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)
A B C D
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T = I = R =
Flow Shop (Batchsize = 1)
A B C D
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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
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