MRP and JIT

1. MRP and JIT

2. Introduction • Many products are not single entities, they are composed of subassemblies and parts, some purchased and some manufactured. • A production plan specifies quantities of each final product (end item), subassemblies, and parts needed at distinct points in time. • To generate a production plan two things are required: estimates for the end-product demand, and a master production schedule (MPS) • Forecast independent demand – plan dependent demand • The need for one item is created by the need for another item • The MPS is a delivery plan for the manufacturing organization: • includes exact amounts and delivery timings for each end product • is derived from the demand estimates, but is not necessarily equal to them • MPS must account for manufacturing constraints (such as capacity) and on-hand finished-goods inventory

3. Introduction • Breaking the MPS into a production schedule for each component of an end-item is achieved by the material requirements planning (MRP) system • The MRP system determines material requirements and timings for each phase of production. Material shortage is another major manufacturing constraint • The MRP system was introduced by Joseph Orlicky (IBM, 1960’s); by 1989, sales of MRP software and implementation support exceeded $1 billion • MRP II – manufacturing resources planning • Includes demand management, forecasting, capacity planning, MPS, rough-cut capacity planning, capacity requirements planning, dispatching, input/output control • ERP – enterprise resources planning • Targets all operations of a company: manufacturing, distribution, accounting, financial, and personal

4. End-Item Demand Estimate Master Production Schedule (MPS) Rough-Cut Capacity Detailed Capacity Planning Material Requirements Planning (MRP) Material Plan Shop Orders Purchasing Plan Shop Floor Control Closed-Loop MRP Updates Production planning process

5. MRP Procedure • Purchase orders – outside orders Jobs – orders from within the plant • Buckets – time is divided into discrete chunks End items – finished products • Lower-level items – constituent parts of the end items • Bill of material (BOM) – relationship between end and the lower-level items The basic MRP procedure is simple: for each level in the bill of material, beginning with end items, MRP does the following: • Netting: Determine net requirements by subtracting on-hand inventory and any scheduled receipts from the gross requirements. The gross requirements for level-zero items come from the MPS, while those for lower-level items are the result of previous MRP operations • Lot sizing: Divide the netted demand into appropriate lot sizes to form jobs • Time phasing: Offset the due dates of the jobs with lead times to determine start times • BOM explosion: Use the start times, the lot sizes, and the BOM to generate gross requirements of any required components at the next level(s) • Iterate: Repeat these steps until all levels are processed.

6. MRP Procedure: Lot Sizing Determining the lot size (order quantity or production quantity) of an item Static lot sizing rule: • A decision rule that orders the same quantity each time an order is placed • Tend to generate higher average on-hand inventory because they create inventory remnants • Can provide extra safety stock Dynamic lot sizing rule: • A decision rule that changes the order quantity with each order, typically so that each order is just large enough to prevent shortages over a specified time period • Tend to cause instability by tying lot-size to gross requirements • Lower-level components may not be able to respond sufficiently fast to changes in requirements

7. MRP Procedure: Static Lot Sizing 1.Fixed order quantity (FOQ) Order (or produce) a fixed quantity, or a multiple of that fixed quantity by combining the net requirements of P periods 2.Economic Order Quantity (EOQ) Order (or produce) the economic order quantity, plus any additional items needed to replenish safety stock if it has fallen below its desired level Yields minimum total setup/ordering costs and the holding costs Assumes relatively constant demand

8. MRP Procedure: Dynamic Lot-Sizing 1.Lot-for-Lot (L4L) Produce exactly the quantity required in each period to satisfy gross requirements, and used if setup cost < carrying cost for 1 period of demand Simple to use, and agrees with Just-In-Time philosophy of ordering (or producing) only when required Lot size can be modified easily for purchase discounts or restrictions, scrap allowances, process constraints, etc Minimizes on-hand inventory, but maximizes number of orders placed (so can be expensive if setup/ordering costs are significant) 2. Periodic Order Quantity (POQ) Order (or produce) a quantity equal to the gross requirements for P periods minus any items in on-hand inventory plus any additional items needed to replenish safety stock if it has fallen below its desired level Restores safety stock and covers exactly P periods of gross requirements. When trying to guarantee any level of service for an assembly, the service for the component parts must be much greater

9. Level 0 Car and truck gift pack Red toy car D70524 (1) End item - parent Level 1 Red truck Red body T19862 (1) Axle/wheel assembly S44381 (2) Lower level items - components Level 2 Axle S11844 (1) Wheel R21174 (2) Level 3 MRP Example 1: The Product Structure Diagram

10. Shortcomings of Material Requirement Plan • Uncertainty: MRP ignores demand uncertainty, supply uncertainty, and internal uncertainties that arise in the manufacturing process • Capacity Planning: Basic MRP does not take capacity constraints into account • Lead Times Dependent on Lot Sizes: In MRP lead times are assumed fixed, but they clearly depend on the size of the lot required • Quality Problems: Defective items can destroy the linking of the levels in an MRP system • Data Integrity: Real MRP systems are big (perhaps more than 20 levels deep) and the integrity of the data can be a serious problem • Order Pegging: A single component may be used in multiple end items, and each lot must then be pegged to the appropriate item

11. Introduction to Just-In-Time Revolution • The successful manufacturing organizations in North America and throughout the world have common essential characteristics: company that produces high quality products at low cost, and responds quickly to customer’s requests for delivery, changes in design, and changes in volume • The process of improving manufacturing productivity with emphasis on high quality and low cost often uses terms such as: the Just-in-Time (JIT) approach, zero inventory, total quality management, world class manufacturing, and the search for excellence • What stands behind the words ”Just-in-Time”?

12. Introduction to Just-In-Time Revolution • Just-in-Time system – approach alternative to MRP

13. The Philosophy of JIT • The goal of JIT is to (1) remove all waste from the manufacturing environment, and as result: • Right quantity of products are produced in the highest quality at exactly right time (not late or early) • Have zero inventory, zero lead time, no queues • Waste = inventory + disruptions of the flow + poor quality + counting + scheduling + moving + sorting + etc. • JIT seeks to (2) eliminate all uncertainty, including machine breakdowns • Kaizen = pursue continuous improvement

14. The Philosophy of JIT • Continuous improvement. • Attacking fundamental problems - anything that does not add value to the product. • Devising systems to identify problems. • Striving for simplicity - simpler systems may be easier to understand, easier to manage and less likely to go wrong. • A product oriented layout - produces less time spent moving of materials and parts. • Quality control at source - each worker is responsible for the quality of their own output. • Poka-yoke - `foolproof' tools, methods, jigs etc. prevent mistakes • Preventative maintenance, Total productive maintenance - ensuring machinery and equipment functions perfectly when it is required, and continually improving it.

15. The Philosophy of JIT • Eliminating waste. There are seven types of waste: • waste from overproduction. • waste of waiting time. • transportation waste. • processing waste. • inventory waste. • waste of motion. • waste from product defects. • Good housekeeping - workplace cleanliness and organisation. • Set-up time reduction - increases flexibility and allows smaller batches. Ideal batch size is 1item. Multi-process handling - a multi-skilled workforce has greater productivity, flexibility and job satisfaction. • Levelled / mixed production - to smooth the flow of products through the factory. • Kanbans - simple tools to `pull' products and components through the process. • Jidoka (Autonomation) - providing machines with the autonomous capability to use judgement, so workers can do more useful things than standing watching them work. • Andon (trouble lights) - to signal problems to initiate corrective action

16. JIT Systems Four requirements for the success of a JIT system 1. Elimination of waste • Uncovering problems by eliminating cost-adding processes (rock-river picture) • Reduce (or eliminate) setup times, lot sizes, lead times Low setup times  small batch sizes  reduction of capacity loss • If large batch is run before the problem is found  many parts have to be repaired/discarded • Preventive maintenance • Multi-skilled work force provides flexibility in scheduling • Foolproof operations – ensure that simple errors are not made

17. JIT Systems Four requirements for the success of a JIT system 2. Employee involvement in decision making • Improving process by implementing employees’ suggestions • Develop employee motivation and mutual trust between workers and management 3. Supplier participation • The good relationships make joint improvement efforts possible • Reduce the number of suppliers and establish long-term associations with them

18. JIT Systems Four requirements for the success of a JIT system 4. Total quality control • Each employee is given more responsibility for the production process. • Every employee can stop the whole production line if quality is not satisfactory • Highly reliable equipments are needed to escape high level of frustration • Repetitive manufacturing and a stable master production schedule are needed • Having some excess capacity allows variability to be met without constantly injecting more inventory into the system and permits time for the workers to experiment with ways to eliminate wastes

19. Kaizen • Kaizen = pursue continuous improvement

20. Why Push and Pull? • MRP is the classic push system. The MRP system computes production schedules for all levels based on forecasts of sales of end items. Once produced, subassemblies are pushed to next level whether needed or not.

21. Why Push and Pull? • JIT is the classic pull system. The basic mechanism is that production at one level only happens when initiated by a request at the higher level. That is, units are pulled through the system by request. The ideal cell is self-contained with all necessary equipment and resources.

22. Kanban Systems “Kanban” = cards or visible record • A communication signal from a consumer (downstream process) to a producer (upstream process) • A manual information system to control production, material transportation, and inventory

23. Kanban • kanban is the means through which JIT is managed • refers to a signal of some kind. kanbans are signals used to replenish the inventory of items used repetitively within a facility • kanban signal is an empty container designed to hold a standard quantity of material or parts • When the container is empty, the customer sends it back to the supplier. The container has attached to it instructions for refilling the container such as the part number, description, quantity, customer, supplier, and purchase or work order number • Some other common forms of kanban signals are supplier replaceable cards for cardboard boxed designed to hold a standard quantity, standard container enclosed by a painting of the outline of the container on the floor, and color coded striped golf balls sent via pneumatic tubes from station to station

24. Dual CardSystem • Each workcenter has • 5 components: • Production cell • Input store (A) • Output store (B) • P-kanban post (C) • T-kanban post (D) All parts stored in containers Each container has fixed capacity = authorization to produce or to move Each container has T- or P-kanban attached

25. Characteristics of Kanban System A kanban system is not for everyone Works best when flow is uniform and the product mix is highly stable (similar to bucket brigade) Set-up operations are short at every workcenter Variability disrupts a kanban system Extra cards must be introduced to avoid backorders Kanban does not work well in systems with many active stock numbers – difficult to control large number of kanbans

26. Comparison of MRP and JIT Systems These methods offer two completely different approaches to basic production planning in a manufacturing environment. Each has advantages over the other, but neither seems to be sufficient on its own. Both have advantages and disadvantages, suggesting that both methods could be useful in the same organization. • Main Advantage of MRP over JIT: MRP takes forecasts for end product demand into account. In an environment in which substantial variation of sales are anticipated (and can be forecasted accurately), MRP has a substantial advantage. • Main Advantage of JIT over MRP: JIT reduces inventories to a minimum. In addition to saving direct inventory carrying costs, there are substantial side benefits, such as improvement in quality and plant efficiency.

27. Comparison of MRP and JIT Systems • JIT works best in “favorable” manufacturing environments: little demand variability, reliable vendors, and small set up times • MRP worked well in favorable environments (comparable to JIT) and better in unfavorable environments