OPERATIONS MANAGEMENT {KMBN205} UNIT-III (10 sessions) Material and Inventory Management: 1. Types of production planning, 2. Process of production planning and control (PPC) routing, scheduling and loading 3. Master production schedule, 4. Aggregate production planning. 5. Types of inventories, 6. inventory control techniques- EOQ, ABC, VED, FSN, HML and SDE (Simple numerical problems on Inventory control techniques). 7. Just-in-time (JIT) and KANBAN. 8. Case Studies PREPARED BY- AMIT SHRIVASTAVA (ASSISTANT PROFESSOR, KCNIT BANDA) 73OPERATIONS MANAGEMENT {KMBN205} TOPIC Lh f , ; What is Production Planning? Production planning is a strategic plan which manufacturers do whenever they want to produce goods. Production planning includes confirming product to be made, production volume, capacity planning, materials required, scheduling timelines etc. This is important for manufacturers who maximize efficiency, reduce costs & have a sustainable production cycle, Steps in P ion Planni Some of the main steps in the production plan progress are: 4. Analyzing customer demand Without customer demand there would be no production. If the demand is more and production is not enough then also many orders would go unfulfilled. So the most important parameter before planning your production is how much is the demand in the market and how much production you have to do for a profitable business. 2. Determining production capacity & timelines Let us say the customer demand is 100 vehicles per month. The main factor here is whether the business can meet the entire demand. It may not happen as the production capacity for the business may be 30 vehicles per month at optimum capacity utilization. So for production planning, the business needs to focus on these 30 vehicles at highest quality and lower costs. 3. Evaluate raw materials Raw materials form the backbone of production. Availability of raw materials can impact production planning. Even if the raw materials are not available, the production department needs to re-plan and optimize the production till the raw material is available. Even the fluctuations in the cost of raw materials need to be considered. PREPARED BY- AMIT SHRIVASTAVA (ASSISTANT PROFESSOR, KCNIT BANDA) 74Ul OPERATIONS MANAGEMENT (KMIN205} 4, Production control, quality control, ascounting A business can't increase production to meet demands if it Gannot meet the quality standards and document everything propatly 5, Evaluation & Improvement of production system Production planning Is an ongoing process and neads to be coretantly (emer Improved and changed to changing demands, consumer behavior, KU, saneanality ote, Regular maintenance and machine Improvement also needs to be considered for the product planning process. 6. Complete final production of finished goods ‘After the production is complete, the final product needs to go more round 15 of quality check and then comes the packaging with artwork which completes the production cycle. Production planning needs to take this step into account a most critical step in the entire production eycle, ote I yy ‘i bemnad production . Improve cele lly) Deter ee ray 4 ‘iret ‘system Production, tvaluate raw ‘quality, ‘materials, ‘accounting ‘output volume ‘contro! PREPARED BY- AMIT SHRIVASTAVA (ASSISTANT PROFESSOR, KCNIT BANDA) 75 6 well as it may be theOPERATIONS MANAGEMENT {KMBN205} Importance of Production Planning This involves making a detailed production schedule. It also involves deciding from where to obtain the raw materials, how much raw materials are required, when should the resources be made available for production, planning the sequence of activities, etc. The main aim is maximizing profits, minimizing costs and meeting the customer requirements. Production planning also aims at predicting the possible glitches in production and ensuring smooth execution of operations. Production planning can be done at three levels — factory, process and operation. Production Planning Example In the case of a soft drink manufacturing factory. The production planning will involve Factory level planning Planning the activity sequence (buying raw materials like sugar, carbonated water, etc., producing the drink, bottling, etc.) Process level planning Planning the operations on inputs to convert them into desired output (preparing the concentrate, mixing carbonated water, etc.) Operation level planning Planning each operation (what equipment has to be used, how much soft drink has to be filled in the bottles, etc.) Reference: https:/;www.mbaskool.com/business-concepts/operations-logistics-supply-chain- terms/7404-production-planning.html PREPARED BY- AMIT SHRIVASTAVA (ASSISTANT PROFESSOR, KCNIT BANDA) 76OPERATIONS MANAGEMENT {KMBN205} TOPIC 2. Process of production planning and control (PPC) Introduction Production planning and control is concerned with directing production along the lines set by the planning department. Production planning and control may be defined as the planning, direction, and coordination of the firm's material and physical facilities towards the attainment of predetermined production objectives in the most economical manner. Production planning and control is a predetermined process which includes the use of human resources, raw materials, machines etc. PPC is the technique to plan each and every step in a long series of separate operations. It helps to take the right decision at the right time and at the right place to achieve maximum efficiency. Stages in Production Planning and Control(PPC) 1. Planning 2. Operations 3. Control Scope or Classification of Production Planning and Control Functions . Materials . Methods .. Machines and Equipment . Routing . Estimating . Loading and Scheduling . Dispatching . Progressing 9. Inspection 10. Evaluating or controlling 11. Cost Control PNOARONS PREPARED BY- AMIT SHRIVASTAVA (ASSISTANT PROFESSOR, KCNIT BANDA) 77OPERATIONS MANAGEMENT {KMBN205} Production Planning Preparation of a proper production plan is key within production planning and control Orchestrating a plan allows production to have a schedule to follow, which can further improve the entire process. A production plan can determine: What is Going to be Produced Where it is Going to be Produced How it is Going to be Produced By Who it is Going to be Produced It involves the organization of an overall manufacturing system to produce a product. The objective of production planning is to provide a physical system together with a set of operating guidelines for efficient conversion of raw materials, human skills, and other inputs into finished products. ‘The production plan is conducted through information about quantity and quality of raw materials, customer orders, and the overall budget. This is how the plan is able to generate multiple schedules and quickly translate them into labor requirements for machines, workers, or any materials. Overall, the production plan is the foundation for the entire manufacturing process and production planning and control software makes it much simpler. Factors determining the production planning procedure 4. Volume of production 2. Nature of production processes 3. Nature of Operations Production Control Importance of Control Function 4. Provide for the production of parts, assemblies, and products of required quality and quantity at the required time. PREPARED BY- AMIT SHRIVASTAVA (ASSISTANT PROFESSOR, KCNIT BANDA) 78OPERATIONS MANAGEMENT {KMBN205} 2. Provide for optimum utilisation of all resources, Co-ordinate, monitor and feedback to manufacturing management. 4. Achieve the broad objectives of low-cost production and reliable customer service, Benefits of Production Control 4. Improvements in profits through the reduction in indirect costs, set up costs, reduction in scrap, inventory costs. 2. Competitive advantage: reliable delivery to customers, lower production costs and greater pricing flexibility. Elements of Production Control 1, Control of Planning 2. Control of Materials 3. Control of Tooling 4. Control of Manufacturing Capacity 5. Control of Activities 6. Control of quantity 7. Control of Material handling 8. Control of Information Factors determining Production Control Procedures 1. Nature of production 2. Complexity of Operations 3. Magnitude of Operations Objectives of Production Planning and Control 4. To ensure safe and economical production process 2. To deliver quality goods in required quantities 3, To ensure production of quality products 4, To maximize efficiency by proper coordination in production process 5, To ensure maximum utilization of all resources 6. To place the right man for the right job, at the right time for the right wages. PREPARED BY- AMIT SHRIVASTAVA (ASSISTANT PROFESSOR, KCNIT BANDA) 79.OPERATIONS MANAGEMENT {KMBN205} 7. To maintain optimum inventory levels, 8. To maintain flexibility in manufacturing operations 9. To ensure effective cost reduction and cost control 10. To plan for plant capacities for future requirements. 11. To effectively utilize plant to maximize productivity 12.To minimize labor turnover 13.To reduce the waiting time 14. To ensure proper delivery of goods nts of Pre jion Planning and Control The following are main elements of Production Planning and Control: Production Planning Control t uO S Planning Control* (Plan your work) (Work your plan) 4 1, Routine 4. Dispatching 2. Loading 5. Expediting or Follow-up 3. Scheduling 6. Corrective Action 4. Routing: Once production plans are generated and ready to be executed, routing comes into play. It is about selection of path or route through which raw materials pass in order to make it into a finished product. The points to be noted while routing process are — full capacity of machines, economical and short route and availability of alternate routing. Setting up time for the process for each stage of route is to be fixed. Once overall sequences are fixed, then the standard time of operations are noted using work measurement technique. FOR DETAILED STUDY PREPARED BY- AMIT SHRIVASTAVA (ASSISTANT PROFESSOR, KCNIT BANDA) 80OPERATIONS MANAGEMENT {KMBN205} 2. Loading and scheduling: The next step within production planning and control is scheduling. Loading and Scheduling are concerned with preparation of workloads and fixing the starting and completing date of each operation. On the basis of the performance of each machine, loading and scheduling tasks are completed. This is when the production plan is almost completed and ready to be enacted. Scheduling differs from planning by diving into the details of the production process. 3. Dispatching: Dispatching is the step in which all of the work on paper is then turned into production. Dispatching is the routine of setting productive activities in motion through the release of orders and instructions, in accordance with previously planned time and sequence, embodied in route sheets and schedule charts. It is here that the orders are released. Dispatching requires coordination among all the departments concerned. This is obtained through varied degrees of centralized control, Under centralized control, dispatch clerks, centrally located, release all orders including the movement of materials and tools necessary for the operations. 4. Expediting / Follow-up: Once dispatching is applied, expediting is the final step within the production control process. It is a control tool which brings an idea on breaking up, delay, rectifying error etc., during the progress of work. This feature conducts analysis on production and keeps track of any inefficiencies and waste that is created and attempts to locate ways to further improve the process. As this process is completed, the entire cycle restarts and production comes closer and closer to reaching maximum efficiency. 5. Inspection: Inspection is done to find out the quality of executed work processes. 6. Corrective: At the evaluation process, a thorough analysis is done and corrective measures are taken in the weaker spots. Corrective action is needed to make an effective system of production planning and control. By resorting to corrective measures, the production manager maintains full control over the production activities. For instance, routing may be defective and the schedules may be unrealistic and rigid. The production manager should try to rectify the routes and lay down realistic and flexible schedules. Workload of machines and workers should also be determined scientifically. If schedules are not being met, the causes should be fully investigated. PREPARED BY- AMIT SHRIVASTAVA (ASSISTANT PROFESSOR, KCNIT BANDA) 81OPERATIONS MANAGEMENT {KMBN205} TOPIC 3. Master production schedule MASTER PRODUCTION SCHEDULE (MPS): Master Production Schedule (Master Production Scheduling) is a plan for the production of individual final items. The MPS breaks down the production plan to show, in each period, the quantity to produce of each final article. Each final article is also called Stock Keeping Unit, usually using its acronym SKU. The Master Production Program, which is developed over a period of time, is called the planning horizon. The planning horizon generally extends between 3 and 18 months, depending on the manufacturing cycles of the item in question. Moster Production © MPS focuses on a specific time period. It includes a plan for the production of individual commodities such as staffing, inventory etc. for the allotted time period. An MPS usually dictates when and how much of each product is demanded, in addition to a statement of what they expect to produce and purchase. MPS aids in decision making by generating a set of output data based on forecast demand, production costs, inventory money, customary need, production lead time and capacity. The resulting output information includes the amount to produce, staffing requirements, quantity of product available to promise and projected available funds for production. e It forms the link between production planning and what manufacturing will actually build. e It forms the basis for calculating the capacity and resources needed. PREPARED BY- AMIT SHRIVASTAVA (ASSISTANT PROFESSOR, KCNIT BANDA) 82OPERATIONS MANAGEMENT {KMBN205} The MPS drives the material requirements plan It keeps priorities valid. The MPS is a priority plan for manufacturing The end items made by the company are assembled from component and subcomponents parts. These must be available in the right quantities at the right time to support the master production schedule. The material requirements planning system plans the schedule for these components based on the needs of the MPS. The MPS is a plan for manufacturing. It reflects the needs of the marketplace and the capacity of manufacturing and forms a priority plan for manufacturing to follow. The input data feeding the Master Production Schedule is the following: Aggregate production plan, in product units. The forecast of each final article, in product units. The current order portfolio. The stock inventory level The available production capacity. OBJECTIVES OF MASTER PRODUCTION SCHEDULING: Keeping the inventories. Setting up the due dates for the availability of items. Maintaining customer service. Setting proper schedules. FUNCTIONS OF MASTER PRODUCTION SCHEDULING : Specifies planning periods as daily, weekly or monthly. Group work order processing. Tracks accuracy of order forecasting as percentage. Classifies supply into types such as materials, purchased, flow, work order and transfer. Schedules can be edited, changed or consolidated. Reference: https://www.educationalstuffs.in/master-production-scheduling/ PREPARED BY- AMIT SHRIVASTAVA (ASSISTANT PROFESSOR, KCNIT BANDA) 83OPERALIONS MANAGEMENT (NINVEDINEUO 5 = Inventory, which describes any goods that are ready for purchase, directly affects an organization's financial health and prosperity. = While there are many types of inventory, the four major ones are raw materials and components, work in progress, finished goods and maintenance, repair and operating supplies. = While there are many ways to count and value your inventory, the importance lies in accurately tracking, analyzing and managing it. Insights gained from inventory evaluations are necessary for success as they help companies make smarter and more cost-efficient business decisions. What Is Inventory? Inventory is the accounting of items, component parts and raw materials that a company either uses in production or sells. As a business leader, you practice inventory management in order to ensure that you have enough stock on hand and to identify when there's a shortage. The verb “inventory” refers to the act of counting or listing items. As an accounting term, inventory is a current asset and refers to all stock in the various production stages. By keeping stock, both retailers and manufacturers can continue to sell or build items. Inventory is a major asset on the balance sheet for most companies, however, too much inventory can become a practical liability. 13 Types of Inventory different top-level inventory types: raw materials, work-in-progress (WIP), merchandise and supplies, and finished goods. These four main categories help sify and track items that are in stock or that they might need in the There are four businesses clas: PREPARED BY- AMIT SHRIVASTAVA (ASSISTANT PROFESSOR, KCNIT BANDA) 85OPERATIONS MANAGEMENT {KMBN205} future. However, the main categories can be broken down even further to help companies manage their inventory more accurately and efficiently. 1. Raw Materials: Raw materials are the materials a company uses to create and finish products. When the product is completed, the raw materials are typically unrecognizable from their original form, such as oil used to create shampoo. Components: Components are like raw materials in that they are the materials a company uses to create and finish products, except that they remain recognizable when the product is completed, such as a screw. Work In Progress (WIP): WIP inventory refers to items in production and includes raw materials or components, labor, overhead and even packing materials. Finished Goods: Finished goods are items that are ready to sell. . Maintenance, Repair and Operations (MRO) Goods: MRO is inventory — often in the form of supplies — that supports making a product or the maintenance of a business. Packing and Packaging Materials: There are three types of packing materials. Primary packing protects the product and makes it usable. Secondary packing is the packaging of the finished good and can include labels or SKU information. Tertiary packing is bulk packaging for transport. Safety Stock and Anticipation Stock: Safety stock is the extra inventory a company buys and stores to cover unexpected events. Safety stock has carrying costs, but it supports customer satisfaction. Similarly, anticipation stock comprises of raw materials or finished items that a business purchases based on sales and production trends. If a raw material's price is rising or peak sales time is approaching, a business may purchase safety stock. 8. Decoupling Inventory: Decoupling inventory is the term used for extra items or WIP kept at each production line station to prevent work stoppages. Whereas all companies may have safety stock, decoupling inventory is useful if parts of the line work at different speeds and only applies to companies that manufacture goods. 9. Cycle Inventory: Companies order cycle inventory in lots to get the right amount of stock for the lowest storage cost. 10. Service Inventory: Service inventory is a management accounting concept that refers to how much service a business can provide in a given period. A hotel with 10 rooms, for example, has a service inventory of 70 one-night stays in each week. N 2 oe o aM PREPARED BY- AMIT SHRIVASTAVA (ASSISTANT PROFESSOR, KCNIT BANDA) 86OPERATIONS MANAGEMENT {KMBN205} 11. Transit Inventory: Also known as pipeline inventory, transit inventory is stock that’s moving between the manufacturer, warehouses and distribution centers. Transit inventory may take weeks to move between facilities. : 12. Theoretical Inventory: Also called book inventory, theoretical inventory is the least amount of stock a company needs to complete a process without waiting. Theoretical inventory is used mostly in production and the food industry. It's measured using the actual versus theoretical formula. 13.Excess Inventory: Also known as obsolete inventory, excess inventory is unsold or unused goods or raw materials that a company doesn't expect to use or sell but must still pay to store. Inventory Examples Real-world examples can make inventory models easier to understand. The following examples demonstrate how the different types of inventory work in retail and manufacturing businesses. Raw Materials/Components: A company that makes T-shirts has components that include fabric, thread, dyes and print designs. ished Goods: A jewelry manufacturer makes charm necklaces. Staff attaches a necklace to a preprinted card and slips it into cellophane envelopes to create a finished good ready for sale. The cost of goods sold (COGS) of the finished good includes both its packaging and the labor exerted to make the item. Work In Progress: A cell phone consists of a case, a printed circuit board, and components. The process of assembling the pieces at a dedicated workstation is wip. = MRO Goods: Maintenance, repair and operating supplies for a condominium community include copy paper, folders, printer toner, gloves, glass cleaner and brooms for sweeping up the grounds. = Packing Materials: At a seed company, the primary packing material is the sealed bag that contains, for example, flax seeds. Placing the flax seed bags into a box for transportation and storage is the secondary packing. Tertiary Packing is the shrink wrap required to ship pallets of product cases. PREPARED BY- AMIT SHRIVASTAVA (ASSISTANT PROFESSOR, KCNIT BANDA) 87OPERATIONS MANAGEMENT {KMBN205} Safety Stock: A veterinarian in an isolated community stocks up on disinfectant and dog and cat treats to meet customer demand in case the highway floods during spring thaw and delays delivery trucks. Anticipated/Smoothing Inventory: An event planner buys discounted spools of ribbon and floral tablecloths in anticipation of the June wedding season. Decoupled Inventory: In a bakery, the decorators keep a store of sugar roses with which to adorn wedding cakes — so even when the ornament team’s supply of frosting mix is late, the decorators can keep working. Because the flowers are part of the cake’s design, if the baker ran out of them, they couldn't deliver a finished cake Cycle Inventory: As a restaurant uses its last 500 paper napkins, the new refill order arrives. The napkins fit easily in the dedicated storage space. Service Inventory: A café is open for 12 hours per day, with 10 tables at which diners spend an average of one hour eating a meal. Its service inventory, therefore, is 120 meals per day. Theoretical Inventory Cost: A restaurant aims to spend 30% of its budget on food but discovers the actual spend is 34%. The “theoretical inventory” is the 4% of food that was lost or wasted. Book Inventory: The theoretical inventory of stock in the inventory record or system, which may differ from the actual inventory when you perform a count. Transit Inventory: An art store orders and pays for 40 tins of a popular pencil set. The tins are en route from the supplier and, therefore, in transit. Excess Inventory: A shampoo company produces 50,000 special shampoo bottles that are branded for the summer Olympics, but it only sells 45,000 and the Olympics are over — no one wants to buy them, so they're forced to discount or discard them. Source: https:/www.netsuite.com/portal/resource/articles/inventory-managemenVinventory.shtm| PREPARED BY- AMIT SHRIVASTAVA (ASSISTANT PROFESSOR, KCNIT BANDA) 88OPERATIONS MANAGEMENT {KMBN205} TOPIC: Inventory Control Techniques What Is Economic Order Quantity? Economic order quantity (EOQ) is the ideal quantity of units a company should purchase to meet demand while minimizing inventory costs such as holding costs, Shortage costs, and order costs. This production-scheduling model was developed in 1913 by Ford W. Harris and has been refined over time. The economic order quantity formula assumes that demand, ordering, and holding costs all remain constant. Formula for Calculating Economic Order Quantity (EOQ) The formula for EOQ is: Economic Order Quantity OO = 2xDxS H Annual demand (units) Cost per order ($) Cost per unit (S) Holding cost (%) Holding cost ($) = 1x G ot r-000 wate What is ABC analysis? ABC analysis, also referred to as ABC Classification, is a vital part of Inventory Management. It allows business owners to distinguish the products in their stock and focus on managing them based on their worth. The main objective of ABC analysis is to make maximum out of minimum investment without wasting any resources or inventory. PREPARED BY- AMIT SHRIVASTAVA (ASSISTANT PROFESSOR, KCNIT BANDA) 89OPERATIONS MANAGEMENT {KMBN205} Categories of ABC Analysis The ABC analysis considers that all the goods cannot have equal value in the market. They are found in three different categories: ah ly PRS HIGHEST Vrs Segment A: Products included in category A are the most essential goods with the highest value. Segment A goods consist of approximately 20% of the total products with 80% of revenue generation for your business. It is considered as a small category with minimal goods, but maximum revenue. Segment B: Products included in category B have a slightly higher value than segment B. It approximately regulates 30% of goods with 15% revenue generation. Not to mention, the goods included in this category are more in number but less in utility. Segment C: Products included in category C are more in numbers but least valuable when it comes to generating revenue. As compared to category A & B, segment C has the maximum share of 50% of the stock, generating just 5% revenue. mA BBCOPERATIONS MANAGEMENT {KMBN205} To sum it up, A signifies the most important goods, B indicates moderately necessary goods, and C indicates the least essential inventory Now that you have understood the basis of segregating these goods, let us learn how to conduct an ABC analysis TOPIC: :D inven’ nal) VED analysis is an inventory management system that segregates the stock based on its functional importance for a business. It bifurcates the inventory into three parts, making it easier for businesses to allocate their resources and budget accordingly. The three VED heads are: 1. Vital Items: Includes those items that are crucial for any business. The company should always keep an extra stock as its shortage can hamper the whole production process. 2. Essential Items: It includes inventory next to vital for your business. The difference is that they cause a temporary loss in case of shortage. 3. Desirable Items: This category entails optional goods not necessary to run business operations. TOPIC:- FSN Analysi Meaning of FSN Analysis FSN Analysis is an inventory management technique that is based on the rate of consumption of spares and goods in an organization. This analysis divides the inventory into three categories based on their speed or rate of utilization, their consumption rate, and average stay. FSN stands for Fast-moving, Slow-moving, and Non-moving. Fast-moving inventory Fast-moving inventory comprises inventory that moves in and out of stock fastest and most often. Therefore these goods have the highest replenishment rate. Items in this category generally comprise less than 20% of the total inventory. PREPARED BY- AMIT SHRIVASTAVA (ASSISTANT PROFESSOR, KCNIT BANDA) 91OPERATIONS MANAGEMENT {KMBN205} Slow-moving inventory Items in this category move slower, so their replenishment is also slower. This category comprises around 35% of the total inventory in an organization Non-moving inventory The last category of this analysis is the least moving portion of the inventory and also includes the dead stock. Replenishment of such inventory may or may not occur after utilization. This category can go as high as 55%-60% of the total inventory in organizations. TOPIC: HML Analysis The HML inventory analysis is a process where the inventory is broken down into three groups based on their per-unit price. It helps in simplifying the inventory management process — especially for large-sized businesses with thousands of sales each day. HML inventory analysis lists down the inventory into the following groups: 1. H (High Cost): It includes stocks/inventory with a high unit value. 2. M (Medium Cost): It provides a list of products with a medium unit price value. 3. L (Low Cost): It comprises stock with a per-unit value on the lower end. TOPIC: SDE Analysis SDE analysis looks at the available inventory and categorizes it into three scarcity levels of supply: Scarce, Difficult, and Easy. 1. Scarce: This includes those products that are short in supply and are usually imported. 2. Difficult: It entails the items that are available locally. However, they are difficult to stock due to limited suppliers or restricted accessibility to purchasing such goods. In general, it includes those stocks that require more than a fortnight time period to be available but have a lead time of fewer than six months. PREPARED BY- AMIT SHRIVASTAVA (ASSISTANT PROFESSOR, KCNIT BANDA) 92OPERATIONS MANAGEMENT {KMBN205} 3. Easy: This category includes the goods that are uncomplicated to acquire as they are available locally and procured quickly. TOPIC: JUST-N-TIME (JIT) What Is Just-in-Time (JIT)? The just-in-time (JIT) inventory system is a management strategy that aligns raw-material orders from suppliers directly with production schedules. Companies employ this inventory strategy to increase efficiency and decrease waste by receiving goods only as they need them for the production process, which reduces inventory costs. This method requires producers to forecast demand accurately. How Does Just-in-Time Inventory Work? The just-in-time (JIT) inventory system minimizes inventory and increases efficiency. JIT production systems cut inventory costs because manufacturers receive materials and parts as needed for production and do not have to pay storage costs. Manufacturers are also not left with unwanted inventory if an order is canceled or not fulfilled. One example of a JIT inventory system is a car manufacturer that operates with low inventory levels but heavily relies on its supply chain to deliver the parts it requires to build cars on an as-needed basis. Consequently, the manufacturer orders the parts required to assemble the vehicles only after an order is received. Advantages and Disadvantages of JIT JIT inventory systems have several advantages over traditional models. Production runs are short, which means that manufacturers can quickly move from one product to another. Also, this method reduces costs by minimizing warehouse needs. Companies also spend less money on raw materials because they buy just enough resources to make the ordered products and no more. The disadvantages of JIT inventory systems involve potential disruptions in the supply chain. If a raw-materials supplier has a breakdown and cannot deliver the goods PREPARED BY- AMIT SHRIVASTAVA (ASSISTANT PROFESSOR, KCNIT BANDA) 93OPERATIONS MANAGEMENT ({KMIN205} 10 entire production line, A sudden unexpected promptty, this could conceivably stall th J cliente beer for goods may delay the delivery of finished products to ene Example of JIT Famous for its JIT inventory system, Toye receives new car orders. Although the took 20 years to perfect it ota Motor Corporation orders parte only when It ompany installed this method in the 10708, It Sadly, Toyota's JIT inventory system nearly caused the company to come to @ halt in February 1997, after a fire at Japanese-owned automotive parts supplier Aisin decimated its capacity to produce P-valves for Toyota's vehicles, Because Aisin is the sole supplier of this part, ts weeks-long shutdown caused Toyota to halt production for several days.5 This caused a ripple effect, where other Toyota parts suppliors likewise had to temporarily shut down because the automaker had no need for their parts during that time period. Consequently, this fire cost Toyota 160 billion yen in revenue, Source: https://www,investopedia,com/terms/i/liasp TOPIC: What Is Kanban? Kanban is an inventory contro! system used in justinclime (JIT) manufacturing. It was developed by Taiichi Ohno, an industrial engineer at Toyota, and takes its name from the colored cards that track production and order new shipments of parts or materials ao they run out. Kanban is a Japanese word that directly translates to "visual card”, 60 the kanban system simply means to use visual cues to prompt the action needed to keep a process flowing. Understanding the Kanban System The kanban system can be thought of as a signal and respon: ystem, When an item is running low at an operational station, there will be a visual cue specifying how much PREPARED BY- AMIT SHRIVASTAVA (ASSISTANT PROFESSOR, KCNIT BANDA) 94OPERATIONS MANAGEMENT {KMBN205} to order from the supply. The person using the parts makes the order for the quantity indicated by the kanban and the supplier provides the exact amount requested, For example, if a worker is bagging product on a conveyor belt, a kanban may be placed in the stack above the last 10 bags. When the worker gets to the card, he gives the floor runner the card to bring more bags. A station further from the supply room might have the kanban placed at 15 bags and a closer one at five. The flow of bags and the placement of cards are adjusted to make sure no station is left bag-less while the belt is running. The kanban system can be used easily within a factory, but it can also be applied to purchasing inventory from external suppliers. The kanban system creates extraordinary visibility to both suppliers and buyers. One of its main goals is to limit the buildup of excess inventory at any point on the production line. Limits on the number of items waiting at supply points are established and then reduced as inefficiencies are identified and removed. Whenever a limit of inventory is exceeded, it points to an inefficiency that needs to be addressed. As containers of parts or materials are emptied, cards appear, color-coded in order of priority, allowing the production and delivery of more before a hold-up or shortage develops. A two-card system is often used. T-kanban transportation cards authorize the movement of containers to the next workstation on the production line, while P-kanban production cards authorize the workstation to produce a fixed amount of products and order parts or materials once they have been sold or used. PREPARED BY- AMIT SHRIVASTAVA (ASSISTANT PROFESSOR, KCNIT BANDA) 95