Lecture Principle of inventory and material management - Lecture 32

Lecture 32 - Revision. The contents of this chapter include all of the following: Material requirement planning, nature of demand, inputs to MRP, bill of material, planned orders, net requirement plan, MRP and JIT, lot sizing techniques, maintenance and reliability, reliability, product failure rate, providing redundancy, maintenance cost, total productive maintenance.

Revision:

Material Requirement Planning Maintenance and Reliability

Books

• Introduction to Materials Management, Sixth Edition, J. R. Tony Arnold, P.E., CFPIM, CIRM, Fleming  College, Emeritus, Stephen N. Chapman, Ph.D., CFPIM, North Carolina State University, Lloyd M.  Clive, P.E., CFPIM, Fleming College

• Operations Management for Competitive Advantage, 11th Edition, by Chase, Jacobs, and Aquilano, 2005,  N.Y.: McGraw­Hill/Irwin.

• Operations Management, 11/E, Jay Heizer, Texas Lutheran University, Barry Render, Graduate School of  Business, Rollins College, Prentice Hall

Material Requirement Planning

– Independent

• Is not related to the demand for any other product and must be  forecast

• Master production schedule (MPS) items are independent  demand items

– Dependent

• Is directly related to other items or end items

• Such demand should be calculated and need not and should  not be forecast

Independent Demand

(Forecast)

Dependent Demand (Calculated)

Table

Legs

(4)

Ends (2)

Sides (2)

Top (1) Hardware Kit (1)

If you have an order for 23 Tables, what components

would you need to produce them?

Objectives of MRP

• The MRP in turn drives,

or is input to, production control (PC) and purchasing

• Four Major Inputs:

– Master Production  Schedule

Bill of Material

Inventory

Status

• Master Production Schedule (MPS)

– The MPS provides information on planned and scheduled  orders for end items (how much is wanted and when)

– Inventory status provides information on what is already  available. Inventory records include the status of each item,  including amounts on order and on hand and the location

Inputs to the  MRP System

• Bills of Material

– Bills of material describe components and the quantity of each needed to  make one unit

– Planning data include lot size, lead time, scrap factors, yield factors, and  safety stock

– Computers are needed because they are fast , accurate, and have the 

ability to store and manipulate data and produce information rapidly

Inputs to the  MRP System

“a listing of all the subassemblies, intermediates, parts, and raw materials  that go into making the parent assembly showing the quantities of each  required to make an assembly”

Sides (2)

• The multilevel bill is made up of subassemblies.  The 

subassemblies reflect the way manufacturing plans to build the  product.

Bills of Material

• Low­Level Coding and Netting ­ A component may reside on  more than one level in a bill of material

– The low­level code is the lowest level on which a part resides in all bills 

of material. Every part has only one low­level code.

– Low­level are determined by starting at the lowest level of a bill of 

material and, working up, recording the level against the part. If a part  occurs on a higher level, its existence on the lower level has already  been recorded.

– Once the low­level codes are obtained, the net requirements for each  part can be calculated.

Bills of Material

þList of components, ingredients, and

materials needed to make product

parents

children

Std 12” Speaker booster assembly

0

Std 12” Speaker booster assembly

+ 2 x number of Cs = (2)(100) + (2)(150) = 500

þModular Bills

components that can be assembled into multiple end items

scheduling

the BOM

reduce the number of items planned and scheduled

production

temporarily

never go into inventory

• Lead time:  The time from when an order is placed until the part is  ready for use. 

• Exploding:  Multiplying the parent requirements by the usage 

quantity through the product tree

• Offsetting:  Placing the requirements in their proper time    periods  based on lead times

• The planned order release of the parent becomes the gross 

requirement of the component.

planned order releases, but it does not (usually) issue 

purchase or manufacturing orders or reschedule open orders. Computer software can create exception 

messages and suggest types of action

planner can release planned orders, reschedule existing orders in or out, or change quantities. In addition, the planner works with other planners, master production schedulers, production activity control, and purchasing 

to solve problems as they arise

– Planned orders ­ calculated and controlled by the 

software

– Released orders ­ scheduled receipts; releasing is the  responsibility of the planner

item – 50 units of Item A in week 8

40 are actually required – (net requirement)

= (gross requirement - on- hand inventory)

is 40 units – 40 = 50 - 10

planned order release for Item A is now 40 units in week 7

units in week 7

net requirement is 65 units in week 7

generates a planned order release of 65 units in week 5

generates a planned order release of 65

units in week 5

updated to reflect the use of the 15 items in inventory and shows no on-hand inventory

in week 8

calculation and is the third basic function of the MRP process

10 10

Master schedule for  B sold directly Periods

Therefore, these are  the gross 

requirements for B

Periods

allowing effective analysis of changes

not do detailed scheduling

might actually vary with batch size

batches of material through the

system

capacity during normal planning cycles

recognizes actual capacity limits

schedule is created with feasible capacities which facilitates rapid material movement

1 MRP “buckets” are reduced to daily or hourly

þ The most common planning period (time bucket)

for MRP systems is weekly

2 Planned receipts are used internally to sequence

production

3 Inventory is moved through the plant on a JIT basis

4 Completed products are moved to finished goods

inventory which reduces required quantities for

subsequent planned orders

5 Back flushing based on the BOM is used to deduct

inventory that was used in production

required for production based on net requirements

expensive

and MRP systems often deal with unknown and variable demand

future orders to determine most

economic lot size

complex dynamic programming

technique

burdensome

No on-hand inventory is carried through the system

Total holding cost = $0

There are seven setups for this item in this plan

Total setup cost = 7 x $100 = $700

Total cost = setup cost + holding cost

Total cost = (1,404/73) x $100 + (73/2) x ($1 x 52 weeks) Total cost = $3,798

Cost for 10 weeks = $3,798 x (10 weeks/52 weeks) =

$730

Combined requirements) Part Periods Setup Holding Total

whenever there is a lot size or order

process constraints, and purchase lots

considerable distortion of requirements at lower levels of the BOM

is reasonably smooth, PPB,

Wagner-Whitin, or EOQ should give reasonable

results

Maintenance and Reliability

þ Profits becoming losses

þ Reduced value of investment in plant and

equipment

reliability is to maintain the capability

of the system while controlling costs

keeping a system’s equipment in working order

machine will function properly for a specified time

Clean and lubricate

Monitor and adjust

Make minor repair

Keep computerized records

Results Reduced inventory Improved quality Improved capacity Reputation for quality Continuous improvement Reduced variability

R3 99

R2 80

Number of unit-hours of operating time

Mean time between failures

MTBF = FR(N)1

20,000 - 1,200 MTBF = = 9,434 hrs 1

.000106

Probability of needing second component

Probability

of second component working

713 to .94

inspection and servicing to keep facilities in good repair

emergency or priority repairs on failed equipment

service or is likely to fail

mortality

follows a normal distribution

the decision on when preventive

maintenance should be performed

Output Reports

Inventory and purchasing reports

Equipment parts list

Equipment history reports

Cost analysis (Actual vs standard)

Work orders

– Preventive maintenan ce

– Scheduled downtime

– Emergency maintenan ce

Data entry

– Work requests

– Purchase requests

– Time reporting

– Contract work

balance preventive and breakdown maintenance costs

consider the true total cost of

breakdowns

Total costs

Breakdown maintenance costs

Optimal point (lowest

cost maintenance policy)

month with no preventive maintenance

Expected

breakdown cost = Expected number of breakdowns x Cost per breakdown

= (1.6)($300)

= $480 per month

Cost of service contract

= (1 breakdown/month)($300) + $150/month

= $450 per month

Hire the service firm; it is less expensive

Increasing Repair Capabilities

Operator Maintenance department Manufacturer’s field service (return equipment)Depot service

Preventive

maintenance costs less and

is faster the more we move to the left

Competence is higher as we move to the right

þ Designing machines that are reliable, easy to

operate, and easy to maintain

þ Emphasizing total cost of ownership when

purchasing machines, so that service and

maintenance are included in the cost

þ Developing preventive maintenance plans that

utilize the best practices of operators,

maintenance departments, and depot service

þ Training workers to operate and maintain their own

machines

situations

they are implemented

problems and select course of action

End of Lecture 32