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© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
10 - 10 - 11
Principles of Principles of Operations ManagementOperations Management
Principles of Principles of Operations ManagementOperations Management
Inventory for Dependent DemandInventory for Dependent DemandChapter 10Chapter 10
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives
Distinguish dependent from Distinguish dependent from independent demand inventoryindependent demand inventory
Define material requirements planningDefine material requirements planning State the benefits of MRPState the benefits of MRP Identify the requirements of MRPIdentify the requirements of MRP Explain the inputs & outputs of MRPExplain the inputs & outputs of MRP Compute order releasesCompute order releases
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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Inventory
ProcessStage
DemandType
Number& Value
Other
Raw Mat'lWIP
Fin. Goods
IndependentDependent
A ItemsB ItemsC Items
Mainten.Repair
Operating
Inventory
ProcessStage
DemandType
Number& Value
Other
Raw Mat'lWIP
Fin. Goods
IndependentDependent
A ItemsB ItemsC Items
Mainten.Repair
Operating
Inventory ClassificationsInventory ClassificationsInventory ClassificationsInventory Classifications
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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Dependent vs. Dependent vs. Independent DemandIndependent Demand
Dependent vs. Dependent vs. Independent DemandIndependent Demand
Item Materials WithIndependent Demand
Materials WithDependent Demand
DemandSource
Company Customers Parent Items
MaterialType
Finished Goods WIP & Raw Materials
Method ofEstimatingDemand
Forecast & BookedCustomer Orders
Calculated
PlanningMethod
EOQ & ROP MRP
Item Materials WithIndependent Demand
Materials WithDependent Demand
DemandSource
Company Customers Parent Items
MaterialType
Finished Goods WIP & Raw Materials
Method ofEstimatingDemand
Forecast & BookedCustomer Orders
Calculated
PlanningMethod
EOQ & ROP MRP
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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1 2 3 4 5
Gross Requirements 2 20 25 15
Scheduled Receipts 5 30
Available 25 23 33 33 8
Net Requirements 7
Planned Order Receipts 7
Planned Order Releases 7
Material Requirements Material Requirements Planning (MRP)Planning (MRP)
Material Requirements Material Requirements Planning (MRP)Planning (MRP)
Mfg. computer information system Mfg. computer information system Determines quantity & timing of Determines quantity & timing of
dependent demand itemsdependent demand items
© 1995 Corel Corp.
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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MRP RequirementsMRP RequirementsMRP RequirementsMRP Requirements
Computer systemComputer system Mainly discrete productsMainly discrete products Accurate bill-of-materialAccurate bill-of-material Accurate inventory statusAccurate inventory status
99% inventory accuracy99% inventory accuracy
Stable lead timesStable lead times© 1984-1994 T/Maker Co.
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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MRP BenefitsMRP BenefitsMRP BenefitsMRP Benefits
Increased customer satisfaction due to Increased customer satisfaction due to meeting delivery schedules meeting delivery schedules
Faster response to market changesFaster response to market changes Improved labor & equipment utilizationImproved labor & equipment utilization Better inventory planning & schedulingBetter inventory planning & scheduling Reduced inventory levels without Reduced inventory levels without
reduced customer servicereduced customer service
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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MRP & Production MRP & Production Planning ProcessPlanning ProcessMRP & Production MRP & Production Planning ProcessPlanning Process
Forecast &Firm Orders
MaterialRequirements
Planning
AggregateProductionPlanning
ResourceAvailability
MasterProductionScheduling
ShopFloor
Schedules
CapacityRequirements
PlanningRealistic?
No, modify CRP, MRP, or MPSNo, modify CRP, MRP, or MPS
YesYes
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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MRP System MRP System Input & OutputInput & OutputMRP System MRP System
Input & OutputInput & Output
What to make& whenWhat items
make upthe product Material
RequirementsPlanning Sys.
What is instock
What items tomake & when
How long tomake items
What is onorder
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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MRP System MRP System Input & OutputInput & OutputMRP System MRP System
Input & OutputInput & Output
What to make& whenWhat items
make upthe product Material
RequirementsPlanning Sys.
What is instock
How long tomake items
What is onorderPlanned Order
& OtherReports
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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Master Master Production ScheduleProduction Schedule
Master Master Production ScheduleProduction Schedule
Item/Week Oct 3 Oct 10 Oct 17 Oct 24
Drills 300 200 310 300
Saws 300 450 310 330
Item/Week Oct 3 Oct 10 Oct 17 Oct 24
Drills 300 200 310 300
Saws 300 450 310 330
Shows items to be producedShows items to be produced End item, customer order, moduleEnd item, customer order, module
Derived from aggregate planDerived from aggregate plan ExampleExample
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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Bill-of-MaterialBill-of-MaterialBill-of-MaterialBill-of-Material
List of components & quantities List of components & quantities needed to make product needed to make product
Provides product structure (tree)Provides product structure (tree) Parents: Items above given levelParents: Items above given level Children: Items below given levelChildren: Items below given level
Shows low-level codingShows low-level coding Lowest level in structure item occursLowest level in structure item occurs Top level is 0; next level is 1 etc.Top level is 0; next level is 1 etc.
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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Bill-of-Material Bill-of-Material Product Structure TreeProduct Structure Tree
Bill-of-Material Bill-of-Material Product Structure TreeProduct Structure Tree
Bicycle(1)P/N 1000
Handle Bars (1)P/N 1001
Frame Assy (1)P/N 1002
Wheels (2)P/N 1003
Frame (1)P/N 1004
Bicycle(1)P/N 1000
Handle Bars (1)P/N 1001
Frame Assy (1)P/N 1002
Wheels (2)P/N 1003
Frame (1)P/N 1004
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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Bill of MaterialBill of MaterialExampleExample
Bill of MaterialBill of MaterialExampleExample
Bill of Material
P/N: 1000 Name: BicycleP/N Desc Qty Units Level
1001 Handle Bars 1 Each 11002 Frame Assy 1 Each 1 1003 Wheels 2 Each 2 1004 Frame 1 Each 2
© 1995 Corel Corp.
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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Product Structure Product Structure Thinking ChallengeThinking ChallengeProduct Structure Product Structure
Thinking ChallengeThinking Challenge
The demand for product A is 50. How many The demand for product A is 50. How many of each component is needed to satisfy of each component is needed to satisfy demand?demand?
A
B(2) C(3)
D(2)
E(1)E(3) F(2)
D(2)G(1)
A
B(2) C(3)
D(2)
E(1)E(3) F(2)
D(2)G(1)
AloneAlone GroupGroup Class Class
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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Product Structure Product Structure Solution*Solution*
Product Structure Product Structure Solution*Solution*
A
B(2) C(3)
D(2)
E(1)E(3) F(2)
D(2)G(1)
A
B(2) C(3)
D(2)
E(1)E(3) F(2)
D(2)G(1)
5050
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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MRP System MRP System Input & OutputInput & OutputMRP System MRP System
Input & OutputInput & Output
MasterProductionScheduleBill of
MaterialsMaterial
RequirementsPlanning Sys.
InventoryStatus
Planned Order& OtherReports
Item MasterPurchasing
Data
MasterProductionScheduleBill of
MaterialsMaterial
RequirementsPlanning Sys.
InventoryStatus
Planned Order& OtherReports
Item MasterPurchasing
Data
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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Lead TimeLead TimeLead TimeLead Time
InputInput
MoveMoveTimeTime
QueueQueueTimeTime
SetupSetupTimeTime
RunRunTimeTime
OutputOutput
WaitWaitTimeTime
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
10 - 10 - 2020
Lead Times & Lead Times & Product StructureProduct Structure
Lead Times & Lead Times & Product StructureProduct Structure
1 2 3 4 5 6 7 81 2 3 4 5 6 7 8
2 wk.2 wk.
2 wk.2 wk.
1 wk.1 wk.
1 wk.1 wk.3 wk.3 wk.
FrameFrame
WheelsWheels
Handle BarsHandle Bars
BicycleBicycle
Frame Frame AssyAssy
Time (weeks)Time (weeks)
Lead timeLead time
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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MRP System MRP System Input & OutputInput & OutputMRP System MRP System
Input & OutputInput & Output
MasterProductionScheduleBill of
MaterialsMaterial
RequirementsPlanning Sys.
InventoryStatus
Planned Order& OtherReports
Item MasterPurchasing
Data
MasterProductionScheduleBill of
MaterialsMaterial
RequirementsPlanning Sys.
InventoryStatus
Planned Order& OtherReports
Item MasterPurchasing
Data
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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MRP ReportMRP ReportMRP ReportMRP Report
1 2 3 4 5
Gross Requirements 2 20 25 15
Scheduled Receipts 5 30
Available 25 23 33 33 8
Net Requirements 7
Planned Order Receipts 7
Planned Order Releases 7
1 2 3 4 5
Gross Requirements 2 20 25 15
Scheduled Receipts 5 30
Available 25 23 33 33 8
Net Requirements 7
Planned Order Receipts 7
Planned Order Releases 7
Lead time = 3; lot policy = lot-for-lot (LFL); Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.on-hand = 20 units; safety stock = 0 units.
20202020
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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MRP FormulasMRP FormulasMRP FormulasMRP Formulas
Available = On-hand - Safety stockAvailable = On-hand - Safety stock - Allocated - Allocated On-hand is inventory On-hand is inventory physicallyphysically present present Allocated is inventory reserved for special Allocated is inventory reserved for special
ordersorders
On-hand = Prior period's on-handOn-hand = Prior period's on-hand + Scheduled receipts + Scheduled receipts
Net requirement = Gross requirementNet requirement = Gross requirement - Available - Available
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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MRP Example MRP Example Component BComponent BMRP Example MRP Example Component BComponent B
A master schedule calls for A master schedule calls for starting (planned order starting (planned order release) release) 22 units of product units of product XX in in week 1week 1, , 20 20 in in week 2week 2, & , & 10 10 in in week 4week 4. The planned . The planned order releases for product order releases for product YY are are 15 15 in in week 4week 4,, and and 15 15 in in week 5week 5. Determine the . Determine the gross requirements for gross requirements for componentcomponent BB. .
X
A(1) B(1)
Y
A(1) C(3)
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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Component B SolutionComponent B SolutionComponent B SolutionComponent B Solution
X Y
A(1) B(1) A(1) C(3)
WeekQty
12
220
3 4 5 1 2 3 4 5151510
Week 1 2 3 4 5Qty 2 20 10
WeekQty
X Y
A(1) B(1) A(1) C(3)
WeekQty
12
220
3 4 5 1 2 3 4 5151510
Week 1 2 3 4 5Qty 2 20 10
WeekQty
Gross Requirements BGross Requirements B
Planned Order Releases XPlanned Order Releases X Planned Order Releases YPlanned Order Releases Y
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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Thinking Challenge Thinking Challenge Component CComponent C
Thinking Challenge Thinking Challenge Component CComponent C
A master schedule calls for A master schedule calls for starting (planned order starting (planned order release) 2 units of product X release) 2 units of product X in week 1, 20 in week 2, & 10 in week 1, 20 in week 2, & 10 in week 4. The planned in week 4. The planned order releases for product Y order releases for product Y are 15 in week 4, and 15 in are 15 in week 4, and 15 in week 5. week 5. Determine the Determine the gross requirements for gross requirements for component Ccomponent C. .
X
A(1) B(1)
Y
A(1) C(3)
AloneAlone GroupGroup Class Class
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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Component C Solution*Component C Solution*Component C Solution*Component C Solution*
X Y
A(1) B(1) A(1) C(3)
WeekQty
12
220
3 4 5 1 2 3 4 5151510
Week 1 2 3 4 5Qty 4545
WeekQty
X Y
A(1) B(1) A(1) C(3)
WeekQty
12
220
3 4 5 1 2 3 4 5151510
Week 1 2 3 4 5Qty 4545
WeekQty
Gross Requirements CGross Requirements C
Planned Order Releases XPlanned Order Releases X Planned Order Releases YPlanned Order Releases Y
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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Thinking Challenge Thinking Challenge Component AComponent A
Thinking Challenge Thinking Challenge Component AComponent A
A master schedule calls for A master schedule calls for starting (planned order starting (planned order release) 2 units of product X release) 2 units of product X in week 1, 20 in week 2, & 10 in week 1, 20 in week 2, & 10 in week 4. The planned in week 4. The planned order releases for product Y order releases for product Y are 15 in week 4, and 15 in are 15 in week 4, and 15 in week 5. week 5. Determine the Determine the gross requirements for gross requirements for component Acomponent A. .
X
A(1) B(1)
Y
A(1) C(3)
AloneAlone GroupGroup Class Class
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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Component A Solution*Component A Solution*Component A Solution*Component A Solution*
X Y
A(1) B(1) A(1) C(3)
WeekQty
12
220
3 4 5 1 2 3 4 5151510
Week 1 2 3 4 5Qty 2 20 1525
WeekQty
X Y
A(1) B(1) A(1) C(3)
WeekQty
12
220
3 4 5 1 2 3 4 5151510
Week 1 2 3 4 5Qty 2 20 1525
WeekQty
Gross Requirements AGross Requirements A
Planned Order Releases XPlanned Order Releases X Planned Order Releases YPlanned Order Releases Y
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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MRP SolutionMRP SolutionMRP SolutionMRP Solution
1 2 3 4 5
Gross Requirements 2 20 25 15
Scheduled Receipts 5 30
Available
Net Requirements
Planned Order Receipts
Planned Order Releases
1 2 3 4 5
Gross Requirements 2 20 25 15
Scheduled Receipts 5 30
Available
Net Requirements
Planned Order Receipts
Planned Order Releases
20202020
Lead time = 3; lot policy = lot-for-lot (LFL); Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.on-hand = 20 units; safety stock = 0 units.
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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MRP SolutionMRP SolutionMRP SolutionMRP Solution
1 2 3 4 5
Gross Requirements 2 20 25 15
Scheduled Receipts 5 30
Available 25 23 33 33 8
Net Requirements 7
Planned Order Receipts 7
Planned Order Releases 7
1 2 3 4 5
Gross Requirements 2 20 25 15
Scheduled Receipts 5 30
Available 25 23 33 33 8
Net Requirements 7
Planned Order Receipts 7
Planned Order Releases 7
Lead time = 3Lead time = 3; lot policy = lot-for-lot (LFL); ; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.on-hand = 20 units; safety stock = 0 units.
20202020
An order of 7 must be started in week 2. Lead time is 3 weeks.
An order of 7 must be started in week 2. Lead time is 3 weeks.
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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Safety Safety StockStock
Safety Safety StockStock
1 2 3 4 5
Gross Requirements 2 20 25 15
Scheduled Receipts 5 30
Available 23 21 31 31 6
Net Requirements 9
Planned Order Receipts 9
Planned Order Releases 9
1 2 3 4 5
Gross Requirements 2 20 25 15
Scheduled Receipts 5 30
Available 23 21 31 31 6
Net Requirements 9
Planned Order Receipts 9
Planned Order Releases 9
Lead time = 3; lot policy = lot-for-lot (LFL); Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; on-hand = 20 units; safety stock = 2 unitssafety stock = 2 units..
1818181820 - 2 =20 - 2 =20 - 2 =20 - 2 =
Safety stock decreases ‘Available’ inventory. The amount physically on-hand is still the same (20).
Safety stock decreases ‘Available’ inventory. The amount physically on-hand is still the same (20).
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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Lot SizeLot SizeLot SizeLot Size
Lot: Batch of material that moves & Lot: Batch of material that moves & gets processed togethergets processed together
Reduces setup & handling time & costReduces setup & handling time & cost TechniquesTechniques
Lot-for-lot (LFL)Lot-for-lot (LFL) Economic order quantity (EOQ)Economic order quantity (EOQ) Part period balancingPart period balancing Wagner-Whitin algorithmWagner-Whitin algorithm
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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Lot SizeLot SizeLot SizeLot Size
1 2 3 4 5
Gross Requirements 2 20 25 15
Scheduled Receipts 5 30
Available 25 23 33 33 8
Net Requirements 7Planned Order Receipts 10
Planned Order Releases 10
Lead Time = 3; Lead Time = 3; Lot Size= 5 units (or Multiples)Lot Size= 5 units (or Multiples); ; On-Hand = 20 Units; Safety Stock = 0 Units.On-Hand = 20 Units; Safety Stock = 0 Units.
20202020
Lot size is 5 or multiples (5, 10, 15 etc.). The quantities started (i.e., released) & completed are increased.
Lot size is 5 or multiples (5, 10, 15 etc.). The quantities started (i.e., released) & completed are increased.
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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MRP MRP Thinking Challenge 1Thinking Challenge 1
MRP MRP Thinking Challenge 1Thinking Challenge 1
A(1)LT = 1
B(2)LT = 2
C(4)LT = 3
A(1)LT = 1
B(2)LT = 2
C(4)LT = 3
A master schedule calls A master schedule calls for for 200200 units of product units of product A A in in period 5period 5. . No stock No stock of any components is of any components is on-hand or on order. All on-hand or on order. All order sizes are order sizes are lot-for-lot-for-lotlot. Determine the . Determine the amount & timing of all amount & timing of all planned order releases.planned order releases.
AloneAlone GroupGroup Class Class
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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MRP MRP Thinking Challenge 2Thinking Challenge 2
MRP MRP Thinking Challenge 2Thinking Challenge 2
A master schedule calls for A master schedule calls for 50 50 units of units of F F in in week 6week 6, & , & 60 60 in in week 8week 8. On-hand levels . On-hand levels are are F = 0F = 0, , G = 20G = 20, & , & H = 60H = 60. . Another Another 2020 units of units of G G are are scheduled to be received in scheduled to be received in week 4.week 4. Order quantities Order quantities are are lot-for-lot lot-for-lot except for except for H,H, which has a lot size of which has a lot size of 5050 or or multiplesmultiples of 50. of 50.
F(1)LT = 2
G(1)LT = 1
H(1)LT = 2
H(4)LT = 2
AloneAlone GroupGroup Class Class
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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MRP MRP Management IssuesManagement Issues
MRP MRP Management IssuesManagement Issues
System nervousnessSystem nervousness Time fences: Portion of master schedule not Time fences: Portion of master schedule not
scheduledscheduled Pegging: Tracing to parent in BOMPegging: Tracing to parent in BOM
Integration with Just-in-Time (JIT)Integration with Just-in-Time (JIT) Reduce time buckets to daily or hourlyReduce time buckets to daily or hourly Use planned receipts to sequence ordersUse planned receipts to sequence orders Use kanban cards to move materialUse kanban cards to move material Use back flushing to reduce inventory Use back flushing to reduce inventory
© 1997 Prentice-Hall, Inc.© 1997 Prentice-Hall, Inc.
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ConclusionConclusionConclusionConclusion
Distinguished dependent from Distinguished dependent from independent demand inventoryindependent demand inventory
Defined material requirements planningDefined material requirements planning Stated the benefits of MRPStated the benefits of MRP Identified the requirements of MRPIdentified the requirements of MRP Explained the inputs & outputs of MRPExplained the inputs & outputs of MRP Computed order releasesComputed order releases