MRP

Inventory Management- Special Cases

Picture source :https://emergeapp.net/inventory-reports/inventory-management-techniques/ 1
 Supply uncertainties

Recap
Lead Time
Minimum Order Qty
Discounts

 Inventory
• To buffer against variation in Supply and demand S D
— Natural causes & Artificial causes

 Management
Demand variations
 Reactive :Not addressing root causes Forecasting Errors
• Proactive :Addressing root causes Logistics
Promotions/Discounts
• Inventory Control
 Independent Inventory
— Static Models
— Dynamic Models
- Special Cases
• Dependent Inventory

2
 Inventory Management Models
Inventory
Models

2 DS
Static Dynamic EOQ 
H
Models Models

Deterministic
Stochastic Models
Models

Cu Stochastic
P Models
C o  Cu
Dependent Independent
Inventory Inventory
Q=µ +z(p)* 

Selective Inventory Control

3
 Q Model: A diagrammatic representation
Stock
level
Q

ROP

Time
Lead
Time How to find Q & ROP?

4
Basic Fixed-Order Quantity (EOQ) Model Formula
TC=Total
TC=Totalannual
annualcost
cost
DD=Demand
=Demand
CC=Cost
=Costper
perunit
unit
Total Annual Annual Annual QQ=Order
=Orderquantity
quantity
Annual = Purchase Ordering Holding SS=Cost
=Costofofplacing
placingananorder
+ + order
Cost Cost Cost Cost or
orsetup
setupcost
cost
RR=Reorder
=Reorderpoint
point
LL=Lead
=Leadtime
time
H=Annual
H=Annualholding
holdingand
and
storage
storagecost
costper
perunit
unitof
of
inventory
inventory
D Q
TC = DC + S+ H
Q 2

5
Assumptions behind EOQ Model

• Demand for the product is constant and uniform throughout the period

• Lead time is constant

 
• Price per unit of the product is constant
 
• Inventory holding cost is based on average inventory
 
• Ordering or setup costs are constant
 
• All demands for the product will be satisfied.

6
 Special cases-1
• If demand is varying What happens if demand increases
During lead time

ROP

0
Shortage Shortage
SAFETY STOCK

What happens if lead time

Changes?
The
Thelevel
levelofofSafety
Safetystock
stockwill
willdepends
dependsononyour
your
Policy
Policyon
oncustomer
customerservice.
service.Higher
Higherthe
thecustomer
customer What is the way out?
Service
Servicelevels,
levels,higher
higherthe
thesafety
safetystock
stock

7
Safety Stock

• Fix the level of service (say 95%, 99% etc.)

• Percentage of time demand will be met
• Find corresponding z value
• Safety stock = z* standard deviation
• Reorder Point = Demand during Lead time+ Safety Stock
• Example
• Daily demand of a certain product is normally distributed with a mean of
60 and standard deviation of 7. The lead-time to get the product from
supplier is 6 days. What should be the reorder point to maintain a 95%
service level?

8
• Daily demand of a certain product is normally distributed with a mean of 60 and
standard deviation of 7. The lead-time to get the product from supplier is 6 days.
What should be the reorder point to maintain a 95% service level?
• Daily demand = 60; Lead time n = 6 days
• Demand during Lead time = 60*6 =360
• Standard deviation of daily demand  = 7
• Standard deviation of demand during lead time L = n = 7* sqrt(6) = 17.15
• Service Level = 95% z value = 1.64
• Safety Stock = z* L = 1.64*17.15 = 28.29
• Reorder point = DDLT+ Safety Stock = 360+28.29 = 389 units

9
Going Back to Agarwal case

• Stockout vs Inventory?
• How do we decide?

• What is the Safety stock? Re-order Point?

  P D HSP

• ROP=DDLT + SS
TOTAL 1539735 2291233 143335
DD 3605.937 5365.885 361.0453
SIGMA 85.83691 57.51073 24.46352
• SS= SIGMA(D)*SQRT(L) L
z
1
2.33
1
2.33
1
2.33
SS 200 134 57
ROP 3805.937 5499.885 418.0453
  70 60 73
Contribu 2.33 1.5 2.5
s 77.79475 74.52618 8.357531
Scomb 160.6785 160 160
       
EOQ 2228.51 2930.088 689.0569
N 48.54281 54.93915 15.71911

10
Special cases-2 : Economic Batch Quantity
• Fixed Order Quantity with usage
• Here while production is going on the consumption also occur simultaneously
• Assume p is the production rate and d is the usage rate (p>d)

Only Consumption at rate d

Production &
Consumption Q
Build up at rate
(p-d)
Imax
We want to find t

t
Q = Production rate * time = p*t; I max = buildup rate *time = (p-d)*t

11
EBQ

• As production happens at rate p and consumption happens at rate d, the

build up happens at rate(p-d) and reaches a maximum level Imax after
which production stops. At this level you must have made Q items.
• If Q is large, you have fewer production runs (low set up cost) but
• Higher Imax i.e high holding cost
• The Q that minimises total cost is called EBQ (Economic Batch Quantity)

12
 Finding EBQ?
• Assume Q is the production batch size
• No. of setups = D/Q ; Set up cost = D/Q*S
• Maximum Inventory = Imax; Holding Cost = Imax/2*H
• For minimum these must be equal
— D/Q*S = Imax/2*H
— But Imax = (p-d)*t = (p-d)*Q/p =(p-d)*Q/p
— D/Q*S = (p-d)*Q/p *2H
2 DS p
— EBQ =Qopt = H (p  d)

13
Illustration
• In a fast food joint, the burgers are made in batches while customers arrive continuously. Typically
the customers consume burgers at around 10 burgers per hour while the production rate is 20
burgers per hour. Each set up cost $5 and a burger in inventory has a holding cost $1. If the joint
works 10 hours daily what should be the economic batch size?
• D= 10*10 =100 burgers per day
• Production rate p =20 ; consumption rate d =10
• S= $5 ; H=$1;
2 * 100 * 5 20
• EBQ = 2 DS p = = (2000)0.5 = 44.5
H (p  d) 1 ( 20  10)

• Approximately make 2 batches per day

14
 Special Case – 3 Quantity Discounts
• Selling price of item varying with ordering quantity
• Could be discrete or continuous
• Effect of Quantity Discounts : Bull whip
• Lot size based
• All units
• Marginal unit
• Volume based

• How should buyer react?

• What is the optimal purchasing decision?
• How this affect supply chain in terms of lot sizes, cycle inventory & flow times
• What should supplier do?
• When should a supplier offer discount
• What are the appropriate pricing schedules?

15
 All-Unit Quantity Discounts

Cost/Unit Total Material Cost

Rs 30
Rs 29.60
Rs 29.20

5,000 10,000 5,000 10,000

Order Quantity Order Quantity

Telescopic rates
16
All-Unit Quantity Discounts
• Evaluate EOQ for each price Ci in range qi to qi+1
• If qi  EOQ < qi+1 , evaluate cost of ordering EOQ
• If EOQ < qi, evaluate cost of ordering qi
• If EOQ  qi+1 , evaluate cost of ordering qi+1

• Evaluate minimum cost over all price ranges

17
 Illustration

Demand : 100,000 /month

Ordering cost : Rs 100
Holding Cost : 20%
Cost of the product : Rs 30 (0-5000); Rs 29.5 ( 5000-10,000) ; Rs 29 (>=10,000)

18
 Illustration
Demand : 10,0000 /month
Ordering cost : Rs 100 Type range Cost EOQ
Holding Cost : 20%
1 0-5000 30 6324.555
Cost of the product : Rs 30 (0-5000); Rs 29.5 ( 5000-10,000)
; RS 29 (>=10,000)
2 5000-10000 29.5 6377.928

How to SOLVE? 3 >=10,000 29 6432.675

• Find EOQ at various levels

Case 1 : EOQ> 5000; Evaluate at 5000

Case 2 : Evaluate at EOQ
Case 3 : EOQ<10,000; Evaluate at 10,000
Total Cost (5000) = 3,54,38,750
Total Cost (6377) = 3,54,37,630
Total Cost (10,000) = 3,48,41,000

19
Marginal Unit Quantity Discounts

Cost/Unit Total Material Cost

Rs 30
Rs29.5
Rs 29.0

5,000 10,000 5,000 10,000

Order Quantity Order Quantity

Multi-Block Tariff

20
 Marginal-Unit Quantity Discounts
• Evaluate EOQ for each marginal price Ci in range qi to qi+1
• The general formula can be derived as follows
• Ordering Cost = D/Q*S
• Holding Cost = Fixed Cost + variable cost = (Vi +(Q-qi)*Ci)*h/2
• Material Cost = [Vi+ (Q-qi)*Ci)]*D/Q
• Total Cost = D/Q*S+ (Vi +(Q-qi)*Ci)*h/2 +[Vi+ (Q-qi)*Ci)]*D/Q

• Vi is the cost of ordering qi quantities i.e C0(q1)+C1(q2-q1) + …..+ Ci-1(qi-qi-1)

• Evaluate minimum cost over all price ranges
21
 Marginal-Unit Quantity Discounts
• Evaluate EOQ for each marginal price Ci in range qi to qi+1

2 D( S  V i  q C)i
EOQ  i

hCi
• Vi is the cost of ordering qi quantities i.e C0(q1)+C1(q2-q1) + …..+ Ci-1(qi-qi-1)
• If qi  EOQ < qi+1 , evaluate cost of ordering EOQ
• If EOQ < qi, evaluate cost of ordering qi (where Ci is valid)
• If EOQ  qi+1 , evaluate cost of ordering at qi+1

• Evaluate minimum cost over all price ranges

22
 Illustration

Demand : 10,000 /month

Ordering cost : Rs 100 Typ
e q Cost V EOQ Cost at Border/EOQ

Holding Cost : 20%

0 0 3 0 6324.555   3,63,900
Cost of the product : Rs 3 (0-5000); Rs 2.95 ( 5000-
10,000) ; Rs 2.9 (>=10,000) 1 5000 2.95 15000 11932.01   3,61,175

2 10000 2.9 29800 19298.03  

3,59,273
How to SOLVE?
• Find EOQ at various levels

Case 1 : EOQ> 5000; Evaluate at 5000

Case 2 : EOQ >10,000 Evaluate at 10,000
Case 3 : EOQ>10,000; Evaluate at EOQ

23
Effect of Qty Discount
• There is a cycle inventory growth of 300% due to Qty discount (how?)
• What happens if ordering Cost Reduces?

• Supplier : Why Qty Discounts?

• Co-ordination in Supply Chains
• Price discrimination to maximise supplier’s profit

24
 Class Exercise

• Annual Demand = 10000 units; Ordering cost is Rs 20 and the carrying cost
is 20%. Cost per unit vary as per the ordering quantity

Ordering Quantity Cost per unit

0-499 units 5

500-999 units 4.5

1000 and above 3.9

25
Solution procedure for price breaks

• Compute EOQ at various price points

• Check whether the quantity obtained is in the range specified
• If not, then that fix EOQ for that price range as the minimum quantity to
be ordered to get the price break
• Compute Total Cost at all EOQ points for all price ranges
• Select the order quantity with minimum cost

26
• D = 10000; S=20; What about H? Ordering Quantity Cost per unit

0-499 units 5
• H= i*C where i = 20% =0.2 500-999 units 4.5

• Initially take C= 5 1000 and above 3.9

• EOQ = Sqrt(2*D*S/H) = Sqrt(2*10000*20/(5*0.2))=632

• Check with C= 4.5
• EOQ = Sqrt(2*10000*20/(4.5*0.2))= 667
• Check with C=3.9
• EOQ = Sqrt(2*10000*20/(3.9*0.2))= 716 NOT FEASIBLE
• So Choice are either 667 or 1000 (minimum for last price break)
• If Q =667
• Total cost = 10000*4.5+667/2*4.5*0.2+10000/667*20= $45,600
• If Q =1000
• Total cost = 10000* 3.9 +1000/2*3.9*0.2+10000/1000*20 = $39,590
• SO ORDERING QUANTITY IS 1000 UNITS

27
Special case – 4 Fixed Period Inventory Models (P systems)

• Inventory is counted at specific times

• If the level is below the re-order point, place the order

• Order quantity should be decided in such a manner to recoup the
inventory level

28
 P Model: A diagrammatic representation
Stock
level
Q1 Q2
Q3
Min
level

ROP

Safety
Stock Lead Lead Lead
Time Time Time

Time

29
 P Model & Q Model Differences
• Ordering Quantity is Fixed –EOQ
but ordering time will vary
• Order is placed when inventory
drops to Re-order point
• Continuous monitoring
• Ordering (review) Time is
Fixed but ordering quantity
(q) will vary
• Order is placed at review
period
• Periodic monitoring
30
 Fixed period Model :order quantity

• Order Quantity = Average demand during vulnerable period+ Safety stock –

Inventory on hand

q = d(T + L) + Z  T + L - I

Where :
q = quantitiy to be ordered
T = the number of days between reviews
L = lead time in days
d = forecast average daily demand
z = the number of standard deviationsfor a specified service probability
 T + L = standard deviation of demand over the review and lead time
I = current inventory level (includes items on order)

31
Example of the Fixed-Time Period Model

How
How many
many units
units should
should be
be ordered?
ordered?

Average daily demand for a product is 20 units. The review period is 30 days,
and lead time is 10 days. Management has set a policy of satisfying 96
percent of demand from items in stock. At the beginning of the review period
there are 200 units in inventory. The daily demand standard deviation is 4
units.

32
 Example of the Fixed-Time Period Model: Solution

 T+ L = (T + L) d 2
=  30 + 10   4  2 = 25.298

From
FromNormal
Normaltable,
table,corresponding
correspondingto
toservice
servicelevel
levelP=0.96
P=0.96the
thevalue
valueof
ofzz==1.75
1.75

q = d (T + L) + Z  T + L - I

q = 20(30 + 10) + (1.75)(25. 298) - 200

q = 800  44.272 - 200 = 644.272, or 645 units

33
Appendix B

• P= 0.96 0.46
• Z=

34
Cycle inventory

• Economies of scale
• Fixed costs associated with lots
• EOQ
• Quantity discounts
• Trade Promotions

• Determinants
• Fixed Cost (ordering cost or set up cost)

35
How to (should we) reduce cycle inventory?

• Cycle inventory & Little’s Law

36
Strategies for reducing fixed costs

• Efforts in:
• Transportation (Cross docking)
• Information
• Receiving
Aggregate across products, supply points, or delivery points.

37
 Lot Sizing with Multiple Products
• Consider three products L, M and H having annual Demand per year of
12,000, 1,200 and 120 units respectively. The unit cost of all these items
are same at Rs 500. The transportation cost is also same for each of the
products at Rs 4000. However, the receiving, inspection cost varies
between the products and they are estimated as Rs 1000 each (this cost
will be incurred whether the material is ordered independently or
collectively). Assume Inventory cost as 20%
• Find whether joint replenishment can result in better inventory
performance?

38
 Lot Sizing with Multiple Products
• Demand per year
• RL = 12,000; RM = 1,200; RH = 120
• Common transportation cost, S = Rs 4,000
• Product specific order cost (receiving & storage)
• sL = Rs1,000; sM = Rs1,000; sH = Rs1,000
• Holding cost, h = 0.2
• Unit cost
• CL = Rs500; CM = Rs500; CH = Rs500

39
Delivery Options

• No Aggregation: Each product ordered separately

• Complete Aggregation: All products delivered on each truck
• Tailored Aggregation: Selected subsets of products on each truck

40
No Aggregation: Order each product independently

  RL RM RH

DEMAND 12000 1200 120

COST 500 500 500

ORDCOST 5000 5000 5000

HANDLING 0.2 0.2 0.2

ORDQTY 1096 347 110

NO.OFORD 10.9489 3.4582 1.0909

Annual cost 6109545 634641 70955

INV COST 109545 34641 10955

Total cost = Rs 155,140

41
 Joint replenishment

• How to find order quantity?

• Let number of orders be n
• Total cost = (RL /2n)*h* CL + (RM /2n)*h* CM +(RH /2n)*h* CH +n*S*
• Find n that minimises the total cost

• n* ={[RL
*h* C + R *h* C
L M M
+ R *h* C
H H ]/2S*}0.5

• What is S*  Transportation cost

• Is this correct?
• What about the specific ordering cost ?
—S*= Transp Cost+ Specific Receiving costs
42
Complete Aggregation: Order all products jointly

  RL RM RH

DEMAND 12000 1200 120

COST 500 500 500

ORDCOST 1000 1000 1000

HANDLING 0.2 0.2 0.2

NO.OFORD 9.75412 9.7541 9.7541

ord qty 1231 124 13

invcost 71304.12 15954.12 10404.12

Additional cost = 4000* 9.75412 = 39016.48

Total cost = 136679
But is it necessary to order all the products every time?

43
Tailored Aggregation: Ordering Select Subsets

• Step 1: Identify most frequently ordered product

• Step 2: Identify frequency of other products as a multiple
• Step 3: Recalculate ordering frequency of most frequently ordered
product
• Step 4: Identify ordering frequency of all products

44
• Find the number of orders for each product if it were to be ordered independently
• Demand/EOQ : 11, 3.5, 1.1

• Frequency with which other products have to be included with the most frequently
ordered product
• As the most frequently ordered product is ordered every time the transportation cost S will be
allocated to it. Others will have only the specific receiving cost (si). With this recalculate the order
frequency
— ni= (h*Ci*Ri /2*si)0.5 i.e recalculate the EOQ with si as the set up cost
• Frequency of product i relative to the most frequently ordered product
— mi= roundup (n*/ni)

• Now recalculate the ordering frequency of the most frequently ordered product by taking into
account the (part) contribution of each product category to the fixed cost
— i.e S* = S + Σ(si/mi)

• Recalculate order frequency of each as ni=n/mi

45
  L M H
Demand 12000 1200 120
S 4000 4000 4000
s 1000 1000 1000
Cost 500 500 500
h*C 100 100 100
EOQ 1095.445 346.4102 109.5445
n 10.95445 3.464102 1.095445
       
part orders 10.95445 7.745967 2.44949
partorder m 1 2 5
       
si/mi 1000 500 200
Recalculate n for L 10.25978    
Final order 10.25 5.13 2.16
Q 1170.732 233.9181 55.55556

46
Tailored Aggregation: Order selected subsets

  RL RM RH

DEMAND 12000 1200 120

COST 500 500 500

ORDCOST 1000 1000 1000

HANDLING 0.2 0.2 0.2

NO.OFORD 10.25 5.13 2.16

ord qty 1171 234 56

invcost 68800 16830 4960

Additional cost = 41000

Total cost = 131590

47
Summary

Independent Joint Tailored

155140 1336679 131590
Orders RL 10 9.75 each 10
RM 3 Once in two
RH 2 Once in Five

48
Home work

• Identify Joint replenishment strategy for Agarwal Fuels

49
Inventory Control

• Selective Inventory Control

• Providing management attention to all items of inventory is costly and
time consuming.
• Select those items that are crucial
—Criticality depends on
- Value : ABC Analysis
- Vitality : VED Analysis
- Usage : FSN Analysis

• The logic is look only where it matter!

50
ABC Analysis

• Based on Pareto Principle

• A Few having greatest importance & many having a little importance
• A few items (less than 15%) accounts for over 80% of cost
• A large number of items (over 50%) account only for les than 5% of cost
• So it is prudent to manage those small number of items that contribute to
the bulk of usage value more closely than a large number of items

51
 ABC Analysis

A items: most important –

roughly 10% of inventory items – 70% annual usage value

B items: moderate importance –

roughly 20% of inventory items – 20% annual usage value

C items: least importance –

roughly70% of inventory items – 10% annual usage value

(Segmentation and this percentage may not always occur so neatly)

52
 ABC Analysis Procedure

1.    Rank the items of inventory, in a descending order,

on the basis of their annual consumption value and number
them from 1 to n.
 
2.    Record the running cumulative totals of annual consumption
values and express them as percentages of the total value of
consumption
 
3.    Express each number in the list, 1 to n, as a percentage of n
(these percentages are actually cumulative percentages)
 
4.    Look at the cumulative percentages of consumption value against
the cumulative percentages of numbers and classify them into 3
broad categories A, B and C. (Note that the cut-off levels between
these categories are likely to be somewhat arbitrary).
Draw a Pareto chart to obtain a good classification.

53
 ABC GRAPH

100%
95%
80%

Usage
Vale as
A percentage
Of total value C
A B

10% 35% 100%

Number as a percentage of total number

54
Managing Dependent Inventories

55
Dependent Inventory Management

• Material Requirement Planning Systems

• Push System

• Time Phase schedule of production and procurement

56
What is MRP?

• Computerized Inventory Control

• Production Planning System
• Management Information System
• Manufacturing Control System

57
 MRP uses

• Job Shop Production

• Complex Products
• Assemble-to-Order Environments
• Discrete and Dependent Demand Items

58
 What can MRP do?
• Reduce Inventory Levels
• Reduce Component Shortages
• Improve Shipping Performance
• Improve Customer Service
• Improve Productivity
• Simplified and Accurate Scheduling
• Reduce Purchasing Cost
• Improve Production Schedules
• Reduce Manufacturing Cost
• Reduce Lead Times
• Less Scrap and Rework
• Higher Production Quality
59
Overview of the MRP System

Master Production
Product Structure File Inventory Master File
Schedule

MRP

Manufacturing Orders Purchase Orders Various Reports

60
Product Structure File

• Bill of Materials

61
Bill of Materials

Chair
Assembly

B (1) C (1) D (2) E (4)

Chair -back Seat Front Leg
subassembly subassembly legs supports

F (2) G (4) H (1) I (1)

Back Back Seat Seat
legs flats frame cushion

J (4)
Seat-frame
boards

62
Master Production Schedule

• Schedule of Finished Products

• Represents Production, not Demand: HOW?
• Combination of Customer Orders and Demand Forecasts
• What Needs to be Produced

63
 Inventory Master File

• On-Hand Quantities
• On-Order Quantities
• Lot Sizes
• Safety Stock
• Lead Time

64
 MRP Inputs

· MPS: Detailed plan that states how many end item will be produced within
specified periods of time
· Part info:
· Part ID
· Lot size
· Lead Time
· Time buckets

65
MRP Outputs

• Manufacturing Orders
• Purchasing Orders
• Various Reports

66
 MRP: Time-Phasing

Handle Bars
2 wk.
Lead time

1 wk.
Frame
2 wk.

1 wk. Bicycle
3 wk.

Frame Assy
Wheels

1 2 3 4 5 6 7 8
Time (weeks)
67
MRP Example

Item On-Hand Lead Time (Days)

X X 50 2
A 75
175 3
B 25
125 1
A(2) B(1) C 10
105 2
D 20
320 2

C(3) C(2) D(5)

X A B C D
Order Qty 300 500 200 800 1000
Safety Stock 50 50 50 100 150

68
 INDEPENDENT DEMAND : X
On Hand Balance 50
Safety Stock 50
Lead Time 2 days
Order Quantity 300
Past Days
Due 1 2 3 4 5 6 7 8

Forecast 140 150 145 100 80 75 140 150

Planned Receipt 300 300 300 300

Projected on Hand
50 210 60 215 115 265 190 50 200
Planned Production

300 300 300

69
 COMPONENT A

On Hand Balance 175 No.of items in X : 2

Safety Stock 50
Lead Time 3 days
Order Quantity 500
Past Days
Due 1 2 3 4 5 6 7 8

Demand for A 600 600 600

Planned Receipt 500 500 500 500

Projected on Hand
175 75 575 475 475 475 375 375 375
Planned Production

500 500

70
 COMPONENT C

On Hand Balance 105 No.of items in A : 3

Safety Stock 100
Lead Time 2 days
Order Quantity 800
Past Days
Due 1 2 3 4 5 6 7 8

Demand for C 1800 1800

Planned Receipt 800 800 800 800 800

Projected on Hand
105 105 905 205 1005 1805 805 805 805
Planned Purchase

800 800 800 800 800

71
Complete for B & D

72
Special cases

• Lot Sizing: L4L Lot-for-Lot Models

• Planned orders exactly match net requirements
• Produces what is needed each week: NO INV.
• Merits? Demerits?

73
Special cases
• Least Total Cost
• Dynamic lot sizing technique
• Computes order quantity by comparing carrying cost and holding cost of
various lot sizes and takes the one where the difference is minimum
• How is it different from EOQ?

74
Proactive Management : JIT SYSTEMS

75
Japanese industry works JUST IN TIME

Others work JUST IN CASE

STOCKLESS PRODUCTION ?

JIT System is the organisation of resources, information flows

and decision rules that can enable an organisation to realise
the benefits of JIT philosophy

76
 Push & Pull

Pull Systems : Is it Made to order?

Is there a delay at Customer delivery end?

• When to use?
• Is JIT applicable in all manufacturing environments ?

Highly repetitive
Well defined
Material Flows
Deterministic

Picture source : JIT & JIChttps://www.ruthtrumpold.id.au/destech/?page_id=141 77

 From Overproduction
Waiting Time
Transportation

X
Inventory
Processing Waste
MURI Waste of motion
Product defects

X
MUDA
EXCESS

WASTE
X
MURA
UNEVENNESS

78
Characteristics

• Consistently High quality : Low rework

• How to achieve ?
• andon systems?

79
(SINS) OF MANUFACTURING
• EOQ ?
• SET UP TIME ?
• ECONOMIES OF SCALE ?
• SQC?
• THE SECURITY BLANKET?

80
 Setup, Capacity and JIT

• JIT has low leadtime (MLT)

• Higher capacity can reduce MLT?
• Example :
— Arrival rate of products : 15/hour
—Service rate : 15.1 /hour
—Lead time ?

81
 Setup, Capacity and JIT

• JIT has low leadtime (MLT)

• Higher capacity can reduce MLT?
• Example :
— Arrival rate of products : 15/hour
— Service rate : 15.1 /hour
— Lead time = 1/(mu-lambda) = 1/0.1 = 10 hours
— If service rate changes by 1.3%
— Lead time reduces to 3.33 hours
— A small increase in production rate A LARGE SAVING IN MLT
—What about inventory?

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 Setup, Capacity and JIT

• Finding the inventory reduction?

• Example :
— Arrival rate of products : 15/hour
— Service rate : 15.1 /hour
— WIP (no.of units in system) = lambda/(mu-lambda) = 15/0.1 = 150 units
— If service rate changes by 1.3%
— WIP reduces to 15/0.3 i.e. 50 units
— A small increase in production rate A LARGE SAVING IN Inventory
• HOW TO ACHIEVE?
— Set up
— Capacity
—

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(SINS) OF JIT ?
• A GLORIFIED INVENTORY MGMT?
• EXPENSIVE
• WHY SHOULD SUPPLIER CARRY THE BURDEN?
• JIT NEEDS HARDWORK... WHY SHOULD I DO IT?

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SNOW BALL EFFECT

quality

Cost Savings
Even Overhead
Overhead
Production costs
Process

Setup
jit time
time

Reduced
stock scrap
scrap

Feedback problems
problems

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 Characteristics

• Pull System for Material Flow

• Consistently High Quality
• Control of quality at source
• Use of SQC techniques
• Lot Sizes
• WIP inventory
• Uniform load at workstations
• Single digit setup

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Characteristics: Consistent Quality

• Can you reduce defect rate by increasing lot size?

• Small Lot size?

Reduce cycle inventory

Reduce lead times - why?

Uniform operating system load

But what about setup time?

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 Characteristics

• Uniform workstation load

• Mixed model assembly (Heijunka)
• Standardized components and work methods
• The learning curve of repeated tasks
• supplier ties
• Lean base, short lead time, VMI
• Local base
• “Complete Tear down” philosophy

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 Characteristics

• Flexible work force

• Team Approach
• Line flow Strategy :
• GT Layout
• One Worker Multiple Machines
• Automated Production - always?
• Preventive and Productive Maintenance

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 House of lean
CUSTOMER FOCUS
•Hoshin Planning, takt, heijunka
•Involvement, lean design, A3 thinking

Process Improvement
Just-in Time •Standardised Work Jidoka Organizations:
•Flow •Robust Process •Poka-Yoke Partners,
•Heijunka •5S •Zone control Suppliers
•TPM •Visual order (5S) Vendor
•Takt Time •Kaizen •Problem Solving development
•Pull System •QCs
•Abnormality control
•Kanban

Standardised Work, Kanban, A3 thinking Standardisation 5S, Hoshin Planning

Standardised Work, 5 S, Jidoka Stability TPM, Heijunka, kanban 90
Operationalising JIT :KANBAN

Assembly
Production Withdrawal
Kanban Kanan

• Number of containers?

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Kanban Production Control
C-Kanban and P-Kanban
C

C
PPP

W/c 1 W/c 2
C

Parts flow
Up stream Intermediate storage Downstream
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JIT IMPLEMENTATION ISSUES
• ORGANISATIONAL
• Human Costs
• Cooperation &Trust
• Reward Systems
• PROCESS CONSIDERATIONS
• INVENORY & SCHEDULING
• MPS Stability
• Setups
• Purchasing & Logistics
• CASE TOYOTA MOTORMANUFACTURING CORPORATION

93