement in Infrastructure• The Internet and Supply Chains• Virtual Supply Chains
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Definitions and Terminology
• Supply Chain• Supply Chain Management• Distribution Channel• Demand management• Logistics management
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Supply Chain
The sequence of business processes and information that provides a product or service from suppliers through manufacturing and distribution to the ultimate consumer.
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Supply Chain Management
Planning, design, and control of the flow of information and materials along the supply chain in order to meet customer requirements in an efficient manner, now and in the future.
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Distribution Channel
The route from the producer forward through the distributors to the customer
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Demand Management
• Managing the demand for goods or services along the supply chain.
• Demand can be managed through such mechanisms as products, pricing, promotion, and distribution.
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Logistics Management
• If broadly defined, it is the same as supply chain management.
• Narrowly defined, logistics management is concerned with inbound transportation and outbound distribution.
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A Typical Supply Chain
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System Interactions(System Dynamics in Supply Chains)
• Supply chain is a highly interactive system. Decisions in each part of the chain affect the other parts.
• There is an accelerator (bull whip) effect• The best way to improve a supply chain is to
reduce the total replenishment time and to feed back actual demand information to all levels.
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Widget Example (Figure 10.2): Retail Level
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Widget Example (Figure 10.2): Wholesale Level
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Widget Example (Figure 10.2): Factory Level
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Coordination in the Supply Chain
• Need for coordination both within firms and across firms
• Supply chains must be managed across organizational boundaries.
• Parallel between supply chain and quality improvement
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Measuring Supply Chain Performance (1)
• Delivery—on time delivery of entire orders.• Quality
– Customer satisfaction– Customer loyalty
• Time– Total replenishment time– Cash to cash cycle
• Days in inventory + days in accts receivable-days in accounts payable
10-41
Measuring Supply Chain Performance (2)
• Flexibility– Time to change volume or product mix by a certain
percentage– Maximum percentage of change in volume or
product mix in fixed time perion• Cost
– Total delivered cost– Value added or productivity
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Supply Chain Strategies
• Functional products—commodity-like– Efficient, low cost supply chain
• Innovative products– Flexible, fast supply chain
• Firms should sort their products and apply the appropriate strategies
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Structural Improvement
Basic Ways to Improve Supply Chain Structure:– Change structure
• Capacity, Facilities, Process technology, vertical integration
– Change infrastructure• People, Information systems, Organization, Production
and inventory control, Quality control systems
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Forms of Structural Change in a Supply Chain
• Forward and Backward Integration• Major process simplification• Changing the configuration of factories,
warehouses, or retail locations• Major product redesign• Outsourcing logistics to a third party.
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Improvement in Infrastructure
• Cross-functional teams• Partnerships with suppliers and customers• Set-up time reduction to reduce lot sizes• Integrated information systems• Cross-docking—keeps goods out of the
warehouses.
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The Internet and Supply Chains
• Fundamental processes in supply chains:– Order placement– Order fulfillment
• e-Procurement and its types• Potential problems with e-Procurement
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Processes for e-Procurement (Figure 10.3)
Requirement Selection Requisition Approval
REQUEST
Requisition Source Negotiate Contract
BUY
Confirm ProcessOrder Ship Invoice
SUPPLY
Receive Deliver Match PayPAYMENT
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Types of e-procurement
• On-line catalogs listing products, prices, etc.• Third-part auctions—reverse auctions• Private exchanges to connect suppliers
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Problems with e-procurement
• Too much focus on technology; not enough on systems
• Insufficient concern about value to both partners
• Fragmented efforts within and across companies
• Record accuracy and data security issues
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Virtual Supply Chains
• “Virtual Companies”:– Highly flexible—no fixed assets– Successful in highly dynamic environment– Made feasible by computers and the Internet – May lead to “hollow corporations” or shell
companies• Virtual Supply Chain consists of at least one
virtual company that coordinates all activities of the supply chain
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Summary• Definitions and Terminology• System Interactions• Coordination in Supply Chain• Measuring Supply Chain Performance• Supply Chain Strategies• Structural Improvement• Improvement in Infrastructure• The Internet and Supply Chains• Virtual Supply Chains
10-52
End of Chapter Ten
Forecasting
Chapter 11
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Chapter 11 Outline• A Forecasting Framework• Qualitative Forecasting Methods• Time-Series Forecasting• Moving Average• Exponential Smoothing• Forecast Errors• Advanced Time-Series Forecasting• Causal Forecasting Methods• Selecting a Forecasting Method• Collaborative Planning, Forecasting and Replenishment
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A Forecasting Framework• Focus of the chapter is on the forecasting of demand
for output from the operations function.– Demand may differ from sales
• Difference between forecasting and planning– Forecasting: what we think will happen– Planning: what we think should happen
• Forecasting application in various decision areas of operations (capacity planning, inventory management, others)
• Forecasting uses and methods (See Table 11.1)
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Use of Forecasting: Operations Decisions
TimeHorizon
AccuracyRequired
Number ofForecasts
ManagementLevel
ForecastingMethod
Processdesign Long Medium Single or few Top Qualitative
or causalCapacityplanning,facilities
Long Medium Single or few Top Qualitativeand causal
Aggregateplanning Medium High Few Middle Causal and
time series
Scheduling Short Highest Many Lower Time series
Inventorymanagement Short Highest Many Lower Time series
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Use of Forecasting: Marketing & Finance
TimeHorizon
AccuracyRequired
Number ofForecasts
ManagementLevel
ForecastingMethod
Long-rangemarketingprograms
Long Medium Single or few Top Qualitative
Pricingdecisions Short High Many Middle Time series
New productintroduction Medium Medium Single Top Qualitative
and causalCostestimating Short High Many Lower Time series
Capitalbudgeting Medium Highest Few Top Causal and
time series
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‘Qualitative’ Forecasting Methods
• Based upon managerial judgment when there is a lack of data. No specific model.
• Major methods:– Delphi Technique– Market Surveys– Life-cycles Analogy– Informed Judgment (naïve models)
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Time-Series Forecasting
• Components of time-series data:– Trend—general direction (up or down)– Seasonality—short term recurring cycles– Cycle—long term business cycle– Error (random or irregular component)
• “Decomposition” of time-series– Data are broken into the four components
• Moving Averages• Exponential Smoothing
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• Assumes no trend, seasonal or cyclical components.
• Simple Moving Average:
• Weighted Moving Average:
Moving Average
NDDDA Nttt
t11 ......
tt AF 1
11211 ...... NtNtttt DWDWDWAF
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Moving Average
Period Actual Demand Forecast
1 10
2 18
3 29
4 19
(10+18+29)/3 = 19
Period 5 will be (18+29+actual for period 4)/3
Compute three period moving average (number of periods is the decision of the forecaster)
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Time-Series Data Plot
Note: The more periods, the smoother the forecast.
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• The new average is computed from the old average:
• The value of the smoothing constant () is a choice. It determines how much the calculation smooths out the random variations. Its value can be set between zero (0) and one (1). Normally it is in the 0.1 to 0.2 range.
Exponential Smoothing
11 ttt ADA
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Simple Exponential Smoothing
• The forecast:
F=forecast of demand (both this period and next)D = actual demand (this period)t = time period
• No trend, cyclical or seasonal components.• Note: we are adjusting Ft to get Ft+1
tttt FDFF 1
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Exponential Smoothing-calculation
• Facts:– September forecast for sales was 15– September actual sales were 13– Alpha ( α) is 0.2– What is the forecast for October?
• Calculation– October Forecast = September forecast +
α(September actual-September forecast)=15+0.2(13-15)=15+0.2(-2)=15-0.4=14.6
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Forecast Errors• Cumulative Sum of Forecast Error (CFE) and
Mean Error (ME)
• Mean Square Error (MSE)• Mean Absolute Deviation (MAD)—measure of
deviation in units.
• Mean Absolute Percentage Error (MAPE)• Tracking Signal (TS)—relative measure of bias
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Forecast Errors: Formulas
t
n
=1i
e = CFE Cumulative sum ofForecast Errors
nt
n
=1i
e = MSE
2Mean Square Error
n
|e| = MAD
t
n
=1iMean Absolute
Deviation
n
|De|
= MAPE t
tn
=1i
100Mean AbsolutePercentage Error
MAD
e = TS
t
n
=1iTracking Signal
nt
n
=1i
e = MEMean Error
11-68
Tracking Signal
Analogous to control charts in quality control, viz. if there is no bias, its values should fluctuate around zero.
Is a relative measure, i.e. the numbers mean the same for any forecast.
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Advanced Time-Series Forecasting
• Adaptive exponential smoothing– Smoothing coefficient () is varied
• Box-Jenkins method– Requires about 60 periods of past data
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Time Series vs. Causal Models
• Time series compares data being forecast over time, i.e. Time is the independent variable or x- axis or x-variable.
• Causal models compare data being forecast against some other data set which the forecaster may think is a cause of the forecasted data, e.g. population size causes newspaper sales.
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Causal Forecasting Models
• The general regression model:
• Other forms of causal model:– Econometric– Input-output– Simulation models
xbay ˆ
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Example of Time Series Model
t D t F t
1 120 119.522 124 121.183 119 122.844 124 124.55 125 126.156 130 127.817 129.47
Intercept (a) 117.8667Slope (b) 1.657143
Yt = a + b(t)
F7 = 117.87 + 1.66 (7) = 129.47 = sales forecast for next year
Dt = actual sales
Ft = forecasted sales
t = time period (e.g. year)
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Example of Causal Model
I t D t F t
34.6 120 121.1535.7 124 123.7936.3 119 125.2235.2 124 122.5935.7 125 123.7936.4 130 125.4637.6 128.34
Intercept (a) 38.23094Slope (b) 2.396514
Yt = a + b(t)
F7 = 38.23 + 2.397 (7) = 128.34 = sales forecast for next year (year 7)
Dt = actual sales in year t
Ft = forecasted sales
It = median family income (000’s)
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Selecting a Forecasting Method
• User and system sophistication– People reluctant to use what they don’t understand
• Time and resources available– When is forecast needed?– What is value of forecast?
• Use or decision characteristics, e.g. horizon• Data availability and quality• Data pattern• Don’t force the data to fit the model!
Forecast Horizons and Forecast Accuracy
• The longer the forecast horizon, the less accurate the forecast
• Long lead times require long forecast horizons• Lean, responsive companies have the goal of
decreasing lead times so they are shorter than the forecast horizon
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Collaborative Planning, Forecasting and Replenishment (CPFR)
• Aim is to achieve more accurate forecasts• Share information in the supply chain with
customers and suppliers.• Compare forecasts
– If discrepancy, look for reason– Agree on consensus forecast
• Works best in BtoB with few customers
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Summary• A Forecasting Framework• Qualitative Forecasting Methods• Time-Series Forecasting• Moving Average• Exponential Smoothing• Forecast Errors• Advanced Time-Series Forecasting• Causal Forecasting Methods• Selecting a Forecasting Method• Collaborative Planning, Forecasting and Replenishment
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End of Chapter Eleven
Facilities and Aggregate Planning
Chapter 1215
Due Date!
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Chapter 12 Outline
• Facilities Decisions• Facilities Strategy• Aggregate Planning Definition• Planning Options• Basic Strategies• Aggregate Planning Costs• Example of Costing• Sales and Operations Planning
12-81
Hierarchy of Capacity Decisions
Facilitiesdecisions
Aggregateplanning
Scheduling
0 6 12 18 24Months
Planning Horizon
Scheduling
Facilitiesdecisions
AggregatePlanning
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Definition of “Capacity”
Capacity is defined as the maximum output that can be produced over a given period of time.
•Primarily determined by– Physical assets– Labor availability
•Nominal capacity– Subtracts downtime, shift breaks, etc.– Is the actual capacity that should be used in planning
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Facilities Decisions
• How much total capacity is needed?• How large should each unit of capacity be?• When is the capacity needed?• What type of facilities/capacity are needed?
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Factors Affecting Facilities Strategy
• Predicted demand• Cost of facilities• Likely behavior of competitors• Business strategy• International considerations
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How Much?: Strategies for “Capacity Cushion”
• Try not to run out (e.g. utilities)• Build to average forecast• Maximize utilization at bottlenecks
–Reduce rejects and rework–Reduce throughput time
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How Large?What is “Optimum” Unit Size?
• Economies of scale
• Diseconomies of scale
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When?Timing of Facility Additions
• Preempt the competition
• Wait-and-see strategy
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What Type?Types of Facilities
• Product-focused (55%) - computers, chain saws, dishwashers
• Market-focused (30%) - electricity, bakeries• Process-focused (10%) - computer chips• General purpose (5%) – several products and
processes.
12-89
Aggregate Planning Characteristics
• A time horizon of about 12 months• An aggregated level of demand for one or few
categories of product• The possibility of changing both supply and demand• A variety of management objectives• Facilities that are considered fixed (cannot be
expanded or reduced)
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Planning Options• Options for managing demand.
– influencing demand from customers–delivering orders as promised
• Options for managing supply–delivering what is promised–managing capacity & other
resources
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Options for Influencing (Managing) Demand
• Pricing
• Advertising and promotion
• Backlog or reservations (shifting demand)
• Development of complementary products
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Options for Influencing (managing) Supply
• Hiring and layoff of employees• Using overtime and undertime• Using part-time or temporary labor• Carrying inventory• Outsourcing or Subcontracting• Making cooperative arrangements
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Basic Production Strategies
• “Level” strategy (constant work
force, use inventory as buffer)
• “Chase” strategy (produce to
demand, vary workforce)
Level Load Strategy
• Deliver products and services at a constant rate
• Avoid making changes to operations
5-27
Chase Strategy
• Produce only what you sell• Produce products or services just-in-time• If there are no sales—do not produce• Typical for services
5-29
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Comparison of Chase versus Level Strategy
Chase Demand Level CapacityLevel of labor skill required Low HighJob discretion Low HighCompensation rate Low HighWorking conditions Sweatshop PleasantTraining required per employee Low HighLabor turnover High LowHire-fire cost High LowError rate High LowAmount of supervision required High LowType of budgeting and forecasting required Short-run Long-run
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Aggregate Planning Costs
• Hiring and firing costs (chase)• Overtime and undertime costs (chase)• Subcontracting costs (chase)• Part-time labor costs (chase)• Inventory-carrying costs (level) • Cost of stockout or back order (level)
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Underlying Purpose of S&OP
• The underlying purpose of Sales and Operations Planning is to balance demand and supply.
• Monthly ‘time buckets’ over a rolling 12 month horizon.
• Based on families of products• Input into detailed planning and scheduling
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Inputs to S&OP•Input Responsibility•Demand Forecast Marketing•Market intelligence Marketing•Actual sales Sales•Capacity information Manufacturing•Management targets Management•Financial requirements Finance•New product information R&D•New process information Process engineering•Workforce availability Human resources
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S&OP Outputs• Output Responsibility• Sales plan Marketing and sales• Production plan Manufacturing• Inventory plan (MTS) Management• Backlog plan (MTO) Management• Purchasing plan Purchasing• Financial plan Finance• Engineering plan Engineering• Workforce plan Human resources
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Iterative Nature of S&OP(made possible by concurrent planning)
1. Develop production plan.
2. Check implications for inventory/backlog plan.
3. If necessary, adjust production plan.
4. Check against resource plan and availability.
5. If necessary, adjust production plan.
6. Recheck against inventory/backlog and resources.
7. Continue (go to 5) until you meet all constraints.
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Summary
• Facilities Decisions• Facilities Strategy• Aggregate Planning Definition• Planning Options• Basic Strategies• Aggregate Planning Costs• Example of Costing• Sales and Operations Planning
12-103
End of Chapter Twelve
Scheduling Operations
Chapter 13
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Chapter 13 Outline
• Batch Scheduling• Gantt Charting• Finite Capacity Scheduling• Theory of Constraints• Priority Dispatching Rules• Infinite Capacity Loading• Planning and Control Systems
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Synonyms
• Shop Floor Control• Scheduling Operations• Production Activity Control (PAC)• Detailed Planning and Scheduling
(DPS)
13-107
Batch Scheduling
• Very complex scheduling environment• Can be thought of as “Network of Queues”• Customers spend most of their time waiting• Closely related to MRP (See chapter 16)
13-108
Batch ProcessingMove-queue-work-wait-move
WS 1 WS 2
Work is done according to work order
waitmove
queue
move
movewaitqueue
move
movemove
Difficulties Of Batch/Job Shop Scheduling
• Variety of jobs processed• Different routing and processing
requirements of each job• Number of different orders in the
facility at any one time• Competition for common resources
Responsibilities of Production Control Department
• Loading– Check availability of material, machines
& labor• Sequencing
– Release work orders to shop & issue dispatch lists for individual machines
• Monitoring– Maintain progress reports on each job
until it is complete
13-111
Gantt Charting• Developed by Henry Gantt in 1917• Related concepts:
– Makespan – total time to complete a set of jobs– Machine utilization – percent of make span time a
machine (or person) is used.• Used primarily to monitor progress of jobs
13-112
Job Data for Scheduling Example
JobWork center/Machine Hours
DueDate
1 A/2, B/3, C/4 3
2 C/6, A/4 2
3 B/3, C/2, A/1 4
4 C/4, B/3, A/3 4
5 A/5, B/3 2
13-113
Scheduling Example
Process A Process C
Job 1 AC
B
Process B
Job 3
In what sequence should the jobs be done?Job 5 Job 2 Job 4
13-114
Where is the bottleneck?
Total Machine times for the five jobs:– Machine A: 15 hours– Machine B: 12 hours– Machine C: 16 hours
C appears to be the bottleneck.But! A is used for every job; C is not.Either one could determine makespan.
13-115
Gantt Chart for Example
13-116
Finite Capacity Scheduling
• Finite capacity scheduling loads jobs onto work stations being careful not to exceed the capacity of any given station.
• Done at the detailed planning and scheduling (DPS) level
• Part of the loading responsibility.
13-117
Theory of Constraints (TOC)
• Proposed by Goldratt in The Goal (1983)• Goal is to make money.• Key elements of “goals” according to TOC:
– Throughput—what is made and sold– Inventory—raw materials– Operating expenses—cost of conversion
• Production does not count until it is sold!
13-118
Theory of Constraints (TOC)• A constraint is anything that is slowing
down production—a bottleneck.– A machine or workstation– The market– Procurement system
• The bottleneck determines the capacity of the system.
• Implication: the operations manager should focus on the bottleneck to increase capacity and throughput (and make more money).
13-119
Priority Dispatching Rules• What are priority dispatching rules?
– If you have more than one job waiting at a work station, how do you select which one to process next? The criterion you use for selecting the next job is your dispatching rule.
• In front office services, the most common rule is “first come, first served.”
• Part of the sequencing responsibility
13-120
Priority Dispatching Rules
• Commonly used in manufacturing:– MINPRT (Minimum Processing Time or SPT, shortest
processing time) This rule minimizes total waiting time.
– Critical Ratio (Minimizes average lateness)
• Commonly used in services:– FCFS (First Come, First Served)
13-121
Infinite Capacity Loading
•“Infinite capacity loading” loads jobs onto work centers without regard for the total capacity of the work center.•If the capacity for any given work center has been exceeded, the schedule must be changed.•This is generally done at the MRP level before detailed scheduling and planning
13-122
Infinite capacity loading example: time lines
A(2 hrs)
Move/Wait(4 hrs)
B(3 hrs)
Move/Wait(4 hrs)
C(4 hrs)
Day 1 Day 2 Day 3
Due date
Move/Wait(4 hrs) A (4 hrs)
Day 1 Day 2 Day 3
Due date
C (6 hrs)
Time line for job 1
Time line for job 2
13-123
Infinite Capacity Loading example
6543 J ob 221
J ob 1 J ob 1Hou
rs sc
hedu
led
Work center A
654321 J ob 1
Work center B
654321 Job 1
Job 2
Work center C
1 2 3Day
1 2 3Day
1 2 3Day
13-124
Planning and Control Systems
• What delivery date do I promise?• How much capacity do I need?• When should I start on each particular activity
or task?• How do I make sure that the job is completed
on time?• Advanced Planning & Scheduling (APS)
13-125
Summary
• Batch Scheduling• Gantt Charting• Finite Capacity Scheduling• Theory of Constraints• Priority Dispatching Rules• Infinite Capacity Loading• Planning and Control Systems
13-126
End of Chapter Thirteen
Project Planning & Scheduling
Chapter 14
14-128
Chapter 14 Outline• What is a “project”?• Objectives and tradeoffs• Planning and Control in Projects• Scheduling Methods• Constant-Time Networks• PERT Method• CPM Method• Use of Project Management Concepts
14-129
What is a “Project”?
• Unique item - often a single unit.• Often located on one place. The unit does not
move during production.• Resources are brought to the project.• May be of any size, although we focus on large
projects.
14-130
Examples of Projects
• A wedding• A divorce• Building construction• Bridge construction• Build aircraft carrier• R&D project• Audit
• New product introduction
• Open or close a facility
• Make a movie• Fund raising
campaign• Ad campaign• Software installation
14-131
Objectives and Tradeoffs
Meet thespecifications
Meet theDeadline--schedule
Due Date!
Stay withinthe budget
14-132
Project Management Stages
Planning
Scheduling
Execution
Contro l
14-133
Planning Activities & Decisions
• Identify the project customer• Establish the end product or service• Set project objectives• Estimate total resources and time required• Decide on the form of project organization• Make key personnel appointments• Define major tasks required• Establish a budget
14-134
Scheduling Activities & Decisions
• Develop a detailed work-breakdown structure
• Estimated time required for each task• Sequence tasks in proper order• Develop a start/stop time for each task• Develop detailed budget for each task• Assign people to tasks
14-135
Execution & Control
• Monitor actual time, cost, and performance• Compare planned to actual figures• Determine whether corrective action is
needed• Evaluate alternative corrective actions• Take appropriate corrective actions
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Execution and ControlWhat are ‘corrective actions?’
When one or more activities threaten the time, cost, or performance of the project, a corrective action is necessary:
• Redefine the activity (e.g. split the activity).• Add resources to the activity.• Shift resources from one activity to another
Resources = people, equipment, money
14-137
Scheduling Methods
• Gantt Charts– Shown as a bar charts– Do not show precedence relations– Visual & easy to understand
• Network Methods– Shown as a graphs or networks– Show precedence relations– More complex, difficult to understand and costly
than Gantt charts
14-138
Gantt Chart Project Example (Figure 14.1)Week
No. 1 2 3 4 5 6 7 8
1 Lease the site
2 Hire the workers
3Arrange for the Furnishings
4 Install the furnishings
5 Arrange for the phones
6 Install the phones
7 Move into the Office
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Constant-Time Networks
• Activity times are assumed to be constant• Activities are represented by nodes in the network• Arrows show the precedence relationships• Notations used in calculating start and finish times:
– ES(a) = Early Start of activity a– EF(a) = Early Finish of activity a– LS(a) = Late Start of activity a– LF(a) = Late Finish of activity a
14-140
‘Write a Business Report’Table 14.3
Immediate Duration
Activity Description Predecessors Days
A Decide on Topic None 1
B Collect Data A 2
C Search the Internet A 3
D Write the Report B and C 5
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Network Diagram for ‘Write a Business Plan’ (Figure 14.2)
A
B
D
C
14-142
Forward Pass for ‘Write a Business Plan’ (Figure 14.3)
A
B
D
C
0 1
1 3
4 9
1 4ES EF
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Calculating ES, EF, LS, LF, and Completion Time
ES (a) = 0 for the starting activityEF (a) = ES (a) + t (a)*ES (a) = max [EF (all predecessors of a)]Project completion time = max [EF(all ending activities)]
* t (a) denotes the duration of activity a
LF (a) = min [LS (all successors of a)]LS (a) = LF - t(a)*
Forward Pass:
Backward pass:
14-144
Backward Pass for ‘Write a Business Plan’ (Figure 14.4)
A
B
D
C
0 1
1 3
4 9
1 4ES EF
LS LF
0 1
2 4
4 9
1 4
14-145
Critical Path
• Critical Path = longest path in the network– All activities for which ES=LS and EF=LF– Length of critical path is equal to the project
completion time– If there is any delay on the critical path, the project
will be delayed (unless one takes ‘corrective actions’)
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Slack Times
• Slack time equals amount of time a path may be delayed without delaying the project– Paths not on the critical path have slack– Slack = LS-ES or LF-EF
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Precedence and times for Opening a New Office (Table 14.4)
Immediate Activity Computed
Activity Description Predecessors Time Slack
1 Lease the site None 1 0
2 Hire the workers 1 5 0
3 Arrange for the Furnishings 1 1 1
4 Install the furnishings 3 2 1
5 Arrange for the phones 1 1 3
6 Install the phones 4,5 1 1
7 Move into the Office 2,6,4 2 0
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Network for ‘Open a New Office’ (Figure 14.5)
1
2
43ES EF
LS LF
765
1 6
1 6
0 1
0 1
1 2
4 5
1 2
2 3
6 8
6 8
3 5
4 5
5 6
2 4
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PERT
• Program Evaluation Review Technique• Used under conditions of uncertainty in activity
times• Requires three time estimates for each activity
– Optimistic– Most likely– Pessimistic
• Times distributed according to beta distribution
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PERT Activity Times
• Estimate three times for each activity
• Compute mean completion time for each activity:
64 pmo
e
TTTT
14-151
PERT Activity Times
• Compute the variance for each activity:
• Assumes pessimistic and optimistic times cover six standard deviations
2
6var
op
i
TT
14-152
PERT Activity Times
• If T = total completion time of the project, then
and
pathcritical
eTTE
pathcritical
iT varvar
14-153
CPM• Critical Path Method• Used under conditions of certainty in activity
times• Requires one time estimate for each activity• Looks at time/cost trade-offs
– Normal activity time– Normal cost– Crash time– Crash cost
14-154
Time-Cost Relationship in CPM
Crash Cost
Cost
Normal Cost
Crash
Time
Normal
TimeTime
14-155
Use of Project Management Concepts
• Scheduling is only part of a complete approach to project management
• Trade-off between sophistication and cost of methods
• Choice between constant time, PERT, CPM or more advanced techniques
• Choice of project management software packages
14-156
Summary
• What is a “project”?• Objectives and tradeoffs• Planning and Control in Projects• Scheduling Methods• Constant-Time Networks• PERT Method• CPM Method• Use of Project Management Concepts
14-157
End of Chapter Fourteen
Independent-Demand Inventory
Chapter 15
15-159
Chapter 15 Outline• Introduction• Purpose of Inventories• Inventory Cost Structures• Independent versus Dependent Demand• Economic Order Quantity• Continuous Review System• Periodic Review System• Using P and Q System in Practice• ABC Inventory Management
15-160
Introduction
• Inventory: a stock of materials used to facilitate production or to satisfy customer demand.
• Types of inventory– Raw materials (RM)– Work in process (WIP)– Finished goods (FG)– Maintenance, repair & operating supplies (MRO)
15-161
A Material-Flow Process
Work inprocess
Work inprocess
Work inprocess
Finishedgoods
RawMaterials
Vendors Customer
Productive Process
15-162
A Water Tank Analogy for Inventory
Supply RateInventory Level
Demand Rate
Inventory Level
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Purpose of Inventories (1)• To protect against uncertainties
– in demand (finished goods, MRO)– supply (RM, MRO)– lead times (RM/PP or WIP)– schedule changes (WIP)
• To allow economic production and purchase (as in discounts for buying RM/PP in bulk)
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Purpose of Inventories (2)
• To cover anticipated changes in demand (as in a level strategy) or supply– finished goods– RM/PP
• To provide for transit (pipeline inventories)– RM/PP– finished goods– WIP (independence of operations)
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Inventory Cost Structures (1)
• Item or SKU cost– Expressed as cost per unit or SKU. Gets into
LIFO and FIFO issues. – Problem can be compounded by quantity
discounts.
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Inventory Cost Structures (2)
• Ordering (or setup) cost– Paperwork, worker time (ordering)– worker time, downtime (setup)– Typically expressed as a fixed cost per order or
setup.
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Inventory Cost Structures (3)• Carrying (or holding) cost:
– Cost of capital (market rate or internal rate of return)– Cost of storage (building, utilities, insurance, handling)– Cost of obsolescence, deterioration, and loss
(shrinkage)– Management cost (record keeping, counting)
• Typically expressed as a percentage of SKU cost. Average in U.S. is estimated to be 35 percent per year.
• Businesses often use only cost of capital (understatement).
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Inventory Cost Structures (4)How the 35 percent carrying cost is distributed
• Cost of Capital—9-20 percent• Obsolescence—2-5 percent• Storage—2-5 percent• Material Handling—1-3 percent• Shrinkage—1-3 percent• Taxes & Insurance—1-3 percent
Source: Mark Williams, APICS Instructor Listserv, 22 January 2001
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Inventory Cost Structures (5)• Stock out cost (back order or lost sales)
– record maintenance– lost income– customer dissatisfaction– Typically expressed as a fixed cost per backorder
or as a function of aging of backorders.
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Two Forms of Demand (1)
• Independent demand (this chapter)– finished goods, spare parts, MRO– based on market demand– requires forecasting– managed using ‘replenishment philosophy’, i.e.
reorder when reach a pre-specified level.
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Two Forms of Demand (2)• Dependent demand (next two chapters)
– parts that go into the finished products, RM/PP or WIP
– dependent demand is a known function of independent demand
– calculate instead of forecast– Managed using a ‘requirements philosophy’,
i.e. only ordered as needed for higher level components or products.
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Independent versus Dependent Demand
A pattern plus random influences ‘Lumpy’ because of production lots
15-173
Economic Order Quantity (EOQ)
• Developed in 1915 by F.W. Harris• Answers the question ‘How much do I order?’• Used for independent demand items.• Objective is to find order quantity (Q) that minimizes
the total cost (TC) of managing inventory.• Must be calculated separately for each SKU.• Widely used and very robust (i.e. works well in a lot of
situations, even when its assumptions don’t hold exactly).
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Economic Order Quantity (EOQ)Basic Model Assumptions
• Demand rate is constant, recurring, and known.• Lead time is constant and known.• No stockouts allowed.• Material is ordered or produced in a lot or batch
and the lot is received all at once• Costs are constant
– Unit cost is constant (no quantity discounts)– Carrying cost is a constant per unit (SKU)– Ordering (setup) cost per order is fixed
• The item is a single product or SKU.
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EOQ Lot Size Choice
• There is a trade-off between frequency of ordering (or the size of the order) and the inventory level.– Frequent orders (small lot size) lead to a lower
average inventory size, i.e. higher ordering cost and lower holding cost.
– Fewer orders (large lot size) lead to a larger average inventory size, i.e. lower ordering cost and higher holding cost.
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EOQ Inventory Levels(‘sawtooth model’)
Time
Lot size = Q
OrderInterval
Average InventoryLevel = Q/2
On
Han
d
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Notations and measurement units in EOQ
D = Demand rate, units per yearS = Cost per order placed, or setup cost,
dollars per orderC = Unit cost, dollars per uniti = Carrying rate, percent of value per yearQ = Lot size, unitsTC= total of ordering cost plus carrying cost
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Cost Equations in EOQ
Ordering cost = (cost per order) x orders per year) = SD/Q
Carrying cost per year = (annual carrying rate) x (unit cost) x average inventory = iCQ/2
Total annual cost (TC) = ordering cost per year + carrying cost per year = SD/Q + iCQ/2
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Total Cost of Inventory
15-180
TC and EOQ
TC = ordering cost + holding cost = S*(D/Q) + iC*(Q/2)
EOQ =
note: Although we have used annual costs, any time period is all right. Just be consistent! The same is true for currency designations.
iCSDQ 2
15-181
EOQ ExampleSales = 10 cases/week S = $12/order
i = 30 pct/year C = $80/case _________
EOQ = 2SD)/iC = SQRT[(2*12*10*52)/(80*.3)]
= SQRT[12,480/24] = 22.8 cases/order
TC = ordering cost + holding cost= S*(D/Q) + iC*(Q/2) = 10(520/22.8) + 24 * 11.4= 228.70 + 273.60 = $547.28/year
If order 22 cases instead, TC = $547.64; if 23, TC = $547.30
15-182
EOQ ExampleTotal Inventory Cost
0
200
400
600
800
13 17 21 24 28 32 36 40
Order Size
Dol
lars
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Continuous Review System• Relax assumption of constant demand.
Demand is assumed to be random.• Check inventory position each time there is a
demand (i.e continuously).• If inventory position drops below the reorder
point, place an order for the EOQ.• Also called fixed-order-quantity or Q system
(the fixed order size is EOQ).
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A Continuous Review (Q) System
R = Reorder PointQ = Order QuantityL = Lead time
15-185
A Continuous Review (Q) SystemAmount to order = EOQ
Order when inventory position = reorder point.
Reorder point = lead time * demand/period
= R = lead time demand (when demand is constant)
Reorder point is independent of EOQ!EOQ tells how much to order.Reorder point tells when to order.
15-186
Service Level
• When demand is random, the reorder point must take into account the service level or fill rate.
• Service level has many definitions:– Probability that all orders will be refilled while
waiting for an order to arrive.– Percentage of demand filled from stock in a time
period.– Percentage of time the system has stock on hand.
15-187
Probability Distribution of Demand over Lead Time
m = mean demand R = Reorder point s = Safety stock
15-188
Periodic Review System (1)
• Instead of reviewing continuously, we review the inventory position at fixed intervals. For example, the bread truck visits the grocery store on the same days every week.
• Also known as “P system”, “Fixed-order-interval system” or “Fixed-order-period system”
15-189
Periodic Review System (2)
• Each time we review the inventory, we either order or don’t. The decision depends upon our reorder point.
• The amount we order may be fixed, or may be the amount needed to bring us up to a target (T).
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A Periodic Review (P) System
15-191
Time Between Orders (P) andTarget Level (T) Calculation
DCiSP 2
'' smT Where:
T = target inventory levelm’ = average demand over P+Ls’ = safety stock
15-192
Using P and Q System in Practice
• Use P system when orders must be placed at specified intervals.
• Use P systems when multiple items are ordered from the same supplier (joint-replenishment).
• Use P system for inexpensive items.
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Using P and Q Systems in Practice
• P may be easier to use since levels are reviewed less often.
• P requires more safety stock since may only order at fixed points.
• P is more likely to run out since cannot respond to increases in demand immediately
• Either may be more costly: P in safety stock, Q in monitoring cost.
15-194
Service Level versus Inventory Level (Figure 15.10)
1.1
2.52.42.32.22.12.01.91.81.71.61.5
1.31.2
1.0
1.4
75%
80%
85%
90%
95%
100%
105%
150 160 170 180 190 200 210 220 230 240 250 260 270 280 290 300Average Inventory Level
Servi
ce Le
vel (%
)
z values
100100
Q
15-195
ABC Inventory Management (1)
• Based on “Pareto” concept (80/20 rule) and total usage in dollars of each item.
• Classification of items as A, B, or C based on usage.
• Purpose is to set priorities on effort used to manage different SKUs, i.e. to allocate scarce management resources.
15-196
ABC Inventory Management (2)
• ‘A’ items: 20% of SKUs, 80% of dollars• ‘B’ items: 30 % of SKUs, 15% of dollars• ‘C’ items: 50 % of SKUs, 5% of dollars• Three classes is arbitrary; could be any number.• Percents are approximate.• Danger: dollar use may not reflect importance of
any given SKU!
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Annual Usage of Items by Dollar Value (Table 15.4)
ItemAnnual Usage in
Units Unit Cost Dollar Usage
Percentage of Total Dollar
Usage1 5,000 1.50$ 7,500$ 2.9%2 1,500 8.00 12,000 4.7%3 10,000 10.50 105,000 41.2%4 6,000 2.00 12,000 4.7%5 7,500 0.50 3,750 1.5%6 6,000 13.60 81,600 32.0%7 5,000 0.75 3,750 1.5%8 4,500 1.25 5,625 2.2%9 7,000 2.50 17,500 6.9%10 3,000 2.00 6,000 2.4%
Total 254,725$ 100.0%
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ABC Chart for Table 15.4
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
3 6 9 2 4 1 10 8 5 7
Item No.
Perc
ent U
sage
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
Cum
ulat
ive
% U
sage
Percentage of Total Dollar Usage Cumulative Percentage
A B C
15-199
Managing A items:
Diamonds
15-200
Summary• Introduction• Purpose of Inventories• Inventory Cost Structures• Independent versus Dependent Demand• Economic Order Quantity• Continuous Review System• Periodic Review System• Using P and Q System in Practice• ABC Inventory Management
15-201
End of Chapter Fifteen
Materials Requirements Planning
Chapter 16
16-203
Chapter 16 Outline
• Definition of MRP Systems• MRP versus Order-Point Systems• MRP Example• MRP Elements• Operating an MRP System• The Successful MRP System
16-204
Introduction to MRP• Used to manage dependent demand items
– Raw materials and purchased parts– Work in process (WIP)
• Driven by the master schedule (which is driven by S&OP).
• End items ‘exploded’ into all components using bill of materials (BOM)
• Schedule offset based on lead times• Is the heart of a larger ERP system
16-205
Definitions of MRP Systems• Developed by Joe Orlicky at IBM, 1975.
– IBM 370 was the first computer with the capacity to handle MRP calculations
• Types of MRP:– Type I. An inventory control system (MRP)– Type II. Manufacturing Resource Planning system
(MRPII)– Type III. Enterprise Resource Planning (ERP) system
16-206
Definitions of MRP SystemsThree principal functions of MRP (Orlicky):• Inventory
– Order the right part– Order in the right quantity– Order at the right time
• Priorities– Order with the right due date– Keep the due date valid
• Capacity– A complete load– An accurate (valid) load– An adequate time span for visibility of future load
TR 4-6
Firm orders from Customers Sister plants Stock replenishment
Engineering Design changes
BOM
Forecast of Demand
Purchase Orders
Vendors
MRP Parts Explosion
Rough-cutcapacity planning
Capacity planning
Shop Orders
Shop-floor control
Master schedule
S & OP
Closed Loop MRP System
Operations ProductRaw Materials
Inventory Records
Inv. Transactions
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16-208
Attribute MRP Order PointDemand Dependent Independent
Order philosophy Requirements ReplenishmentForecast Based on master schedule Based on past demand
Control concept Control all items ABC
Objectives Meet manufacturing needs Meet customer needsLot sizing Discrete EOQ
Demand pattern Lumpy but predictable Random
Types of inventory Work in process and rawmaterials
Finished goods and spareparts
Comparison of MRP & Order-Point Systems
16-209
MRP Elements• Inputs
1. Master Schedule2. Bill of Materials (BOM)3. Inventory Records
• Capacity Planning (feasibility)• Planned Order Releases (outputs)
– Purchasing (buy)– Shop Floor Control (make)
MRP Inputs
1. Master schedule2. Product structure file (bill of materials or
BOM)1. Parts & subassemblies contained in product2. Sequence of operations
3. Inventory master file1. Item master information2. Balances & ordering information
16-210
1. Master Schedule• Quantities derived from S&OP production plan
(product groups) [input]• Drives MRP process with a schedule of finished
products (actual items by week) [output]• Quantities may consist of a combination of
customer orders & demand forecasts• Quantities represent what needs to be produced,
not what can be produced (infinite capacity planning)
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16-212
2. MRP Example of BOMTop
Leg
Long Rail
Short Rail
16-213
BOM (Product Structure)
Short Rails (2)1 week
Table (End Item)1 week
Long Rails (2)1 week
Legs (4)1 week
Top (1)2 weeks
Leg Assembly (1)1 week
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Indented BOMLevel Code Component
0 Table (end-item)1 Leg assembly (1)2 Short rails (2)2 Long rails (2)2 Legs (4)1 Top(1)
16-215
3. Inventory (item master) File
– Description– Part number– Part name– Safety stock– Item classification– Cost– Yield– Lead time– Group to which item
belongs
– Assemblies in which item is used
– Shelf life– Batch control
requirements– Substitutes– Suppliers and their
ratings– Unit of measure (SKU)
“Permanent” information may include:
16-216
Inventory Status File
Quantities- Ordered- Received- Issued- Allocated- Previously allocated that have been issued
Dates ordered, received, issued, and allocatedShipping, production, and purchase numbersOn-hand balance & Available balanceBatch identification (e.g. lot number)
Changing information includes:
MRP ExampleThe Alpha Beta Company
Inventory Position
Item On Hand Scheduled Receipts Lot Size MPS
A 10 0 1 100, period 8
B 5 0 1 200, period 6
C 140 0 150 - - -
D 200 250, period 2 250 - - -
ALT=3
C(3)LT=4
D(2)LT=2
D(3)LT=2
BLT=2 Level (LLC)=0
Level (LLC)=1
BOM
16-217
MRP Matrices For A & BItem: A LLC: 0 PeriodLot size: 1 LT: 3 PD 1 2 3 4 5 6 7 8Gross requirements 100Scheduled receiptsProjected on hand 10 10 10 10 10 10 10 10 0Net requirements 90Planned order receipts 90Planned order releases 90
Item: B LLC: 0 PeriodLot size: 1 LT: 2 PD 1 2 3 4 5 6 7 8Gross requirements 200Scheduled receiptsProjected on hand 5 5 5 5 5 5 0 0 0Net requirements 195Planned order receipts 195Planned order releases 195
16-218
16-219
Origin of Requirements
• At Level Zero: gross requirements come from the master production schedule (MPS)
• Below level zero: gross requirements come from planned order releases for the next level above.
• Net requirements are gross requirements plus scheduled receipts minus inventory on-hand
MRP Matrices For C & DItem: C LLC: 1 PeriodLot size: 150 LT: 4 PD 1 2 3 4 5 6 7 8Gross requirements 270Scheduled receiptsProjected on hand 140 140 140 140 140 20 20 20 20Net requirements 130Planned order receipts 150Planned order releases 150
Item: D LLC: 1 PeriodLot size: 250 LT: 2 PD 1 2 3 4 5 6 7 8Gross requirements 585 180Scheduled receipts 250Projected on hand 200 200 450 450 115 185 185 185 185Net requirements 135 65Planned order receipts 250 250Planned order releases 250 250
16-220
Alpha Beta Planned Order Release Report
Period Item Quantity1 C 1502 D 2503 D 2504 B 1955 A 90
16-221
16-222
Operating an MRP System
• Should MRP carry “safety stock”?• How much “safety stock” should be carried?• Issue of “safety lead time”• Danger of “informal” system driving out the “formal”
system• Expansion of MRP to other functions (finance, HRM,
etc.) of business
16-223
Operating a Successful MRP System
• Accurate Inventory Records• Stable master production schedule• Realistic master production schedule• Good control of engineering change orders
(impacts BOM)• Good interface with capacity planning (CRP)• Reports that are useful
16-224
Elements of Successful MRP Implementation
• Allow enough time (18 months minimum)• Put materials people in charge of cross-
functional team (not IS or accountants)• Train everyone and train them again!• Top Management support• Accurate records
16-225
Summary
• Definition of MRP Systems• MRP versus Order-Point Systems• MRP Example• MRP Elements• Operating an MRP System• The Successful MRP System
16-226
End of Chapter Sixteen
Just-In-Time Systems and Lean Thinking
Chapter 17
17-228
Chapter 17 Outline• Philosophy of JIT• Elements of a JIT system• Stabilizing the Master
Schedule• The Kanban System• Reducing Setup Time and
Lot Sizes
• Layout and Equipment• Effect on Workers• Suppliers• Implementation of JIT• Comparison of JIT and MRP• Beyond JIT to Lean Thinking
17-229
Philosophy of JIT
• Modern Roots of JIT (Toyota Production System, Taiichi Ohno. d. 1990)
• Elements of JIT• Root of JIT in “repetitive” manufacturing• JIT as a technique: to reduce inventory• JIT as a philosophy: a comprehensive
management system
17-230
Elements of JIT• Small lot sizes (lot size one)• Use of Kanban system• Quick changeover (set-ups)• Multifunction workers• Efficient layout (linear flow)• Close relationships with suppliers• Frequent deliveries from vendors• Elimination of Waste
17-231
The Seven WastesOverproduction: Producing more than the demand for customers resulting in unnecessary inventory, handling, paperwork, and warehouse space.
Waiting Time: Operators and machines waiting for parts or work to arrive from suppliers or other operations.
Transportation: Double or triple movement of materials due to poor layouts, lack of coordination and workplace organization.
Processing: Poor design or inadequate maintenance or processes requiring additional labor or machine time.
Inventory: Excess inventory due to large lot sizes, obsolete items, poor forecasts or improper production planning.
Motion: Wasted movements of people or extra walking to get materials.
Defects: Use of materials, labor and capacity for production of defects, sorting our bad parts or warranty costs with customers.
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Inventory as Waste
• “If all our suppliers are guessing, you end up with inventory, which is the physical embodiment of bad information.” –Paul Bell, Dell, Inc. Europe.
• Dell’s inventories fell from 31 days of parts in 1996 to 6 days in 2000.
Source: Economist, 1 April 2000, p. 57.
17-233
Elements of JIT as a PhilosophySetup TimeReduction
Small LotSizes
JIT Deliveryfrom Suppliers
Suppliers'Quality Level
KANBANSystem
RepetitiveMPS
DailyScheduleDiscipline
"Pull"Production
System
Product DesignSimplicity
Equipment &Facility Layout
Multi-functionWorkers
Small GroupProblemSolving
EmployeeTraining
PreventiveMaintenance
JIT
17-234
• A “pull” production system• A physical (normally visual) control system• Normally composed of cards and containers
(production card and withdrawal card), but can be any type of signal
• Number of containers
Kanban System
CDTn
The Kanban System
• The Kanban system uses simple cards or signals to strictly control production
• The basic idea is that no station is permitted to produce more than is immediately required by the succeeding station
• This simple idea prevents the buildup of inventory• No computer is required!
17-235
The Real Origin Of Kanban
Q - R
In the 1950s, Ohno visited Detroit to learn about auto making from the U.S. manufacturers.
He was not impressed.
He visited a supermarket, which they did not have in Japan, and observed the way they restocked the shelves.
He used that method as the basis for Kanban.
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17-237
Kanban System
17-238
Kanban Cards
17-239
Reducing Setup Times and Lot Sizes• Reducing setup times:
– increases available capacity– increases flexibility– reduces inventory
• Reduce setup times and run times simultaneously to reduce lot sizes and throughput times
• Single-digit Setup Times (Shigeo Shingo [d. 1990] or SMED System)
• Small lots require short setups!
17-240
Traditional Layout
Stockrooms
Supplier A Supplier B
FinalAssemblyWork Centers
17-241
JIT LayoutFinal
Assembly
Supplier A Supplier B
17-242
JIT Layout with Group TechnologyFinal
Assembly
Supplier A Supplier B
Line 1
Line 2
17-243
Effect of JIT on Workers
• Multifunction workers• Cross-training• New pay system to reflect skills variety• Teamwork• Suggestion system
17-244
Suppliers
• Very close relationship with suppliers• Frequent deliveries demanded from suppliers• Sole-sourcing• Integrated supplier programs• Deliveries to production line• No inspection—high quality
17-245
Features of Integrated Supplier Programs
• Early supplier selection, preferably in the design phase
• Family of part sourcing to allow supplier to take advantage of GT
• Long-term relationships with small number of suppliers
• Paperwork reduction in receiving and inspection to reduce costs
17-246
Implementation of JIT
• Obtain commitment from top management• Gain the cooperation of workforce• Start with final assembly line• Reduce setup times and lot sizes working backward from
the final assembly line• Balance fabrication rates with final assembly production
rates• Extend JIT to the suppliers
Benefits Of JIT
1. Reduced inventory 2. Improved quality 3. Lower costs 4. Reduced space
requirements 5. Shorter lead times 6. Increased
productivity 7. Greater flexibility
8. Better relations with suppliers
9. Simplified scheduling and control activities
10. Increased capacity11. Better use of
human resources12. More product
variety17-247
17-248
Comparison of MRP and JIT• Pull versus Push production systems• Situations for comparing MRP and JIT:
– Pure repetitive manufacturing situation; JIT works best– A batch process; JIT works well with cellular
manufacturing– A job shop; MRPII with some elements of JIT
• MRP assumes the present system is correct and seeks to make the best of that system.
• JIT seeks to change the system to make it better.
The Traditional Push System• In traditional manufacturing, an item is released
for production at a specified time, with an associated due date generated by MRP.
• The item moves through a sequence of operations
• When one operation is finished, the item is “pushed” to the next operation
• Finally, the product is pushed to inventory, to meet the demand forecast
17-249
The Pull System• The pull system focuses on the output of the
system rather than the input.• Finished products are “pulled” from the final
operation in response to firm customer orders.• This leads to a chain reaction, with each station
pulling material from its preceding station.• JIT uses the “Kanban” system to control the
flow of material with very little work-in-process inventory.
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Uses of MRP and JIT
JITRepetitive (mass)
SYNCRO MRPSemirepetitive
MRPNonrepetitive(batch or job
shop)
JIT
SYNCRO MRP
MRP
Low HighStability of Master ScheduleStability of Bill of Material
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Lean Thinking
• Term coined by Womack, Jones and Roos in 1990.
• Extends JIT beyond the factory• Also applies to services• http://www.lean.org
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Five Elements of Lean Thinking
• Specify value from the customer’s point of view• Create a value stream map and remove waste• Flow the product or service through the system• Pull the product or service from the customer• Strive for perfection
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Summary• Philosophy of JIT• Elements of a JIT system• Stabilizing the Master
Schedule• The Kanban System• Reducing Setup Time and
Lot Sizes
• Layout and Equipment• Effect on Workers• Suppliers• Implementation of JIT• Comparison of JIT and MRP• Beyond JIT to Lean Thinking
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End of Chapter Seventeen
