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Prepared By,Mr. Nishant Agrawal

Inventory Management MRP, JIT and SCM

Session OutlineInventory ManagementUse of Inventory Types of Costs

Inventory Management Inventory is stock in firm for future useIn Manufacturing organization have inventories of raw materials, components, tools and equipment etc.In Service organization such as banks, financial organization , hospitals. in hospital have inventories of medical equipment such as glucose bottle etc. Inventory is maintained by organization to avoid stock out of item.Stock Out of any items resultsLoss of potential profitLoss of goodwill of customer

ContinueLow level of inventory and High level of inventoryInventory of an item should neither be high or low. It should just optimalHow much size of order placed to suppliers? When should order placed ?

Use of InventoryAnticipation Inventory : to satisfied expected customerCycle Stock : Use EOQ , It will Min total cost of inventorySafety or buffer stock : to avoid stock outInventory for Quantity discount / future price increasesSeasonal Inventory

Types of CostsOrdering cost (OC) is cost of placing a single order.Carrying cost (CC) is cost of storing the inventory in the warehouse.

Inventory Management System

Inventory Management SystemDependent inventory is defined as the inventory of items that are the components , parts, sub assemblies of Finished Goods. Independent demand inventory is defined as inventory of finished goods .

It is a planning technique which converts master production schedule of end products into detailed schedule for raw materials and parts used in those end products.MPS is the plan that a company has developed for production, inventory, staffing, etc.MRP is a means for determining the number of parts, components, and materials needed to produce a productMRP is aproduction planning,scheduling, andinventorycontrol system used to managemanufacturingprocesses.

Material Resource Planning (MRP)

Inventory reduction:Determines how many components are needed and when in order to meet MASTER PRODUCTION SCHEDULE.

Reduction in production and delivery lead times.It helps to meet delivery deadlines by coordinating inventories, procurement and production decision

Realistic commitmentsImproves customer satisfaction.Objectives of MRP

Independent demand:Demand for the product is not directly related to demand for other items

Dependent demands:Demand for the product is directly related to demand for some other product.Fundamental concepts of MRP

Inputs to MRP

Based on actual customer orders and predicted demand.Indicates when each ordered item will be produced in coming weeks, and in how much quantity. It is a plan specifying timing and quantity of production for each end item.MPS inputs come from sales and marketing .

Master production schedule(MPS)

MPS-example

A listing of all of the raw materials, parts, subassemblies, and assemblies needed to produce one unit of a product .BOM Shows way a finished product or parent item is put together from individual components.Bill of Materials (BOM)

BOM example

A(2)B(1)D(5)C(2)

X

C(3)

BOM example - cycle

Detailed information regarding the quantity of each item, available in hand, on order to be released, for use in various time periods.MRP system using inventory master file is used to determine the quantity of material available for use in a given period.If sufficient items not available , the system includes the item on the planned order release report.Inventory Status File

1. Work orders / Planned orders report 2. Order Release 3. Action Notices or Rescheduling Notices or order change

MRP outputs

Planned orders reportIt helpful in preparing for the funds required for payment to suppliers in future according to dates and order size. Ex. January is current month and finance manager wants to see what quantities of raw material purchases have to be made in March. Order Release ReportIt gives information about planned order to be released on presentr date. It helps purchase managers to release purchase order (PO) to suppliers. Authorization for the execution of planned orders.

Order change reportOpen order are those which have been placed in the past, and supplier of items in preparing for supplier to be made in the company. which orders are to be released, revised and canceled during the current time period.

Keep inventory levels to a minimum.Keeps track of inventory that is used.Tracks the amount of material that is required. Set safety stock levels for emergencies.Plan for future needs of rawmaterials or components.

Benefits

Inaccurate information can result in mis-planning , overstock, under-stock, or lack of appropriate resources.The inaccurate master schedule will provide wrong lengths of time for production . Hence affecting planning.MRP systems can be costly and time-consuming to set upDrawbacks

Just-in-time / Toyota Production System A production system to produce the kind of units needed, at the time needed and in the quantities neededA Philosophy of manufacturing based on planned elimination of all waste and continues improvement of productivity JIT was originally developed by Toyota Motor company in JapanProducing quantity of units that is needed, no more, no lessProducing them on the date and time required, not before not after

Concept of JITThree fundamental concept of JITElimination of waste and variability Pull versus Pull systemManufacturing cycle time

Elimination of waste and variability

Anything that does not add value is described as waste in production of G & S. Products being stored, inspected or delayed, products waiting in queue and defective product do not add value hence they are 100% wasteJIT Speeds throughput (converted from raw materials into finished goods) allowing faster delivery and reducing work in process.

2) Pull Vs Push systemThe pull inventory control system begins with a customer's order. With this strategy, companies only make enough product to fulfil customer's orders. One advantage to the system is that there will be no excess of inventory that needs to be stored, thus reducing inventory levels and the cost of carrying and storing goods. Ex. JIT (The goal is to keep inventory levels to a minimum by only having enough inventory, not more or less, to meet customer demand)The push system of inventory control involves forecasting inventory needs to meet customer demand. Companies must predict which products customers will purchase along with determining what quantity of goods will be purchased. The company will in turn produce enough product to meet the forecast demand and sell, or push, the goods to the consumer. Ex. MRP (it combines the calculations for financial, operations and logistics planning.)

3) Manufacturing cycle time It is time between the arrival of raw material and shipping of finished products. JIT helps to reduce the manufacturing cycle time.

Overview of JIT ManufacturingInventory reduction : JIT is system for reducing inventory levels at all stages of productionQuality Management: JIT provide procedure for improving both quality within the firmLead time reduction: With JIT, lead time components such as Set up and move times are significantly reduced. Continuous Improvement: JIT system, existing problems are corrected and new problem identifies

Characteristics of JITJIT system focus on reducing inefficiency and unproductive time in production process to improve continuously the process and quality. Pull method of material flowConstantly High QualityUniform Workstation LoadsStandardized components and work methodsClose Supplier Ties Flexible workforceAutomated Production

Elements of JITEliminating wasteEnforced Problem SolvingContinuous Improvement / KaizenInvolvement of PeopleTotal Quality Management

Benefits of JITLower Warehouse Costs (Storing excess inventory can cost a lot of money) Better Customer Satisfaction (model can allow companies to serve their customers faster and more efficiently) Reduce Waste Improved Supplier Relationships

Drawback of JITA supplier that does not deliver goods to the company exactly on timeAn investment should be made in information technology to link the computer systems of the company and its suppliers,A company may not be able to immediately meet the requirements of a massive and unexpected orderRisk of running out of stockMore Planning required

JIT manufacturing It is common terms is most common terms is continuous improvement of material flow There are four techniques in JIT for improving material flowFactory layout revisionSet Up time reduction Pull system implementation Better coordination with suppliers

Factory layout revisionThe layout of factory can be revised to introduce assembly lines & manufacturing cells. Sometime called continuous flow manufacturing.Purpose : Min handling activities and faster quality feedback.Assembly lines are typically dedicated to particular product typeSet up time reduction Factories can reduce set up time in order to reduce lot sizes & smooth production. Ex. In manufacturing doors and other sheet metal parts of Automobile, metal sheet is given various shapes by using heavy presses containing metal dies. It is called StampingReduced set up times enable factory to produce small size

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Hybrid MRP JIT System

Supply Chain ManagementThe supply chain involved in the transformation of goods from the raw material stage to the final stage, when the goods and services reach the end customer.Supply chain management involves planning, design and control of flow of material, information and finance along the supply chain to deliver superior value to the end customer in an effective and efficient mannerManagement of material, funds and information flows both in and between facilities such as vendors, manufacturing and assembly plants and distribution centers.

Supply Chain Stages

A typical supply chain may involve a variety of stages. These supply chain stages include: Customers, Retailers, Wholesalers/distributors, Manufacturers, Raw material suppliers.Each stage in a supply chain is connected through the flow of products, information, and funds. These flows often occur in both directions and may be managed by one of the stages or an intermediary.

SupplierManufacturerDistributorRetailerCustomer

Overview of SCMBasic purpose of SCM iis to control inventory by managing the flow of material.In manufacturing organisation, there is a inward flow of input material such as raw materials. The rate of production depends on the demand for finished goods.Managing flow of material is common to organization in every segment of the economy: manufactures, wholesalers, retailers, governments departments hospitals etcThats why Supply chain management is becoming a key competitive weapon.

ContinueA supply chain consists of all stages involved, directly or indirectly in fulfilling a customers request.It not only include manufacturer and supplier but also transports, warehouses, retails etc.Supply chain is dynamic (Active) and involve the constant flow of information, product and funds between different stages. Each stage of the supply chain performs different processes and interact with other stages of supply chain. Primary purpose of the existence of any supply chain is to satisfy customer needs.Supply Chain activities begin with customer order and end when a satisfies customer has paid for his purchase.

Objective of Supply ChainTo maximize the overall value generated. To achieve maximum Supply Chain profitability.To reduce the supply chain cost to minimum possible level.Satisfy customer service requirementsFace Global Competition

KaizenKaizen(),Japanesefor "improvementkaizen refers to activities that continuously improve all functions and involve all employees from theCEOto theassembly lineworkers.By improving standardized activities and processes, kaizen aims to eliminate wasteKaizen is a daily process, the purpose of which goes beyond simple productivity improvement.TheToyota Production Systemis known for kaizen, where all line personnel are expected to stop their moving production line in case of any abnormality

Kanban

Kanban (signboard) () is a scheduling system forlean(elimination of waste)and just-in-time(JIT) productionKanban cards are a key component of kanban and they signal the need to move materials within a production facility or to move materials from an outside supplier into the production facility.In the last few years,systems sending kanban signals electronically have become more widespread. In various software systems, kanban is used for signalling demand to suppliers through email notifications.Electronic kanban help to eliminate common problems such as manual entry errors and lost cards

Benefits of KanbanHighly visible systemsSimple, effective, and inexpensiveReduces inventory and eliminates stock-outsImproves the quality of serviceImproves lead times

Lean manufacturing

Lean manufacturingorlean production, is a systematic method for the elimination of waste (Muda) within a manufacturing system.Lean also takes into account waste created through overburden ("Muri") and waste created through unevenness in work loads ("Mura").Lean manufacturing is a management philosophy derived mostly from theToyota Production System

Key Lean Manufacturing Techniques5S

Kanban

5SStrategy for creating a well organized, smoothly flowing manufacturing process

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Benefits of 5SIncreases organization and efficiencyAvoids wasted motionIncreases safetyEliminates unnecessary inventoryOffers improvements

Assignments Que 1) What do you mean by JIT? Explain basic elements of JIT.ORExplain the benefits of JIT with a schematic DiagramORDepict your understanding for Just in Time manufacturing system.Que.2) Explain the MRP System in detail with inputs of MRP. Que.3) What is supply chain management? How it is important for organization?

Thank you..!!"I don't know the key to success, but the key to failure is trying to please everyone."