Slide 1 Lean Operations

Lecture 4

Lean Operations MRP vs. JIT

Professor Kihoon Kim

BUSS211 OM

Slide 2 Lean Operations

Outline

Independent demand vs. dependent demand

MRP (Push) vs. JIT (Pull)

How MRP works?

How JIT works?

Lean Operations Tactics

Slide 3 Lean Operations

Independent vs. Dependent Demand

Independent Dependent

1. End or finished items 1. Subassemblies,

Components/Materials

2. May be uniform demand 2. Lumpy demand

3. Few items - carefully monitored 3. Many items less emphasis

Slide 4 Lean Operations

Material Requirements Planning for Components

EOQ analysis for Finished Goods

1. For items with independent demand Deterministic demand Standard EOQ

Probabilistic demand EOQ with safety stock

2. Answers one question: How much is needed

MRP for Components

1. For inventory systems with dependent demand

2. Answers two questions: How much & When

Slide 5 Lean Operations

MRP vs. JIT

MRP. (Materials Requirements Planning). MRP is the basic process of translating a production schedule for an end product (MPS or Master Production Schedule) to a set of requirements for all of the subassemblies and parts needed to make that item.

JIT. Just-in-Time. Derived from the original Japanese Kanban system developed at Toyota. JIT seeks to deliver the right amount of product at the right time. The goal is to reduce WIP (work-in-process) inventories to an absolute minimum.

Slide 6 Lean Operations

Push vs. 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.

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.

Slide 7 Lean Operations

Advantages of MRP and JIT

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.

Slide 8 Lean Operations

MRP Basics

The MRP system starts with the MPS or Master Production

Schedule. This is the forecast for the sales of the end item over

the planning horizon. The data sources for determining the MPS

include:

Firm customer orders

Forecasts of future demand by item

Safety stock requirements

Seasonal variations

Internal orders from other parts of the organization.

Slide 9 Lean Operations

The Explosion Calculus

The explosion calculus is a set of rules for converting the master production schedule to a requirements schedule for all subassemblies, components, and raw materials necessary to produce the end item.

Work backward from finished goods production schedule (assumed

fixed)

Each finished good has its Bill of Materials

Each component has quantity multiplier & lead time

There are two basic operations comprising the explosion calculus:

Time phasing: Requirements for lower level items must be shifted backwards by the lead time required to produce the items

Multiplication: A multiplicative factor must be applied when more than one subassembly is required for each higher level item.

Given how much is ordered, determine when inputs are needed

Determine when you would run out of the input given the fixed production

schedule

Slide 10 Lean Operations

Typical Product Structure Diagram (Bill of Materials)

Slide 11 Lean Operations 11

Work downwards through the production hierarchy, starting

with finished goods. For each item, carry out the following

steps:

1. Use projected requirements and scheduled receipts to

calculate on-hand inventory (finished good):

Developing a Materials Requirements Plan

General On-Hand Inventory: tttt DSII 1

Slide 12 Lean Operations

2. Look forward to find the first period in which on-hand

inventory will be negative. Then work backward using the

ordering/ production lead time to generate a planned order

release. The order size is determined by lot sizing analysis. (In this example, lets assume that 70 has been chosen.)

Developing a Materials Requirements Plan

Slide 13 Lean Operations

3. Update on-hand inventory and continue generating planned

order releases for this item to the end of the time horizon.

(we assume that 90 and 30 have been chosen)

Developing a Materials Requirements Plan

Slide 14 Lean Operations

3. Update on-hand inventory and continue generating

planned order releases for this item to the end of the time

horizon. Then calculate projected requirements for items

in the next level down in the production hierarchy.

Developing a Materials Requirements Plan

Slide 15 Lean Operations 15

ERP is an extension of the ideas of MRP. It aims to integrate all functions

of the business, including planning, manufacturing, sales, and marketing.

1960s Focus on traditional inventory control, single item

1970s MRP emerges: translates Master Production Schedule into time-

phased net requirements for sub-assemblies, components, and raw materials

1980s Manufacturing Resources Planning (MRP II) emerges: extension

of MRP to shop floor and distribution management activities

1990s Enterprise Resource Planning (ERP) emerges: extension of MRP

II to cover areas such as Engineering, Finance, Sales and Marketing, etc.

Enterprise Resource Planning (ERP)

Slide 16 Lean Operations

Closed-Loop Manufacturing Planning & Control System

Capacity Requirements Planning

Material Requirements Planning

Master Production Scheduling

Production Planning

Revise No

Realistic

?

Execute Plans

Yes

Slide 17 Lean Operations

Introduction to JIT

JIT (Just In Time) is an outgrowth of the Kanban system developed by Toyota.

Kanban refers to the posting board where the evolution of the manufacturing process would be recorded.

The Kanban system is a manual information system that relies on various types of cards.

Direction of production flow

upstream downstream

Authorize production of next unit

Slide 19 Lean Operations

River/Inventory Analogy

Illustrating the Advantages of Just-in-Time

Slide 20 Lean Operations

Scrap & Rework

Missed Due Dates

Too Much Space

Late Deliveries

Poor Quality

Machine Downtime

Engineering Change Orders

Long queues

Too much paperwork

100% inspection

Reducing waste: Increase Problem Visibility Analogy: Lower the Water to Expose the Rocks

Inv

ento

ry

Slide 21 Lean Operations

JIT purchasing system

If we apply JIT to suppliers,

Advantages:

1. Inventory reduction

2. Improved coordination

3. Better relationships with vendors

Disadvantages:

1. Decreased opportunity for multiple sourcing

2. Suppliers must react quickly

3. Potential for congestion

4. Suppliers must be reliable.

Slide 22 Supply Chain Management

Lean Operations Tactics

Slide 23 Lean Operations

Basic Tools towards Lean Operations

In addition to Pull rather than push

1. Batch-size reduction

2. Mixed Level Production

3. Quality at source

4. Resource flexibility / Cross training

5. Cellular layout

Slide 24 Lean Operations

Lean Tool #1: cut batch sizes

An illustrative example

Remind that a small batch implies a small amount of inventory.

Consider the following 4-step process:

(Dont worry; well learn how to answer question below soon)

What is the theoretical flow time of the process?

What is the capacity of the process?

What does that imply for the amount of inventory needed in the process?

A

1 min/job Resource 1

B

1 min/job Resource 2

C

1 min/job Resource 3

D

1 min/job Resource 4

Slide 25 Lean Operations

Lean Tool #1: cut batch size ABCD example continued

Batch Shop (Batchsize=4)

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Flow Shop (Batchsize = 1)

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Slide 26 Lean Operations

How to run Lean Operations:

Managing Variety

Monthly Production Requirement:

How should production be scheduled for the month?

Model Sedan Station Wagon

Quantity 10,000 10,000

Slide 27 Lean Operations

Lean Tool #2: Mixed Level/Balanced Production

Batch Production Schedule Mixed Production Schedule

(AAAABBBB..) (ABAB...)

Product April 1.................15...........................30 April 1....................15.......................30

A

B

time

FGI

time

FGI

Slide 28 Lean Operations

Lean Tool #3: Quality at the Source

Defects Found at:

Own Station Next Station End of Line Final Inspection

End Users Hand

$ $ $ $ $

Impact to the Company

Very Minor

Minor Delay

Rework Resched.

of work

Significant Rework

Delay in Delivery

Additional Inspection

Warranty costs

Adminis tra tive costs

Reputation Loss of

Market Share

Slide 29 Lean Operations

Lean Tool #4: Flexible Resources

Cross training of workforce

Use of IT in services

Under JIT, if a problem occurs,

the line stops; all the workers involved in the problem join the discussion to

find out why the problem has occurred.

Slide 30 Lean Operations

Lean Tool #5 to reducing waste:

From Functional Layout to Product Cell organization

Production Control

Roof Cut

Base Cut

FA Base Assy

Production Control

Production Control

Production Control

Roof Cut

Roof Cut

Roof Cut

Base Cut

Base Cut

Base Cut

Base Assy

Base Assy

Base Assy

FA FA FA

Department 1

Department 2 Department 3

Department 5 Department 4

Cell 1

Production Control

Roof Cut

Base Cut

FA Base Assy

Cell 3

Production Control

Roof Cut

Base Cut

FA Base Assy

Cell 2

High utilization of critical resources A cell focuses on a narrow range of customer needs

Slide 31 Lean Operations

Pros and Cons of Cellular Layouts

Pros of cells:

Synchronization of information and material flows

Less travel distances

more visibility within the cell

cross-trained workforces.

Cons of cells:

may require additional capital

risk of machine break-downs

Idle time may increase for some cells

Slide 32 Lean Operations

Teams in Cells and Lean Ops:

Human Resources issues

Advantages

Consistent with the moral ideal of autonomy.

Empowers the workforce through participation and autonomy in managing daily activities

Gives unprecedented responsibility to workers:

Immediate and impartial feedback of problems

Investigation of process improvements

Monitoring quality

They also gain better understanding of the process

Challenges:

Team dynamics: incentives, team pressure,

From monthly 30-day goals before to 3-minute goals now

Does not leave much room for variability

Slide 33 Lean Operations

Key Takeaways: Lean Operations

MRP vs. JIT

MRP is a Push system; works well even when the demand variation is high

JIT is a Pull system; reduce inventory visibility increases, flow time

decreases

Lean Operations: In Search for the Holy Grail and zero Waste

Efficient Workflow: Cellular Layout

Level Mixed Production: Heijunka

Reduced batch sizes

Pull Execution: Kanbans

Quality at source: Jidoka

Continuous Improvement: Kaizen

Flow Synchronization

Low Cost

Get ever closer to ideal